The birth and growth of development economics

World leaders meeting at the United Nations in New York, 2015
World leaders meeting at the United Nations in New York, 2015

As noted above, countries would, by and large, continue to produce and exchange in accordance with their comparative advantage, meaning that underdeveloped countries would continue to produce and export cheap foodstuffs and raw materials in exchange for expensive manufactured products from industrialized countries. Following complaints in the 1950s about unfavourable terms of trade for commodities, the General Agreement on Tariffs and Trade (GATT) commissioned a study by economists who concluded in their 1957 report that since the end of 1955 “commodity prices had declined overall by 5 percent, while industrial prices had risen by 6 percent. The loss of income this caused the primary commodity-producing countries probably exceeded the total amount of foreign economic aid that they were receiving” (John Toye and Richard Toye 2004).

During the same period, there were complaints that the World Bank and IMF had not treated the underdeveloped countries fairly. For example, during the IMF/World Bank meetings in 1954, one delegate speaking on behalf of underdeveloped countries called for fair treatment in development aid and trade, adding that these countries had peculiar problems that needed urgent treatment (Benjamin Higgins 1968). A review of economic and social performance in the 1950s revealed that rapid economic growth was accompanied by increasing inequalities. “The fact that development either leaves behind, or in some ways even creates, large areas of poverty, stagnation, marginality and actual exclusion from social and economic progress is too obvious and too urgent to be overlooked” (Wolfgang Sachs 1992).

In response to these challenges, in his 1961 address to the United Nations General Assembly President Kennedy launched the first United Nations Development Decade. He noted that “Political sovereignty is but a mockery without the means of meeting poverty and illiteracy and disease. Self-determination is but a slogan if the future holds no hope” (Richard Jolly et al 2004). It was further noted that “The problem of underdeveloped countries is not just growth, but development. … Development is growth plus change. Change, in turn, is social and cultural as well as economic, and qualitative as well as quantitative … The key concept must be improved quality of people’s life” (Wolfgang Sachs 1992). To realize this goal means that no one should be left behind in the political and development process.

This was a departure from the growth model popularized by Arthur Lewis who had written that “development consisted simply of growth in the income per person in economically underdeveloped areas”. In 1955, he added, “First it should be noted that our subject matter is growth, and not distribution” (Wolfgang Sachs 1992). A review of economic and social performance during the first Development Decade was described as one of activism, progress, and to a degree disappointment.  One of the disappointments was the decline in development aid. The developed countries became increasingly disillusioned with aid “because aid did not fulfill the Northern expectations that it would lead to economic development, political democracy and stability and loyalty in the Cold War” (Joan Edelman Spero1982).

The World Bank commissioned a study into these disappointments. The Commission led by Lester Pearson published its report in 1969. The report was discussed at meetings organized by Columbia University in 1970. It issued a Columbia Declaration that stressed the importance of a basic needs approach to development. The Declaration added inter alia that the development criteria should underscore income distribution, land and tax reform, ineffective trade and exchange rate policies, size of military expenditures, and the promotion of social justice and sharing of international power democratically (W.W. Rostow 1990).

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