Global Political Economy 101: State-centric & Developmentalist Interpretations

Foreword

It is common to hear in public discourse that the world has never been as interconnected and interdependent as it is today. Technological progress in the fields of communication and transport has promoted giant leaps in the last 100 years in terms of the internationalisation of the economy. The term globalisation, in fact, has become of common use, and national economies can no longer be studied without facing their embeddedness in the world economy. The series of articles Global Political Economy 101 strives to address the complexity of the global economy by historicising the process that led to the present situation, providing an overview of the different academic approaches, and finally coming up with critical interpretations of the global economy and globalisation. The study of global political economy as a coherent subject of inquiry provides valuable insights into the big issues of our days, such as poverty, inequality, development, and sustainability. The pieces will maintain a humanities-based approach. Therefore, the economy will be seen as the intertwining between several factors like politics, society, culture, and human agency rather than the result of mathematical calculations. The set of articles will be divided into three blocks, each one composed of three articles. The first block will analyse the world economy from a historical perspective. The second one will provide an overview of the main theoretical interpretations of the world economy. The third one will address some of the main questions of today’s global political economy with the analytical tools previously provided.

Global Political Economy 101 is divided as follows:

1. Global Political Economy 101: From the Discovery of the Americas to Imperialism

2. Global Political Economy 101: Decolonisation, World Capitalism and Neoimperialism

3. Global Political Economy 101: Neoliberalism and Globalisation

4. Global Political Economy 101: Liberal and Neoclassical Interpretations

5. Global Political Economy 101: State-centric & Developmentalist Interpretations

6. Global Political Economy 101: Critical Approaches and Dependency Theory

7. Global Political Economy 101: Why Few Have Much, and Many Have Little - Inequality

8. Global political Economy 101: The Wretched of the Earth - Development and Poverty

9. Global Political Economy 101: The Mantra of Our Times - Sustainability

Introduction

The previous article of this series delved into the analysis of liberal and neoclassical interpretations of the world economy. This piece instead will focus on state-centric, Keynesian, and developmental interpretations of the same subject. The three categories presented together have the common denominator of seeing the state as a crucial actor in the economy and development and thus are here analysed as a coherent economic paradigm. However, it must be said that each one of the three terms designates a specific economic inclination. State-centric economics encompasses a variety of positions that, as the expression suggests, focus mainly on the state as an economic actor. Keynesianism and developmentalism are two historical applications of state-centric economics, that took place at different times and different places, and as it will be explained, differed in some of their principles. The article will be developed as follows: in the first part, the theoretical features of this strand of the economic scholarship will be discussed, as well as its intellectual origins. The second part will delve into the historical account of its application in the real world.

A theoretical understanding

State-centric economics draws its origins in Friedrich List’s critique of Adam Smith and David Ricardo’s liberal conceptualisation of the world economy (Selwyn, 2009). As was highlighted in the last article, Adam Smith was the father of liberal economic thinking, and in a way, he was one of the intellectual legitimisers of British imperialism based upon free trade. List’s critique of liberal economics builds upon what he sees as an erroneous conception of development. According to him, liberals misinterpreted the ability of the market per se to promote development in every country. According to List, economic specialisation — the engagement of countries in the production for which they hold a comparative advantage — not only does not guarantee development, but it relegates underdeveloped countries to such a position in the world economy (Selwyn, 2009). Fridrich List already in 1848 — the golden age of free market imperialism (Arrighi, 1994) — had noted that industrially developed countries had an interest in promoting free trade for it benefited their national industry, which in turn was developed under a protectionist regime. However, the free market was not functional for underdeveloped countries to achieve development, for the principle of specialisation relegated them to the role of commodities exporters and importers of industrial goods, which inherently entails uneven terms of exchange. Production of primary goods, mainly in the agricultural and mining sectors, does not have the same benefits as industrial production, as the latter produces far more surplus value than the former. Hence, a free international market both relegates underdeveloped countries to the role of commodities exporters and prevents them from escaping such a sector of production, for if they were to attempt an industrial development, their industrial products would not be competitive enough on the world market (Selwyn, 2009). List develops the concept of the infant industry following this reasoning. According to him, the only way in which countries engaging in commodities exportation as primary economic activity could escape underdevelopment is by developing an infant industry, which is an industrial nucleus meant to provide industrial goods for the internal market (Selwyn, 2009). Nevertheless, such an early nucleus is fragile, and thus must be protected by the state in terms of external fees for imported industrial goods. According to Chang (2002), contrary to the common narrative of industrially developed countries developing their power in a context of free international trade, their industrial sector was heavily protected and subsidised by the state at the very beginning. Only after the productive forces were fully deployed and developed, they engaged in free international trade, holding a decisive advantage vis-à-vis underdeveloped countries. Similarly, according to List, industrially developed countries should encourage the construction of an industrial nucleus, which must be protected from international competition (Selwyn, 2009).

Image 1: Josef Kriehuber (1845). Friedrich List [Litography].

It is quite evident how state-centric economics clashes with the liberal interpretations presented in the last article. Now, the connection between this broad strand of thought and Keynesianism and developmentalism will be explored. This strand of economic scholarship is tightly related to List’s concept of the infant industry. Its basic tenet is that the developmental gap can be fulfilled by undertaking some decisive steps such as industrialisation and urbanisation, that constitute the preconditions of development. In other words, development is seen as a linear concept. The entity that can promote the undertaking of those steps leading from underdevelopment to development is the state. As argued by Thurbon and Weiss (2016), the state should undertake the role of what they called the “developmental state” (p. 1), and thus promote strategic planning of the industry, contrary to what the world market would demand. Thus, developmentalists understand underdevelopment as a condition caused by the lack of some of the material conditions that developed countries could take advantage of. The free market prevents the former from embarking upon projects of development, for it demands goods that are functional for developed countries and not promote development. The state, in developmentalists’ vision, should act against the free market, and undertake a planned and step-by-step pattern of development (Thurbon & Weiss, 2016).

Image 2: Unknown (n.d). Planned economy [Illustration].

Keynesianism shares with developmentalism its view of the state as a crucial economic actor. John Maynard Keynes was the intellectual forefather of the economic policies of the New Deal, the plan that allowed the US out of the 1929 economic crisis, and that inspired the post-war economic arrangement. The developmental strand of thought was indeed inspired by his thinking, for they share some basic tenets. The basic assumption of Keynesian economics is that the state should intervene in the economy, especially when the free market manifests some of its fallacies. Keynes noted that the 1929 crisis was the result of a lack of demand on the free market — too many goods were being produced without anyone to buy them, causing overaccumulation — and hence posited that the state should intervene to artificially stimulate demand (Keynes, 1971). This was done by increasing state expenditure by engaging in programs of statal employment or simply expanding the monetary base — i.e., the amount of circulating currency — by undertaking programs of subsidies for those in economic difficulties. Differently from developmentalism, Keynesianism does not address development per se, as it was an economic theory openly addressing developed capitalist countries and their cyclical crises.

The different spheres of application of developmentalism and Keynesianism will be addressed in the next section.

Image 3: Unknown (n.d). John Maynard Keynes [Photograph].

Historical applications

State-centric economic paradigms were a major feature of the XX century. Even though the century started in a context of confidence in the free-market paradigm, by the 1930s most of the economists in the world were convinced that the state had to be a key actor in the economy, persuaded by the shock that the 1929 crisis constituted. The period between 1930 and 1970 was characterised by a firm conviction, in most countries, that the state should play a key role in the economy, and that the free market had to be strongly corrected (Arrighi, 1994).

As it has been presented in the former section, state-centric economics was originated in the thinking of Friedrich List in the first half of the XIX century. Even though developed countries had employed such a model during their first stages of industrial development, it was then abandoned to promote a worldwide free market (Chang, 2002). The crisis of the 1930s obliged most countries to rethink their economies, which led to the application of state-centric paradigms. In developing countries, such an impulse assumed the form of so-called “developmentalist economic policies“ aimed at developing an internal market for industrial products and protecting the Listian “infant industry” mentioned above. Furthermore, decolonisation and the strengthening of the third world movement — initiated with the Bandung conference in 1955 — accentuated the idea of inward-looking development, which postulated independence from the first world, both politically and economically.

Image 4: Foreign Ministry of the Republic of Indonesia (1955). The Bandung conference [Photograph].

Countries of the so-called “third world“ started to implement developmentalist economic policies all around the world, and the import substitution industrialisation (ISI) model became hegemonic among countries of the third world. Such a paradigm was based upon the claim that an internal market should be created for industrial products produced nationally, from an industry heavily subsidised and protected. In doing so, productive forces shifted from the export of primary goods to industrial occupations (Arrighi, 1994). Latin America pioneered the efforts in the field, as the prolific Economic Commission for Latin America and the Caribbean (ECLAC) — the UN agency for Latin America — turned itself into a powerful centre of developmentalist thinking. Prominent economists of the ECLAC advocated for countries of the region to emancipate themselves from the role of commodity exporters, which was the case, as most Latin American countries engaged in ISI. As a response to the crisis of 1929 and the subsequent drop in the demand and prices of primary goods, Latin American countries sought alternative patterns, of which ISI is the most prominent example (Quijano, 2014). Inward-looking modes of development went on in Latin America during the 1950s and the 1960s, until the wave of social unrest and dictatorships in the 1970s dismissed such a model and embarked upon a transition towards neoliberalism (Bértola & Ocampo, 2012). Different kinds of developmentalist policies, to different degrees, were undertaken in most decolonizing countries, from Northeast Asia to Sub-Saharan Africa. Perhaps the most prominent example of the developmental state, as conceptualised by Thurbon and Weiss (2016), was South Korea, which achieved impressive rates of growth by employing a strict economic planning throughout export-led industrialisation. The hegemony of this kind of policies was however threatened and finally replaced by neoliberalism and a return to a world economy based on the free market by the 1980s (Arrighi, 1994).

Image 5: Unknown (2014). Plenary session of the ECLAC [Photograph].

Keynesianism also had a prominent role in the history of the XX century. As was briefly said above, Keynesian policies, advocating for a demand-led economy, managed to relieve the developed world from the crisis of 1929 and became largely hegemonic in the post-WWII western world. The development of a Keynesian model of the world economy was already addressed in a previous article of this series. Countries of the first world, all adopted, to different extent Keynesian policies aimed at fomenting demand through full employment (Arrighi, 1994). The Marshall plan — designed by the US to rebuild post-WWII Europe — was a prominent example of such a model, based upon the strong intervention of the state in the reconstruction after the conflict. The US themselves engaged in programs of state expenditure to boost internal demand, and increase investment, productivity, and wages to keep up with the naturally high inflation rate. Keynesian policies were absolutely dominant in developed countries in the 1950s and 1960s, until the system run into a vicious spiral of inflation and stagnation, which led to a reshaping of the system, abolition of the Keynesian structure and a revival of the free market’s hegemony (Arrighi, 1994).

Image 6: Unknown (n.d). The Marshall Plan [Illustration].

Conclusion

State-centric approaches to Global Political Economy trace back to the XIX century. In its various declinations, state-centric economics argues that the state should have a prominent role in the economy and should direct the market and bend it to the national interest. Various examples of those policies and how they were applied have been made. For 45 years, those policies were absolutely dominant all over the world, and the state was in effect a crucial actor in the economic conjecture. However, the situation radically changed in the 1970s, paving the way for neoliberal hegemony. Liberal and state-centric views, in spite of their evident contraposition, share one basic assumption: faith in capitalism. The next article will address a strand of scholarship — the critical one — that addresses the contradictions of capitalism itself and argues that underdevelopment is inherent to the capitalist system and to development.

Bibliographical References

Arrighi, G. (1994). The long Twentieth Century; Money, power, and the origins of our times. Verso.

Bértola, L., & Ocampo, J. A. (2012). The Economic development of Latin America Since Independence. Oxford: Oxford University Press.

Chang, H. (2002). Kicking away the ladder: policies and institutions for economic development in historical perspective. London: Anthem Press.

Keynes, J. M. (1971). The Collected Writings of John Maynard Keynes. London: Macmillan.

Quijano, A. (2014). Dependencia, cambio social y urbanización en Latinoamérica. In A. Quijano, Cuestiones y horizontes : de la dependencia histórico-estructural a la colonialidad/descolonialidad del poder (pp. 75-124). Buenos Aires: CLACSO.

Selwyn, B. (2009). An Historical Materialist Appraisal of Friedrich List and his Modern-Day Followers. New Political Economy, 157-180.

Thurbon, E., & Weiss, L. (2016). The developmental state in the late twentieth century. Handbook of Alternative Theories of Economic Development, 637-649.

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