Development in

Historical Perspective

Cypher & Dietz Chapter 3

Why does history matter?The origins of Economic Development

Mode of production: the material basis of the organization of the production relations in society and the associated social, economic and political mechanisms governing the system.

Evolution of the mode-of-production in history• Hunting and gathering societies• Agricultural societies• Feudalism• Capitalism• Communism

Historical growth trend of per capita income

Line A: developed world – Western Europe

Line B: less-developed world

Why does history matter?The origins of Economic Development

• Sustained increases in income per capita are relatively recent– specific to capitalism.

• major turning point for world economic progress: – the transition from feudal production to emergence of

capitalism.• Feudalism:

– Mostly agriculture based • hierarchical system of production organized around manors

and based on the labor of serfs tied to the land – Few urban settlements– Small-scale artisan and industrial-type products, such

as textiles, and services, such as transportation – technology was very primitive– Extensive growth

• Growth of output ≈ Growth of population

…The origins of Economic Development

• Feudalism began to break down in the Middle Ages – especially in England – with the industrial revolution.

• the advent of the capitalist factory system as a new means of social and economic organization. – The purpose of production changed from survivial to

the prusuit of ever-increasing profit.– intensive production

• Output and income did not depend predominantly upon the availability of resources…

• but upon efficiency and technology

Question

• Why have such methods of production and the ways of thinking and doing that are associated with such production, developed so strongly in some regions of the world and apparently so weakly in others?

Colonialism• Most of the economically less-developed nations of

today were colonies of powerful capitalist countries at some point during their history.

• The period of imperial expansion after the ‘discovery’ of the Americas by Columbus in the late 1400s – Race of European powers for land in Asia, Africa and

the Americas – British colonies, on which, ‘the sun never set’, – Dutch, French, Belgian, Spanish, Portuguese,

German, and Italian colonial possessions – the United States and Japan after the turn of the

twentieth century • raw materials, slaves, trade (to sell their own products),

to secure trade linkages by land or sea

Post WWII• Decolonization after 1945

– ex-colonies become independent nations– Many of today’s independent nations in Africa

and the Caribbean did not win freedom from colonialism until the 1960s and in some instances not until the 1970s.

• Is colonialism only a historical event?• Does history matter?

Why does history matter?The Theory of Path Dependence

Path Dependence: a term used to describe the important role which historical events and historically formed institutions have in determining the future range of possibilities for a nation.

History matters because historical events lead to cumulative causation.

Constructive institutions → virtuous cycles; upward evolutionary path

Inhibiting institutions → vicious cycles; downward evolutionary path.

Colonialism• Most of the economically less-developed nations of

today were colonies of powerful capitalist countries at some point during their history.

• Colonialists’ approach to colonies: “civilizing” or “Christianizing”

• Truism: presence of colonial powers in the “uncivilized” countries can only be beneficial to the natives

• Post WWII – Decolonization• Emergence of development economics• New approach: development process and policy should

be critically aware of the need to preserve and constructively alter elements of the post-colonial societies which are worth of retention

What does colonialism have to do with today? The lasting effects of Colonialism

The colonial drain caused by • Slavery and severe demographic crises• Destruction of existing institutions• Depletion of material resources• De-industrialization• Dissolution of infrastructure• Advent of merchant capitalism

… Path Dependence

• Even after countries were free of colonialism, the weight of history continued to shape the path of change.

• Retarding institutions may persist if they serve the interests of powerful groups or nations.

The lasting effects of Colonialism:

Slavery and severe demographic crises • Spanish in Mexico and Peru

– forced labor system to operate gold and silver mines

– disrupted traditional Indian village systems

– Overwork, disease, struggle against armed forces

– During 1540-1690 the Latin America’s population drastically reduced from 70-90 million to 3.5 million.

The lasting effects of Colonialism: Merchant Capitalism

Merchant capitalism: transitory period between feudalism and capitalism. Embodies market behavior of speculative gains and short-term gains of trade and finance; no interest in investment in productive capacity.

Stages of capitalism:

Merchant Capitalism: M – C – M’

Industrial Capitalism: M – C – LP + MP – C’- M’

Finance Capitalism: M – M’

The lasting effects of Colonialism: The Terms of Trade

Terms of trade (ToT) is the quantity of imports that each unit of exports can purchase.

Terms of trade (ToT) = [PX] x 100 [PM]

PM = price index of imports; PX = price index of exports

Trends in ToT: Period % change in ToT per year,

primary export nations1800-1881 +0.871882-1913 -0.421876-1938 -0.951900-1986 -0.52 to -0.841979-1993 -4.00

The lasting effects of Colonialism:Economic Dualism

• Economic Dualism: An imported socioeconomic system side by side with a clashing indigenous socioeconomic system.

• Dualism in developing economies: A two-sector system where a precapitalist, transitional form of production is juxtaposed to a modern capitalist system.

Peasant agriculture and handicrafts or very small industry and the associated trading activities; side by side with an economy of plantat,ons, mines, petroleum fields and refineries, large-scale industries, and the associated transport, communication, finance and trading activities.

The lasting effects of Colonialism:Path Dependency

Path Dependence: a term used to describe the important role which historical events and historically formed institutions have in determining the future range of possibilities for a nation.

History matters because historical events lead to cumulative causation.

Constructive institutions → virtuous cycles; upward evolutionary path

Inhibiting institutions → vicious cycles; downward evolutionary path.

Yet be aware of fatalism.