VI.

Theory and Reality

If one looks across the developing world at the beginning of the 21st century, there is a huge range of national experiences. At the more prosperous end of the spectrum are the successful economies of East Asia, such as China and South Korea; Southeast Asia, such as Thailand and Singapore; some oil-rich countries of the Middle East; and some Latin American countries. At the poorer end are the heavily populated countries of South Asia—such as Bangladesh, Pakistan, and to a lesser extent India—and most of Africa south of the Sahara. What has produced these outcomes? It certainly is not just a matter of where the countries began. South Korea, one of the most successful countries today, was regarded as a hopeless case in the 1950s. Argentina in the 1930s had living standards similar to Australia and a quite similar economic structure; yet Australia today is far more prosperous. Many African countries were going backwards in development terms in the 1980s and 1990s and were actually worse off economically than they had been in earlier decades. Population growth in Africa, which is often an indicator of a troubled economy, continued at very high levels, unlike most of the rest of the world where it was declining. Few of the broad theories of development really explain this varied experience, although they have all contributed useful insights.

The success of the East Asia and Southeast Asian economies has been a powerful influence on thinking since the 1970s and 1980s. These countries did not accept the pessimism about exports that most of the developing world did. Despite the protective barriers erected by industrial countries, these countries managed to generate rapid expansion of manufacturing exports by skillfully selecting products and markets. With this came fast economic growth, first for the “four tigers”—Hong Kong, South Korea, Singapore, and Taiwan—now being followed by others such as Indonesia, Malaysia, and Thailand. It became obvious that “dependency” did not prevent their development. So why could not others follow suit?

Far from developing rapidly, economies with large-scale government intervention, trade protection, and inward-looking development were looking very sick by the end of the 1980s. Recession in the world economy exposed their weakness. An unsustainable balance of payments, domestic deficits, rapid inflation, international debt, and low growth or even economic decline reached the point where it was widely acknowledged that things had to change. The fact that socialist economies too were beginning to throw off the rigidities of the command economy (centrally planned economy) and move into varying degrees of reliance on free-market economy was influential.

A worldwide consensus began to arise that greater reliance on market forces was essential for speeding up development where it was lagging, although how far governments should be involved in the development process remained, and remains, controversial. In the 1980s and early 1990s, more and more economies as different as China and India, Brazil and Tanzania, underwent market-oriented reforms. The East Asian and Southeast Asian experience for some was a triumph of the marketplace; but for others it demonstrated the power of combining market forces with skillful government intervention—more skillful perhaps than could be easily copied by others.

In the mid-1990s it appeared that much of Asia and Latin America was set on a more effective development path than before. But the failure of development in much of sub-Saharan Africa gave economists cause for concern. Much has been learned about how development happens; but without effective government and good policies, and without people in good health and equipped with education and skills, this knowledge is hard to put into practice. The main lesson for development economics may be that it has given insufficient attention to the human factor and to political development. See also Globalization.