Modernization theory [edit]

Main article: Modernization theory

Modernization theory is used to analyze in which way modernization processes in societies take
place. The theory looks at which aspects of countries are beneficial and which constitute
obstacles for economic development. The idea is that development assistance targeted at those
particular aspects can lead to modernization of 'traditional' or 'backward' societies. Scientists
from various research disciplines have contributed to modernization theory.

Sociological and anthropological modernization theory [edit]

The earliest principles of modernization theory can be derived from the idea of progress, which
stated that people can develop and change their society themselves. Marquis de Condorcet was
involved in the origins of this theory. This theory also states that technological advancements
and economic changes can lead to changes in moral and cultural values. The French sociologist
Émile Durkheim stressed the interdependence of institutions in a society and the way in which
they interact with cultural and social unity. His work ‘The Division of Labor in Society’ was
very influential. It described how social order is maintained in society and ways in which
primitive societies can make the transition to more advanced societies.[1]

Other scientists who have contributed to the development of modernization theory are: David
Apter, who did research on the political system and history of democracy; Seymour Martin
Lipset, who argued that economic development leads to social changes which tend to lead to
democracy; David McClelland, who approached modernization from the psychological side with
his motivations theory; and Talcott Parsons who used his pattern variables to compare
backwardness to modernity.modernisation teory al

Linear stages of growth model [edit]

The linear stages of growth model is an economic model which is heavily inspired by the
Marshall Plan which was used to revitalize Europe’s economy after World War II. It assumes
that economic growth can only be achieved by industrialization. Growth can be restricted by
local institutions and social attitudes, especially if these aspects influence the savings rate and
investments. The constraints impeding economic growth are thus considered by this model to be
internal to society.[2]

According to the linear stages of growth model, a correctly designed massive injection of capital
coupled with intervention by the public sector would ultimately lead to industrialization and
economic development of a developing nation.[3]

The Rostow's stages of growth model is the most well-known example of the linear stages of
growth model.[3] Walt W. Rostow identified five stages through which developing countries had
to pass to reach an advanced economy status: (1) Traditional society, (2) Preconditions for take-
off, (3) Take-off, (4) Drive to maturity, (5) Age of high mass consumption. He argued that
economic development could be led by certain strong sectors; this is in contrast to for instance
Marxism which states that sectors should develop equally. According to Rostow’s model, a
country needed to follow some rules of development to reach the take-off: (1) The investment
rate of a country needs to be increased to at least 10% of its GDP, (2) One or two manufacturing
sectors with a high rate of growth need to be established, (3) An institutional, political and social
framework has to exist or be created in order to promote the expansion of those sectors.[4]

The Rostow model has serious flaws, of which the most serious are: (1) The model assumes that
development can be achieved through a basic sequence of stages which are the same for all
countries, a doubtful assumption; (2) The model measures development solely by means of the
increase of GDP per capita; (3) The model focuses on characteristics of development, but does
not identify the causal factors which lead development to occur. As such, it neglects the social
structures that have to be present to foster development.[4]

Economic modernisation theories such as Rostow's stages model have been heavily inspired by
the Harrod-Domar model which explains in a mathematical way the growth rate of a country in
terms of the savings rate and the productivity of capital.[5] Heavy state involvement has often
been considered necessary for successful development in economic modernization theory; Paul
Rosenstein-Rodan, Ragnar Nurkse and Kurt Mandelbaum argued that a big push model in
infrastructure investment and planning was necessary for the stimulation of industrialization, and
that the private sector would not be able to provide the resources for this on its own.[6] Another
influential theory of modernization is the dual-sector model by Arthur Lewis. In this model
Lewis explained how the traditional stagnant rural sector is gradually replaced by a growing
modern and dynamic manufacturing and service economy.[7]

Because of the focus on the need for investments in capital, the Linear Stages of Growth Models
are sometimes referred to as suffering from ‘capital fundamentalism’.[8]

Critics of modernization theory [edit]

Modernization theory observes traditions and pre-existing institutions of primitive societies as

obstacles to modern economic growth. Modernization which is forced from outside upon a
society might induce violent and radical change, but according to modernization theorists this is
generally worth it. Critics point to traditional societies being destroyed and slipping away to a
modern form of poverty without ever gaining the promised advantages of modernization.

Structuralism [edit]
Main article: Structuralist economics

Structuralism is a development theory which focuses on structural aspects which impede the
economic growth of developing countries. The unit of analysis is the transformation of a
country’s economy from, mainly, a subsistence agriculture to a modern, urbanized
manufacturing and service economy. Policy prescriptions resulting from structuralist thinking
include major government intervention in the economy to fuel the industrial sector, known as
Import Substitution Industrialization (ISI).[9] This structural transformation of the developing
country is pursued in order to create an economy which in the end enjoys self-sustaining growth.
This can only be reached by ending the reliance of the underdeveloped country on exports of
primary goods (agricultural and mining products), and pursuing inward-oriented development by
shielding the domestic economy from that of the developed economies. Trade with advanced
economies is minimized through the erection of all kinds of trade barriers and an overvaluation
of the domestic exchange rate; in this way the production of domestic substitutes of formerly
imported industrial products is encouraged. The logic of the strategy rests on the Infant industry
argument, which states that young industries initially do not have the economies of scale and
experience to be able to compete with foreign competitors and thus need to be protected until
they are able to compete in the free market.[10] The ISI strategy is supported by the Prebisch-
Singer thesis, which states that over time, the terms of trade for commodities deteriorate
compared to manufactured goods.[11] This is because of the observation that the income elasticity
of demand is greater for manufactured goods than that for primary products.

Structuralists argue that the only way Third World countries can develop is through action by the
state. Third world countries have to push industrialization and have to reduce their dependency
on trade with the First World, and trade among themselves.

The roots of structuralism lie in South America, and particularly Chile. In 1950, Raul Prebisch
went to Chile to become the first director of the Economic Commission for Latin America
(ECLA). In Chile, he cooperated with Celso Furtado, Anibal Pinto, Osvaldo Sunkel and Dudley
Seers, which all became influential structuralists.

Dependency theory [edit]

Main article: Dependency theory

Dependency theory is essentially a follow up to structuralist thinking, and shares many of its core
ideas. Whereas structuralists did not consider that development would be possible at all unless a
strategy of delinking and rigorous ISI was pursued, dependency thinking could allow
development with external links with the developed parts of the globe. However, this kind of
development is considered to be "dependent development", i.e., it does not have an internal
domestic dynamic in the developing country and thus remains highly vulnerable to the economic
vagaries of the world market. Dependency thinking starts from the notion that resources flow
from the ‘periphery’ of poor and underdeveloped states to a ‘core’ of wealthy countries, which
leads to accumulation of wealth in the rich states at the expense of the poor states. Contrary to
modernization theory, dependency theory states that not all societies progress through similar
stages of development. Primitive states have unique features, structures and institutions of their
own and are the weaker with regard to the world market economy, while the developed nations
have never been in this follower position in the past. Dependency theorists argue that
underdeveloped countries remain economically vulnerable unless they reduce their
connectedness to the world market.[12][13]

Dependency theory states that poor nations provide natural resources and cheap labor for
developed nations, without which the developed nations could not have the standard of living
which they enjoy. Also, developed nations will try to maintain this situation and try to counter
attempts by developing nations to reduce the influence of developed nations. This means that
poverty of developing nations is not the result of the disintegration of these countries in the
world system, but because of the way in which they are integrated into this system.

In addition to its structuralist roots, dependency theory has much overlap with Neo-Marxism and
World Systems Theory, which is also reflected in the work of Immanuel Wallerstein, a famous
dependency theorist. Wallerstein rejects the notion of a Third World, claiming that there is only
one world which is connected by economic relations (World Systems Theory). He argues that
this system inherently leads to a division of the world in core, semi-periphery and periphery. One
of the results of expansion of the world-system is the commodification of things, like natural
resources, labor and human relationships.[14][15]

Basic needs [edit]

Main article: Basic needs

The basic needs approach was introduced by the International Labour Organization in 1976,
mainly in reaction to prevalent modernisation- and structuralism-inspired development
approaches, which were not achieving satisfactory results in terms of poverty alleviation and
combating inequality in developing countries. It tried to define an absolute minimum of
resources necessary for long-term physical well-being. The poverty line which follows from this,
is the amount of income needed to satisfy those basic needs. The approach has been applied in
the sphere of development assistance, to determine what a society needs for subsistence, and for
poor population groups to rise above the poverty line. Basic needs theory does not focus on
investing in economically productive activities. Basic needs can be used as an absolute measure
of poverty.[16][17]

Proponents of basic needs have argued that elimination of absolute poverty is a good way to
make people active in society so that they can provide labor more easily and act as consumers
and savers.[18] There have been also many critics of the basic needs approach. It would lack
theoretical rigour, practical precision, be in conflict with growth promotion policies, and run the
risk of leaving developing countries in permanent backwardness.[19]

Neo-liberalist theory [edit]

Neoclassical development theory has it origins in its predecessor: classical economics. Classical
economics was developed in the 18th and 19th centuries and dealt with the value of products and
on which production factors it depends. Early contributors to this theory are Adam Smith and
David Ricardo. Classical economists argued - as do the neoclassical ones - in favor of the free
market, and against government intervention in those markets. The 'invisible hand' of Adam
Smith makes sure that free trade will ultimately benefit all of society. John Maynard Keynes was
a very influential classical economist as well, having written his General Theory of Employment,
Interest, and Money in 1936.

Neoclassical development theory became influential towards the end of the 1970s, fired by the
election of Margaret Thatcher in the UK and Ronald Reagan in the USA. Also, the World Bank
shifted from its Basic Needs approach to a neoclassical approach in 1980. From the beginning of
the 1980s, neoclassical development theory really began to roll out.

Structural adjustment [edit]

One of the implications of the neoclassical development theory for developing countries were the
Structural Adjustment Programmes (SAPs) which the World Bank and the International
Monetary Fund wanted them to adapt. Important aspects of those SAPs include:

 Fiscal austerity (reduction in government spending)

 Privatization (which should both raise money for governments and improve efficiency
and financial performance of the firms involved)
 Trade liberalization, currency devaluation and the abolition of marketing boards (to
maximize the static comparative advantage the developing country has on the global
market)
 Retrenchment of the government and deregulation (in order to stimulate the free market)

These measures are more or less reflected by the themes which were identified by the Institute of
International Economics which were believed to be necessary for the recovery of Latin America
from the economic and financial crises of the 1980s. These themes are known as the Washington
consensus, a termed coined in 1989 by the economist John Williamson.

Recent trends [edit]

Postdevelopment theory [edit]

Main article: Postdevelopment theory

Postdevelopment theory is a school of thought which questions the idea of national economic
development altogether. According to postdevelopment scholars, the goal of improving living
standards leans on arbitrary claims as to the desirability and possibility of that goal.
Postdevelopment theory arose in the 1980s and 1990s.

According to postdevelopment theorists, the idea of development is just a 'mental structure'

(Wolfgang Sachs) which has resulted in an hierarchy of developed and underdeveloped nations,
of which the underdeveloped nations desire to be like developed nations. [20] Development
thinking has been dominated by the West and is very ethnocentric, according to Sachs. The
Western lifestyle may neither be a realistic nor a desirable goal for the world's population,
postdevelopment theorists argue. Development is being seen as a loss of a country's own culture,
people's perception of themselves and modes of life. According to Majid Rahnema, another
leading postdevelopment scholar, things like notions of poverty are very culturally embedded
and can differ a lot among cultures. The institutes which voice the concern over
underdevelopment are very Western-oriented, and postdevelopment calls for a broader cultural
involvement in development thinking.
Postdevelopment proposes a vision of society which removes itself from the ideas which
currently dominate it. According to Arturo Escobar, postdevelopment is interested instead in
local culture and knowledge, a critical view against established sciences and the promotion of
local grassroots movements. Also, postdevelopment argues for structural change in order to
reach solidarity, reciprocity, and a larger involvement of traditional knowledge.

Sustainable development [edit]

Main article: Sustainable development

Sustainable development is economic development in such a way that it meets the needs of the
present without compromising the ability of future generations to meet their own needs.
(Brundtland Commission) There exist more definitions of sustainable development, but they
have in common that they all have to do with the carrying capacity of the earth and its natural
systems and the challenges faced by humanity. Sustainable development can be broken up into
environmental sustainability, economic sustainability and sociopolitical sustainability. The book
'Limits to Growth', commissioned by the Club of Rome, gave huge momentum to the thinking
about sustainability.[21] Global warming issues are also problems which are emphasized by the
sustainable development movement. This led to the 1997 Kyoto Accord, with the plan to cap
greenhouse-gas emissions.

Opponents of the implications of sustainable development often point to the environmental

Kuznets curve. The idea behind this curve is that, as an economy grows, it shifts towards more
capital and knowledge-intensive production. This means that as an economy grows, its pollution
output increases, but only until it reaches a particular threshold where production becomes less
resource-intensive and more sustainable. This means that a pro-growth, not an anti-growth policy
is needed to solve the environmental problem. But the evidence for the environmental Kuznets
curve is quite weak. Also, empirically spoken, people tend to consume more products when their
income increases. Maybe those products have been produced in a more environmentally friendly
way, but on the whole the higher consumption negates this effect. There are people like Julian
Simon however who argue that future technological developments will resolve future problems.

Human development theory [edit]

Main article: Human development theory

Human development theory is a theory which uses ideas from different origins, such as ecology,
sustainable development, feminism and welfare economics. It wants to avoid normative politics
and is focused on how social capital and instructional capital can be deployed to optimize the
overall value of human capital in an economy.

Amartya Sen and Mahbub ul Haq are the most well-known human development theorists. The
work of Sen is focused on capabilities: what people can do, and be. It is these capabilities, rather
than the income or goods that they receive (as in the Basic Needs approach), that determine their
well being. This core idea also underlies the construction of the Human Development Index, a
human-focused measure of development pioneered by the UNDP in its Human Development
Reports. The economic side of Sen's work can best be categorized under welfare economics,
which evaluates the effects of economic policies on the well-being of peoples. Sen wrote the
influential book 'Development as freedom' which added an important ethical side to development
economics [22]