Social Capital and Economic Development

Economic Development Theory

Although pondering the conditions that give rise to wealth and poverty is doubtless a perennial human activity, the formal academic and policy field of economic development is largely a post–World War II phenomenon. Eager to rebuild war-torn Europe, the international community created a set of agencies—principally the United Nations, the World Bank, and the International Monetary Fund—to sponsor and coordinate this venture. With huge injections of funds (most famously through the Marshall Plan), this project was essentially accomplished by the end of the 1950s. Flush with success, these organizations, together with their growing list of politically influential advisers and theorists, turned their attention to the world's low-income nations.

The language of development theory in the 1960s was largely one of deficits. Poor countries “lacked” all manner of things, but chief among them were ports, communications and transport infrastructure, and sources of energy. The best and fastest way to alleviate poverty was thus to construct such things, but doing so required huge sums of money that poor countries (by definition) did not possess, and so the aid industry was born. Rich countries soon discovered that this aid and investment could also serve useful geopolitical purposes, supporting friendly governments and undermining those thought to be flirting with communism. The discourse of deficits also extended to the social domain: The residents of poor countries were deemed “backward,” and in possession of beliefs, attitudes, and behaviors (such as those pertaining to family planning, health practices, and work ethics) incommensurate with a modern economy. Influential United Nations documents of the time argued that such ways would have to be purged if “progress” was to occur.

It soon became clear, however, that merely pumping physical and financial resources into poor countries was having, at best, a marginal positive impact. In conjunction with a series of financial crises in the early 1970s, a gradual splintering of development theory took place. One path (controlled largely by economists) began to focus on the role of public (the state) and private (firms, markets) institutions in creating prosperity, while the other path (dominated by the other social sciences) argued instead for a focus on the manner in which rich country prosperity was obtained directly at the price of poor country destitution. By the 1980s, these divisions were at their most stark. Neoclassical partisans around the world trumpeted the capacity of “free markets” and entrepreneurs to usher in prosperity, while their counterparts saw only widening inequalities, environmental collapse, and cultural imperialism as Western firms secured ever more lucrative tax and labor concessions from beleaguered third world governments. For both paths, however, the social dimensions of development became epiphenomenal, an issue of secondary or little importance.

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