Development Theory

Origins

Development theory's contemporary manifestations were inspired by three schools of thought about society and progress: classical political economy, historical idealism (Georg Wilhelm Friedrich Hegel) and historical materialism (Karl Marx), and sociological conceptualizations of societal evolution. Classical political economists (Thomas Robert Malthus, Adam Smith, David Ricardo, and John Stuart Mill) characterized societal progress (development) as being made possible through wealth creation, a divinely inspired process guided by the invisible hand of the market and improved or facilitated through international trade based on the comparative advantages of nations. For the classical scholars, development (i.e., progress) would occur if there was an adequate division of labor and effective economic circulation mechanisms (i.e., money, trade, and capital flows) to sustain wealth creation.

A second early inspiration came from Hegel and Marx's theories of social evolution. For Hegel, humanity (but principally Europeans) evolved through a dialectical progression of ideas that would lead to the absolute idea, a point in history when humanity would be spiritually unified through the discovery of reason in its highest form. For Marx, a universal history, was possible but he rejected Hegel's spiritual notions and argued instead that it was the historical-material conditions of life that would lead societies toward higher levels of consciousness, an ideal endpoint being the resolution of class struggles and capitalist exploitation through the emergence of a classless society.

The third important foundation emerged from sociological explanations for the evolution of modern capitalism. Max Weber, Thorstein Veblen, Michael Polanyi, and others sought to explain how the institutions of capitalism (e.g., property, money, firms, classes, or markets) emerged in Europe, the United States, and Japan and what their rise meant for social well-being. Modern development occurs when social rules, norms, and institutions evolve to guide individuals toward the rational decisions needed to sustain and support the capitalist system. Particularly significant is the notion that modern development involves an increasing separation or disembedding of economic institutions (i.e., markets, firms, property rights) from political ones. However, as Polanyi observed, this separation is at best only partial as the crises and inequalities inherent in capitalism inevitably force the state to interfere with the “natural” market system.

Growth and Modernization Theories

The mid 20th century was a revolutionary period for development as growth and modernization theories came of age. John Maynard Keynes's theories on economic multipliers, full employment, and the role of the state in guiding the creation and distribution of prosperity inspired the birth of growth theory. His protégés Roy Harrod and Evsey Domar posited that it is through appropriate levels of growth that full employment (i.e., optimal prosperity or development) is sustained, and their models sparked an intense debate within economics that led to the Solow-Swan growth theory. Robert Solow and Robert Swan argued that growth is driven by the productivity increases that accompany modern industrialization (e.g., increasing capital intensivity, technological change, knowledge accumulation, and labor efficiency improvements). Productivity growth remains a central theme in development economics, and it is viewed by many as the critical mechanism for generating and sustaining economic progress.

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