Sussex Development Lecture by Professor Michael Lipton
The State and the big push towards modern industry: "new" economics, defunct economists, and farmers[or: why a little history of economic thoughthelps us to demystify development debates] Agriculture, transition, new structuralism:* rescuing development from new-classicals Michael Lipton Sussex Development Lecture, 2 Feb 2012 *Justin Lin, „New structural economics: a framework for re- thinking development‟. PRWP 5197: World Bank Feb 2010
1. Outline• Potted history of economic/development thought• Old structuralists and new: transitions, farms, States• Reading Asia: classic/structural, or a sequenced State?• Understanding Asia: open minds (classical, neo-classical, new- structural) v closed systems (new-classical, ??old-structural)• Non-new-classical foundations for new-structuralism• Incorporating non-growth goals: distribution, sustainability• Beyond structuralist farm-to-factory transitions: -- Small farms: Asia’s technical & land-reform pre-transition -- Population: re-linking economic transition to demography -- Finance: Asia vs. the new-classical modelConclusion: sector focus and the escape from new-classical dogma
2. Potted history of economic thought on development • Pre-classical: goods better than services; food best • Classical: prices measure values; stationary state or „natural progress of opulence‟ via law, easy tax, public goods, education?; free trade; population • Neo-classical: “static”? Equating marginal utilities (value- products) normal for consumers (producers) & optimal for each, but only under VERY strong conditions socially. Major State action is needed absent these conditions. • New-classical : „as if‟ conditions met, so minimize State • Structuralism: devel=agind transition‟; price-inelastic antidevel structures; devel needs active state: doing what?
3. Old structuralists and new: transitions, farms, States• Old structuralism, OS: market failure v „big push‟ to ag ind transition; State should own/protect/subsidize industry [Anglo-Saxon old-str, or Latin American dependencia?]• New structuralism, NS: OS„State failure‟, rents; facili- tating State still needed, but for comparative-advantage- friendly industrial policy: infrastructure, institutions, human capital for tech. progress in agind transition• Classicals, neo-classicals: „market‟+ State [„easy taxes‟ but public & merit goods, regulation, infrastructure, redistribution]„natural progress of opulence‟, including agind transition. New- classicals (NwC): rational ex-pectations, efficient
4. Reading Asia: classical v structural criteriafor the State, or a sequence of types of Statesand of change?• Many agind transitions to much faster growth & poverty re- duction in Asia (few in Africa); but distribution, sustainability?• (At least) 4 claimed „fathers‟ of Asian successes: liberalization, developmental state, farm change, demographic transition• 1. Prior old-structuralist Statesfacilitated 1) physical/human capital, insttns, infrastrucs 2) protection, subsidy: rents; cor- rupt, overstretched States; premature cap-intensity; urban bias• 2. Liberalizing State selective, classical/neo-classical not NwC;• 3. Developmental States: new-struc tech-upgrading priorities?• Not 1-2-3 rivals but entwined 1,32,3, 2-3 sequences, leading transition led by farms [as C18-19 Europe] and demog [new]
5. Understanding Asia: open minds (classical,neo-classical, NS, ?OS) v closed systems(new-classical)?• Optimal pure-market outcomes need huge assumptions; un-met, so big role for developmental states. That‟s stressed by classics (Smith: public goods, collusion; Malthus: general glut, fertil.) , neo-classics (Pigou: tax, distribution; Walras: Left CGE; Arrow(-Debreu): ignorance; Stiglitz: asymmetry.• As-if perfect comp & markets: Coase; contestable mkets; • NewCl „positive econs‟: State action selfish (public choice), ineffective (rational expectations/efficient markets/Ricard-ian equivalence), counterproductive (crowding out). Maths, etric „barbed wire‟Keynes/devtl state unarguably „wrong‟• NwC: markets optimize transition; ag; demog; dist; finance?
6. Non-new-classical foundations, micro and macro, for new-structuralism• Micro-foundations: beyond new-classical models where everyone maximizes expected lifetime utility: --- 1950s: satisficing, second-bestness, Arrow --- 2000s: economics experimental, evolutionary, neuro; agent-based models; asymmetric info; “happiness”• Macro-foundations? Relations or individuals?• Adding-up problems, fallacies of composition or of thrift?• And in poor/developing/transition countries? -- Finance outside new-classic macro-model; -- NwC foundations not plausible for demographics ; -- NwC rejects special or „prior‟ sectors like farming
7. Incorporating non-growth goals: povertyreduction; less inequality; sustainability• Classicals, neo-classicals but not new-classicals see a State role against extreme inequality, for sustainability• For NwC, distribution and hence poverty are market outcomes, worsened by State action in development• For NwC, private actions optimize sustainability (inclu- ding demographics) if prices, including interest, „right‟• Nee-struc goals v. poverty, inequality, unsustainability• but vacuous if NS theory swallows new-classical foundations, imposing one goal: non-comparable life- time utility = f (income, risk) both largely due to output
8. Beyond structuralist farm-to-factory transitions - small farms: Asia‟s technical & land-reform pre-transition• Old-struc, to speed agind transition, imposed anti-ag policy bias: subsidy, exchange-rate, interest, educ..• Elephant in miracle: State inv, land ref (Old-struc); tech/instns (New-struc): pre-trans smallhldr takeoff• „Smallholder-based pre-transition‟ needs mainly new-struc developmental State for research/extn/tech, land reform (& some old-struc: water devel, fertilizer)• Labour-intensity & neocl „factor efficiency‟ag, smallholders antipov, distribution, in green rev. agind transn. Surplus-first old-S counter-productive
9. Structuralism and population transition:Asia v SSA• NwC: “pop-timal”. Neo-cl: Malthus+women‟s ed (+ con- tracepn?) Old-struc: pop growth, cap/output ratioState inv. needed‟ for growth. Contraceptive State:China/India?• New demog evidence: age transitiondemog gift, 1/3 of Asian growth; population-age earthquakes; all slower in SSA, as is ag growth and lab-absorption. Reaping demog „gift‟ needs prices & strucs to employ extra workers (ag?)• Agind transition helps to speed fertility-transition but --- rapid prior child mortality falls are key; need active State, --- as do„drag‟ areas where ag, agind, fert fall all sluggish. --- Absent ag takeoff, pre- & post-gift „theft‟ mop up gains.
10. Beyond structuralist farm-to-factorytransitions: finance - Asia vs. the new-classical model• Financial transition to get finance to growing sectors; so• all approaches tend to assume agind finance flows.• Initial ag pre-transition needs finance esp in early seasons• NwC assumes private flows (and constraints) optimal; efficient markets; no finance in macro-model. Collapse?• Classical/neocl case for free(r) trade does NOT imply• national/internat financial dereg, as per NwC; Asians resisted, especially after 1997, so West‟s disaster avoided• Some good national experiences (rotating credit, some micro-finance, shroffs, public banks) but structuralism old and new lacks tested models for finance in development
11.Conclusion: “sector” focus in transition helps rescue development studies from excess new-classical dogma• The State & big push towards modern industry: "new" (vs crude U-max) economics, defunct NewCl economists, (prior) farms.• Small-farm-based transformn , normally before ag-ind transitn,• helps neo/NwC factor-efficiency goal, but needs non-NwC State,• as does ongoing, powerful demographic transition.• Sound financial transition requires State to break NwC rules.• Distribn/sstnblty: externalities, myopia v NwC night-watch State.• Old-S saw partly-right State role, but anti-ag and slighted rent, class, overstretch, trade distortion: all anti-growth & unequalizing• New-struc techno-facilitating State necessary but not sufficient.• New-struc promising if and only if it shakes off NwC allegiances.