Developing countries face institutional, political and economic rigidities, both on the domestic and the international front and are caught in a dependence and dominance relationship with rich countries.
Three major streams of thoughts can be sorted out:
- Neo-Colonial Dependence
- The False-Paradigm Model
- The Dualistic- Development Thesis
This is an indirect outgrowth of Marxist thinking that attributes the existence and continuance of underdevelopment between the rich and poor countries primarily to the historical evolution of a highly unequal international capitalist system. In this systems rich countries are intentionally exploitative or unintentionally neglectful and the international system is dominated by unequal power relationship between the centre and the periphery. This makes it difficult for the poor nations to develop.
The situation is perpetuated by the power groups (landlords, entrepreneurs, military leaders, merchants, public officers and trade union leaders etc.). These group enjoy high incomes, social status, political power and constitute an elite ruling class whose principle interest is to knowingly or unknowingly lies in the perpetuation of the international capitalist system of inequality for which they are rewarded. Therefore underdevelopment is seen as an externally induced phenomenon.
The False-Paradigm Model
Attributes underdevelopment to faulty and in appropriate advice provided by well-meaning but often uninformed, ethnocentric international experts from developed countries or multinational donors – also suspect are the western trained university teachers and bureaucrats and technocrats.
These sets of theories emphasize that removal of the international and domestic imbalances is the most effective way to deal with the diverse social problems and accelerate the pace of economic growth through domestic and international reforms, accompanied by a judicious mixture of both public and private economic activity.
1. They offer little formal or informal explanation on how countries initiate and sustain development.
2. Secondly, more important – the actual economic experience of Less Developed Countries that have pursued revolutionary campaigns of industrial nationalization and state-run production has been mostly negative. Also according to these theories countries pursuing policies of autarky – or inwardly directed development should be doing well – like China and to a certain extent India – However, both these countries experienced stagnant growths unless they opened up their economies in the 1978 and 1990.
The Neo-classical Counterrevolution
Advocate freer markets and the dismantling of public ownership, central planning by the state and government regulation of economic activity.
Underdevelopment results from poor resource allocation due to incorrect pricing policies and too much state intervention of overly active developing country governments- thus slowing the pace of economic growth.
This challenge can be divided into 3 component approaches:
1. Free market approach analysis argues that Markets alone are efficient – as prices of products and factors reflect the accurate scarcity values of goods and resources – competition is effective if not perfect – technology is freely available and nearly costless to absorb – information is also perfect and nearly costless to obtain – under these conditions any intervention by the government is a distortion – however this is not really the case in the Dg countries.
2. Public-choice theory – also the new political economy approach – politicians, bureaucrats, citizens and states act solely from a self-interested perspective using their power and authority – resulting in corruption and mis-allocation of resources
3. Market-friendly approach- recognizes that there are many imperfections in the LDC product and factor markets and that governments do have a key role to play in facilitating the operation of markets through non-selective (market friendly) interventions- for example investing in physical and social infrastructure, health care facilities and educational institutions and by providing a suitable climate for private enterprise.