Introduction to

Development :Dev
1150
The Political Economy of Development
Section 9
 Outline
• Introduction
• Various Phases of Capitalism
• Resurgence of Liberal Capitalism
• Foreign Direct Investments & Development
• Effects of Foreign Investment
• Conclusion
 Introduction
• The past four decades have seen changes in the global economic system
as well as ways in which capital operates at a global level.
• Capitalism was born with the Capitalist Revolution between the
seventeenth and 19th centuries, when – within the framework of
mercantilism – peoples under absolute monarchies in Britain, France,
Belgium and the Netherlands 5 transformed themselves into nations,
built the first nation-states and experienced industrial revolutions.
• The seventeenth and 18th centuries were the time of the absolute state,
the primitive accumulation of capital, the formation of the first nation-
states, and finally the time of the Industrial Revolution in England.
 Introduction cntd…
• The demise of the soviet block and the end of colonialism
necessitated changes in the operations of capitalism(Yeros
2021).
• Although capitalism has remained a dominant economic
system, it is important to note how it has responded to
various crises such as the global recession soon after the
World War 2 and declines in the profit rate such as in the
1970s as well as the 2007/2008 economic crises.
 Mercantile Capitalism …
• The mercantile bourgeoisie originally derived its wealth
from the longdistance trade in luxury goods, but with the
rise of manufacturing, it soon became interested in the
formation of a large and secure domestic market, which
would enable the mass production of the cheap industrial
goods that defined the 7 Industrial Revolution.
• The absolute monarchs and the merchants and big
financiers founded capitalism, while, within capitalism,
the mercantilist economists founded economics and
political economy.
 Mercantile Capitalism
• Mercantilism was the framework within which the first
nationstates were formed, and large domestic markets were
created—domestic markets that gave rise to demand for simple
manufactured goods and made industrial revolutions possible.
• In 1776, Adam Smith published The Wealth of Nations: A Firm
Critique of the Mercantilist System.
• Smith’s revolution lies in realizing that wealth is value created
through the process of production by labor, by the process of
transforming nature into a useful object.
 Liberal Capitalism
• From Britain’s trade liberalization in 1834 to 1929 there was the industrial
liberal phase.
• It was a time of modest per capita growth rates, high instability, and high
inequality. The growth was, however, enough to allow the first countries to
industrialize, acquire military power, and build colonial empires.
• This was a liberal phase both in economic terms because the state had no
direct role in production, and political because the new ruling class
guaranteed civil liberties and the rule of law, but not political and social
rights.
• state intervention was limited, and it is reasonable to say that economic
liberalism was dominant.
 KYNESIAN ECONOMICS/
CAPITALISM
• The economic crisis of the paved the way for the KYNESIAN MODESL of
capitalism.
• This was a phase in which techno-bureaucrats associated themselves with the
dominant entrepreneurial capitalists; a social-democratic phase, defined by a
compromise between the new ruling class and labor, and a developmentalist
phase in which the state intervened moderately in the economy.
• Development capitalism/Keynesian economics refers to an economic system
where the state is heavily involved in coordination.
• For Africa- the term begins to be used in the 1960s to mean a political regime
in which the state intervenes moderately in the economy and adopts a national
and anti-imperialist perspective.
 Various Phases Capitalism
contd..
• This is different from a mixed economy or dirigisme
economy because this kind of economy stands in-between
capitalism and socialism.
• The assumption behind this form of capitalism is that the
infrastructure industry, the basic input industries, and the
big banks, which are "too big to fail" are monopolistic
industries in which markets do not guarantee an
equilibrium.
• These sectors thus receive support from the state.
 What is Neoliberalism
• “Neoliberalism is a pervasive and increasingly global ideology, associated
with the favoring of free market competition and private property rights,
reduction or abolishment of government intervention and expenditure, and
valuation of individual “freedom of choice.” (Carlquist, E., Phelps, J. 2014).
• (i) Neo-liberalism’s intellectual face is distinguished by (a) its Anglo-
American anchored transnationality; (b) its historical gestation within the
institutions of welfare capitalism and the Cold War divide and (c) an
emphasis on the market as the source and arbiter of human freedoms
• Comes into force spearheaded by Ronald Regan and Margaret Thatcher in
the early 1980s with the assistance of Bretton Woods Institutions.
 What is Neoliberalism
continued..
• Its bureaucratic face is expressed in state policy:
liberalization, deregulation, privatization, depoliticization
and monetarism. This family of reforms is targeted at
promoting unfettered competition by getting the state out
of the businesses of ownership and getting politicians out
of the business of dirigiste-style economic management.
 Neoliberal Capitalism Features/
Characteristics
• World Bank’s Diagnosis: getting rid of budget deficits, bringing down
rates of inflation, getting prices right, unleashing the market and liberalising
trade.
• State the Villain: it was corrupt and dictatorial, it had no capacity to
manage the economy and allocate resources rationally, it was bloated with
bureaucracy, and nepotism was its mode of operation.
• Measures Implemented: Balancing budgets involved cutting out subsidies
to agriculture and social programmes, including education and health.
• Unleashing the market meant doing away with protection of infant
industries and rolling back the state from economic activity.
 Neoliberal Capitalism Features
• State withdrawal – outsourcing government functions etc.
• Abolishing of subsidies for food and agriculture input (WTO
Rules).
• Deindustrialization and informalisation of economies. Most
policies veering towards formalizing the informal economy. This
outcome has largely been a result of lack of protection for local
industries.
• Massive cuts in wages, weak social protection policies leading
to social insecurity, lack of job security(short contracts, no
pensions), indebtedness, hunger and malnutrition (Mkandawire
and Soludo 2000; Gumede 2023).
 Neoliberal Capitalism:
Implications
• Land registration and formalization of tenure across the
continent supported by International Financial Institutions has led to
greater tenure insecurity, land alienation, social differentiation and
created problems for vulnerable groups such as women, children and
pastoralists.
• Land Grabbing happening alongside Control over production of small
peasant production without appropriating lands through such schemes as
contract farming, contracts with seed companies etc. Production of GMO
seeds, bio-engineering, monopoly of patents (Intellectual Property
Rights) thus create new type of dependency – seed dependency.
 Neoliberal Capitalism
• Land use policies have undervalued land by allocating resources to
commodities with no domestic linkages leading to the demise of African
agriculture, expanded food insecurity, dependence on food imports.
• Conversion of farming land to exclusively wildlife and tourism-based land
uses through the consolidation of large-scale farms into large conservancies.
• These add to further exclusion of peasants and pastoralists in the name of
attracting national, regional and international capital for tourism, forestry
and biotechnology
• Bias towards large-scale operations yet peasants are dominant in
production( tea, coffee, tobacco and food crops).
 Neoliberal Capitalism
-The role of World Bank Institutions (WBI), which provides financial assistance to countries in
economic trouble in exchange for policy reforms and its role in globalisation need careful
examination.
-WBI through its ‘structural adjustment programs,’ countries around the world have liberalized
and deregulated African economies.
-“SAPs have called for policies that have prematurely exposed African industries to global
competition and thus induced widespread processes of de-industrialization” (Mkandawire,
1999)
 IMPACTS
• According to SAPRI(2004) “ We have identified four ways in which adjustment
policies contributed to the further impoverishment and marginalization of local
populations, while increasing economic inequality. The first is through the demise
of domestic manufacturing sectors & the loss of gainful employment by laid –off
workers & small producers du to the nature of trade and financial sector reforms.
The second relates to the contribution that agricultural, trade and mining reforms
have made to the declining viability and incomes of small farms & poor rural
communities, as well as declining food security, particularly in rural areas. Third,
the retrenchment of workers through privatization & budget cuts, in conjunction
with labor flexibilization measures, has resulted in less secure employment, lower
wages, fewer benefits and erosion of workers’ rights and bargaining power.
Finally poverty has increased through privatization programms…”
 Multinational Corporations
• With increasing globalization under neoliberal capitalism
there has been an increase in the number of multinational
corporations that have a presence in Africa.
• An MNC can be defined as a “ firm that owns or controls
income generating assets in more than one country”
( Fieldhouse 2000). It is therefore a company with a
registered international presence by engaging in Foreign
Direct Investment(FDI).