The Poverty of "Development Economics"

Lal, Deepak. The Poverty of "Development Economics. " 2d revised and expanded U.S. edition. Cambridge: MIT Press, 2000. Tables, figures, appendix, bibliography, 193 pp.; paperback $22.95.

The discipline of development economics has undergone considerable growth since the mid-twentieth century. Arguing that orthodox neoclassical economics, based on the price mechanism, is inadequate for our understanding of the causes of the underdevelopment of the vast majority of countries in Asia, Latin America, and Africa, this book has sought to provide a superior roadmap to solve the puzzle of underdevelopment.

Its evolution can be traced in the early writings of Hirschman, Arthur Lewis, Nurkse, Myrdal, and others. At the heart of this discipline is the concept of the "dirigiste dogma"; that is, the state as the provider of economic and social goods and services. This book attempts to critically examine the economics of that concept. Deepak Lal argues that the theoretical explanations used to justify active state interventions in developing economies are often incorrect, devoid of policy relevance, or weak in empirical support. Lal concludes by questioning the need for the discipline of development economics.

After an introduction to the dirigiste dogma in chapter 1, the second chapter, "The External Environment I: Trade," discusses different myths that have dominated development thinking, such as terms of trade, foreign exchange bottlenecks, the effective rate of protection, and other protective measures. This also provides a critical review of the major theoretical tenets of development economics. The author examines the empirical literature that tests models of underdevelopment propounded by Arthur Lewis, and other theories, such as the Singer-Prebish theory of declining terms of trade, and foreign exchange bottlenecks. Arguing that it is the internal constraints rather than the external environment (such as southern prosperity, as argued by Lewis) that retards the process of development, Lal identifies the liberal trade regime as a necessary condition for growth.

The third chapter, "The External Environment II: Commodities and Foreign Capital," analyzes other debates about the external environment facing the developing countries, particularly in the post-World War II period. The author shows how the Third World concern for commodity prices is unwarranted and the relevance of a commodity scheme is limited. He demystifies the conventional fear regarding foreign capital, which has haunted developing country policymakers, by...