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Collapse of Development Planning

Edited by Peter J. Boettke
Copyright Date: 1994
Published by: NYU Press
Pages: 342
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  • Book Info
    Collapse of Development Planning
    Book Description:

    Conventional wisdom has it that government management of the economy is the means to transform a backward economy into a dynamic, modern one. Yet, after decades of international aid programs, development planning is today largely perceived as a failure paralyzed by its own bureaucracy and inefficiency. Despite billions of dollars of investment, development successes are few and far between and waste and mismanagement abounds. This book showcases a diverse range of development experiences in order to ascertain the reasons for this quagmire. Case studies of development planning in China, India, post-WWII Japan, South Korea, Africa, and Eastern Europe, and of foreign aid programs (including the Marshall Plan) illustrate the insights an Austrian approach provides toward an understanding of the failure of government development planning. While economists working within the Austrian tradition have previously addressed development issues, this volume represents the first full-length treatment of the subject from a modern market process perspective. Exploding the hegemony of the traditional development paradigm, The Collapse of Development Planning addresses one of the most pressing issues of international political economy. Contributing to the volume are: George Ayittey (American University), Wayne T. Brough (Citizens for a Sound Economy, Washington, DC), Young Back Choi (St. John's University), Steven Hanke (Johns Hopkins University), Steve Horwitz (St. Lawrence University), Shyam J. Kamath (California State University, Hayward), Shigeto Naka (Hiroshima City University), David Osterfeld (St. Joseph's College), Manisha Perera (University of Northern Colorado), Jan S. Prybyla (Pennsylvania State University), Ralph Raico (State University College, Buffalo), Parth Shah (University of Michigan, Dearborn), Kurt Schuller (Johns Hopkins University), Kiyokazu Tanaka (Sophia University, Tokyo), and Mark Thorton (Auburn University).

    eISBN: 978-0-8147-2345-6
    Subjects: Business

Table of Contents

  1. Front Matter
    (pp. i-iv)
  2. Table of Contents
    (pp. v-vi)
  3. Acknowledgments
    (pp. vii-x)
  4. 1 Introduction
    (pp. 1-12)
    Peter J. Boettke

    Prior to the twentieth century, economic development was primarily thought of as a question of the institutional infrastructure of a society. Adam Smith’sAn Inquiry into the Nature and Causes of the Wealth of Nations([1776] 1976) set the general tone for economic discourse on the determinants of prosperity for about one hundred years.¹ Smith argued that economic development was the result of expanding the division of labor within society. This expansion was due to the adoption of certain political, legal, and economic institutions and practices. Private property rights, monetization, the elimination of trade restrictions, etc., sustained specialized production and...

  5. I. Theory
    • 2 Money and Capital in Economic Development
      (pp. 15-36)
      Parth J. Shah

      A quick glance at my Austrian library (a rather complete collection if I may say so) fails to pick up any work with “economic development” or “economic growth” in its title. Despite being part of the modern economic science since its inception, as a coinitiator of the marginalist revolution, do Austrians have nothing to say about ancient problems of economic growth and development? Fortunately, a slight reflection proves the impression of the quick glance misleading.

      Austrians did not have to create a special discipline of development economics for two reasons: first, their conception of the nature of the economic problem...

    • 3 The Theory of Economic Development and the “European Miracle”
      (pp. 37-58)
      Ralph Raico

      Among writers on economic development, P. T. Bauer is noted both for the depth of his historical knowledge, and for his insistence on the indispensability of historical studies in understanding the phenomenon of growth (Walters 1989, 60; see also Dorn 1987). In canvassing the work of other theorists, Bauer has complained of their manifest “amputation of the time dimension”:

      The historical background is essential for a worthwhile discussion of economic development, which is an integral part of the historical progress of society. But many of the most widely publicized writings on development effectively disregard both the historical background and the...

  6. II. Case Studies of Planning
    • 4 The Political Economy of Development in Communist China: China and the Market
      (pp. 61-89)
      Jan S. Prybyla

      Outline of Argument

      I will argue that

      in order to modernize and prosper, the economic system China adopted from the Soviets in the early 1950s and subsequently modified through spasmodic, often spectacular, but structurally minor policy adjustments, has to be discarded and replaced by the market system. The transformation must be truly intersystemic, that is, total;

      complete transition to the market system, although beset by enormous difficulties and always subject to political hazards, is not only conceivable but likely to happen in the perhaps not too remote future;

      should such transition, spreading as it does from the south, be prevented...

    • 5 The Failure of Development Planning in India
      (pp. 90-145)
      Shyam J. Kamath

      Economic policy in India since it gained independence in 1947 has been conducted within a framework of centrally directed development planning combined with intensive government regulation and control of all facets of economic activity. Beginning in 1951–52, a series of Five-Year Plans have provided a comprehensive and complex set of directives and targets for savings, investment, exports, imports, public ownership of the means of production and for regulating private economic activity. Private enterprise and industry have been allowed to function subject to numerous physical, financial, and noneconomic constraints. A bewildering variety of interlinking controls and policy interventions has constrained...

    • 6 The Failure of Development Planning in Africa
      (pp. 146-182)
      George B. N. Ayittey

      “Development planning” is a beguiling and innocuous term which should not be confused with the daily necessity of planning one’s life activities. Most people have “some plan” designed to achieve a certain objective, which may be financial, political, or career-related. For example, an individual may plan to save say five thousand dollars at the end of the year. Such a plan or goal may entail an adjustment—most likely a reduction—in current consumption expenditures. Another individual may aspire to become an astronaut in the future. With this goal in mind, she may plan on securing the necessary type of...

  7. III. The Record on Foreign Aid and Advice
    • 7 The World Bank and the IMF: Misbegotten Sisters
      (pp. 185-209)
      David Osterfeld

      One of these institutions is the World Bank, the other the International Monetary Fund, or IMF. Both were the outcome of the conference of the United States, Britain, and their World War II allies held at Bretton Woods, New Hampshire, in July 1944. The purpose of the conference was to construct and manage a postwar economic order.

      Initially, the World Bank’s task was to make long-term loans on a commercial basis for the purpose of European reconstruction in the aftermath of World War II. Very quickly, however, the focus shifted from reconstruction to development, with its first mission to a...

    • 8 Does Eastern Europe Need a New (Marshall) Plan?
      (pp. 210-228)
      Steven Horwitz

      With the collapse of the Soviet Union and the Soviet-style economies of Eastern Europe, the question of reform has come to the forefront. More particularly there has been much discussion of the role of the West in any reform program. Though most people feel that there is something Western countries can do for Eastern Europe, there is a sense of loss or confusion about exactly what should be done. One idea that has been the focus of some significant discussion is to devise another version of the so-called Marshall Plan, officially the “European Recovery Program” (ERP), implemented in 1948 to...

  8. IV. The Political Economy of the Asian Miracle
    • 9 Industrial Policy as the Engine of Economic Growth in South Korea: Myth and Reality
      (pp. 231-255)
      Young Back Choi

      The rapid transition of the South Korean economy from a “hopeless basket case” in the 1960s to an “economic miracle” in the 1980s has become a subject of much discussion, in popular as well as academic media. Many marvel at the fact that South Korea has pulled itself up from a major U.S. aid recipient to the twelfth-largest trading nation in the world, from a largely agrarian nation to a major exporter of manufactured goods, and from a per capita GNP of a mere $100 in 1960 to over $6,000 in 1991. Along with other rapidly growing economies in Asia...

    • 10 The Political Economy of Post–World War II Japanese Development: A Rent-Seeking Perspective
      (pp. 256-286)
      Shigeto Naka, Wayne T. Brough and Kiyokazu Tanaka

      After World War II Japan experienced very rapid economic growth while maintaining a stable democratic political regime.* When the American Occupation of Japan ended in 1952, Japan was economically insignificant. Today Japan is a not only democratic, but also a rich and technologically advanced nation, with its per capita income exceeding those of many Western countries.

      Many attempts have been made to explain postwar Japan’s economic and political miracles. Broadly speaking, two schools of thought have emerged (see Patrick and Meissner 1986). The first emphasizes the uniqueness of Japan’s sociopolitical institutions in coordinating Japan’s industrial policies. It maintains that Japanese...

  9. V. Market Solutions to Economic Development
    • 11 Privatization and Development: The Case of Sri Lanka
      (pp. 289-309)
      Manisha H. Perera and Mark Thornton

      In the early twentieth century, many development economists and political leaders considered planned development the most direct route to economic progress.* The popularity of development planning was based on the belief that centralized national governments could offer the essential institutional and organizational mechanism for overcoming the major obstacles to development and ensure a high rate of economic growth. The record of development planning in the Third World, like central planning in the former Communist world, did not live up to expectations.¹ The failure of planning has led an increasing number of policy makers to advocate the use of the market...

    • 12 Financial Reform and Economic Development: The Currency Board System for Eastern Europe
      (pp. 310-326)
      Steve H. Hanke and Kurt Schuler

      One of the great debates in economics pitted prominent members of the Austrian School against so-called market socialists in the 1920s and 1930s. When the dust had settled, the Austrians had gotten the best of the socialists on theoretical grounds. That was a well-kept secret in the economics profession for many years. In 1971, however, no less a person than Paul Samuelson crowned the Austrians the victors. He wrote, “It was Hayek, with his point about how the market system brings information to bear upon the outcome, who really won the debate” (Samuelson [1971] 1977, 876). Yet although the economic...

  10. Contributors
    (pp. 327-330)
  11. Index
    (pp. 331-334)
  12. Back Matter
    (pp. 335-335)