Introduction
This essay will discuss how the agenda of international development is driven by the idea of Western superiority and how this assumption has proven inadequate in the development of Third World countries.
Body of the essay:
Through an introduction to the neoliberal project, I will outline its characteristics and the assumptions behind. The transition to export-oriented development in Third World countries will be introduced to discuss the dominating paradigm of international development. How this aligns with Modernization Theory’s Eurocentric assumptions will be outlined, through the general disregard for the social embeddedness of markets. This, I will exemplify with the implementation of an extensive land reform in Peru, lead by the influential Modernization theorist, Hernando de Soto. The essay will then conclude that the Neoliberal Project is failing due to its universalistic presumptions, at the expense of the poorest parts of the world.
The Neoliberal Project
The unrestrained quest for capital accumulation worldwide really increased its intensity during the 1980's. In Third World countries during this period, the economic system underwent severe changes (O'Brien & Williams 2016:88). A debt crisis struck Third World countries who were unable to repay their debts to Western countries and international economic institutions (ibid.:229). It was at this time, a new paradigm within the liberal global political economy began, known as The Washington Consensus, or the Neoliberal Project (Massey et al. 2006). A new approach to development was initiated where international organizations promoting the Neoliberal Project such as The World Bank and the International Monetary Fund (IMF) gained increased influence. The debt crisis of Third World countries granted the organizations the responsibility to discipline the countries unable to pay (O'Brien & Williams 2016:235). This changed the development paradigm of these institutions from poverty alevation, to a focus on structural adjustment programmes towards neoliberal policies where the role of the state should be minimized and the market should be made attractive to foreign investments (ibid.:227). As Massey explains:
“Countries in desperate need of loans from the World Bank (…) and other international lenders were compelled to accept “structural adjustment policies” mandated by bureaucrats who believed in the Washington Consensus as a matter of faith; if they did not accept these policies, the spigot of international investment funds would be twisted shut” (Massey et al. 2006:12).
The international system was characterized by Western capitalism, forcing Third World countries to adjust to- and adopt the Neoliberal notions of markets. After decades of prosperity in the Western world and the successful example of ‘The Four Tigers’ – Singapore, Taiwan, South Korea and Hongkong, the export-oriented industrialization (EOI) became the model for development in the Third World. EOI insisted that successful industrialization would only occur under a system where the government played a limited role (O'Brien & Williams 2016:225), as opposed to its prior role as supporter of different national sectors, as well as the primary engine behind growth. The role of the state now became to create a competitive environment that would attract investment (ibid.:92). This transformation of the international system's perception of development significantly manifested itself in the approach to development within Third World countries, through the theoretical school of Modernization Theory.
Modernization theory
The school of Modernization Theory is mainly preoccupied with the transition of traditional, Third World countries into modern industrialized countries (Pietersen, 2010:35). In this way, Western countries are perceived to be setting the example of a desirable society, consequently entailing an attempt to implement Western values and ways of life in the traditional societies. Modernization Theory is based on an evolutionary perspective, indicating a hierarchical perception of developmental fases. The evolution of development consists of three assumptions:
The transition from a traditional society to a modern society is a natural and beneficial process.
The process is universal and inavoidable to all states.
In order to cater the process, traditional barriers preventing it should be eliminated (Gaba, 2014:3).
In this way, Western societies, who have eliminated the traditional barriers and transitioned to modern, industrialized societies, are ahead of traditional societies, who are still in the process of transforming. This very much relates to the notion of Eurocentrism. In How the West Came to Rule, Anievas and Nisancioglu describes three fundamental components of Eurocentrism:
1. The assumption that capitalist modernity has developed endogeneous in Europe, leading to a perception of the rest of the world as an exploited and passive periphery.
2. Allegedly self-propelling this progress, Europe is perceived as the permanent core, leading to the idea of European societies and cultures as superior to “the periphery”.
3. The notion of European capitalism as the final evolutionary stage of development that all societies inevitably will reach (Anievas & Nisancioglu, 2015:4-5).
The assumptions of Modernization Theory are thus highly linked to the notion of Eurocentrism; the belief in Western superiority is at the very core of the evolutionary perception of development, where Western countries are believed to have reached the final step, as opposed to Third World countries. An example of a Modernization theorist who has had great influence on international development is Hernando de Soto. The work of de Soto has aimed to increase capital accumulation in Third World countries. This, according to de Soto, is achieved through a formalization of the economies in such countries. In his book “The Mystery of Capital – Why Capitalism Triumphs in The West and Fails Everywhere Else”, he asks: “Where do we confirm the existence of these assets and the transactions that transform them and raise their productivity if not in the context of a formal property system? Where do we record the relevant economic features of assets if not in the records and titles that formal property systems provide? Where are the codes of conduct that govern the use and transfer of assets if not in the framework of formal property systems? It is formal property that provides the process, the forms and the rules that fix assets in a condition that allows us to realize them as active capital” (de Soto, 2000:44). As this quote exemplifies, the dominating assumptions of the development paradigm reproduces the hierarchical perceptions of Western- and non-Western cultures. De Soto disregards the value of any assets that aren't formally registered. Until then, it is 'dead capital', as he describes it. By labelling the informal economies of a substantial part of the world's population as 'dead', the disregard for these cultures is catered. Yet, this perception has been granted great influence. De Soto further ellaborates his theoretical observations:
“The poor inhabitants of these nations – the overwhelming majority – do have things, but they lack the process to represent their property and create capital. They have houses but not titles; crops but not deeds; businesses but not statutes of incorporation. It is the unavailability of these essential representations that explains why people who have adapted every other Western invention, from the paper clip to the nuclear reactor, have not been able to produce sufficient capital to make their domestic capitalism work” (de Soto 2000:7).
Most traditional societies are based on informal, collective ways of sharing, trading and interacting. Yet, the Western approach to development within these societies is not to ask How can we improve these systems? but instead How can we redirect these systems to fit into the notions of Western Capitalism? At the very core of this paradigm is thus the Eurocentric notion of Western societies being superior to non-Western societies. This is assumed to be an absolute fact that is not questioned due to the evolutionary idea that Western Capitalism is the final step of development. In the following paragraph, the consequences of such a disregard of traditional ways of life will be discussed.
Misassumptions of development
The term “free market” which is at the core of the Neoliberal Project can be misleading. The combination of these two words suggest that markets can exist autonomously, free of human intervention, which is believed to stall the progress of the economy. From an economic sociological perspective, this is a naive way of perceiving the market. Markets are constructed by humans and are “(…) competitions that occur between people seeking to maximize their own advantage while exchanging resources within particular arenas according to specific rules” (Massey et al., 2006:13). And so, the roll-back of governmental influence is misleading. Since the government constitutes the arenas in which these quests for optimizing capital take place and where the rules of exchange are constituted, government intervention is necessary in order to construct the market. In this way, the market is socially embedded in the societies in which it operates. This challenges the Neoliberal perception of the “free market” as a unit with a homogeneous nature that is applicable to all societies, inconsiderate of social differences within these societies (ibid.). As Massey puts it “the Washington Consensus was imposed by rote in country after country by technocrats with little or no comprehension of the history, culture, or language of the societies into which they were intervening” (ibid.:14).
An example of this is Peru. Led by de Soto, Peru underwent a severe formalization of land rights. Formalization of land rights was to be made more accessible for the poor and thus give them an opportunity to become part of the formal system through more effective, faster and cheaper processes than previously (Lastarria-Cornhiel & Barnes 1999). This process was believed to promote macroeconomic stability, and in this way a means to the structural adjustments promoted by international organizations. In Peru, as well as most Third World countries, the informal sector mainly consists of the poor part of the population (de Soto 2000). When you formalize, you aim to include the informal society in the formal, legal society. The poor population is thus believed to gain access to capital accumulation as well as credit through their official property (ibid.). Yet, structural adjustment, including the formalization process, occurred without improvement of institutions (Massey et al. 2006:17), meaning that the ability of governmental institutions to facilitate and enforce an official system was not developed. When the institutions that are supposed to define, secure and enforce the property rights are dysfunctional, the faith in the existing property laws and thus the incentives to obtain legal titles to begin with are influenced (International Property Rights Index 2016). As Bronley writes in Formalizing Property Relations in the Development World: “If the legal foundations of an economy are tenuous, then titles are meaningless and will lack the necessary force to do the work they are claimed to do. That is, formalisation will do little good if it is not backed up by a coherent legal system and authority structure that promises effective enforcement of the rights inherent in, and implied by, the granting of titles” (Bromley, 2008:20). The universalistic assumptions of de Soto and the Neoliberal Project thus failed to take the societal factors of Peru into account, when imposing formalization of land rights. As de Soto describes; in the Western World, written laws and regulations are followed and perceived to be legitimate and thus the politico-legal institutions are trusted with the task of enforcing official property rights (de Soto, 2000). This does not necessarily apply to non-Western countries, as it is the case of Peru. The disregard for such a significant difference have, in Peru, lead to advantageous conditions for transnational companies, as well as the authoritarian government, who, with the formalization of land rights, have been granted the responsibility to define and enforce entitlement (Kerekes & Williamson, 2010). Especially amongst Indigenous people, this has increased insecurity in terms of tenure rights, preventing the potential for capital accumulation (ibid.).
Conclusion
The rise of the Neoliberal Project changed the international paradigm of development. Through the notions of Modernization Theory, the quest for capital accumulation was legitimized, and extensive attempts to promote export-oriented development were implemented. Based on the Eurocentric perception of Western superiority, non-Western countries like Peru were subjected to universalistic assumptions of the free market. This, in many cases, led to improved conditions for already powerful actors, such as transnational companies and authoritarian governments. The failure to acknowledge the social embeddednes of markets has generally been characterizing the Neoliberal Project, preventing the economic prospects of formalization, advantaging transnational companies and authoritarian governments, at the expense of the poorest part of the population. In order for the international paradigm of development to succeed in increasing economic prosperity in Third World countries, the Eurocentric, evolutionary approach needs to change, in order to enable the poorest parts of the world to progress.
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