Jorge Braga de Macedo

I INTRODUCTION

Are those who do not remember the past are condemned to repeat it? Hirschmann (1976, p.4, 133) remarks in his celebrated attack on the Marxian and Weberian interpretations of capitalist development that similar circumstances at different points in time may give rise to "identically flawed thought-responses if the earlier intellectual episode has been forgotten". This, together with the philosophy (invoking Adam Smith) of a policy convergence club proposed by Sachs and Warner (1995a and b) draws attention to two neglected aspects of economic thought on development which I will emphsise here. First, comparing development experiences reinforces "peer pressure" procedures for institutional change. Second, expectations have a role in the success of institutional reforms.

Passionate debates about globalisation have been observed at the turn of the millennium, involving protests on the occasion of meetings of international organisations involved in trade and development. These same international organisations also influenced the field of development economics, which "was born from the marriage between the new insights about the sui generis economic problems of the underdeveloped countries and the overwhelming desire to achieve rapid progress in solving these problems with (…) large-scale foreign aid. A factor in 'arranging' this marriage, in spite of the incompatibilities involved, was the success of the Marshall Plan in Western Europe." Hirschmann (1981, p. 13).

The influence of international organisations notwithstanding, there is recurrent evidence of institutional inertia and reform reversals, which has led those who emphasise expectations to be sceptical about "large scale foreign aid" inducing reforms. At the same time, anxiety about the implications of the institutional change required for national economic and social development is often due to the inability or unwillingness of policymakers to specify the prerequisites of enduring reform.

The combination of challenges and responses is specific to each national experience. This general lesson from comparative development is consistent with the emphasis on designing and implementing a global partnership for development, which is the eight of the goals adopted by all 189 Member States of the Union Nations at the Millennium Summit in September 2000.

Angus Maddison (2001) documents in his millennial perspective on the world economy that the development process involves an increase in productive capacity as well as rising per capita incomes. The global partnership for development and the other seven goals contained in the millenium declaration presume rising per capita income, but go beyond it. In effect, Hirschmann (1981, p. 24) concludes his essay claiming that the western economists who looked at developing countries at the end of World War II were convinced that their major problems would be solved "if only their national income per capita could be raised adequately (…). In sum, like the 'innocent' and doux trader of the eighteenth century, these countries were perceived to have only interests and no passions. Once again, we have learned otherwise."

The evolution of economic thought on development and the calls for an interdisciplinary approach thereto have led to greater consensus on the goals of development. While greater consensus has been emerging over the last 15 years, it has not been matched by agreement over the proper sequencing of policy reforms, let alone over an appropriate analytical framework. The annex to this paper provides additional detail on the evolution of development thinking until the time when Deepak Lal (1983, p. 109) concluded that "the demise of development economics is likely to be conducive to the health of both the economics and the economies of developing countries". This was also a time when Amartya Sen (1983, p. 745 also Bardhan 1988, p 66) called Hirschmann (1981) "an obituary of development economics". Dudley Seers (1979, p. 717) went even further. "In the retrospective perception of the twenty-first century, development economics may perhaps be seen as a transitional stage in the metamorphosis - and the Manchester conference of 1964 (on the "Teaching of Development Economics: Its Position in the Present State of Knowledge") will appear as signaling the start of its death throes and the conception of its successor".

Yet, according to Sen (1983, p. 746), the fact that "neoclassical economics did not apply terribly well in underdeveloped countries (…) need not have caused great astonishment, since neoclassical economics did not apply terribly well anywhere else". This more cheerful view of the future of development economics was echoed by concern with showing how information-theoretic considerations "can provide insights into markets and market failures in less developed economies, to show how it can provide explanations for institutions which in neo-classical theory appear anomalous and/or inefficient" (Joseph Stiglitz, 1988, p. 156).

After the September 11 attacks, the awareness about the importance of passions along with that of interests was greatly magnified, showing how the learning process evoked by Hirschmann had, once again, been interrupted. In spite of the internationally agreed goals, the neglect of peer pressure and of development as hope (as in my contribution to Edmond Malinvaud and Louis Sabourin, 2001) seems to have contributed to the interruption. This is why, after this introduction, the implications of the Marshall Plan for omparative development and institutional change are traced in section II.

Section III deals with the role of expectations and institutional change while section IV describes evidence of global policy convergence. Section V suggests that rising awareness of the need for good governance at national, regional and global levels does not imply that reforms are actually implemented. Section VI emphasises the principle of proximity (and the European experience in applying it) as an additional argument for peer pressure and development as hope. Section VII concludes with an interpretation of the role of the OECD in the quest for inclusive globalisation through more attention to data, analysis and culture (dac).

II THE MARSHALL PLAN AND YARDSTICK COMPETITION

The Marshall Plan remains the benchmark of international assistance to reconstruction and development (having inspired similar efforts in favour of countries in Eastern Europe, central Asia and Africa). The reason may be that Marshall aid recipients agreed on how to allocate the payments through multilateral surveillance procedures which pioneered those of the Exchange Rate Mechanism (ERM) of the European Monetary System (Barry Eichengreen and myself, 2001). The Organisation for Economic Co-operation and Development (OECD), created as a successor to the administration of the Marshall Plan by the Organisation for European Economic Co-operation, kept peer pressure among Member countries as its driving force. According to Helmut Fuhrer (1994), the creation of the Development Assistance Committee (DAC) in 1960/61 and of the Development Centre (DEV) in 1962 reflects the same preoccupation with improving aid governance among OECD countries and aid effectiveness in developing countries.

The design and implementation of the global partnership for development mentioned above should not obscure the fact that the first seven goals cover dimensions that were largely unconsidered in post-war Europe. These are: eradicating extreme poverty and hunger; achieving universal primary education; promoting gender equality and empowering women; reducing child mortality; improving maternal health; combating HIV/AIDS, malaria and other diseases and ensuring environmental sustainability. These goals have been guiding the development agenda since the DAC approved "ambitious but realisable" goals for 2015 in terms of economic well-being, social development and environmental sustainability and regeneration (OECD, 1996, p. 2). The importance of the eight goal is precisely to raise awareness among developed countries about the need for a durable partnership with developing countries. It would seem that adapting procedures from the Marshall Plan could contribute to achieving this goal.

The management practice of benchmarking encourages institutional change by allowing for a more efficient monitoring. The reason is that it increases the accountability of managers or policy makers, as shown in the literature on yardstick competition, due to Andrei Scheifer (1985) and Tim Besley and Ann Case (1995). The emergence of complex interdependence among major OECD members was noted by Bob Keohane and Joe Nye (1977), the question being how portable it might be outside the OECD membership. My (2001b) roots the success of the Euro in the multilateral surveillance procedures that originated in the Marshall Plan, and brought peer pressure to bear on the members of the ERM well beyond the monetary and exchange rate areas. The case is then made for their portability to regional arrangements in other continents, such as MERCOSUR's Macroeconomic Monitoring Group or the Chang Mei Initiative among ASEAN members, China, Korea and Japan.

Even if portability to emerging markets is granted, it is far from clear how "mutual accountability" between DAC donors and least developed countries may be designed and implemented. The New Partnership for African Development (NEPAD 2001) may be a step in the right direction. Even though the process of peer reviews has not been made explicit in the document, Ravi Kanbur (2001, p. 8) sees peer monitoring, together with regional peace and security initiatives, as issue areas that make particularly strong use of the democratic basis of NEPAD.

Whilst born with the Marshall Plan, yardstick competition remained largely confined to the OECD membership until the fall of the Berlin Wall and the demise of the Soviet Union. The advent of true global economic progress seemed then to follow the triumph of the market over the state. The recommendations of the Bretton-Woods institutions combined with American preferences to form what came to be known as the "Washington Consensus" (John Williamson, 1994). It was widely believed that globalisation promoted and rewarded appropriate policies at national, regional and global levels along the lines of the "end of history" view of Francis Fukuyama (1989). As shocking policy failures emerged at all three levels, the role of governance at corporate, public and political levels began to be part of development thinking (World Bank 2002).

III EXPECTATIONS AND INSTITUTIONS

In order to establish the relevance of peer pressure as a governance response consistent with expectations and policy convergence, it helps to go back to the balancing act between market and government failures under imperfect information, which is to be performed on a case-by-case basis (Stiglitz 1989). It is widely acknowledged that this balancing act cannot neglect history but is also determined by expectations - because it involves institutional change. Even when there is a decisive element of self-fulfilling prophecy, the role of expectations differs from central planning to the extent that it is consistent with information available in world financial marketsand cannot therefore be manipulated by national authorities. In other words, the fulfillment of the prophecy is credible. Thus hope, translated into economic analysis, implies what Paul Krugman (1991) called an overlap between history and expectations as determinants of the development path.

III.1 Expectations and interdependence

In a world of increasing returns, it is possible to establish both the "big push" theory of economic development (Paul Rosenstein-Rodan 1943) and Krugman's (1981) own model of "uneven development" in which the division of the world into rich and poor nations takes place endogenously. The central implication of external economies (e.g. the rate of learning in a sector is larger the larger the sector, as in Krugman 1987) is that there will be multiple equilibria and therefore that a policy choice arises about how to reach the most desirable equilibrium. In this regard, there are those who think that the choice is essentially resolved by history (past events set the preconditions that drive the economy to one or another steady state). Indeed, there is a strong tradition arguing that history matters precisely because of increasing returns. But there is an alternative view, according to which the key determinant of choice of equilibrium is expectations.

The role of expectations is recognised in the responses of two Nobel laureates to the letter dated 15 February 2000, where the managing editors of the European Journal of the History of Economic Thought asked them to list the five most significant works on economics in the twentieth century (Editorial 2001, p.285). Listing rational expectations as the fifth such contribution, James Buchanan (2001, p. 289) mentions the work of Robert Lucas, whose 1985 Marshall lecture (1988) revived interest in growth theory and launched a large literature on "endogenous growth" (reviewed in Krugman 1991, see also my 1990 and Bardhan 1995).

Kenneth Arrow (2001, p. 303) listed economic growth and development as the fifth "most significant development". His assessment of endogenous growth theory reads as follows: "the most interesting questions are the explanation of international and intertemporal differences in productivity, especially those in terms of economic incentives. But, while the field is very active, there has not emerged much of a consensus. Perhaps the most advanced part of the work has been the study of the effects of research and development expenditures on the growth of productivity. But it is also clear that variables such as the quality of government and culture, not usually thought of as economic, are also of great significance."

Many development economists might start evoking their field with history rather than with expectations, as indeed was done here. Yet history alone will determine the equilibrium if three conditions are met. First, "if the future is heavily discounted, individuals will not care much about future actions of other individuals, and this will eliminate the posiblity of self-fulfilling prophecies." Second, "if external economies are small there will not be enough interdependence among decisions". Third, if "the economy adjusts slowly, then history is always decisive. The logic here is that if adjustment is slow, factor rewards will be near current levels for a long time whatever the expectations, so that factor reallocation always follows current returns" (Krugman 1991, p. 664).

In an application to urban development in the United States, Timothy Harris and Yannis Ionnides (2000) find that history "dominates the process by which one city becomes a metropolis and another languishes in the periphery". The empirical verification that farmland values and housing values did not anticipate urban development reinforces the importance of institutional change and of yardstick competition with respect to appropriate policies.

As expectations include the tendency towards convergence, they impose tighter and tighter constraints on inadequate policies. Also, even though future generations are not represented in majority voting, greater awareness of the need to implement sustainable policies brings pressure on elected governments to clarify the intergenerational effects of current policies. This applies to the physical and cultural environment, as well as to the provision of public goods and transfers through taxation. The awareness is also rising that excessive taxation, whether overt or hidden in the form of inflation, discourages saving and stifles growth. This may appear not to be a developing country problem, but the difference arises mainly in the mix between overt and hidden taxes, as the latter dominate in developing countries.

As growth prospects fall due to the absence of incentives to save and invest, so does employment, reducing future consumption and increasing social deprivation. In due course these policies will be corrected. Yet, without adequate institutions, there may be reversions into inadequate policies.

In that sense, economic adjustment helps prevent policy reversals for any given level of interdependence in time (low discount rate) and in space (large externalities). Conversely, high interdependence induces instituional change and adaptation.

III.2 Institutions and credibility

Calls for an interdisciplinary approach to development and the emphasis on its internationally agreed goals should not obscure the essential prerequisite of higher economic growth. In spite of agreement that market-based economic growth is key for the prevention of poverty and hunger, discussion continues about which kind of economic growth strategy to follow in developing countries. Sometimes this discussion tends to be fairly superficial, especially in a developing country context, by solely focusing on macro-economic conditions and the functioning of markets in a narrow sense. What is needed is a focus on the broader institutions of a well-functioning market economy: legal, political, social and cultural.

A successful strategy for higher economic growth would therefore be based on developing those institutions in ways that are appropriate both to the local culture and to global financial markets. For example, Hernando de Soto (2000) has shown the empirical importance of unclear property rights in developing countries and Besley and Andrea Pratt (2001) show that freedom of the press improves governance. Federico Bonaglia, Maurizio Bussolo and I (2001, using corruption data covering 119 countries over the last 15 years) show that more open economies, enjoying more foreign competition and investing abundantly in institution building, register lower corruption levels.

According to Jose Tavares and Romain Wacziarg (2001), countries with democratic political systems tend to generate higher economic growth with wealth shared by a wider population, than countries with non-democratic regimes. Sen (1990) points out that "the persistence of severe famines in many of the sub-Saharan African countries – both with "left-wing" and "right-wing" governments – relates closely to the lack of democratic political systems and practice." Jacques Drèze and Sen (1990) stress that democratic countries have managed to prevent famines, even though they have more trouble avoiding malnutrition.

The responses to a questionnaire sent to thirteen economists representing the best professional opinion world-wide about social and ethical aspects of economics provide a variety of views on the role of markets in economic growth and development but reveal a consensus: markets operate in particular environments and their performances depend on that of other institutions - economic, social and political (Ignazio Musu and Stefano Zamagni, 1992). These responses were used in the preparation of the Encyclical Letter Centesimus Annus, whose emphasis on the rejection of central planning as a viable alternative to the market was accompanied by a strong defence of the natural and human environment and by the promotion of the global common good. Ten years later, the views of Nobel laureates about the most significant contributions to economics in the twentieth century confirm the relevance of the Encyclical Letter (Editorial 2001, Malinvaud and Sabourin 2001, pp. 27-29).

There are many specific examples that governance and institutions matter for development (Justin Lin and Jeffrey Nogent 1995), but exactly how the independence of the central bank and appropriate budgetary procedures interact with political accountability in particular institutional settings is not known. Torsten Persson, Gerard Roland and Guido Tabellini (1997) do find a general trade-off between independence and accountability which provides support to the separation of powers argument from eighteenth century political philosophy. In particular, the separation between executive and legislative powers is applied to the budget process as an illustration of the benefits of democratic governance. Building on their notion of complex interdependence, Keohane and Nye (2000) show that, with the spread of free information, the credibility of policy becomes essential - a direct consequence of the role of expectations. Nevertheless, there are few applications of these insights to developing countries, so that the burden of the initial conditions makes institutional change less credible.

IV GLOBAL POLICY CONVERGENCE?

The last decade witnessed a growing emphasis on open markets (for the international trade of goods, services and assets) and on institutions to protect property rights (including hidden taxes, regulatory reform, etc), underscoring the importance of micro-behavioural responses to incentives, be they domestic or external in origin. To the point that the income per capita of countries with open markets and secure property rights converge, according to Sachs and Warner (1995a, the published version 1995b takes the argument too far both conceptually and empirically in basing the convergence criterion on trade openness alone, see Robert Hall and Charles Jones 1999, who add the link between social institutions and the yield on human capital).

Income convergence has therefore been predicated on the process of economic reform that has been going on in developing countries and that corresponds to the failure of import-substituting-industrialisation; the demise of central planning; and the emergence of a global economy. The prerequisites of institutional change revealed by such reform process confirms the importance of good corporate, public and political governance. In other words, globalisation and governance (G&G) are two complementary sets of requirements for sustained development. This explains why in addition to strong interdependence with other fields of economics, development is one where most calls for interdisciplinary research are heard, and where most doctrinal disputes have arisen.One of the crucial debates in economic and social development is about how to ensure that the poorer countries grow more rapidly than the richer countries, so that there may be convergence in living standards and increasing cohesion in the world economy. If "the rich get richer and the poor get poorer", the gap between rich and poor nations will tend to widen over time. Cohesion - be it global, regional or even national - will be threatened. Reforms will stall. In this debate, convergent countries form a club. For Marxian and Weberian interpretations of development, perhaps only countries with an adequate initial level of human capital endowments can take advantage of modern technology to enjoy the possibility of convergent growth. Alternatively, "reasonably efficient economic institutions" might be the major requirement for economic growth and convergence of incomes per capita.

Poor economic management stems from the absence of secure property rights, or from autarkic trade policies and inconvertible currencies. The failure to grow may be rooted in policies rather than in technology or human capital. Then the convergence club is better defined according to policy choices rather than initial levels of human capital. Moreover poor policy choices are not irrevocably linked to low levels of income. Sachs and Warner (1995a) use a sample of 117 countries covering approximately 90 per cent of the world population as of 1985 for which data on policy convergence are available. They establish that countries with "appropriate policies" and initially low per capita income grow more rapidly than richer ones. Countries whose policies related to property rights and to integration of the economy into international trade do not qualify as appropriate do not converge .

No case was found to support the frequent worry that a country might "do the right things" in terms of overall policy (both politics and openness), and yet fail to grow. Among the seven cases of non-qualifying countries which "broke the rules" and achieved high economic growth, only China was seen as a "deep puzzle". The results can be interpreted in terms of conditional probabilities, using a Rawlsian "veil of ignorance". If a poor country found itself back in 1970 knowing these numbers but not names of the specific countries, would policy makers gamble on a China-type path, assuming for convenience that it is unique, rather than a collection of different economic regimes? If they did follow closed policies, the conditional probability of growing at 3 per cent would be less than 10 per cent, whereas, conditional on good policies, the probability of high growth would be greater than 80 per cent.

The rejection of the reverse causation ("slow growth leads to bad policies") is trickier even for countries where the policy regime was chosen early in the post-war era before a track record on growth had occurred. The cold war implied that outward oriented policies in the OECD countries involved security relations led by the United States and that reacting against these policies was an imposition of Soviet policy in Europe and elsewhere.

The capacity to cope with a volatile international environment is the main difference between emerging markets and mature democracies, which have clustered in the so-called trilateral regions, North America, Europe and Japan, generally including some of the countries at the peripheries. The response to crises is often more drastic at the periphery than at the centre because policy is supposed to have higher credibility in mature democracies with a higher credit rating and more transparent public and private partnerships. Lower ratings go with less transparency, signaling a weaker financial reputation and higher perceived risk to international investors.

A particularly troublesome implication of the emerging markets crises of the late 1990s was that the difference between the reputation of the centre and periphery shrunk. In Asia, where the trouble originated, this was due to the continuing difficulties of Japan. On the bright side, the resilience of the US economy made co-ordinated policy responses unnecessary, the G7 summits enlarged to Russia while some of the other "systemically important countries" have gathered in similar groups such as the G-20. With the combination of the 2001 recession and the September 11 attacks called for a rethinking of the consequences of globalisation along G&G lines (World Bank 2002). Moreover the G8 summits are pursuing their engagement with African leaders in the framework of the NEPAD.

V REFORMIST PRESSURES

Global policy convergence does not rule out a specific timing and sequencing of reforms dependent on the initial conditions and the capacity to transform. Indeed, it may prevent a single path which might attain the terminal condition faster but could not be sustained thereafter. This is perhaps the most relevant lesson of the apparent demise of the principle whereby economic efficiency is deemed independent of social cohesion and majority voting.

Experience with the reform process has shown that, in fact, privatisation and liberalisation are not simply complementary but, in many areas, are necessary preconditions for each other and cannot go forward unless they do so together. In practical terms, this is reflected in the basic regulatory function or abilities of the state; abilities which may be either inadequate without further investment in public administrative capacity, or threatened by liberalisation itself, especially with respect to financial markets. As a consequence, the sequencing of domestic liberalisation policies must be done carefully: the appropriate response to the competitive pressure of globalisation may be a restriction of trade in assets until banks are effectively supervised.

Policy reform must also be accompanied by attention to its impact on poverty, inequality and social cohesion. Policies of poverty alleviation take on a salience in poor and rich countries that middle-income countries may find surprising and often confusing. On the one hand, the dynamics of the process of development are so intense in an emerging economy and society that widespread alleviation may seem impossible or undesirable or both, and have been often ignored, especially in recent years with the focus on creating appropriate incentives. On the other hand, especially after mass consumption is achieved, poverty alleviation becomes a moral imperative of civil society, so much so that economic incentives in recipient countries are often forgotten in the rush to provide humanitarian aid.

The success of these reformist pressures has deepened and broadened the scope of development studies, to the point that they are now close to what was once thought of as comparative economics. The comparison of market economies with centrally planned ones (seen as developed in terms of their command over resources, education and health) was conceptually very different from development. Yet, countries in Eastern Europe, the Baltics and the Commonwealth of Independent States have embarked on market –oriented transition in large part because they believe it will advance economic, social and political development.

Among international organisations, a broad reformist approach originated in the report by Lester Pearson (1968) and became part of the "basic needs" approach of the World Bank but it was largely forgotten until the Comprehensive Development Framework (CDF) was launched in January 1999. Possibly influenced by this reformist approach, and encouraged by favourable public opinion, aid donors tended to give increasing prominence to poverty reduction until they agreed on the development goals listed above (OECD, 1996).

Over the last ten years many countries reduced state involvement in the economy through privatisation, opened up the economy much more to foreign trade and investment, and allowed market forces and the private sector to guide resource allocation to a much greater extent, bringing to the fore the complementary between G&G mentioned above.

The ways in which the complementarity between national governance of economic actors and global competition works itself out do vary across countries and over time, enhancing growth in some cases and stifling it in others. This is why creating new institutions, capable of delivering the desired role of the state in economic life, remains a matter for national choice. Preferences vary widely, and initial conditions, economic, social and political, are equally diverse. A reformist government being replaced by a nationalist or populist one will change the policy response to globalisation, for example.

But, as Krugman (1994) has vividly illustrated, reforms are often rhetoric rather than a revelation of a plan or a genuine commitment on the part of policymakers. The reason for this anti-reform bias pertains to a possibly perverse interaction between voters and the media, whereby new initiatives are broadly rewarded but entitlements are fiercely defended by those who benefit. In addition, since the losses are clearer than the gains, even though these may potentially be much larger, uncertainty about the political redistribution mechanism may also impart a "status quo bias", as illustrated in the context of protection by Raquel Fernandez and Dani Rodrik (1991).

The ability to redistribute power and real resources to the population at large, suggests that some social groups are able to distribute external resources among themselves in a more or less co-ordinated fashion. For some purposes groups can be identified with parts of the government, in particular spending ministries (e.g. public works, education, health), possibly in alliance with industry or union lobbies (construction, teachers, pharmaceuticals). In other cases, the groups can be identified with traditional institutions, like the church, the military, the judiciary, etc. Aaron Tornell and Philip Lane (1996, 1999) show that this group influence on the tax/transfer mechanism implies some form of "common access" to the aggregate capital stock, and that each powerful group ignores the effect of the transfer it extracts on the taxes levied to balance the government budget. As a consequence of each group's voracity, aggregate transfers rise more than proportionately. Better co-ordination among powerful groups, perhaps due to a unitary rather than a divided government are shown by Tornell and Lane (1998) to decrease the "voracity effect" and to limit "fiscal euphoria". They show that such fiscal euphoria has dissipated terms of trade improvements in many countries, especially those with weaker institutions.

This shows how the power of vested interests is perverse for society as a whole when an increase in the rate of return to capital in the taxable sector, which typically coincides with exports (whereas the "informal" sector involves import or import substituting production), leads to a more than proportional increase in discretionary redistribution. This "voracity effect" remains operative even when external pressure brings government budget deficits under control and it may even be stronger than peer pressure.

Given the widespread awareness of reform rhetoric and of the resilience of vested interests, currents departing from mainstream development thinking have become more difficult to classify neatly in terms of method and ideology. The CDF (World Bank 1999, 2001) is seen as a response to the perception that globalisation leads to increased poverty. Successful development assistance reflects four principles, long-term, holistic strategy, country ownership, partnership (with business interests and civil society), and results orientation (as opposed to stress on inputs like the percentage of aid in GDP). None of the principles is new, and they all raise difficult choices. First, how long is the long run? Second, what if a country own the wrong policies (Williamson 2000)? Third, partnership often make policy making more difficult due to various forms of transactions costs (Anita Abraham and Jean Philippe Plateau, 2000). Fourth, results orientation by itself cannot overcome voracity type effects (Jean Paul Azam, 2001).

Nevertheless, the joint articulation of the four CDF principles as a framework to promote coherent aid programmes has been influential in the development community. Indeed its ongoing evaluation by a broad group including major bilateral donors, other international organisations (such as the OECD, the African Development Bank and the UN Economic Commission for Africa), civil society (e.g. Oxfam) and business may make the CDF more resilient than the reformist efforts associated with the basic needs were in the 1970s.

Moreover the CDF is linked to the emphasis on poverty reduction strategies and their use in the efforts of debt reduction. In the evaluation of the CDF currently under way, the issues of poor performance, aid dependence, debt sustainability and conditionality are to receive renewed attention (Paul Collier 2000 William Branson and Nagy Hanna 2000 and Pierre-Alexandre Noual 2001). It is clear, on the other hand, that the CDF reflects an interaction between globalisation and governance which needs to be made specific in order to be useful for evaluators and policymakers. In this regard, a specific interaction emerges from the OECD and European experience with peer pressure to be explored in the next section. As mentioned at the outset, the procedures may be used more broadly as long as its basic values are shared among countries, even if these are located outside Europe.

VI. THE PRINCIPLE OF PROXIMITY

The crucial policy issue is how states and markets should interact when the latter become global. The desired interaction, it is surmised, will result from changes in corporate and political governance, thereby raising normative issues which bring back the interplay between the passions and the interests mentioned at the outset. While such philosophical underpinnings are often neglected by national and international development organisations, they have been at the heart of economic thought on development, as the examples from European eighteenth intellectual history illustrate.

6. 1. Globalisation of solidarity

The existence of a "global common good" has become more widely acknowledged, but there is no way the existing global institutions can provide for the common good without relying on national and local entities. Sometimes, perhaps because of contradictory positions of the member states, the UN, WTO, IMF and World Bank are unable to co-operate effectively with each other in areas where their combined mandates and areas of expertise would have produced better results.

Fortunately, there have been occasions when the global economic and financial institutions have co-operated with the UN system. Some pertain to conflict resolution on the ground (e.g. El Salvador, East Timor), others to joint ventures. Among the latter, two examples come to mind: the joint publication of A Better World for All by the IMF, OECD, UN and World Bank and the launch in Monterrey of the UN process on Financing for Development, which has involved IMF, World Bank and WTO, together with business and civil society.

Nevertheless, the democratic accountability of global institutions, let alone of regional ones, remains very far in the future. National legitimacy remains the source of their democratic accountability. If we postulate both, national governance becomes the norm. However, this in itself is no reason for concern. The appropriate level of governance response should only be changed when the level of the nation-state is found to be sufficiently inadequate, due to changes in technology, in preferences, or both.

As global markets remain only part of concrete policy environments, institutional changes at global level are not prerequisites for most policy reforms. Indeed, the principle of proximity suggests the opposite - governance responses at the local level, through the combined action of elected officials and civil society. Moreover, the European example makes clear that the common good may be provided by regional institutions.

The quality of governance can be improved by solving the problem closer to the citizen than the often cumbersome national administration would allow. This is why the principle of proximity is explicitly recognised in the 1992 Treaty on European Union (in the current version see articles 1, second paragraph and 2, second paragraph, which mentions the principle of subsidiarity and refers to article 5 of the 1957 Treaty establishing the European Community; see also nº. 58 of the Encyclical Letter Centesimus Annus).

For many issues, improving governance calls for international policy co-operation and there are even calls for new international institutions (Barry Herman, 1998 discusses some of the concerns behind the UN Financing for Development process, also Reisen 2002). The quest for appropriate regional institutions echoes both concerns as there are subnational and supranational regions. Among the latter, the institutional framework of the EU and of the OECD deserve notice because both are built on the belief that peer pressure among them can bring about better policies.

VI.2 A common European good?

In addition, the EU´s combination of unity with diversity may be an appropriate response for a "globalisation of solidarity". In order to ensure this, a greater awareness of the common European good is called for. This presumes that the EU will play its part in the globalisation of solidarity, from its own enlargement to the reinforcement of its development policies. At the moment, the amounts reported to the DAC cannot be meaningfully consolidated and therefore remain scattered and with less impact.

The EU is the largest donor of public development assistance in the world (in 2000 the EU states and the European Commission accounted for $30 billion, compared with $23 billion divided roughly equally between US and Japan) but since there are at present sixteen development policies within the EU, this is not acknowledged by the public either in Europe or in the recipient countries.

Given the incoherence among aid policies, looking at the overall volume of public development assistance is not going to establish a European identity in development. This is especially true in an environment of economic and financial globalisation, where democratic governance has become the undisputed norm and poverty reduction has become the ultimate development objective. Moreover, governments, businesses and other parts of civil society process information about development which goes far beyond the levels of public development assistance as a percentage of gross domestic product.

The achievement of social cohesion within the EU, together with the success of the convergence towards financial stability, which led to the creation of the Euro, are recognised world-wide. These internal achievements have a bearing on development insofar as they provide lessons for policy reform in developing countries. All too often, the "common European good" invoked for internal purposes is not perceived as such in the global arena because Europe's achievements are not brought to bear on the issue. In addition, there are the implementation difficulties stemming from the uneasy coexistence of sixteen systems of aid governance.

6. 3 Comparative national development

The ability to present the collective advantage of policy reform in each particular case is the essence of political leadership. Yet, too often policy makers do not care to explain the changes and their consequences for public administration, let alone firms, trade unions and civil society at large. As a consequence, social groups fear losses of income or entitlements, resist change on a matter of principle and become less sensitive to national interest than to their perceived group gains or losses.

Comparative development calls for a dialogue about policies, as development has become a two-way street rather than an "institutional technology transfer". Comparative analysis and policy dialogue naturally involve mutual feedback: globalisation has blurred the analytical distinction between rich and poor countries (North and South ?) and it has exacerbated the perception that the problems of income distribution and skills are global. The perception that globalisation, not poor governance, has reinforced inequality is behind much of the recent confrontations around the international trade and investment agenda.

Analysis is not enough to completely prevent it but a communications campaign would also run out of steam, unless it were based on a credible demonstration of the benefits of tariff liberalisation in and of greater market access for developing countries. This is borne out in World Bank (2002) a report on "building an inclusive world economy", close to the inclusive globalisation prominently featured in DEV's 2001/2002 programme of work on G&G.

The theme of inclusive globalisation has acquired new salience after the September 11 attacks, as it is in line with the broad coalition being built by the United States and its traditional allies to fight terrorism, drawing on several United Nations resolutions. Other international organisations have also recognised that the debates on globalisation can no longer neglect the security dimension of national, regional and international governance.

The responsibility in promoting - or hindering - national development of global relative to national institutions should not be decided on philosophical grounds as the practical implications of global markets escape no one concerned about development, Nevertheless, forgetting the philosophical roots requires that the development community periodically rediscovers them. Some of the points contained in what has been called the Monterrey consensus after the declaration prepared for the UN Conference on Financing for Development…

If the main responsibility for change is global, in effect, citizens and policymakers in developing countries can only wait for a better international order, perhaps even in the form of a world legitimate government providing for global public goods (Inge Kaul et al 1999). However, Gordon Smith and Moises Naim (1999) mention preventing deadly conflict, providing opportunities for the young and managing climate change as specific areas of the competence of the UN system, where its Secretary-General cannot carry out minimal global governance tasks.

If the main responsibility rests with the concrete citizens and policymakers, then the focus shifts from global to national, local or regional governance. Greater proximity to decision making brings hope, but it also calls for deeper and more immediate institutional changes, as argued in my (2001a).

VII. CONCLUSION

National development is based on economic growth, social cohesion and political stability within a democratic framework: it implies a sustained improvement in people’s welfare. As the economic history of mature democracies reveals, the path of long-term development depends crucially on policies pursued along the way with respect to opening to foreign trade and to preserving property and civil rights. Institutions promoting the rule of law and the role of civil society make these policies compatible with social cohesion and good government.

Given the economic, social and political conditions prevailing before the take-off into sustained growth, features of the system of international relations may help these policies or instead hinder improvements in governance. This is particularly applicable to the path from an aid-dependent to an emerging market situation: coherence among donors should help reward policy reforms and could discourage poor performance.

From its creation in the wake of the Marshall Plan, the OECD serves as a yardstick for development. This is not only because its Members include virtually all the donors but also because its Members - in spite of their heterogeneity - are seen as successful reformers. It is therefore well placed to contribute to the debates surrounding globalisation and poverty reduction, what may be called the quest for "inclusive globalisation".

Cultures are not deterministic, backward-looking realities that prevent some countries from developing and help other countries to develop. Methods of "soft co-operation", enforced by peer pressure, are appropriate not only for the countries that are part of the OECD club, but also for other countries that may feel like-minded in some specific area. The idea that dialogue between cultures is possible and desirable is an important part of the quest for inclusive globalisation. There is a development path, maybe diverse but in line with some values and notions of change that may be at least compared in a meaningful way over the medium term.

Three difficulties must be overcome, pertaining to data, analysis, culture. Inadequate data is a very serious problem everywhere but the phenomenon is even more pronounced in developing countries. Inadequate analysis – following fads, set modes of thinking and, as the opening quotes imply, recurrent instances of déjà vu. We have to be careful not to reinvent past theories, but rather to improve on analysis. And third, what are the attitudes of a culture toward change, or towards transparency, which is a key to the credibility of free information.

The acronym dac (for better data, sounder analysis and finer attention to culture) helps dispell the Marxian and Weberian interpretations of development criticised by Hirschmann (1976, see also Santiso 1998). It also helps motivate the need to agree on national and regional comparative procedures capable of improving the quality of domestic institutions. While, in the short run, domestic policies may be more valuable than pursuing globalisation at all costs, the role of external pressure is appropriate to macroeconomic stabilisation whereas peer pressure might be required to embark on sustained institutional change.

Belonging to regional arrangements which combine external and peer pressure is only one example of direct ways in which national governance may be improved. Clearly, there are many specific institutional improvements called for by each national development strategy and the portability of the European experience to a development context cannot be presumed. But as the NEPAD may soon illustrate, the investigation of the scope for more peer pressure is especially important for poorer countries that face serious trade-offs between complying with international agreements and investing in basic development infrastructures such as education, health, and social security. The overall message is the positive effect of globalisation on governance cannot be sustained through the developing process without the required improvements in local and national governance.

ANNEX: DEV@40(25)

As mentioned in the introduction to the paper, development is one field of economics where nearly all others are relevant. For example, the last volumes of the monumental Handbook of Development Economics edited by T.N. Srinivasan, the late Hollis Chenery (1988 and 1989) and Jere Behrman (1995a and b) include the following selected list of topics: Savings, credit and insurance; Technological change and technology strategy; Institutions and economic development; Poverty, institutions, and the environmental-resource base; Poverty and policy; Power, distortions, revolt and reform in agricultural land relations; Human and physical infrastructure: investment and pricing policies; Structural adjustment, stabilisation and policy reform: domestic and international finance; Trade and industrial policy reform, etc. Whilst welcome, this diversity makes it impossible to survey the evolution of development thinking without a particular vantage point, which the admittedly cryptic short-hand title evokes, as the time horizons implied by the institutional memory of the OECD Development Centre.

A series of essays are being prepared by its current associates for the 40th anniversary of the 27 October, 1962 resolution creating a Development Centre at the OECD. The volume titled Development Redux, to be launched then, deals with such essential topics in past and current comparative development analysis as new growth theories (Jean-Claude Berthelemy and Daniel Cohen 2002); privatisation and beyond (Andrea Goldstein 2002); civil society (Henri-Bernard Solignac-Lecomte and Ida McDonnell); globalisation, inequality and poverty (Maurizio Bussolo and Christian Morrison 2002); sustainable development (David O' Connor 2002); globalisation and the firm (Oman 2002); governing financial globalisation (Helmut Reisen 2002), trade and financial liberalisation (Ki Fukasaku 2002) and history (Maddison 2002).

The essays should be read against the background of the evolution of development thinking carried out around the time of the DEV 25th Anniversary Symposium, as reflected in the DEV book by Charles Oman and Ganeshan Wignaraja (1991, especially pp. 2-4, 67-69, 81-82, 121-124, 135, 223-226). Given the greater convergence in development thinking of the last 15 years, some of the categories used then (like reformist or heterodox) appear less relevant today when confronted with the mainstream (then called orthodox or neoclassical). The parts of the text quoted above are reproduced after some editing.

The annex is organised into three Sections. The cold war roots of development thinking are described in Section A1. Section A2 focuses on the policies linking domestic capital accumulation with the international economy. Section A3 surveys the once influential views advocating development planning.

1 COLD WAR ROOTS

The disruption of world trade during the inter-war years of 1914-1945, the restructuring of alliances among the industrialised countries and the creation of international organisations contributed to greater development awareness. The goal of creating a world order promoting economic and social development was reaffirmed at the 1945 San Francisco Conference, where the United Nations was established. Of the 51 countries that participated in the Conference, only 10 or 12 were developed and a majority of the remainder were Latin American.

Together with a marked increase in international tensions between OECD and socialist countries, the need for strategies to attain economic and social development that would accompany political independence emerged as a primary preoccupation in much of Africa and Asia in the 1950 and 1960s. The concern that conditions of social and economic underdevelopment left poor countries ripe’ for Communist revolution contributed to the increased interest shown by the developed countries in development problems. The cold war also led to the reorientation of the focus of World Bank programmes and to numerous multilateral technical and financial aid programmes carried out under the auspices of the United Nations.

As international trade gained new vigour, many private organisations also became increasingly interested in development. The phenomenal post-war growth of the OECD economies was accompanied by the emergence of multinational corporations that played an increasingly active role in expanding trade flows and capital movements not only among the developed countries but also between these and the developing countries. Many of these corporations increasingly looked to the latter not only as traditional sources of raw materials but also as markets for their products (capital goods, including technology, as well as consumer and intermediate goods, and armaments), and in some cases as a base for direct investment in local import-substituting industries. Possibilities for and barriers to growth in developing countries thus attracted increasing private initiative, largely because of its local-market potential, but also because of a growing interest in promoting local political stability and avoiding labour unrest.

A factor which undoubtedly contributed to the growth of world-wide concern over the problems of poverty and human suffering prevalent in so many developing countries was the vast increase in the availability of information on world poverty. Largely responsible for this dramatic increase were, on the one hand, the revolutions in communication techniques and, on the other, the work of various international and multilateral organisations which for the first time began to collect systematic data on economic conditions in developing countries.

2. FOREIGN ECONOMIC POLICY

Industrialisation had been the vehicle by which the developed countries historically achieved sustained growth. The ‘dual economy' models stressed the co-existence, in underdeveloped countries, of ‘modern’ capitalist industrial and ‘traditional’ rural subsistence sectors, but they too pointed to industrialisation as the road to development with the rural sector providing the surplus labour and part of the capital required for industrialisation (Arthur Lewis 1954; see also Hirschmann 1981, p.8; Gustav Ranis and Paul Schultz 1988, celebrating the 25th anniversary of Yale's Economic Growth Center).

The heavy emphasis on industrialisation was gradually superseded by a focus on agriculture and the need to develop the rural sector in its own right. One cause of this shift in emphasis was increasing disillusionment with the strategies and policies of import substituting industrialisation (ISI) as many countries reached the limits of the ‘easy’ phase of substitution, and as growth was increasingly constrained by severe inefficiencies in industry, dependence on food imports and balance-of-payments deficits. Another cause was the advent of the ‘green revolution’ production techniques and their apparent, if controversial, applicability to the conditions of small rural producers.

In the 1980s the emphasis on the market mechanism and ‘getting prices right’ came to dominate development debates. This was reinforced by the critique of Keynesian policies and the move towards ‘supply-side economics’ in dominant OECD policy circles. It also largely coincided with the debt crisis and promotion by the World Bank and IMF of ‘structural adjustment’ policies in much of Latin America and Africa - at a time when the success of some East Asian developing countries' export-led industrialisation strategies reached spectacular proportions.

In addition to Latin America, where market forces had actually given rise to ISI in the interwar years, many newly independent countries in Asia and Africa advocated ISI-type development strategies, claiming that demand for their exports was not perfectly elastic. Linking the problem of domestic capital accumulation to integration into the international economy follows Ragnar Nurkse (1952) and Raúl Prebisch (1951), but Jacob Viner (1950), Gottfried Haberler (1959) and Peter Bauer and B.S. Yamey (1968) argued that ISI interfered with the natural process of economic development based on comparative advantage. Their view was essentially that developing countries should remain producers and exporters of primary products and should encourage growth of their agricultural sectors and plantation economies. Although this view apparently had little effect on the inward-looking industrialisation policies followed by many developing countries at the time, it did influence subsequent work based on measures of the ‘effective rate of protection’ of manufacturing.

Studies showed that effective protections was very high in some countries (notably Pakistan, India, Brazil), that it was high to moderate in some (Taiwan, the Philippines) and zero in others (e.g. Malaysia) and pointed to a tendency for many developing-country governments to protect capital-goods industries and for strong anti-export biases to result from policies that sought to encourage heavy industrial development. The anti-export biases notably affected light manufacturing and agriculture. The more micro-level measures of the ‘domestic resource cost’ of ISI investment projects showed that many projects had very low and sometimes even negative rates of return.

Both sets of studies can be regarded as having laid the groundwork for more comprehensive subsequent critiques of ISI, such as the DEV study by Ian Little, Tibor Scitovsky and Maurice Scott (1970), which analysed the level and effects of tariff protection and other direct controls on the development of manufacturing and other sectors (particularly agriculture) in six developing countries. It also explored the scope in those countries for increasing exports and greater use of the price mechanism, i.e. for transition from inward to more outward-oriented growth. Max Corden (1971) narrowed the case for economy-wide protection to the specific case of infant-industry protection. The infant-industry argument, first put forward by List in the 1840s, justified tariff protection to foster newly created industries through internal economies of scale. Corden went further than List by arguing that infant-industry protection can only be economically justified if it is temporary, and if additional distortions exist in the factor markets of the developing countries. He also noted that even then protection is not an optimal or ‘first best’ solution, the more efficient approach being one of using tax policies or subsidies to correct the factor-market distortions at their source .

While there is considerable agreement on the goal of trade liberalisation, there is little consensus on how to achieve it: many authors focus on the economic aspects of the transition from a closed to an open economy, but a recurring theme is that of the social and political constraints which are sometimes deeply rooted in history, ethnic divisions, etc.

The main conclusion seems to be that policies for the transition to an open economy must be designed on a country-specific basis with careful attention to how alternative approaches to liberalisation are likely to affect such groups as small peasants, landless labourers, fixed-wage earners, civil servants, industrialists, etc.

Armin Choksi and Dimitri Papageorgiou (1987) looked at 37 episodes of trade liberalisation in 19 countries and found that the more inward-oriented are the initial policies of a country that attempts to liberalise, the greater will be the costs of liberalisation in terms of unemployment and adverse changes in income distribution. They concluded that particular attention should be given to such questions as the speed of reform (one-shot or gradual removal of protection); its sequencing, and the role of complementary policies (e.g., anti-inflationary measures, exchange-rate policy and direct export incentives, income-maintenance programmes). It also pointed out that a poorly designed liberalisation programme which results in high social costs relative to the economic returns in the short run faces the danger of abandonment.

The implications for institutional reform are clear from an example: the ‘Korean miracle’ is more the result of a close interaction between the State and private enterprise than of the working of the free market. Korean culture and history, they argue, were responsible for providing a substantial class of entrepreneurs, and it was via the actions of the State that this entrepreneurial creativity was released. The State directly participated in the process of industrialisation by ownership of public enterprise's and; more importantly, played an invaluable role by stimulating, guiding (e.g. through credit rationing) and controlling private firms. This view of the importance of the visible hand of the State as opposed to the invisible hand of the market is reiterated by Mirnal Datta-Chaudhuri (1981) and Paul Streeten (1982) among many others. It is recognised in my comment on Anne Krueger and Jugho Yoo (2001) account of Korea's response to the 1997 financial crisis.

3. REFORMIST PRESSURES

Not surprisingly, the more mildly formulated redistribution-with-growth strategies (which emphasise redistribution via employment and the market system) were more widely accepted by the donor community than strategies stressing substantial redistribution of assets or revolutionary change.

Reformist pressures also led to the emergence of non-governmental organisations as important actors in the donor community, both in political terms and as sources of finance, reinforcing the tendency to favour the adoption of small-scale poverty-specific projects. Although major donors have supported the call for more poverty-oriented aid, the aid has not always been so forthcoming owing to the low priority given to aid by developed-country governments and also to the intense competition for funds among different government agencies in those countries.

The adverse international economic climate facing the developing countries following the oil shocks caused a partial shift in attention from poverty and basic human-needs concerns (which were perceived to require expensive medium to long-term solutions) to macro-economic problems and stabilisation programmes (which were perceived to be short-term and require immediate solutions). Similarly, the industrialised countries tended to look inwards at domestic priorities rather than concern themselves excessively with global poverty. Many OECD governments have also been searching for politically feasible ways to decrease public spending. So while aid to poor countries remains a small fraction of GNP, there have been few legislative initiatives to increase it.

As to the debate between basic-needs strategies and the New International Economic Order, many aid-donor countries were keen to promote a reduction of world poverty and internal reform to this end within developing countries. On the other hand, many developing countries vigorously pursued the call for reform at the international level with a redistribution of resources in favour of poor countries. Basic-needs theorists hoped that a compromise solution could be reached so that aspects of both would be tackled. But competing interests and the demands resulting from each group have continued to be a source of confusion. Some important donors suspected that the developing countries were interested in redistribution between countries in order to promote industrialisation of the South rather than in promoting egalitarian policies at home. In turn some developing countries presumed that the North wanted to underplay international economic reform and redistribution by highlighting the failure of developing countries to implement more fully poverty-oriented strategies. The net result of the negotiations seems to have been another kind of solution to both issues: the neglect of both international and internal reforms and redistribution by the North and the South and the tendency to focus more urgently on other issues.

4. PLANNING AND DEPENDENCY

After the fall of the Berlin wall writers and policy-makers ceased to portray the world economy as comprising a ‘centre’ of advanced capitalist countries and a ‘periphery’ of underdeveloped countries but an historical reference must be made to the evolution of development planning from the emergence of the centre-periphery paradigm in Latin America, through the divorce between ‘developmentalism’ (as its radical critics referred to it) and the newly emerging school of ‘dependency’, to the Marxist critique of dependency thinking and the emergence of ‘neo-structuralism’. Following its critique of dependency thinking and particularly of the underdevelopment school, much of the Marxist development literature since the 1970s has focused on various aspects of the modes-of-production controversy and on the role of the State in non-socialist countries.

With the internationalisation of industrial and financial capital, the processes of concentration and centralisation of capital have taken place worldwide, hence in the underdeveloped as well as in the advanced countries. This concentration and centralisation of capital on a global scale, accompanied the development of the forces of production in the advanced countries; but by the time capitalism reached its ‘monopoly’ phase, the dynamics of capitalism during its ‘competitive’ phase had already produced a significant degree of development of the productive forces (and socialisation of labour) in the advanced countries. Elsewhere, by contrast, capitalism reached its ‘monopoly’ phase prior to the development (or at a much lower level of development) of the forces of production.

Quite aside from the modes-of-production controversy and the issue of relations between capitalist and pre-capitalist spheres, it is argued that, compared to competitive capitalism, monopoly capital tends to slow accumulation and productivity growth in the underdeveloped countries just as it does in advanced countries. Moreover, insofar as the relative degree of monopolistic concentration is higher in many underdeveloped countries (i.e. relative to the level of development of the productive forces), the effects of the global processes of concentration and centralisation of capital in terms of slowing accumulation and productivity growth are often considerably more pronounced in those countries than in the advanced countries.

Schematically, the reasoning is as follows. Because of the transformation of the dominant nature of inter-capitalist competition, monopoly capital - in underdeveloped and developed countries alike tends to retain a greater share of the benefits of increased productivity as profits rather than passing them along through falling prices. This in turn increases the mass of investable funds. But the growth of profitable domestic investment opportunities does not keep pace, partly because of increased downward pressures on the rate of profit but also because the dominant firms in a given market see further investment as undermining their monopolistic position or risking to destabilise an oligopolistic ‘equilibrium’. Compared to the dynamics of ‘young’, i.e. competitive capitalism, which historically coincided with and gave strong impulse to the development of the forces of production in the advanced countries, under monopoly capitalism accumulation and productivity growth tend to be slower.

The dynamics that stimulate monopoly capital in advanced countries to migrate in search of profitable investment opportunities outside areas where the capitalists who own it already enjoy monopolistic (oligopolistic) positions are clearly at work in developing countries as well. Such capital migration often occurs in waves, takes different forms in different countries and at different times, and can be directed to new areas of economic or financial activity and/or to new geographical areas. In the advanced countries, the postwar period alone has witnessed waves of capital migration in the forms of foreign direct investment, corporate conglomeration, the growth of `offshore' financial markets, `sovereign' loans to developing countries, international lending to the US Treasury, and corporate mergers and acquisitions. Aside from capital flight, international capital migration from underdeveloped countries can also take the form of payments on foreign debt, remittances on direct foreign investment (both overtly and through transfer pricing), royalty payments, etc.

Whereas the tradition of Paul Baran (1957), Gunder Frank (1969) and Samir Amin (1970, 1976) sees monopoly capital in the advanced countries extracting economic surpluses from the underdeveloped countries, this more orthodox Marxist approach traces such international value transfers to the behaviour of highly concentrated and centralised capital in the underdeveloped economies themselves. Moreover, it should be stressed, this approach sees capital exports from underdeveloped countries as only one - and not necessarily the most critical - of the many ‘paradoxes’ that can be traced to that behaviour, and whose net result is to seriously constrain the development of the forces of production in many underdeveloped countries.

Orthodox Marxists, who severely criticise "dependency" thinking, see central planning as the only way forward because of the irreversible trend towards the concentration and centralisation of capital. In opposition to their view is that of those who see the way forward as calling for measures to strengthen competition in developing countries. These measures include the reduction or elimination of state monopolies through privatisation, deregulation of industry, the reduction or elimination of protection to stimulate competition from imports, the reduction or elimination of restrictions on foreign direct investment and technology imports to strengthen competition from and among foreign investors and technology suppliers (and among local technology importers as well), export-oriented industrialisation strategies to force local firms to face the pressures of world-market competition, and enhanced anti-trust and other such juridical competition policies.

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