Arguing for policy space to promote development: Prebisch, Myrdal, and Singer.

Author:Ho, P. Sai-wing

The underdeveloped countries' demand for policy space--autonomy to shape market forces--to promote development has a longer history than what might at first appear in the current globalization debate that witnesses their protest against its erosion. (1) Long before the term "globalization" became current, that need for policy space was articulated by, among others, many of the "pioneers" in economic development. (2) Unfortunately, what they actually articulated, and how they did so, have almost always been distorted and misrepresented by mainstream economists as the latter wage intellectual debates in order to shrink such policy space in accordance with their beliefs in how unimpeded functioning of markets would best promote development. Such distortions and misrepresentations, and the resulting terms in which the debates have been conducted, have doubtlessly shaped policy discourses and contributed to the ongoing push by the mainstream in support of globalization. (3)

This paper purports to more accurately represent the arguments for such space that were offered by three of the pioneers, namely Raul Prebisch, Gunnar Myrdal, and Hans Singer. The next section briefly outlines how the three have been misrepresented by the mainstream. That is followed by a section that seeks to more accurately summarize their development analyses. The next to last section considers the implications of their analyses for the argument for policy space. The last and brief section contains some concluding remarks.

Prebisch, Myrdal, and Singer in the Eyes of the Economics Mainstream

Mainstream economics emphasizes the allocative role of markets in situations of scarce resources. With this focus, development problems are accordingly largely approached as ones of resource allocation under the assumption of given technologies in the form of some sort of production functions. It is on this basis that mainstream trade theories, under standard assumptions, support free trade as an efficient policy in allocating scarce productive resources across countries. This is true whether countries exhibit comparative technological differences (as in the textbook Ricardian model) or resource endowment differences (as in the Heckscher-Ohlin-Samuelson model). Should there be a "market failure" in such allocation, then, according to the mainstream theory of commercial policies, a trade intervention (e.g., a tariff) to correct the failure is almost always less efficient than some non-trade intervention (e.g., some sort of a domestic subsidy) (Corden 1997, ch. 2). Those who know no better and support trade protection are labeled as "protectionists" or supporters of import-substituting industrialization (ISI).

In essence, that is how Prebisch, Myrdal, and Singer have been treated in the mainstream literature. As is widely known, Prebisch and Singer have together been attributed the thesis (hereafter PST) that suggests that the net barter terms of trade of the primary exporting countries have been on a secular decline. It is in the face of this decline, as the story goes, that the recommendation was made that the underdeveloped countries should pursue ISI. Separately, Myrdal expressed reservations about the promise for development by continuing to rely on the export of foodstuff and/or raw materials (1956, ch. XIII). For this, he was accused of "lend[ing] support to the Singer-Prebisch thesis" (Meier 1958, 286). Individually, he was classified as one of the "protectionist writers" (Haberler [1959] 1988, 27), with the observation that his theory "bears a most striking similarity" to that of Friedrich List (25, n. 10). (4)

These elements in the works of Prebisch, Myrdal, and Singer that the mainstream has fixated upon would appear to provide a seamless interpretation link to the general direction of MTNs (multilateral trade negotiations) up to the Tokyo Round under the auspices of the General Agreement on Tariffs and Trade (GATT). Thus, Article XVIII of GATT, which allowed trade protection in a "developing country," through both tariff and quantitative measures, is regarded as reflecting the "predominance of the import substitution approach to economic development" in the 1950s and 1960s (Dam 1970, 227). This and other treatments, like non-reciprocity in tariff concessions that cumulated by the time of the Tokyo Round, prompted some observers to label the agreements from that round as representing the "high-water mark of S&D [Special and Differential] treatment [for the developing countries]" (Hudec 1992, 73). But beginning in the late 1970s, when the economics mainstream regained the upper hand in the intellectual debate on trade policies for development, "the GATT has come to [be seen to] institutionalize a set of economic presumptions shown to be inappropriate" (Finger 1991, 203).

Re-examining Prebisch, Myrdal, and Singer

In their own ways, Prebisch, Myrdal, and Singer each challenged and criticized mainstream economic theories, especially, but by no means restricted to, those pertaining to trade. They all did so out of a deep concern for international distributional justice. It is against this background that Prebisch studied the uneven development between the "centre and periphery," Myrdal examined the...

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