Modernization theory

Modernization theory

The Washington Consensus drafted by Williamson in the late 1980s was aimed at improving the economic conditions in developing countries. (Williamson, 2004) claimed that its initial intention was not to prescribe the development but rather, to reveal policies that made Washington desirable to the Southern American countries economically. Later on, the policies were termed as, Williamson, (2004), “… set of economic policies advocated for developing countries in general by official Washington.” This further evolved the concept of neoliberal policies that had began discussions earlier in the decade which according to Alam, (2003), “the neoliberal, open door economic regimes imposed on the periphery by core capital … have produced no economic miracles.” Economics critics have given different opinions on neoliberal policies and concepts such as open trade towards development of third world countries. This paper gives the views of economists Bhagwati, (2002) and Chang, (2008) towards the free trade as a rescuer for developing countries.

Basically, (Bhagwati, 2002) states that with the practice of trade, countries experience positive growth which in turn decreases poverty. The author also argues against the controversy of trade as a promoter of poverty rather than reducer. From his research, there is adequate evidence of the reduced poverty that many developing countries such as India have been able to achieve within a short period of time. There is also a mention of China as a country that experienced wide growth and poverty reduction through trade, thus reports by the World Bank and IMF of the 10% and 6% GDP increment in China and India respectively (Bhagwati, 2002). Static argument relates poverty in developing countries to the low wages earned by workers without professional skills. The dynamic argument on the other hand focuses on the trade as a variable of growth and a necessity toward improvement on economy and reduction of poverty (Bhagwati, 2002). The trade argument here approves the interpretation of the neoliberal policies as economic policies which were formulated by Williamson, 2004.

The argument regarding trade as mentioned above contrasts with Chang, (2008) argument. Though both authors agree on the importance of free trade, (Chang, 2008) agues that trade cannot work independently and should be supported by other variables such as privatization of some ventures owned by the government and deregulation of foreign direct investment (FDI). The author demonstrates the concept based on the developed countries before they had their economic breakthrough. Counties like he USA and Japan took full advantage of free trade introduced when they were developing to interact economically with other sates. However, they limited the invasion to their market by foreign traders through regulating FDIs. Chang, (2008) states that, “In the 19th century, the US banned or heavily regulated FDI in natural resource exploitation.” Further, the author elaborates how the countries like Netherlands self exploited their resources and marketed the unique ones, thus taking advantage of the open market. Thus, though free trade is commendable for the reduction of poverty, it is not independent and has certain determinants as mentioned above.

In conclusion, the contrast in the view of the two authors is clearly evident. They both approve the context of the neoliberal policies and the Washington consensus as interpreted by economists, thus elaborate on importance of free trade. However, the many considerations made are worth noting. Basically, (Chang, 2008) criticizes the exploitation of developing countries by the already developed by FDIs when they minimized their foreign investment during the development process. The two arguments generally contradict in the variables of the poverty elimination using free trade. As (Bhagwati, 2002) strongly believes in free trade despite foreign intervention in the market, (Chang, 2008) is for the idea of self exploitation and regulating foreign forces for beneficial use of free trade.

Works Cited:

Alam, Shahid. Two Decades of Neoliberal Policies. Pauperizing the Periphery. 2003. Web. 9 August, 2010.

Bhagwati, Jagdish., & Srinivasan T. N. Trade and Poverty in the Poor Countries. 2002. Web. 19 August, 2010.

Chang, Ha-Joon. Under-explored Treasure Troves of Development Lessons. Lessons from the Histories of Small Rich European Countries. Amsterdam: Amsterdam University Press, November, 2008. Web. 19 August, 2010.

Williamson, John. The Washington Consensus as Policy Prescription for Development. Practitioners of Development. 13 January, 2004. Web. 19 August, 2010.