Reflections on the old and new developmentalism

New Developmentalism provides a view out how it incorporates the positive contributions of early development theorists concerned with to the past of development theory as well as a view to the future. This assessment points the similar problems of the importance of exchange rates in the development process to provide a contemporary version of the theory adapted to the twentieth century world of globalization and financialization . KeyWorDs: New Developmentalism; exchange rates; Interest rate Parity Theory. Jel classification: F31; o11; o14. Development economics as an academic discipline was born in the interim between the two great wars. It was driven by two factors. The first was the breakup of the great european empires after the first war. It is evidenced in rosensteinrodan’s classic 1943 analysis of the problems facing the newly created independent economies in south-eastern europe. The problem was how to transform these once integrated economic regimes into economically viable independent economic units. The second was the impact of the disintermediation of the global system of financial flows created by the Great Depression and the disintermediation of trade flows produced by the new political configurations and the rise to dominance of the us after the second war. The symbol of the problems caused by these geopolitical changes was the identification of the long-term tendency of decline in the 1 levy economics Institute of bard college. e-mail: kregel@levy.org. submitted: 17/april/2017; approved: 26/July/2017. Brazilian Journal of Political Economy, vol. 38, no 1 (150), pp. 70-75, January-March/2018 70 • Revista de Economia Política 38 (1), 2018 http://dx.doi. org/10.1590/0101-31572018v38n01a04 71 Revista de Economia Política 38 (1), 2018 • pp. 70-75 terms of trade between primary commodities in the newly created economies and manufactured goods produced in developed industrial countries. both disruptions of existing integrated economic relations led to a description of the problems facing these new, developing economies as that of the relation between the “center” and the “periphery”. This framework also suggested that the creation of viable economic units in the formerly integrated colonies would require a fuller sectoral diversification of domestic production. This was in sharp contrast to the then more traditional view that comparative advantage specialization would prove to be a sufficient driver of development. With former linkages to the industrialized center cut off, viability meant a more diversified domestic production structure. building a manufacturing sector thus became a focal point of the development discussions and the center piece of virtually all development theories, epitomized by arthur lewis’ (1954) model of development with unlimited supplies of labor. Developing countries could thus be characterized as those who faced a distorted domestic structure of production resulting from political disruption redefining the economic unit or economic space, or those who faced a distorted domestic structure of production due to the dominance of the economic power of the center over the periphery. The basic imbalances in domestic production structure thus dominated the discussion of the problem to be resolved and on the constraints on the preferred solution of expanding manufacturing that lay in the identification of the difference in market forces determining primary commodity prices and manufactured goods. It was the predominance of competitive pricing in internationally integrated markets that caused the tendency for decline in the terms of trade for developing countries a formed the basis for the external balance of payments constraint. It was supply and demand elasticities (Prebisch, 1959), and market form, and the denomination of contracts in foreign currency, which provided the barriers to a successful exploitation of comparative advantage in the export of primary products as a source of promoting an expansion in manufacturing. This point of view is summarized by Kaldor (1963) “sellers of primary commodities suffer from two important handicaps . first . primary producers are “price takers”. a fall in demand for manufactured goods leads directly to a reduction of output: any reduction in prices occurs only indirectly and incidentally, depending on the extent to which producers are induced to lower profit margins. a fall in demand for primary commodities, on the other hand, leads directly to a fall in prices; it leads to a restriction in output only indirectly, in so far as the decline in prices causes producers to lower their output. ” much less discussed, but equally important was the fact that this discussion took place in the context of explicit acceptance of an international gold standard, or a multilateral international system based on stability of us dollar exchange rates. solutions were thus sought within this framework. buffer stock schemes were devised to provide an offset to the operation of competitive prices. Import and export tariffs, or subsidies and quotas were justified for infant industries and used to adjust