Kicking Away the Ladder. Development Strategy in Historical Perspective

However, at another level, the argument that developing countries should follow the ‘new rules’ of the world economy because that this is what the developed countries, and the IDPE that they control, want is beside the point. What I am arguing is precisely that these ‘new rules’ should be changed. I do agree that the chance of these rules being changed in the near future is very small. However, this does not mean that therefore it is not worth discussing how they should be changed. If we think these rules need changing, we need to debate how best this can be achieved, however small the chance of change may be. By identifying the ‘rules’ by which the NDCs had developed, this book is intended to contribute to precisely this debate.

The second possible objection is the argument that the policies and institutions recommended by the IDPE to the developing countries have to be adopted because they are what the international investors want. It it may be argued that it is irrelevant whether or not the developing countries like these ‘new rules’, or even whether the IDPE is willing to change them, because in this globalized age it is the international investors who are calling the shots. Countries that do not adopt policies and institutions that international investors want, it is argued, will be shunned by them and suffer as a result.

However, there are many problems with this argument. First of all, it is not clear whether international investors do necessarily care so much about the policies and institutions promoted by the IDPE. For example, China has been able to attract a huge amount of foreign investment despite the proliferation of what are by current definition ‘bad policies’ and ‘poor institutions’. This suggests that what the investors really want is often different from what they say they want or what the IDPE says they want – democracy and the rule of law being the best examples in this regard. Empirical studies show that most institutional variables are much less important than factors such as market size and growth in determining international investment decisions.[16]

Second, even if the conformity to international standards in policies and institutions were to bring about increased foreign investment, foreign investment is not going to be the key element in most countries’ growth mechanisms. In other words, the potential value of a policy or an institution to a country should be determined more by what it will do to promote internal development than by what the international investors will think about it. This book demonstrates that many of the institutions currently being promoted by the proponents of the ‘good governance’ framework may not be necessary for development. Some of them (e.g., the protecting of certain property rights) may not even be good for it. Especially when taking into account their set-up and maintenance costs, establishing such institutions can easily have a negative impact overall, even if this were to lead to higher foreign investment.

Third, specifically in relation to institutions, I would argue that, even if certain ‘good’ institutions are introduced under global pressure, they may not deliver the expected results if they cannot be effectively enforced. It is possible to argue that we should welcome a certain degree of external pressure in situations where the government of a developing country is resisting the introduction of certain institutions that are obviously ‘affordable’ and compatible with the prevailing political and cultural norms in their society. However, we should also recognize that the introduction of institutions in countries that are not ‘ready’ to receive them can mean that the institutions will not function well or may even be undermined altogether. Examples include democracies undermined by military coups, electoral frauds and vote buying, or income taxes routinely and openly evaded by the rich. There will also be problems with institutional changes that are imposed from outside without ‘local ownership’, as the current jargon has it. If that is the case, clever international investors will figure out that possessing certain institutions on paper is not the same as really having them, which means that the formal introduction of ‘global standard’ institutions will in fact make little difference to the country’s attractiveness to foreign investors.

Fourth, as long as the international development policy establishment is able to influence the way in which ‘good policies’ and ‘good institutions’ are defined, interpreted and promoted, there is still some value in discussing what policies and institutions should be asked of which developing countries. The ‘follow the global norm or perish’ argument assumes that the IDPE is a weather vane blindly following the winds of international investors’ sentiments. However this establishment can, and to a great extent does, actively decide how strongly which policies and institutions are pushed.