Global Transition

Economic development is one of the most important but least understood issues in the world today. It commands our attention because of the vast chasm in living standards between peoples of the First and Third Worlds. Since the Second World War, considerable effort has been devoted to this issue by intellectuals, public agencies at the national and global levels, and private consultants. While the global development process has expanded steadily, particularly in East Asia, there are still large areas of the world, namely sub-Saharan Africa, that have been bypassed. Many observers, therefore, have become pessimistic about the future of the Third World.

The global strategic transition (GST) is the process by which an increasing number of societies are drawn into the vortex of dynamic interaction between the world’s most economically advanced nations. It is generated by the global unfolding of the prevailing technological paradigm. This unfolding process is neither inevitable nor smooth, a reality reflected in the fluctuating fortunes of the world economy throughout the history of civilization. The twentieth century, for example, has witnessed the Great Depression of the 1930s, the ‘golden age’ of the 1950s and 1960s, and slower, more uneven growth during the past twenty-five years punctuated by strategic crises such as those in East Asia at the close of the twentieth century. And as the dynamics of the global strategic core has waxed and waned, so has the economic development of the rest of the world. The attempt to model the GST in this chapter is based on my dynamic-strategy theory developed in a recent series of books (Snooks 1996; 1997a; 1998b), and explored further in Parts IV and V of this book. Underlying this process of global development are a set of dynamic laws (Snooks 1998a) that are introduced in later chapters. The existence of laws, however, does not imply historical inevitability because individuals and societies can and do act irrationally.

This chapter considers the progress and prospects of the Third World as part of the global strategic transition (GST). It focuses on those nations that are attempting, with varying degrees of success, to pass through the transition from the status of a nonstrategic country (NSC) to that of a strategic country (SC). Those societies that have set out successfully on the transition path — called the emerging strategic countries (ESCs) — still have some distance to travel. The remainder — the NSCs — have made little or no progress. Instead they pursue sectional rent-seeking tactics as they wait to gain entry into the global strategic transition. The first part of the chapter considers the state of these Third-World countries by developing a GST index to measure how far they have travelled, and the second part analyses the current problems and future prospects of NSCs in sub-Saharan Africa, and of ESCs in Latin America and Southeast Asia.

Formerly an entity with its own objectives and dynamic, the Second World is currently in complete disarray. While it consists of societies in transition, their paths and destinations are not at all clear at this stage. Some, such as the Czech Republic, Hungary, Poland, the Russian Federation, and Belarus, appear to be in transition from former antistrategic countries (FASCs) to strategic countries (SCs). Others, such as the Kyrgyz Republic, Uzbekistan, Azerbaijan, and Albania, could well be in transition from FASCs to nonstrategic countries (NSCs). Those in between may have to be satisfied in the foreseeable future with emerging strategic country (ESC) status. It will all depend on their varying abilities to engage with the global strategic transition (GST) by developing a viable dynamic strategy. This variety of dynamic outcomes is usually overlooked by those who see these societies moving as a group from command to market systems.

Despite massive scholarly attention devoted to the issue of underdevelopment over the past fifty years, it remains a daunting problem. This dilemma raises questions about the intellectual and practical significance of traditional development theory. In particular we wish to know whether this body of ideas constitutes a general theory of economic development and whether it can resolve the problems of Third-World poverty. These issues are explored in this chapter by considering the nature and scope of existing development theory under four main headings: the productionists; the poverty-trap theorists; the global-polarization theorists; and the institutionalists.¹

The objective of development economics is to explore the reasons for persistent underdevelopment and poverty, and to frame policies that can be employed by Third-World governments and international organizations to resolve these problems. Typically the role of development policy is viewed as removing those obstinate economic, political, and social barriers to transformational change in the developed world (World Bank 1993: 116). In this chapter the nature and scope of development policies are reviewed, and their theoretical and empirical foundations are discussed. It is argued that the extensive disagreement between experts on most policy issues, together with its fragmented nature, has risen because of the failure to construct a satisfactory general economic and political theory of the global development process. Policies are based on severely constrained partial theories, a good deal of casual empiricism, and unrestrained economic ideology. And much of the resulting policy lacks integration into a consistent whole. In order to resolve these problems it is essential to construct a general theory of economic development.

A powerful dynamic theory should provide a clear and realistic vision of the future. Any model with pretensions to explain the past and the present must be able to offer profound insights about the path ahead for human society. This will be important as a basis for framing wider policies concerning infrastructure and environment. If, however, a model has nothing worth while to say about the future, then it will be equally impotent in relation to the present and the past. In this chapter we need to ask: What can the traditional theory of growth and development tell us about the future? To answer this question I will briefly review traditional visions of the future from the classical economists of the late eighteenth century to the neoclassical economists of the late twentieth century.

Strategic demand is the central feature of both the dynamic-strategy model first presented in Longrun Dynamics (Snooks 1998b) and the theory of the global strategic transition (GST) developed in this book. To understand this concept, which is explored throughout Parts IV and V, it is necessary to review the complete model. As the dynamic-strategy model has been developed in detail in the earlier companion volume, no more than an outline is provided here. The main focus of this chapter is to place the model in a global context in order to explain the fundamental mechanism underlying the GST.

To understand strategic demand, which is the central concept in my theory of the global strategic transition (GST), we need to explore the forces driving it. This requires the development of a realistic theory of human behaviour that can explain the exploitation of strategic opportunities and, hence, the unfolding technological paradigm. The failure to analyse the driving force in society is a major weakness of orthodox economics. Neoclassical growth models are neither self-starting nor self-maintaining (Snooks 1998b: ch. 3). In these production models ‘dynamics’ can only be generated from unsystematic exogenous shocks, whereas in the dynamic-strategy model the driving force — the strategic pursuit — is endogenous.

It is now time to explore the empirical dimensions of the dynamic-strategy model by focusing on the process by which the industrial technological paradigm unfolds. The unfolding paradigm generates a changing global strategic demand, which is exploited in varying degree by both First-World and Third-World countries through international trade. While strategic countries (SCs) are in the best position to respond to this demand, considerable economic opportunities also exist for emerging strategic countries (ESCs) and nonstrategic countries (NSCs) with appropriate resources. Opportunities to participate in the global strategic transition (GST) vary as global strategic demand waxes and wanes and as its structure changes. This, together with the strategic demand-response mechanism by which it is effected, are the subjects of this chapter.

In order to understand the strategic response we need a new vision concerning the objectives of human society and its macroeconomic relationships. New visions are reflected in new metaphors. The neoclassical metaphor for modern society is the factory dominated by the machine. Orthodox economists see society as an organization that maximizes its economic output from a given set of inputs and state of technology. They see society working out its objectives within the context of the aggregate production function. This, I argue, constitutes a distorted vision of reality. Human society is not a factory but a strategic organization, and social dynamics is not a production process but a strategic pursuit. Accordingly we need to replace the neoclassical production function in our dynamic models with what I propose to call the strategy function.

The mechanism by which a Third-World nation responds to changes in global strategic demand is discussed in Chapter 11, and the role of strategic ideas in coordinating the supply response is examined in Chapter 12. We turn now to an analysis of that response. How does a nation’s resource endowment change as the global technological paradigm unfolds? To answer this key question we need to examine the strategic response of population and labour supply, capital stock (both physical and human), the state of technology, strategic institutions and organizations, strategic ideas, and strategic leadership. Orthodox economists typically treat the major production variables — namely population and technological change — as exogenously determined. They are regarded, therefore, as the sources of societal change. From this springs the idea that supply creates its own demand. By contrast, in this and the following chapters it will be argued that the supply-side variables respond to changes in strategic demand and that they possess no driving force of their own.

Capital accumulation has long held pride of place in theories about economic development. This pre-eminence can be traced back to the work of the pioneering economists Adam Smith (1723–1790), David Ricardo (1772–1823), and Karl Marx (1818–1883). The focus of this work is on physical rather than human capital. Even in the modern theory of economic development, which emerged in the 1940s, human capital was largely ignored until the 1970s. And the focus of policy-making bodies, both national and international, followed a similar preoccupation. This chapter examines the development models in which capital plays the central role in explaining the persistence of underdevelopment. It also exposes the limitations of these models, and suggests how they can be resolved.

Most economists today take it for granted that technological change is the key to the dynamics of human society. Innovation is usually treated as a spontaneous outcome of either structural or institutional change. Recently considerable effort has been devoted by different schools to developing ‘endogenous’ and evolutionary models to suggest that this is an automatic and irreversible process. In this chapter the orthodoxy is challenged on two grounds: first, that technological change is not the key to the dynamic process but merely a major strategic instrument; and, secondly, that it is not part of an evolutionary or automatic process but is a response to changing strategic demand. The central dynamic mechanism in human society, I will argue, is not technological change but strategic change. The belated conversion of neoclassical economists to faith in technology is, therefore, ironical.

Institutions have no secure place within the canon of orthodox economics. Mainstream neoclassical economists ignore them, and unorthodox economists explain them with the help of disciplines from beyond the boundaries of the social sciences. It is hardly surprising, therefore, that institutional change has never been explained convincingly by the economics profession. While this may not concern those who live in the virtual world of abstract theory, it is frustrating for those development economists concerned with real-world problems.

Interpretations of the appropriate role for government in both strategic countries (SCs) and nonstrategic countries (NSCs) differ markedly. While some scholars view the state as a corrective for the excesses and failures of the market, others see it as the very source of these problems. More recently the World Bank (1997b) has adopted a compromise stance between these extreme positions. Yet none of these viewpoints captures the real role of the state in the Third World. The reason, as we have come to expect, is that economists have no general model of development that encompasses both the global strategic transition (GST) and the national process by which the reins of power pass between economic groups in society. Their views about the state are either ideologically or philosophically based.

In this final chapter consideration is given to the predictions and policies that arise from the dynamic-strategy model of economic development. Not only is this an important role for economic and political modelling, it is also a critical test of the usefulness of such work. If a model cannot be used to make sensible predictions and propose useful policy then it is unlikely to be able to provide even a satisfactory explanation of the present and the past. This inadequacy may not be otherwise discernible owing to the sophisticated modelling techniques, particularly of advanced mathematics, employed by contemporary economists. In Chapters 7 and 8 it is shown that traditional economics, both orthodox and radical, is unable to provide either a satisfactory vision of the future or useful principles for formulating policy regarding economic development.