IDEC8022 Economic Development

In this essay, the review of two chapters from the book “Deal and Development: The Political Dynamics of Growth Episodes” will be done. Chapter 2, Deals and Development in a Resource-Dependent, Fragile State, was write by Eric Werker and Lant Pritchett, while another chapter under review, that is, Chapter 10, The Politics of Structural (De)Transformation, was written by Kunal Sen and Mathew Tyce. The two chapters delve into the impacts of the politics in Libera, Thailand and Malaysia on the economic development of these countries during a period of time, as an attempt to better understand the why there is acceleration and sudden halt or decline in the economies of countries around the world. Certain elements are common in both the chapters, that is, rent space, deal space, feedback loops, and the political settlement. These variables are used by the authors to better explain the growth structure of the economies.

In chapter 2, the chapter throws light on the economics conditions of Libera, a country which seem to be doing well and at its peak during 1972, but started to fall in the year 1995. The company was not poor in 1972, but the country’s purchasing power was not high, it was ranked 107^th out of 163 countries at that time. The author clarify that it was not the case of “poverty trap”, but the country was affected by the chaos and war, due to which, the country remained a lower-middle income economy. There was subsequent growth when the civil war ended, but this growth was unequal, and impacted by the good and bad policies, where deals were being made, which were impacting the growth of Libera. The statistics available about the economy of Libera were not reliable, as the economy has unequal wealth distribution, and the people living in poverty, even after the economy started to rise back up.

The country went through rule of several people, who took control of the administration and politics of the country, but had different impact on the country, depending upon the time of their rule and their respective policies of governing the country. But the country’s conditions were worst during the period of 1990-2005, where the basic economic activities were stopped completely, which made the economic go in depression, along with death rate being 10% of the population, which was higher than even World War II. The economic growth started as soon as 1944, when Tubman was ruling the country. Tubman was a dictator, which contradicted this economic growth, as people of ethnic groups were being controlled by Americo-Liberians, and they extracted rents on the land use by using violent against the indigenous people. In period of Tubman, the GDP per capita rising, but it was unequal, as the “tribal” group, which constitutes to be the working class of the country, did not receive any kind of benefit from the deal which was being struck in the economy. Rentiers and powerbrokers were controlled, but there was still a good foreign trade amongst countries, which was still not development, as this growth undermined the social institutions and did not help all people to grow, leading to negative feedback loop.

Rule of William Tolbert Jr., followed after the death of Tubman, who was the Vice President under Tubman for two decades. Tolbert tried to make a new patronage network, one different from the one in lace during Tubman’s time. Tolbert’s government was progressive, which made several changes in the economy, such as promotion of education under his rule, but the government policies were misguided, along with several trade shock terms led to the weakening of the economy, and leading to unrest as the rice level of commodities was increasing, after it reach its peak in 1972, under his rule. Tolbert was killed inside the executive mansion.

After the death of Tolbert, Samuel Doe, a young indigenous man, took over the rule of Libera. During his rule, full blown collapse of the economy set in. He tried to make a new structure for economic activities, which excluded the elites of Americo-Liberians from being included in business or governmental activities, which only led to further dysfunctionality within the country and its economy.

Doe’s rule came to an end in 1990, when he was killed, when the militias took over the country’ rule. During this period, no particular leader emerged, but Charles Taylor was a significant figure, who shared the power with other militias. This time period, from 1990-2005, was the most brutal, the country witnessing a high rate of death, along with halt to essential economic activities, which shattered the economy so much so, that outside intervention was required to put a stop to the civil war and establish a stable political structure, so that the country can recover. Thus, came the rule of Sirleaf, a popular activist, who was elected by people in 2005 and re-elected in 2011 again by the people of Libera. Sirleaf was able to build the economy from shatters, with the help of foreign aids’ and FDI’s help, along with support of UN peacekeepers, who assured to maintain the peaceful environment in the country. In this manner, Libera’s economy came a full circle, rising falling, collapsing, shattering to the ground, and rising again.

Chapter 10 of the book, on the other hand, discusses about the economic history of two countries in Asia, Malaysia and Thailand, both of which observed splendid economic growth in 1990s, before these countries were harshly hit by the Asian Financial Crisis of 1997, which affected these two countries so hard, that they still have not achieved the level of economic growth they experienced before the AFC affected them, after more than two decades have passed. The crisis was result of internal factors such as rising real estate and infrastructure investment, which was badly monitored by the financial institutions, along with external factors such as currency crisis in the economy, which caused devaluation of the currency in both the countries as a result of short-term portfolio capital investment in these countries. The authors state that the fall in the economy has been studied with economic perspective often, but has lacked the political perspective, which is also a major contributor to crisis occurring. The closed patronage-based networks and mechanism between political and economic elites were a contributor to the rapid growth in these two countries, until arrival of mid 1990s.

The authors argue that the political elites in these countries had a dualistic deal environment during the first phase, which the author determined to start in 1960s to the AFC. This is where the political elites offered deals to the magicians, that is, successful exporters, and the powerbrokers, too, the domestic firms which operate in restricted sectors of the economy, that were protected from foreign competition to a long extent.

These dualistic deals seemed to work until AFC, but seemed to create problems in the economic stability, as the economies of both the countries tried to get out from the crisis and handle the change in the political structure of the countries, as AFC created imbalance in the political structure and the way deals were being made in these countries. Section 10.2 explains various components of economy, such as per capita GDP of these countries, economic growth, Manufacturing value contributions, investment rates and FDI in these countries, and how they enjoyed a steady growth until 1997, when these countries were hit by the Asian Financial Crisis (AFC). In these components, there was a bit difference between these countries, as Malaysia was colonized by Britishers, and Thailand was not, which impacted the economic behaviour of these countries, but these economies had a lot of similarities, the authors noted in the chapter. All the components mentioned above saw a sharp decline in mid 1990s, and the post AFC structural transformation in the growth deceleration phase nature made the two countries’ response different from each other. There was slowdown and a potential regress in Malaysian structural transformation, which as not similar in degree of Thailand.

Section 10.3 of the chapter discusses the reasons behind growth acceleration in Malaysia and Thailand. This section reflected how Malaysia had a dominant party, which was strong, and accepted the ethnic groups, but still maintained the rule of the original inhabitants of Malay Peninsula. The structure saw changes, which led to increase in the socioeconomic structure of the country, and ethnic tension saw a rise. Mahathir, the prime minister of Malaysia in 1980s, emphasized entrepreneurship, which led to the elite entrepreneurs to rise, as the Mahathir was against subsidies and NEP. There were changes in made in the rent space and deals space, so that the country could have an economic growth. The deal structure saw a change. The feedback loops were both positive and negative in nature. Thailand also saw acceleration in the economic growth, when there were changes made in the rents and deals space by the political influence. The deals were made in such a manner, which would protect the domestic industries, but still encourage MNCs and foreign companies to enter the market.

It was further observed in the chapter that the dualistic deal approach may be helpful to grow the economy for a long time period, but it can lead to severe problems, which might hinder the future growth of the economy. Closed deals in the economy will be more fatal, if there are no strong capitalist class to open the deals space.

Thus, it can be concluded that there is more to economy’s reaction than the economic factors. Political structure is also relatively important in these scenarios, which can make or break the economy of any country.

References

Pritchett, L, Sen, K. and E. Werker (eds) 2018, Deals and Development: The Political Dynamics of Growth Episodes, Oxford, Oxford University Press.

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