The State and the big push towards modern industry:
"new" economics, defunct economists, and farmers
[or: Why a little history of economic thought helps us
to demystify development debates]
Agriculture, transition, new structuralism:*
rescuing development from new-classicals
Michael Lipton
Sussex Development Lecture, 2 Feb 2012
*Justin Lin, ‘New structural economics: a framework for rethinking development’. PRWP 5197: World Bank Feb 2010
1 Outline
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Potted history of economic/development thought
Old structuralists and new: transitions, farms, States
Reading Asia: classic/structural, or a sequenced State?
Understanding Asia: open minds (classical, neo-classical, newstructural) v closed systems (new-classical, ??old-structural)
• Non-new-classical foundations for new-structuralism
• Incorporating non-growth goals: distribution, sustainability
• Beyond structuralist farm-to-factory transitions:
-- Small farms: Asia’s technical & land-reform pre-transition
-- Population: re-linking economic transition to demography
-- Finance: Asia vs. the new-classical model
Conclusion: sector focus and the escape from new-classical dogma
2 Potted history of economic thought on development
• Pre-classical: goods better than services; food best
• Classical: prices measure values; stationary state or
‘natural progress of opulence’ via law, easy tax, public
goods, education?; free trade; population
• Neo-classical: “static”? Equating marginal utilities (valueproducts) normal for consumers (producers) & optimal
for each, but only under VERY strong conditions socially.
Major State action is needed absent these conditions.
• New-classical : ‘as if’ conditions met, so minimize State
• Structuralism: devel=agind transition’; price-inelastic
antidevel structures; devel needs active state: doing what?
3 Old structuralists and new: transitions, farms, States
• Old structuralism, OS: market failure v ‘big push’ to ag
ind transition; State should own/protect/subsidize industry
[Anglo-Saxon old-str, or Latin American dependencia?]
• New structuralism, NS: OS‘State failure’, rents; facilitating State still needed, but for comparative-advantagefriendly industrial policy: infrastructure, institutions,
human capital for tech. progress in agind transition
• Classicals, neo-classicals: ‘market’+ State [‘easy taxes’
but public & merit goods, regulation, infrastructure,
redistribution]‘natural progress of opulence’, including
agind transition. New-classicals (NwC): rational expectations, efficient marketsmost State action useless.
4 Reading Asia: classical v structural criteria for the
State, or a sequence of types of States and of change?
• Many agind transitions to much faster growth & poverty reduction in Asia (few in Africa); but distribution, sustainability?
• (At least) 4 claimed ‘fathers’ of Asian successes: liberalization,
developmental state, farm change, demographic transition
• 1 Prior old-structuralist Statesfacilitated 1) physical/human
capital, insttns, infrastrucs 2) protection, subsidy: rents; corrupt, overstretched States; premature cap-intensity; urban bias
• 2 Liberalizing State selective, classical/neo-classical not NwC;
• 3 Developmental States: new-struc tech-upgrading priorities?
• Not 1-2-3 rivals but entwined 1,32,3, 2-3 sequences, leading
transition led by farms [as C18-19 Europe] and demog [new]
5 Understanding Asia: open minds (classical, neoclassical, NS, ?OS) v closed systems (new-classical)?
• Optimal pure-market outcomes need huge assumptions; unmet, so big role for developmental states. That’s stressed by
classics (Smith: public goods, collusion; Malthus: general
glut, fertil.) , neo-classics (Pigou: tax, distribution; Walras:
Left CGE; Arrow(-Debreu): ignorance; Stiglitz: asymmetry.
• As-if perfect comp & markets: Coase; contestable mkets; 
• NewCl ‘positive econs’: State action selfish (public choice),
ineffective (rational expectations/efficient markets/Ricardian equivalence), counterproductive (crowding out). Maths,
etric ‘barbed wire’Keynes/devtl state unarguably ‘wrong’
• NwC: markets optimize transition; ag; demog; dist; finance?
6 Non-new-classical foundations, micro and
macro, for new-structuralism
• Micro-foundations: beyond new-classical models where
everyone maximizes expected lifetime utility:
--- 1950s: satisficing, second-bestness, Arrow
--- 2000s: economics experimental, evolutionary, neuro;
agent-based models; asymmetric info; “happiness”
• Macro-foundations? Relations or individuals?
• Adding-up problems, fallacies of composition or of thrift?
• And in poor/developing/transition countries?
--Finance outside new-classic macro-model;
--NwC foundations not plausible for demographics ;
--NwC rejects special or ‘prior’ sectors like farming
7 Incorporating non-growth goals: poverty
reduction; less inequality; sustainability
• Classicals, neo-classicals but not new-classicals see a
State role against extreme inequality, for sustainability
• For NwC, distribution and hence poverty are market
outcomes, worsened by State action in development
• For NwC, private actions optimize sustainability (including demographics) if prices, including interest, ‘right’
• New-struc goals v. poverty, inequality, unsustainability
• but vacuous if NS theory swallows new-classical
foundations, imposing one goal: non-comparable lifetime utility = f (income, risk) both largely due to output
8 Beyond structuralist farm-to-factory transitions - small
farms: Asia’s technical & land-reform pre-transition
• Old-struc, to speed agind transition, imposed antiag policy bias: subsidy, exchange-rate, interest, educ..
• Elephant in miracle: State inv, land ref (Old-struc);
tech/instns (New-struc): pre-trans smallhldr takeoff
• ‘Smallholder-based pre-transition’ needs mainly newstruc developmental State for research/extn/tech, land
reform (& some old-struc: water devel, fertilizer)
• Labour-intensity & neocl ‘factor efficiency’ag,
smallholders antipov, distribution, in green rev.
agind transn. Surplus-first old-S counter-productive
9 Structuralism and population transition: Asia v SSA
• NwC: “pop-timal”. Neo-cl: Malthus+women’s ed (+ contracepn?) Old-struc: pop growth, cap/output ratioState
inv. needed’ for growth. Contraceptive State:China/India?
• New demog evidence: age transitiondemog gift, 1/3 of
Asian growth; population-age earthquakes; all slower in
SSA, as is ag growth and lab-absorption. Reaping demog
‘gift’ needs prices & strucs to employ extra workers (ag?)
• Agind transition helps to speed fertility-transition but
--- rapid prior child mortality falls are key; need active State,
--- as do‘drag’ areas where ag, agind, fert fall all sluggish.
--- Absent ag takeoff, pre- & post-gift ‘theft’ mop up gains.
10 Beyond structuralist farm-to-factory transitions:
finance - Asia vs. the new-classical model
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Financial transition to get finance to growing sectors; so
all approaches tend to assume agind finance flows; yet
Initial ag pre-transition needs finance esp in early seasons
NwC assumes private flows (and constraints) optimal;
efficient markets; no finance in macro-model. Collapse?
• Classical/neocl case for free(r) trade does NOT imply
• national/internat financial dereg, as per NwC; Asians
resisted, especially after 1997, so West’s disaster avoided
• Some good national experiences (rotating credit, some
micro-finance, shroffs, public banks) but structuralism old
and new lacks tested models for finance in development
11 Conclusion: “sector” focus in transition helps rescue
development studies from excess new-classical dogma
• The State & big push towards modern industry: "new" (vs crude
U-max) economics, defunct NewCl economists, (prior) farms.
• Small-farm-based transformn , normally before ag-ind transitn,
• helps neo/NwC factor-efficiency, dist, but needs non-NwC State,
• as does ongoing, powerful demographic transition.
• Sound financial transition requires State to break NwC rules.
• Distribn/sstnblty: externalities, myopia v NwC night-watch State.
• Old-S saw partly-right State role, but anti-ag and slighted rent,
class, overstretch, trade distortion: all anti-growth & unequalizing
• New-struc techno-facilitating State necessary but not sufficient.
• New-struc promising if and only if it shakes off NwC allegiances.