The Fundamentals of Economics

Modernization Theory II

Modernization Theory

global inequality, differing levels of technological development among societies.

liberal perspective made from Enlightenment thinking

Historical Perspective of Modernization Theory

development of industrial technology that raised standard of living, even for poor people in high-income societies

sees traditionalism as barrier to economical development

David Ricardo

English economist

argued if every nation specializes in production of goods where it has a comparative cost advantage and then trades it with other nations for the goods in which they specialize, there would be an overall gain in trade, and overall incomes should rise in all countries.

Comparative Advantage

company/country is more efficient, has better technology, or easier to access resources than its competitors

Competitive Advantage

company/country outperforms competitors through productivity, quality, price, service, etc.

Rich nations help solve global inequality by:

• assisting in population control

• increasing food production

• introducing industrial technology

• instituting programs for foreign aid

Critical Evaluation of Modernization Theory

• widely supported among social scientists

• heavily influenced foreign policies of richer nations

• ignores global force that frustrate development of poor nations

• ignores way where all nations are linked in global economy

• holds developed world as model that all nations should mimic (believing your own group)

• blames victims for their own economic problems

Dependency Theory

explain global inequality through historical exploitations of poor societies by rich societies

made my Latin America during period of Great Depression to early 1970s

response to underdeveloped state of many nations in continent

Historical Perspective of Dependency Theory

economic success of wealthier nations achieved at expense of poorer countries

Neo-colonialism of Dependency Theory

def: control of less developed countries by wealthier nations through indirect economical, financial, and cultural pressures, rather than direct military rule

keeps economic relationships shaped under colonialism

Andre Gunder Frank

argued that export-oriented solutions to development don’t help in the underdevelopment world

urged world to embrace ISI (Import Substitution Industrialization —> substitute imported goods with locally produced items)

Prebisch/Wallerstien’s capitalist world economy:

• rich nations are core for world economy

• low income nations are at the edge

• rich nations continue to contribute to global inequality by single-minded chase of profit

• need to unassociate from world economy to develope ISI

• Dependency of bordering nations comes from: narrow export-oriented economies, lack of industrial capacity, foreign debt

Critical Evaluation of Dependency Theory

• correctly emphasizes interdependency of world’s societies

• treats wealth as zero-size goods

• assumes countries with strongest ties to rich nations should be poorest

• ignores role of traditional culture maintaining poverty

• ignores economic dependency promoted by foreign Soviet Union