On September 29, 2010 a group of development economists primarily from Latin America signed the 10 Theses on New Developmentalism. It was a Keynesian and structuralist reaction after the failure of the Washington Consensus (the neoliberal development dogma) as well as the unfolding of the global financial crisis. Here are the theses in short (I compressed them – some highlighting also is mine -, for a detailed listing see the link above):
- Economic development is a structural process of utilizing all available domestic resources to provide the maximum environmentally sustainable rate of capital accumulation building on incorporation of technical progress.
- Markets are the major locus of this process, but the state has a strategic role in providing the appropriate institutional framework to support this structural process.
- Economic development requires a national development strategy which seizes global opportunities, mitigates barriers to innovation created by excessively strong intellectual property regimes, assures financial stability, and creates investment opportunities to private entrepreneurs.
- Although the Schumpeterian (supply) side of the development process and strategic industrial policy are relevant, the demand side is where the major growth bottlenecks unfold.
- The tendency of wages to increase more slowly than productivity growth is due to the existence of an abundant supply of labor and of the political economy of labor markets. A legal minimum wage, cash transfers to the poor could be used to neutralize this tendency to underpay labor.
- The tendency to cyclical overvaluation of the exchangerate in developing countries has been due to both the excessive reliance on external savings in the form of foreign capital flows and the Dutch disease in the context of excessively open capital markets and lack of appropriate regulation.
- Dutch disease may be characterized as a permanent overvaluation of the national currency due to Ricardian rents originated from the export of commodities based on natural resources or exports based on ultra cheap labor.
- Economic development should be financed essentially with domestic savings. Growth strategies that rely on foreign savings cause financial fragility.
- In order to provide the appropriate framework for development the government must ensure a stable long term relation between the public debt and GDP and a real exchange rate that takes account of the need to counter the adverse effects on the manufacturing industry of Dutch disease.
- To achieve long term development economic policies should pursue full employment as its primary goal, while assuring price and financial stability.
The Sceptical Economist 