In the 1980s a neoclassical (sometimes called neoliberal) counterrevolution in development theory and policy reasserted dominance over structuralist and other schools of thought in much of the world. The emergence of this counterrevolution coincided with the abandonment by the developed countries of social democratic and Keynesian economic policies and, in particular, the policy of controlling capital movements, as well as the post-World War II trading regime. Critics have pointed out that this counterrevolution also coincided with and seemed to offer justification and support for a wave of market-oriented interventions by the World Bank and International Monetary Fund (IMF) and efforts to forge a unified global market regulated only by institutions reflecting the interests of transnational capital.

The neoclassical or neoliberal perspective represents a modification and further elaboration of modernization theory. However, in contrast to modernization theory, neoclassical theorists see development as the outcome not of strategic state action but of the action of market forces. The central claim is that failure to develop is primarily the result of too much government intervention and regulation of the economy. Neoclassical theory emphasizes the beneficial role of free markets, open economies, and the privatization of inefficient public enterprises. Its recommended strategy for development is to free markets from state control and regulation, so that capital, goods, and services can have total freedom of movement and there can be greater openness to international trade.

This is the basic blueprint for what has been termed good governance. The notion of good governance has been elaborated, in part, through a component of the neoclassical counterrevolution called new institutionalism. The basic premise of this perspective is that development outcomes depend on institutions such as property rights, price and market structures, money and financial institutions, firms and industrial organizations, and relationships between government and markets. The essence of good governance is to ensure the existence of these institutions and their proper role and functioning, as seen from the perspective of neoliberal theory. According to neoliberal thought, good governance requires freeing the market from state control and regulation; reducing government expenditures for social services like education and health care; maintaining roads, bridges, the water supply, and so forth; and selling state-owned enterprises, goods, and services (including banks, key industries, railroads, toll highways, electricity, schools, and hospitals) to private investors.

As evidence of the soundness of these policy prescriptions for the developing world, proponents point to the experience of four “Asian tigers”: South Korea, Taiwan, Singapore, and Hong Kong. These were the most-successful cases of the export-led industrialization strategy adopted by many countries in the 1970s. All were able to achieve economic growth based on export industries with a comparative advantage in cheap but skilled labour. All maintained high rates of domestic savings and investment (with correspondingly lower levels of consumption). However, many people point out that, in contradiction to the market-oriented reforms prescribed by neoliberal theory and its underlying rejection of state intervention, this national development strategy in all the tigers except Hong Kong was planned and executed through the institutions of a centralized authoritarian state.

A number of critical perspectives emerged in the 1970s that highlighted the cultural and ethical dimensions of development. Most prominent among these were the postmodern, postcolonial, and subaltern critiques of Eurocentric conceptions of modernity and development. Postmodern writing challenged grand narratives of the modern era—narratives of the inevitability of progress, the triumph of individuality, and the primacy of scientific truth—as oversimplified, oppressive, or tyrannical. Postcolonial theory focused on the legacy of colonial rule and especially the difficulties faced by former colonial peoples in developing national identity. Working within this general perspective, subaltern studies sought to rethink history from the perspective of the subaltern and, in this way, bring to light and assert the value of alternative experiences and ways.

These critiques succeeded in drawing attention to the ethnocentric basis of the idea of what constitutes development and the potential limitations inherent within this development, the tension between universal theories and a diverse developing world, the treatment of gender in conventional development theory, and the political content of economic development strategies as pursued by national governments, encouraged by international institutions and nongovernmental organizations (NGOs), and concealed behind the notion of aid. Eventually, these critiques helped focus attention on the need to broaden the concept of development to include a social development and human security dimension. One notable result has been the United Nations Development Programme’s conceptualization of human development, which includes the capacity of people to lead long and healthy lives, acquire knowledge, and have access to the resources needed for a decent standard of living.

The notion of human development influenced development theory in at least two ways. First, it clarified the inadequacy of theories that focus on whole nations or societies and that use macroeconomic factors to explain differences in development conditions and to measure development: these theories cannot predict whether the wealth and material well-being generated nationally are widely enough distributed to provide the conditions for human development. Second, the notion of development as human development reemphasizes the importance of the state. It assigns the state a major role in protecting and advancing sustainable human well-being and argues the need for just the socially oriented state policies that neoliberalism proscribes—policies that improve the access of all people to human resource investments, productive assets, credit facilities, information flows, and physical infrastructure and protect the legitimate interests of producers, consumers, workers, and vulnerable groups in society. Thus, alongside the neoliberal call to dismantle public ownership, state planning, and government regulation of economic activities, there was a perspective that reinvigorated the call for a larger state role in development. These contending perspectives informed political debates about growth and governance and, in particular, what constituted good governance in the global context of development.

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