Six shifts in thinking over the past sixty years

In preparing this panel, the contributors aspired to trace the history of thinking on economics. Each was challenged to identify the single most important shift in thinking over the past sixty years. Then describe the consequences of this shift for how the problems and potential of the developing world are understood.

For trade and finance, Ocampo identifies the shift from industrialization to globalization as the means to achieve development. The earlier period of industrialization was shaped by a logic of state intervention, whereas the rise of Washington consensus saw integration with markets as way to go. Similarly, Yusuf contrasts economic growth “by perspiration” expanding factor supply and “by inspiration” with rising productivity. Economics began to emphasis technology and ideas rather than capital as long-term driver of growth.

According to Berry, the goal of economic growth shifted toward inclusion rather than income. Previous thinking equated rising income with greater life satisfaction, yet research began to question that link. Economic thinking moved away from ‘more is better’, understanding that people really desire having a satisfying job, rewarding personal relationships, and dignified position relative to others in society. Barrientos notes that the scale of social protection programs grew rapidly in China, Brazil and India. In doing so, they became accessible to more people and shifted from short-term emergency assistance for the poor, to medium-term promotion to allow households to escape from poverty.

The problems facing poor countries—and the solutions proposed to address them—changed in response to new waves of thinking

With rising incomes, developing countries have new opportunities to provide for themselves. Das-Gupta identifies the shift in taxes, from redistributing income from rich to poor (plagued by evasion), towards more pragmatic focus on revenue generation that countries can actually implement. Reliance on income tax has been displaced by diverse means of generating revenue, including property tax, excise taxes on consumption, and user charges for public services. The trend is towards fiscal decentralization to provide a tighter link between revenue generation and public spending close to the people.

What does this mean for development assistance? According to Kharas, the Cold War purpose of foreign aid was to build alliances between states. In the 1990s, it refocused on poverty reduction, and now aspires to end global poverty. It became more about what poor people want and need, including their concerns regarding governance, corruption and human rights. This shift witnessed a fragmentation in aid flows and a shorter-term desire for immediate results and impact.

In summary, the problems facing poor countries, and the solutions proposed to address them, changed in response to new waves of thinking, competing schools of thoughts, and the mixed results of applying these ideas to real-life experience. The contributions of trade, growth, inclusion, social protection, taxes, and foreign aid have evolved as a means of ‘achieving’ development.