NGO%20and%20MDG - Rethinking Development Aid in the...

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Rethinking Development Aid in the aftermath of many developing countries’ failure to develop The Rise of neo-liberalism Neo liberal development theorists point to the success of countries such as Singapore, Taiwan, S. Korea and Hong Kong’s claim that sound development policies based on neoclassical (free market) economic principles is the appropriate view to develop an economy. The difference from David Ricardo’s theory of comparative advantage is this… Ricardian theory of comparative advantage relegated developing countries to providing cheap labor products to the global system. Under neo-liberalism, there is included the notion of a ladder, leading to increasingly sophisticated products made by an increasingly skilled, educated & better paid work force. By end of 1980’s, a system of recommendation based on neoliberal ideas became the new standard in conventional international economic policy circles. In 1990, a policy consensus was developed by the World Bank, IMF & U.S executive branch. This consensus came to be known as …The Washington Consensus. What is the Washington Consensus? The Washington Consensus is not quite like neo-liberalism. It is very skeptical of state-led development initiatives. That is, it is very skeptical of government’s ability to choose the “perfect” economic policies that will steer a country toward long- run sustainable growth. It is also skeptical of foreign aid’s effectiveness in funding growth & development. Rather, according to the Washington Consensus, trade liberalization is the answer to sustainable growth, together with a market-based economy unfettered by government intervention. 1
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Hence, TRADE & MARKETS are the answer to successful development and therefore, the best path to follow in order to “develop” into a market-economy. Government’s role in the development process is to create the necessary institutional framework that will support and enable a market-based economy to flourish. This, in essence, is the answer to the question, “How do Develop”. To implement a market-based economic growth policy, we must begin by ensuring that the fundamentals are in place, such as having: 1. an accountable, transparent government, and 2. an interconnected system of institutions that support and promote competition, investments, and that inspires confidence among potential entrepreneurs & investors. Policy recommendation by the Washington Consensus spans both government reform & institutional reform. For instance, governments must: 1. Eliminate government corruption 2. Use fiscal discipline. Government spending should not exceed tax revenues by more than 2% of its GDP. Or, stated simply, the budget deficit should not be greater than 2% of GDP. 3. Government spending priorities should be redirected away from politically sensitive areas and “pet” projects and instead, toward primary education primary healthcare infrastructure development (both physical & informational) 4.
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