Sussex Development Lecture given by Professor Michael Lipton on 2 February 2012

1. The State and the big push towards modern
industry: "new" economics, defunct
economists, and farmers
[or: why a little history of economic thought
helps us to demystify development debates]
Agriculture, transition, new structuralism:*
rescuing development from new-classicals
Michael Lipton
Sussex Development Lecture, 2 Feb 2012
*Justin Lin, „New structural economics: a framework for re-
thinking development‟. PRWP 5197: World Bank Feb 2010

2. 1. Outline
• Potted history of economic/development thought
• Old structuralists and new: transitions, farms, States
• Reading Asia: classic/structural, or a sequenced State?
• Understanding Asia: open minds (classical, neo-classical, new-
structural) v closed systems (new-classical, ??old-structural)
• Non-new-classical foundations for new-structuralism
• Incorporating non-growth goals: distribution, sustainability
• Beyond structuralist farm-to-factory transitions:
-- Small farms: Asia’s technical & land-reform pre-transition
-- Population: re-linking economic transition to demography
-- Finance: Asia vs. the new-classical model
Conclusion: sector focus and the escape from new-classical dogma

3. 2. Potted history of economic thought on
development
• Pre-classical: goods better than services; food best
• Classical: prices measure values; stationary state or
„natural progress of opulence‟ via law, easy tax, public
goods, education?; free trade; population
• Neo-classical: “static”? Equating marginal utilities (value-
products) normal for consumers (producers) & optimal
for each, but only under VERY strong conditions socially.
Major State action is needed absent these conditions.
• New-classical : „as if‟ conditions met, so minimize State
• Structuralism: devel=agind transition‟; price-inelastic
antidevel structures; devel needs active state: doing
what?

4. 3. Old structuralists and new: transitions,
farms, States
• Old structuralism, OS: market failure v „big push‟ to ag
ind transition; State should own/protect/subsidize
industry [Anglo-Saxon old-str, or Latin American
dependencia?]
• New structuralism, NS: OS„State failure‟, rents; facili-
tating State still needed, but for comparative-advantage-
friendly industrial policy:
infrastructure, institutions, human capital for tech.
progress in agind transition
• Classicals, neo-classicals: „market‟+ State [„easy taxes‟
but public & merit
goods, regulation, infrastructure, redistribution]„natural
progress of opulence‟, including agind transition. New-
classicals (NwC): rational ex-pectations, efficient

5. 4. Reading Asia: classical v structural criteria
for the State, or a sequence of types of States
and of change?
• Many agind transitions to much faster growth & poverty re-
duction in Asia (few in Africa); but distribution, sustainability?
• (At least) 4 claimed „fathers‟ of Asian successes: liberalization,
developmental state, farm change, demographic transition
• 1. Prior old-structuralist Statesfacilitated 1) physical/human
capital, insttns, infrastrucs 2) protection, subsidy: rents; cor-
rupt, overstretched States; premature cap-intensity; urban bias
• 2. Liberalizing State selective, classical/neo-classical not NwC;
• 3. Developmental States: new-struc tech-upgrading priorities?
• Not 1-2-3 rivals but entwined 1,32,3, 2-3 sequences, leading
transition led by farms [as C18-19 Europe] and demog [new]

6. 5. Understanding Asia: open minds (classical,
neo-classical, NS, ?OS) v closed systems
(new-classical)?
• Optimal pure-market outcomes need huge assumptions;
un-met, so big role for developmental states. That‟s
stressed by classics (Smith: public goods, collusion;
Malthus: general glut, fertil.) , neo-classics (Pigou:
tax, distribution; Walras: Left CGE; Arrow(-Debreu):
ignorance; Stiglitz: asymmetry.
• As-if perfect comp & markets: Coase; contestable mkets; 
• NewCl „positive econs‟: State action selfish (public
choice), ineffective (rational expectations/efficient
markets/Ricard-ian equivalence), counterproductive
(crowding out). Maths, etric „barbed wire‟Keynes/devtl
state unarguably „wrong‟
• NwC: markets optimize transition; ag; demog; dist; finance?

7. 6. Non-new-classical foundations, micro
and macro, for new-structuralism
• Micro-foundations: beyond new-classical models where
everyone maximizes expected lifetime utility:
--- 1950s: satisficing, second-bestness, Arrow
--- 2000s: economics experimental, evolutionary, neuro;
agent-based models; asymmetric info; “happiness”
• Macro-foundations? Relations or individuals?
• Adding-up problems, fallacies of composition or of thrift?
• And in poor/developing/transition countries?
-- Finance outside new-classic macro-model;
-- NwC foundations not plausible for demographics ;
-- NwC rejects special or „prior‟ sectors like farming

8. 7. Incorporating non-growth goals: poverty
reduction; less inequality; sustainability
• Classicals, neo-classicals but not new-classicals see a
State role against extreme inequality, for sustainability
• For NwC, distribution and hence poverty are market
outcomes, worsened by State action in development
• For NwC, private actions optimize sustainability (inclu-
ding demographics) if prices, including interest, „right‟
• Nee-struc goals v. poverty, inequality, unsustainability
• but vacuous if NS theory swallows new-classical
foundations, imposing one goal: non-comparable life-
time utility = f (income, risk) both largely due to output

9. 8. Beyond structuralist farm-to-factory
transitions - small farms: Asia‟s technical &
land-reform pre-transition
• Old-struc, to speed agind transition, imposed anti-ag
policy bias: subsidy, exchange-rate, interest, educ..
• Elephant in miracle: State inv, land ref (Old-struc);
tech/instns (New-struc): pre-trans smallhldr takeoff
• „Smallholder-based pre-transition‟ needs mainly new-struc
developmental State for research/extn/tech, land reform (&
some old-struc: water devel, fertilizer)
• Labour-intensity & neocl „factor efficiency‟ag,
smallholders antipov, distribution, in green rev. agind
transn. Surplus-first old-S counter-productive

10. 9. Structuralism and population transition:
Asia v SSA
• NwC: “pop-timal”. Neo-cl: Malthus+women‟s ed (+ con-
tracepn?) Old-struc: pop growth, cap/output ratioState
inv. needed‟ for growth. Contraceptive State:China/India?
• New demog evidence: age transitiondemog gift, 1/3 of
Asian growth; population-age earthquakes; all slower in
SSA, as is ag growth and lab-absorption. Reaping demog
„gift‟ needs prices & strucs to employ extra workers (ag?)
• Agind transition helps to speed fertility-transition but
--- rapid prior child mortality falls are key; need active State,
--- as do„drag‟ areas where ag, agind, fert fall all sluggish.
--- Absent ag takeoff, pre- & post-gift „theft‟ mop up gains.

11. 10. Beyond structuralist farm-to-factory
transitions: finance - Asia vs. the new-
classical model
• Financial transition to get finance to growing sectors; so
• all approaches tend to assume agind finance flows.
• Initial ag pre-transition needs finance esp in early seasons
• NwC assumes private flows (and constraints) optimal;
efficient markets; no finance in macro-model. Collapse?
• Classical/neocl case for free(r) trade does NOT imply
• national/internat financial dereg, as per NwC; Asians
resisted, especially after 1997, so West‟s disaster avoided
• Some good national experiences (rotating credit, some
micro-finance, shroffs, public banks) but structuralism old
and new lacks tested models for finance in development

12. 11.Conclusion: “sector” focus in transition
helps rescue development studies from
excess new-classical dogma
• The State & big push towards modern industry: "new" (vs crude
U-max) economics, defunct NewCl economists, (prior) farms.
• Small-farm-based transformn , normally before ag-ind transitn,
• helps neo/NwC factor-efficiency goal, but needs non-NwC State,
• as does ongoing, powerful demographic transition.
• Sound financial transition requires State to break NwC rules.
• Distribn/sstnblty: externalities, myopia v NwC night-watch State.
• Old-S saw partly-right State role, but anti-ag and slighted
rent, class, overstretch, trade distortion: all anti-growth &
unequalizing
• New-struc techno-facilitating State necessary but not sufficient.
• New-struc promising if and only if it shakes off NwC allegiances.