Beyond Unequal Development : An Overview by

Introduction In the 1940s, 1950s and 1960s development theory emphasized market failures, discontinuities, irreversibilities and excessive social inequality. The dominant development paradigm stressed the need for the state to create the adequate physical infrastructure, institutional and social conditions for development. This would entail implementing large scale public investment programs, planning and policies aimed at social modernization such as education, health, social protection and housing policies. In the 1980s and 1990s, this paradigm changed. Development problems were, in a way, reduced to growth problems; and the lack of sustained growth, particularly in the 1980s in Latin America, were described to obey, largely, to pervasive state interference in the market process both internationally through trade protection and nationally through overregulation of goods, capital and labor markets and extended state-ownership of national productive assets. Economic growth (material progress) became the main development goal in the policies known as the Washington Consensus. Growth was to be supported by (i) macroeconomic stabilization —understood basically as reducing inflation and cutting down fiscal deficits, (ii) structural reform policies viewed as trade liberalization, financial deregulation, privatization and a decisive shift to a smaller state. Previous concerns of development policy on reducing inequalities of income and wealth were eschewed in favor of an agenda dominated by macro stabilization and liberalization. The experience of the 1990s is showing that the combination of fiscal adjustment and market Beyond Unequal Development-3-liberalization, although necessary policy steps to reduce macro-imbalances and increase efficiency, are insufficient to bring about stable and equitable development. Reality is showing several difficulties of the adjustment and development process underestimated by the policies of the Washington Consensus, say: (i) The transition from low inflation to sustained growth and development is often long; (ii) an excessive emphasis on fiscal adjustment neglected the risks of premature financial liberalization, (iii) globalization has increased the frequency, scope and severity of financial and macro crisis, (iv) governance problems reflected in corruption, dysfunctional institutions and social conflict and are more pervasive than expected, (v) poverty is persistent and positively correlated with macro crisis, (vi) inequality of income and wealth both across and within countries is far from declining, on the contrary it seems to have increased in the last decade or so in Latin America. Addressing these issues may call for a rethinking of existing development paradigms. This chapter focuses on one, but important, dimension of the development process—namely inequality—and asks how we can move beyond …