The political economy of underdevelopment and planning

The current state of development economics is reflected all too well by that of neoclassical theory - both are in a mess because of the lack of reality of the assumptions upon which they ultimately rest. What we know observe in the field of development is a focus upon reducing market imperfections, especially in the financial and trade sectors, and increasing investment in human resources. Development economists seem to have taken the institutional and historical development into their academic offices, beaten the theory out of it, and come out with an ad hoc policy package of applied micro theory , no more useful in this field than in any other. What we currently observe is a careful analysis of those necessary reforms, taken from neoclassical theory of perfect competition, to allow the smooth workings of supply and demand in all sectors of the economy. The attempt is to resurrect and use the perfectly competitive model to explain not only why twenty-five years of import-substitution industrialization and growth of national output have not succeeded in remedying poverty, but also why, as has been commonly rediscovered once more, the distribution of income and wealth is getting more uneven over time. The view rests on the notion that the state through its financial and fiscal instruments has produced market imperfections that frustrate the development of free markets in both factor inputs and commodity outputs, and this has led to a less than optimal allocation of resources.