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Reflecting on new developmentalism and classical developmentalism

  • Escola de Economia de São Paulo da Fundação Getulio Vargas


This paper, first, distinguishes new developmentalism (a new theoretical system that is being created) from 'really existing' developmentalism (a form of organizing capitalism). Second, it distinguishes new developmentalism from its antecedents, development economics or classical developmentalism and Keynesian macroeconomics. Third, it discusses the false opposition that some economists have adopted between new developmentalism and social-developmentalism, which the author understands as a form of really existing developmentalism; as theory, it is just a version of classical developmentalism with a bias toward immediate consumption. Finally, it makes a summary of new developmentalism – of its main political economy, economic theory, and economic policy claims.
Reflecting on new developmentalism
and classical developmentalism
Luiz Carlos Bresser-Pereira*
Professor Emeritus, Getúlio Vargas Foundation, São Paulo, Brazil
This paper, first, distinguishes new developmentalism (a new theoretical system that is
being created) from really existingdevelopmentalism (a form of organizing capitalism).
Second, it distinguishes new developmentalism from its antecedents, development econ-
omics or classical developmentalism and Keynesian macroeconomics. Third, it discusses
the false opposition that some economists have adopted between new developmentalism
and social-developmentalism, which the author understands as a form of really existing
developmentalism; as theory, it is just a version of classical developmentalism with a bias
toward immediate consumption. Finally, it makes a summary of new developmentalism
of its main political economy, economic theory, and economic policy claims.
Keywords: developmentalism, social-developmentalism, developmental macroeconomics
JEL codes: B20, O59, E10
What is new developmentalism and how is it distinguished from classical develop-
mentalism that preceded it?
Following the publication of my book Developmental
Macroeconomics (2014), coauthored with JoséLuis Oreiro and Nelson Marconi,
where we systematize the ideas and models that a group of economists have been
developing on the economic theory of new developmentalism since the early 2000s,
I realized that it was important to reflect on the real meaning of the term. Since I intro-
duced the new developmentalism concept in 2003, some, including myself, understood
it not only as a theory but also as a form of economic and political organization of
capitalism, which was a mistake. It is important to distinguish new developmentalism
as well as the preceding classical developmentalism from developmentalism as a
really existinghistorical phenomenon as a form of state and of capitalism,
which serves as an alternative to economic liberalism. It is time to see how much it
* Email:; I am grateful to Marcus
Ianoni, Luiz Fernando de Paula, Nelson Marconi, Philippe Faucher, and Marco Capraro Brancher
for their valuable comments.
1. By classical developmentalism I mean development economicsor structuralist develop-
ment theory,which was mainstream between the 1940s and the 1960s. I originally used old devel-
opmentalism, but the expression seemed pejorative. On the other hand, development economics
is a denomination too broad, and structuralist development theoryis only recognized in Latin
America. I owe to Ricardo Bielschowsky the expression classical developmentalism.
Review of Keynesian Economics, Vol. 4 No. 3, Autumn 2016, pp. 331352
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is critical of its direct antecedent, classical developmentalism, which was part of the
mainstream between the 1940s and the 1960s. Really existing developmentalism is
a historical occurrence; it is a form of political and economic organization of capital-
ism, whereas classical and new developmentalism are economic and political theories
aiming to explain progress or human development.
The history of capitalism is also the history of really existing developmentalism
(Bresser-Pereira 2015). Mercantilism, characterized by the association of the monar-
chy with the bourgeoisie working to build a large and secure domestic market and to
industrialize, was the first historical form of developmentalism. It was a successful
one: England, France and Belgium industrialized during mercantilism; all rich coun-
tries that realized their industrial revolutions immediately after these three countries,
beginning with the United States and principally Germany, adopted a developmental
strategy; the developmental state in Asia as well as national-developmentalism in
Latin America are in this same category, but these countries had to confront the
industrial imperialism of those who got there first. The second developmentalism
in the rich countries was the New Deal and Fordism in the United States followed
by the Golden Years of Capitalism in Europe after World War II. In Brazil, since
the election of a left-wing president, Luis Inácio Lula da Silva, in 2002, there was
an attempt to re-establish developmentalism; senator Aloizio Mercadante (2010)
called this attempt social-developmentalism.The title seemed good to me, because
initially the government was able to reduce inequality and increase the rate of
growth, but eventually it proved inadequate because besides the growth rate having
returned to the low level of the preceding administration, the attempt to form a devel-
opmental class coalition had failed.
New developmentalism is historical-deductive theory based on the successful
experiences of fast growth, particularly the recent experience of East Asian countries.
As an existing form of capitalism, developmentalism may be authoritarian or demo-
cratic, conservative or progressive, and successful or unsuccessful. As a theory, new
developmentalism is either right or wrong. As it adopts a historical and holistic
approach, the social and political aspects are an essential component of the theory.
It seeks to explain how countries, which are late to the industrial and capitalist revolu-
tion, experience economic development and increase the material well-being of their
population, as well as why many countries fail to achieve progress or human develop-
ment, that is to say the gradual achievement of political objectives defined by modern
societies: national autonomy, social order, economic growth, individual freedom,
social justice, and protection of the environment.
All my life I have been trying to understand and make a contribution to this eight-
eenth-century idea of progress transformed into human development in the twentieth
and twenty-first centuries. Borrowing the historical materialism from Marx and
Engels, learning from Max Weber, Keynes, and Kalecki, and from classical devel-
opmentalism, I have been integrating economics and social and political theory.
After a long journey, I came to call this integration new developmentalism. As I
understand it now, within new developmentalism there is (a) a method, (b) a political
economy, (c) a microeconomics, (d) a macroeconomics, (e) a distributive policy, and
(f) an applied economics. The method is the historical-deductive method, not the
neoclassical hypothetic-deductive method; the political economy of new develop-
mentalism includes themes like the claim that the origin of economic development
was the industrial revolution, the claim that capitalism and the modern state were ori-
ginally developmental because mercantilist, and the concepts of developmental class
coalition and developmental state; the economic theory of new developmentalism
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comprises a developmental macroeconomics already reasonably defined,
and a
developmental microeconomics, which, for the moment, is just a draft, but adopts
a key distinction between the competitive and the non-competitive sector of modern
capitalist economies; the distributive policy is critical of fiscal and exchange rate
populism, defending progressive taxes, minimum wage policy, low level for
the interest rate and increase of social expenditures or collective consumption; and
the applied economics is formed of all papers that empirically substantiate the
main claims of new developmentalism.
In Section 2 of this paper, I will offer short information on the branches of new
developmentalism; in Section 3, I briefly distinguish new developmentalism from clas-
sical developmentalism and from Keynesian macroeconomics; in Section 4, I criticize
a proposed alternative to new developmentalism social developmentalism and
argue that it is a false theoretical alternative, in so far as it does not present alternative
models, and a risky policy alternative because it is associated with economic populism
and recurrent crises; in Section 5, I summarize new developmentalism; and finally, in
Section 6, I conclude that the new developmental macroeconomics requires keeping
rightthe five macroeconomic prices, which entails, besides fiscal and monetary poli-
cies, an active exchange-rate policy.
New developmentalism is oriented to the understanding of middle-income countries,
but is also helpful for understanding pre-industrial countries, and, in certain cases
(such as the Euro crisis) may inspire rich countries. The political economy of new
developmentalism distinguishes productive capitalists, who strive for profits and
expansion, from rentier capitalists and financiers, who are remunerated by capitalist
rents, that is, interests, rents on real estate, dividends, and capital gains. This political
economy has four principal characteristics: first, it views the history of mankind and
the history of each country as being divided by the industrial or capitalist revolution;
second, it recognizes the relatively dependent character of national bourgeoisies
(which are ambiguous or national-dependent), but is critical of dependency theory
which incorrectly asserts that a bourgeois revolution is impossible in developing coun-
tries; third, it believes that to be successful this capitalist revolution requires the for-
mation of a developmental class coalition associating business entrepreneurs,
workers and the public bureaucracy, and identifies an opposing class coalition as
the neoliberal one, formed of rentier capitalists, the financiers who manage the wealth
of the rentier, and the domestic representatives of the rich countries; and, fourth, pro-
poses that the nation invests in the construction of a capable state, which is develop-
mental and republican, but not necessarily social. A capable state is defined as being
endowed with political legitimacy, competent administration, and the ability to finance
major investments domestically. A developmental state is defined as being the key
instrument to economic growth, coordinating the non-competitive sector of the econ-
omy and practicing an active macroeconomic policy particularly an exchange-rate
policy. And it is defined as republican, in that it is strong enough to protect the public
2. Originally I called structuralist development macroeconomicswhat I am now calling
developmental macroeconomics, but because our Routledge editor argued that structuralism is
an expression that economists outside Latin America have difficulty in understanding, we
arrived at this more direct name.
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patrimony from the rent-seeking of individuals and groups. Historically, as we will
see, the first forms of the developmental state are not social or progressive, but con-
servative; not democratic, but authoritarian. As I argued elsewhere, capitalism tends
to become progressive only after becoming democratic.
In so far as the political economy of new developmentalism involves a social the-
ory, it has at its core the concept of capitalist revolution,which was first achieved by
England and is the major rupture that a people must experience to develop. The history
of each people changes dramatically when it is able to transform itself into a nation,
form an autonomous nation-state and realize its industrial revolution, thus bringing
to a close the capitalist revolution. Another key concept is the concept of the develop-
mental state and its main role in each capitalist revolution. After that the country will
grow faster and with reasonable financial stability if it continues to follow competent
developmental policies. Examples include the fast-growing Asian countries. Alterna-
tively, it will fall into recurrent balance-of-payment crises if it either adopts irrespon-
sible developmental policies (usually, abusive expansionary policies) or submits to the
neoliberal or Washington-consensus policies and decides to grow with current-account
deficits (foreign savings), that is, with high current-account deficits.
In relation to political theory, what is the nature of the modern state according to new
developmentalism? In rich countries it began as absolutist, changed into the liberal state,
then changed again into liberal democracy as people acquired the right to universal suf-
frage. A little later, with the pressure of the people for less inequality, it changed yet
again, this time into a social-democratic state. In this process, the state, particularly in
Western Europe, ceased to be, in the words of Marx and Engels in The Communist Man-
ifesto,the executive committee of the bourgeoisie.It became the social-democratic
state, where the poor and the middle classes hold some power and participate modestly
from the economic surplus. The challenge is to turn this social-democratic state into a
republican state, able to defend itself (namely the public patrimony) from the greed of
powerful individuals involved in all kinds of lobbying if not outright corruption. In the
developing countries, these stages of political development overlap, but a consolidated
democracy is achieved only after each country completes its capitalist revolution.
Today all countries are pressed to become democratic, but, as I argued in my paper
on democracy and the capitalist revolution (Bresser-Pereira 2012), no country was
able to make its capitalist revolution in the context of a pre-existing democracy.
They formed their nation-state and industrialized, whereas the political regime was
either politically liberal (as in the United States) or forthrightly authoritarian (as in
most other cases).
Turning to the microeconomics of new developmentalism, it starts from the
assumption that the market is an excellent institution for the coordination of economic
systems, provided there is competition. Thus, the role of the market and the role of
the state in economic coordination depend on the level of actual competition. While
neoclassical economics assumes generalized competition as the default condition,
new developmentalism distinguishes two sectors in modern capitalist societies the
competitive and the non-competitive sectors and accordingly, while neoclassical
economics believes that economic coordination should be market coordinated,
new developmentalism leaves the competitive sector to be market coordinated, and
3. In the paper, Democracy and capitalist revolution(Bresser-Pereira 2012), I argue that
democracy only gets consolidated in a country after it formed its nation-state and had its indus-
trial revolution, or, in other words, completed its capitalist revolution. From this moment on, an
opportunity is open for the socioeconomic system to become progressive or social-democratic.
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understands that the non-competitive sector, which eventually includes the big banks
that are too big to fail, requires planning and day-to-day regulation.
Regarding the macroeconomics, the assumption of developmental macroeconomics
is that in developing countries markets are definitely unable to prevent financial crises
and are not able to ensure access to foreign and domestic demand. Besides the well-
known market failures that economic theory competently discusses, there is a major
market failure the Dutch disease which makes the exchange rate overvalued in
the long-term, not just in the commodity booms (as the 1982 paper by Corden and
Neary proposed). This fact plus three habitual policies the growth with current-
account deficits (foreign savings) policy, a monetary policy around a high-level
basic interest rate, and the use of the exchange rate as an anchor to control inflation
are the cause of the tendency toward the cyclical and chronic overvaluation of
the exchange rate. This long-term overvaluation represents a major obstacle to the
industrialization or the productive sophistication of most developing countries.
Besides disconnecting the business enterprises that use state-of-the-art technology
from domestic as well as foreign demand, the cyclical character of this tendency
means that the country will go from currency crisis to currency crisis if it does not
pursue an active exchange-rate policy to neutralize it.
Developmental macroeconomics is distinct from classical developmentalism and
Keynesian macroeconomics in a few significant areas: (i) the fundamental variables
it uses are not the public deficit and the interest rate, but the current-account deficit
and the exchange rate; (ii) what distinguishes developing economies from rich econo-
mies is no longer a social duality and a poorly structured market, but the fact that the
former become indebted in foreign currency and are subject to balance-of-payment
crises, whereas the latter become indebted in their own currency and are subject
only to banking crises; (iii) contrarily to Keynesian macroeconomics, the existence
of demand does not ensure investment and full employment, it is additionally required
that the exchange rate assures access to demand, something that is not ensured due to
the fact that the exchange rate may be overvalued in the long term;
(iv) contrarily to
what one assumes in classical developmentalism, developing countries dont need the
capital of rich countries, in so far as (a) when they neutralize the Dutch disease, they
will necessarily present a current-account surplus, and (b) foreign savings usually
dont add to domestic savings and increase investment, but, rather, increase
Finally, according to new developmentalism, a lax concept of insufficiency of
demand leading to the adoption of expansive fiscal policies to distribute income
and the accommodation to an overvalued currency to avoid reduction of real wages
are two major mistakes; they are an expression of vulgar Keynesianism or populist
developmentalism. Large budget deficits are only required when the insufficiency of
demand is causing recession, and they dont reduce economic inequality. As to the
exchange rate, when a country depreciates its currency, not only wages but also all
the other revenues (interests, rents, and dividends) fall in real terms. Only profits in
the tradable industries increase, but this is the objective of the depreciation to
4. I have written three books on developmental macroeconomics: two theoretical, Globaliza-
tion and Competition (2010) and Developmental Macroeconomics with JoséLuis Oreiro and
Nelson Marconi (2014), and one applied to Brazil: Developing Brazil (2009b). My papers
and books on the matter are assembled at and
5. On the access to demand problem, see my paper in Jan Kregels festschrift, Bresser-Pereira
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make the industrial business enterprises, whose profits are being depressed by the
long-term overvaluation, profitable again and ready to invest. Given that the profits
of the exporters of commodities are already satisfactory with the old exchange rate,
a tax on their exports is required to neutralize the Dutch disease and keep their rate
of return under control. This tax is just one of the legitimate instruments that new
developmentalism proposes to reduce inequality. The others are: a progressive tax pol-
icy; a minimum wage policy; the central bank making its monetary policy around a
low (international) interest rate level; and, finally, the expansion of the tax burden
to finance increasing social expenditures or collective consumption.
The direct antecedent to new developmentalism is classical developmentalism, which
was a response to the failure of markets to coordinate capitalism and to new hopes ris-
ing out of the end of World War II. It spanned an era from the mid 1940s into the
1960s. It was a school of thought combining Keynesian macroeconomics with classi-
cal political economy, which outstanding economists like Gunnar Myrdal, Arthur
Lewis, Paul Rosenstein-Rodan, Ragnar Nurkse, Raul Prebisch, Hans Singer, Celso
Furtado, and Albert Hirschman defined. It adopted a historical-deductive method
instead of a hypothetical-deductive one, and was critical of neoclassical economics
and of the classical law of comparative advantages. In synthesis, it defined industrial-
ization as the main way to achieve economic development, the foreign constraint as a
main obstacle to it, and asked for foreign savings; it drafted a concept of economic
development as structural change; it argued for an active role for the state; and, in
the political realm, it emphasized the role of a developmental class coalition bringing
together business industrialists, workers, and the public bureaucracy to build the
nation-state and realize the industrial and capitalist revolution.
The World Bank was established according to these principles. The three main
economic ideas were industrialization, foreign finance, and a leading role for the
state; economic planning had a central role; and the main ideology was economic
nationalism or developmentalism. The main political change proposed was the capital-
ist or bourgeois revolution led by industrial entrepreneurs associated with the public
bureaucracy and the workers; the political adversaries were the old oligarchy that
exported commodities, the commercial and financial activities involved in foreign
trade, and the rich countries all interested in keeping the country as just an exporter
of commodities.
Yet, in the late 1960s, classical developmentalism came under the attack of the asso-
ciated dependency interpretation, and in the late 1970s, under the attack of monetarism,
or, in more general terms, of neoclassical economics, which was at that time recovering
the academic hegemony that it had lost to Keynesian thought in the 1930s. Associated
dependency started from the assumption that a national bourgeoisie in developing coun-
tries was not feasible, because the local bourgeoisies would be essentially dependent,
and concluded that instead of trying to achieve national autonomy and realize the capi-
talist revolution, the best alternative was to become associated with rich countries and
grow under their shadow or protection. On the other hand, in the 1970s, an economic
crisis put an end to the Golden Years of capitalism and opened the door to neoclassical
economics, including the new-Keynesian,which became mainstream in the main uni-
versities once again. In the United States and Britain the neoliberal ideology became
hegemonic, along with the associated economic liberalization and globalization. In a
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1981 paper, Albert Hirschman acknowledged the demise of developmental economics
in the title of his paper, The rise and decline of development economics.
But classical developmentalism was not dead. In the following 30 years, the signif-
icant contributions to developmental economics were of an historical nature. I mention
five notable books:
Chalmers Johnsons 1981 book on Japan, MITI and the Japanese Miracle;
Alice Amsdens 1989 book on South Korea, Asias Next Giant;
Robert Wades 1990 book on Taiwan, Governing the Market;
Ha-Joon Changs 2002 book, Kicking Away the Ladder; and
Eric Reinerts 2007 book, How Rich Countries got Richand Why Poor Coun-
tries Stay Poor (2007).
The first three books conveyed no new theory, but clearly showed the historical role
played by industrial policy. They refrained from discussing the macroeconomic pro-
blems in Japan, South Korea, and Taiwan, because their assumption was that the
macroeconomic prices (the profit rate, the wage rate, the exchange rate, the interest
rate, and the inflation rate) were basically right in these countries.
Indeed, in mana-
ging their macroeconomic policies these Asian countries were adamant about three
things: fiscal responsibility (rejecting budget deficits except in a counter-cyclical
way), exchange-rate responsibility (keeping the exchange rate competitive), and low
interest rates. And we must consider that to keep the exchange rate competitive was
something easier for them than for Latin American and African countries, because
they dont dispose of the abundant and low-price natural resources that originate the
Dutch disease.
The last two books demonstrated with historical facts that hegemony imperialism
(imperialism by persuading or pressing developing countries to engage in current-
account deficits) continues strong and represents a major obstacle to economic growth
in so far as it presses developing countries to avoid using the policies and long-term
institutions that they used when they were at the same stage of growth.
New developmentalism is the sum of the new and relatively consistent theories and
ensuingpoliciesongrowthandprogress,which, by its relative novelty in relation to
other theories and by its internal consistency, may give rise to a new school of
thought. In 2010, the approval of the 10 Theses on New Developmentalismby a
large number of economists of many nationalities, as well as the increasing consis-
tency of the ideas being developed, point in this direction.
Whereas the criterion on
which really existing developmentalism is verified is the extent to which it is able to
form a developmental class coalition and combine growth with social progress, new
developmentalism will make sense if its concepts and models are helpful in three
ways: in explaining the stability and growth as well as the crises and low growth
of countries, in predicting economic behavior, and in proposing good policies.
6. Rightprices not because theyre determined by the market, but because the average rate
of profit combined with low interest rates are satisfying for business enterprises to invest, the
exchange rate is competitive, wages consistent with the profit rate, and inflation low.
7. On the 10 Theses on New Developmentalism, see www.tenthesesonnewdevelopmentalism.
Reflecting on new developmentalism and classical developmentalism 337
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New developmentalism is, by design, democratic and progressive, because its propo-
nents are critical of the inequality that characterizes capitalist societies, because they
understand that economic development is only sustainable when wages grow in the
long term, and because it is targeted at middle-income countries, which are already
democratic or mature enough to be so, and, thus, the demands of their workers and
their poor cannot be ignored.
Some critics would like a compromise between new developmentalism and social-
developmentalism, but this would require that social-developmentalism was also a
new and competing theoretical framework which is not the case (see Ferrari Filho
and Fonseca 2015; Mollo and Amado 2015). Social-developmentalism ignored new
developmentalisms models and policy proposals, but was not able to develop new
ones. To be an alternative to new developmentalism, social-developmentalism should
also have a body of new and relatively systematic theoretical knowledge, but it
remained the prisoner of a version of Keynesianism and of classical developmentalism
with a strong bias for immediate consumption, to which the economists who founded
these two theoretical traditions, such as Keynes and Kaldor, or Nurkse and Prebisch,
would probably not subscribe (see, for instance, Bastos 2012; Carneiro 2012).
Let us see which are the policies that distinguish social-developmentalism from
new developmentalism. First, the defense of a wage-led strategy against an export-
led or profit-led strategy. A wage-led strategy would solve the problem of insuffi-
ciency of demand, provided that the capitalistsmarginal propensity to consumption
was high as it usually is, and would reduce income inequality by increasing wages
instead of making the exchange rate competitive, that is, floating around the industrial
equilibrium. This involves a double mistake, whose formalized origin is the paper by
Bhaduri and Marglin (1990). Reading the paper carefully reveals that it is practically a
closed model, in so far as a wage-led strategy may only work when the country pro-
tects its domestic market with high tariffs; or, in other words, when it adopts the import
substitution model of industrialization something that makes sense to poor countries
that are beginning their industrialization, but definitely does not make sense for mid-
dle-income countries to which new developmentalism applies. Second, it assumes that
a competitive exchange rate is consistent with a less unequal distribution of income,
which, as we will see in the next paragraph, is true in relation to the profits that
must be satisfactory to motivate business enterprises to invest, and false in relation
to the rentiersrevenues (the payment of interests, real-estate rents, and dividends),
which, in relation to the exchange rate, vary in real terms in the same way wages vary.
Second, the claim that new developmentalism shows little concern for inequality
makes no sense in so far as a theory is right or wrong, not conservative or progressive.
As to policies proposed by new developmentalism, or, more specifically, by me,
I understand that they are progressive is so far as I believe that the reduction of inequality
is a major objective in capitalist societies that are inherently unequal and unjust. But this
does not mean that the policies proposed should always express the short-term interests
of the workers or of the poor. New developmentalism assumes that the exchange rate in
developing countries is, normally,overvalued in the long term, particularly in those
that have the Dutch disease. It follows from this that the expected profit rate will
usually be low, not sufficient to make business enterprises to invest, whereas real
wages will be artificially high. Thus, it proposes policies that involve a once-and-
for-all depreciation that is a condition for a satisfactory expected rate of profit a
rate of profit that motivates business enterprises to invest. Social-developmentalists
view this policy that aims to make the business enterprises profitable or competitive
as conservative.In this way, they ignore that policymakers in a capitalist society
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have to obey the logic of capitalism the logic of profit realization and capital accu-
mulation. If growth depends on the investments of business enterprises, they should
work for a compromise between business entrepreneurs and workers, between a satis-
factory profit rate and wages increasing with productivity. Instead, social-developmen-
talists express a strong preference for high wages and immediate consumption a
preference that, in the medium term, is in the interest of rich countries, not of the work-
ers and the poor of the developing countries. They assert that the exchange rate should
be competitive, but, besides not having any concept of what is a competitive exchange
rate, they dont want to pay the price they dont want the short-term and modest fall
in real wages that depreciation brings. And they often add that the depreciation will
increase inequality, which is true just in relation to profits, but to increase them is
the explicit objective of the depreciation. As to the other revenues, the depreciation
is neutral: not only real wages but also the high salaries and bonuses of high techno-
bureaucrats, and the real dividends, real-estate rents, and interests of rentier capitalists,
will fall in real terms. The policies supported by new developmentalism that are effec-
tive in reducing inequality are not macroeconomic policies, but microeconomic ones:
specifically the increase of the minimum wage and progressive taxes.
Third, new developmentalism wants the five macroeconomic prices to be correct,
while this type of classical developmentalism gives preference to quantities against
prices, and supposes that investments, for instance, show a low elasticity to the
exchange rate and the expected profit rate, and a high elasticity to the increase in
total wages and consumption. In doing that, it ignores the fact that economics is the
science of markets and prices, where income effects are relevant, but prices remain
the crucial coordinating tool of an economic system.
Fourth, the adoption of chronic budget deficits that increase the public debt-to-GDP
ratio is another serious mistake, and a source of repeated failures on the part of hetero-
dox policymakers. It is probably the worst virus suffered by some post-Keynesians and
classical-developmentalists. Keynes abhorred such policies. Nevertheless they are
often adopted in his name. In 1991, I and Fernando DallAcqua published a paper
in the Journal of Post Keynesian Economics defending Keynes from this type of popu-
lism. True, the proponents of chronic budget deficits say that they only defend this
kind of policy when there is insufficiency of demand, and that makes it counter-cyclical.
Actually, they have such a loose concept of insufficiency of demand that every econ-
omic condition fits in it and wrongly legitimizes expansionary fiscal policy.
Thus, social-developmentalism lacks the statute of a theoretical system; it does not
have the models of new developmentalism that I will summarize as follows: the ten-
dency to the cyclical and chronic overvaluation of the exchange rate; the investment
rate as a function of the exchange rate combined with the claim that besides demand
business enterprises require access to it to invest; the model of the Dutch disease; the
model of the substitution of foreign for domestic savings; etc. It also makes serious
policy mistakes, which originate from its difficulty in understanding the logic of capi-
talist development an often perverse logic, but from which the policymaker cannot
escape. Take, for instance, the perverse logic of economic crises and the required
adjustments. They reduce the wages of workers, while they preserve the interests,
real-estate rents and dividends of rentiers. But they also preserve the profits and
this is good, because the objective of the adjustment is to restore the profit rate,
upon which the resumption of investments depend.
Actually, the adoption of the social-developmental policies that I just criticized plus
ignorance of the new models that new developmentalism has brought to the fore are
the main reasons for the frequent failure of heterodox policies in developing countries.
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Take the recent case of Brazil. The Lula administration (20032010), which benefited
from a commodity boom, profited from the opportunity to increase the minimum
wage, thus reducing the inequality. But it made the major mistake of letting the
exchange rate become dramatically overvalued: during the 8 years of his administra-
tion, it went from R$5.1 per US dollar in the first month to just R$1.90 in the last one,
December 2010.
In consequence, the large increase in the domestic market that the
competent distributive policy and the commodity boom created was fully captured
by imports. The Brazilian manufacturing industry, which began losing the foreign
markets to other countries, also lost the domestic market to importers.
As to the loose concept of insufficiency of demand justifying large budget deficits,
we have the last 2 years of the first Dilma administration (2013 and 2014) to examine.
In the beginning of her administration, she courageously reduced the interest rate and
devalued the real by around 20 percent, to R$2.30 per dollar. It was a necessary but
insufficient devaluation, since the industrial equilibrium in Brazil in January 2015 should
have been around R$3.00 per dollar. The economy, which was growing very slowly,
didnt react, and manufacturing industry was in full crisis. At that moment, the govern-
ment decided to increase expenditures to finance a very expensive industrial policy. But
it didnt work, because an industrial policy is not a legitimate substitute for making the
exchange rate competitive. Given that, inflation increased somewhat and the primary
surplus, which should be about 2.5 percent of GDP, was zeroed out. The per capita
growth rate resumed its quasi-stagnant average since 1980: less than 1 percent per
In consequence, the government lost the confidence of the domestic and the inter-
national markets, and was forced into retreat in the first Dilma administration, by
increasing the interest rate, and after re-election, by transferring the Finance Ministry
to an orthodox economist. These were the consequences of Lula and Dilmas social-
developmentalism. Brazil is a country where heterodox economics remains relatively
strong, and for some time we became mainstream in the policy sector (not in the aca-
demic sector: that is a closed bulwark). We ceased to be in the mainstream during the
second Dilma administration, which represented a major defeat for us.
Summing up, given the insufficient expected rates of profit, the low investments, and
the low growth rates characteristics of a pseudo-developmentalism, not of a social-
developmentalism the developmental class coalition aimed at by the Workers
Partys three administrations in the last 12 years failed to turn into reality. Instead
of getting tangled in old populist practices and in ideas, developmentalists and post-
Keynesians must seek new ideas and new policies. Developing countries dontonly
need growth; they also need less economic inequality. But it is not by keeping the
more strategic macroeconomic price the national currency price or the exchange
rate overvalued that we will achieve this goal. By doing that, we are only abiding
those who are interested in long-term overvalued currencies in developing countries:
the rich countries and the local rentier capitalists. New developmentalism only
makes sense in the framework of a developmental class coalition aligning the busi-
nesses, entrepreneurs, public bureaucracy and workers to fight the neoliberal class
8. The reais are in real terms and are referenced to December 2014; they consider the inflation
in Brazil and the United States.
9. The Brazilian economy has been almost stagnant since 1981: between that year and
2014, the average rate of per capita growth was 0.94 percent per annum. If we exclude an
exceptionally negative period (the year 1980, when the country has stagnated due to the finan-
cial crisis of foreign debt) and also exclude the commodity boom (20042010), the rate is
even lower: 0.78 percent per year.
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coalition made up of rentier capitalists and financiers. Given the tendency toward the
cyclical and chronic overvaluation of the exchange rate, in the initial condition, the
expected profit rate of manufacturing industry will be low, insufficient to make it
worthwhile for the business enterprises to invest and innovate, and wages and all
other revenues (interests, dividends, and rents on real estate) will be relatively high.
This then requires a once-and-for-all depreciation, which will make the exchange
rate competitive, and involves a fall in all revenues, not just of wages. Thus, what
is really effective in reducing inequality is not the exchange-rate policy: it is the
increase of the minimum wage, keeping the level of the interest rate low, and adopting
a progressive income and inheritance tax system.
Here is a summary of new developmentalism:
1. New developmentalism starts from the assumption that markets are excellent at
coordinating the economy, but they dont assure the right microeconomic prices
in the non-competitive sector of the economy, and they dont assure the right
macroeconomic prices at all.
2. New developmentalism works with five macroeconomic prices: the profit rate,
the exchange rate, the interest rate, the wage rate, and the inflation rate, and
understands that they must be kept right.
3. Rightprices do not mean prices defined by full competition, but prices that
make sense economically and politically: (a) the profit rate must be high
enough to support investment by business; (b) the exchange rate must make
business enterprises competitive; (c) the level of the interest rate should be as
low as possible; (d) the wage rate should increase with productivity, and be
consistent with a satisfactory profit rate; and (e) the inflation rate should be low.
4. The basic difference between rich and middle-income countries, besides the level
of income, is the fact that while rich countries get indebted in their own money
and are only subject to banking and financial crises, middle-income countries get
indebted in foreign money (which they cannot either issue, or depreciate), being
additionally subject to currency or balance-of-payment crises.
5. Economic development is a process of capital accumulation with the incorpor-
ation of technical progress that increases wages and standards of living in the long
term; it supposes an increasingly well-educated population; it involves industrial-
ization or, more precisely, increasing productive sophistication combined with the
transference of labor from low to high income per capita industries.
6. Economic development is the main element of progress or human development,
which also involves the increase in security, the increase of individual liberties,
the reduction of inequalities, and the protection of the environment.
7. The method appropriate to understanding growth with price and financial sta-
bility is the historical-deductive method, which generalizes from the observ-
ation of empirical regularities, not from axioms on rational behavior.
Growth and the investment rate
8. As is well known, the growth rate depends on the investment rate, which
depends on the difference between the expected rate of profit and the interest
rate. The expected rate of profit depends on the existence of effective demand.
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9. But what is not usually known is that the expected profit rate depends on the level
of the exchange rate, because the exchange is not just volatile around the equili-
brium, but in developing countries, given the tendency to the cyclical and chronic
overvaluation of the exchange rate, it is usually overvalued in the long term
something that neoclassical and Keynesian macroeconomics dont acknowledge.
10. When the exchange rate is overvalued in the long term, the business enterprises
that use state-of-the-art technology are disconnected from effective demand, as
the average expected rate of profit falls and possibly turns negative, which leads
them to reduce or stop investment.
11. When the investment rate is low, the rate of private savings will also be low,
because, as Keynes showed, the latter depends on investment.
12. Private savings rate depends additionally on the national culture, and on the
existence (or lack thereof) of a social security system, which is supposed to cre-
ate savings on behalf of individuals.
13. Instead, given the budget deficit that keeps the public debt under control, public
investment depends on public savings (taxes minus current expenditures) and
on the profits of state-owned enterprises.
The determinants of the exchange rate
14. The determinants of the exchange rate are its value and the supply and demand
for foreign money.
15. The value of the exchange rate, or, more precisely, of foreign money, is the
value that covers the cost plus a reasonable profit of the business enterprises
that participate in foreign trade and ensure the equilibrium of the current
account of the country.
16. The value of the exchange rate depends on the countrys comparative unit labor
cost (wage rate divided by productivity of the country compared with other
17. The price of the exchange rate floats around its value according to the demand
and supply of foreign money.
18. The supply and demand for foreign money (i) depends on the textbook deter-
minants, particularly on the interest rate (which attracts capital when it
increases) and on the purchase or selling of foreign reserves by the central
bank; (ii) on the speculative capital flows; and (iii) on the three habitual popu-
list policies that developing countries adopt: the policy of growth with cur-
rent-account deficits (foreign savings), the policy of a high level of the
basic interest (well above the international rate), and the use of an exchange
rate anchor to control inflation.
Dutch disease
19. When a country faces the Dutch disease, there are two values and correspond-
ing equilibriums for the exchange rate: the current equilibrium, which is the
exchange rate that balances intertemporally the countrys current account,
10. Public savings equal total revenue less consumption or current expenditures including
interest on the public debt.
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and the industrial equilibrium, the exchange rate that makes competitive the
business enterprises utilizing state-of-the-art technology.
20. The Dutch disease is the permanent overvaluation of the exchange rate caused
by the fact that the country has abundant and cheap natural resources, which
benefit from Ricardian rents, and so may be exported with a satisfactory profit
at an exchange rate floating around the current equilibrium, which makes the
non-commodity tradable industries non-competitive because they require that
the exchange rate floats around the industrial equilibrium to be competitive.
21. Another way of defining the Dutch disease is to say that it is a long-term com-
petitive disadvantage for the non-commodity tradable industries of a country
that results from the fact that the technically competitive business enterprises
are not economically competitive, because the former are profitable with a
more appreciated exchange rate than that required by the latter, which benefit
from Ricardian rents.
22. When the country does not face Dutch disease, the current and the industrial
equilibriums are the same; in other words, there is only one value, around
which floats the exchange rate price.
23. When there is Dutch disease, the exchange rate price floats around the current
equilibrium, which is dominant because it is lower (more appreciated) than the
industrial equilibrium.
24. The distance between the industrial and the current equilibrium indicates the
severity of the Dutch disease.
25. The current equilibrium (i) depends on the international price of commodities,
so when the price increases, the current equilibrium increases, making the
Dutch disease less severe; (ii) depends on the export tax that the country
uses to neutralize the Dutch disease; and (iii) depends, on the domestic side,
on the tariffs on imports.
26. The industrial equilibrium depends on the value of the exchange rate relative to
the manufacturing or non-commodity tradable industries, which depend on the
comparative unit labor cost of the country in relation to its main trade
The tendency toward overvaluation
27. In developing countries there is a tendency toward the cyclical and chronic
overvaluation of the exchange rate, which means that, contrary to Keynesian
and neoclassical macroeconomics, the exchange rate tends to be overvalued
in the long run. In Figure 1, the market exchange rate behaves accordingly,
and we have two real (the current account and the industrial equilibrium) beside
one false exchange-rate equilibrium (the foreign debt equilibrium).
28. There is a direct but non-linear relation between the exchange rate and the cur-
rent account.
29. The current equilibrium is the value of the exchange rate that balances inter-
temporally the current account, and is the effective equilibrium around which
the exchange rate floats; the industrial equilibrium is the value of the
exchange rate that is required to make competitive the tradable business
enterprises using the best technology available, and is the competitive equi-
librium; the foreign debt equilibrium is the exchange rate that corresponds to
a current-account deficit which keeps the foreign debt growing at the same rate
as the GDP.
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30. As a consequence of this tendency, besides investing too little, developing
countries will go from one currency or balance-of-payments crisis to another,
from one sudden stop to another sudden stop.
31. The tendency toward cyclical and chronic overvaluation of the exchange rate
has a structural cause (the Dutch disease), and three habitual policy causes:
(i) the growth cum current-account deficits (foreign savings) policy ignoring
the high rate of substitution of foreign for domestic savings, complemented
by the policy of keeping the interest rate at a level high enough (around
which monetary policy is practiced) to attract capital; (ii) the adoption by the
central bank of a high-level basic interest rate, well above the international
rate, to control inflation and to attract capital flows; and (iii) the adoption of
an exchange rate anchor to control inflation.
32. The Dutch disease is a long-term competitive overvaluation or disadvantage
originating from the fact that the country benefits from Ricardian rents derived
from abundant and cheap natural resources; such rents enable business enter-
prises to export commodities at a profit and at an exchange rate that floats
around the current equilibrium, which is substantially more appreciated than
the exchange rate required by other businesses enterprises producing tradable
goods that use the best technology available in the world.
33. A non-neutralized Dutch disease means that, with the exception of the com-
modities that cause it, all existing and potential business enterprises producing
tradable goods and services will be unable to invest and innovate because the
expected profit rate will be small or negative. If the country neutralized the
Dutch disease in the past, but later on ceases to do that (as was the case with
Brazil), it will deindustrialize.
Foreign debt equilibriu
Current account
Industrial equilibrium
Market exchange rate
Figure 1 Tendency toward the cyclical and chronic overvaluation of the
exchange rate
11. Between 1967 and 1990 the confisco cambial[exchange confiscation] was embodied in
the countrys trade policy: an average tariff on the import of manufactured goods of 45 percent
and an average subsidy of the same 45 percent on the exports of manufactured goods implied a
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34. In most cases these often-adopted policies are forms of exchange rate populism
because they lead the nation-state to spend irresponsibly more than it gets and
to increase its foreign debt. And we have fiscal populism when the state spends
irresponsibly more than it takes in and the public debt increases.
Balance-of-payments crises
35. The continuous appreciation caused by these four factors (the Dutch disease
and the three habitual and, essentially, populist policies) will, first, involve a
high rate of substitution of foreign for domestic savings. Second, it will increase
the foreign debt and cause financial fragility, compelling the country to engage
in the pathetic practice of confidence buildingpolicy (to adopt policies not
according to the interests of the country but according to the conditions
demanded by the IMF and of the international financial system), and, third, it
will trigger a balance-of-payments crisis, which completes the cycle.
36. If the Dutch disease is not duly neutralized, it will keep the exchange rate over-
valued in the long-term. But as it only pushes the exchange rate from the indus-
trial to the current equilibrium, it will not cause a balance-of-payments crisis.
What pushes the exchange rate down to the current-account deficit is the
three habitual and populist policies.
37. If the three habitual policies (growth cum current-account deficits and the
exchange anchor) are not rejected, the exchange rate will sooner or later
cross the foreign debt equilibrium. Then a balance-of-payments or a currency
crisis will necessarily materialize.
38. The floating exchange rate regime does not prevent the financial crisis, because
a bubble credit will keep the exchange rate overvalued for a long time, allowing
the foreign debt to increase beyond a secure line.
39. New developmentalism does not have a special contribution in relation to
monetary and fiscal policy. Monetary policy should make the interest rate
vary around a reasonable level just a little bit higher than the average level
of the real international interest rate.
40. Fiscal deficits are recommended only when there is a clear insufficiency of
demand making the expenditures counter-cyclical. A loose definition of insuf-
ficiency of demand and the adoption of chronic budget deficits dont lead to
growth and full employment; they are just an excuse for fiscal populism. To
adopt a lax concept of insufficiency of demand and to propose chronic budget
deficits is not Keynesian thinking, but vulgar Keynesianism.
41. As there is a monetary policy to determine the interest rate, an exchange-rate
policy is essential to determine the exchange rate, which should not be thought
tax of 30 percent on the export of commodities. Policymakers adopted this policy without know-
ing that a large part of the tariff was not protectionism, but the necessary neutralization of the
Dutch disease, which fluctuates around 20 percent in Brazil, becoming more or less serious
as the price of commodities increases or decreases.
12. It should not be substantially higher because it should not be willing to attract foreign
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to be just an endogenous variable and, so, reduced to monetary policy, that is, to
a change of the interest rate.
42. Besides not being reduced to monetary policy, exchange-rate policy (i) should
not be limited to the adoption or not of capital controls; (ii) involves the rejec-
tion of two habitual policies, namely the growth cum foreign indebtedness
policy; and (iii) when there is Dutch disease, requires a once-and-for-all policy
to neutralize it, namely an export tax on the commodities that originate the
43. The policy of growth cum indebtedness or foreign savings is self-defeating:
even if the current-account deficit is financed by direct foreign investments,
the resulting capital inflow will appreciate the national currency, reduce the
incentive for investment, and the usual outcome will be a high rate of substitu-
tion of foreign for domestic savings. This means that most of the foreign sav-
ings will finance consumption, not additional investment, even if the financing
is made by direct investments.
44. This does not mean that the country should reject foreign direct investments.
These investments are welcome if they bring technology or open new markets,
and not because they finance current-account deficits something that middle-
income countries definitely should not have. Given that, foreign direct invest-
ments will increase reserves and finance foreign direct investments, as does
China and the fast-growing Asian countries.
45. The use of the exchange rate as a nominal anchor against inflation is a major
policy mistake; inflation may be controlled in this way, but at an absurd
cost. If inflation is not inertial, the way to control it is through fiscal and mone-
tary policy, besides macroprudential policies. The fact that a temporary rise of
the interest rate to control inflation attracts capital is true, but this effect will be
46. The growth cum foreign indebtedness policy and the policy of controlling infla-
tion with the appreciation of the national currency involve exchange-rate popu-
lism, which artificially increases wages and lowers inflation. In doing so it
facilitates the re-election of politicians, but at the countrys expense.
47. It makes no sense to keep the exchange rate overvalued in the long term and
justify the policy with the argument that the depreciation required to make
the exchange rate competitive will cause real wage reduction; it will also
cause the reduction of other revenues, and, so, will not have a truly distributive
outcome, except in favoring the expected profit rate; but this is the objective of
the devaluation: to ensure a satisfactory profit rate, which motivates business
enterprises to invest.
48. The reduction of inequality should be achieved through both a minimum wage
policy, which reduces wage and salary differentials, and the restoration of a
progressive tax system.
49. The neutralization of the Dutch disease is carried out by the imposition of an
export tax on the commodities equal to its severity (the difference between
the industrial and the current equilibrium). This tax will increase the cost of
the commodity, its exporters will reduce their supply at the existing exchange
rate, and the market will take charge of depreciating it.
50. A second-best way of neutralizing the Dutch disease is a linear (equal for all
goods) increase in import tariffs by adding to it an exchange-rate tariff: this
will neutralize the Dutch disease in the domestic market, but will continue to
block competent firms seeking to export.
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51. Although the twin deficits hypothesis does not hold when the exchange rate is
either overvalued or undervalued, it holds when the exchange rate is competi-
tive. Given that in the countries that neutralize the Dutch disease the exchange
rate will be competitive and the current account will show a surplus, or, if not a
fiscal surplus, then, for sure, a budget deficit consistent with a small and con-
trolled public debt.
52. The cost involved in neutralizing the Dutch disease and, more broadly, in neu-
tralizing the tendency to the cyclical and chronic overvaluation of the exchange
rate is a temporary one and relatively small; it will amount to a rise of inflation
and a reduction of all revenues in real terms (the wages and salaries, and the
interest, the real-estate rents, and dividends), except the profits of the business
enterprises precisely what is required to increase the investment opportunities
that an overvalued currency depresses.
53. The outcome of these policies will be an increase in the profit opportunities, an
increase in the investment rate, and in the export rate of manufactured goods,
and, last but not least, the achievement of a current-account surplus. This
will, necessarily, derive from the neutralization of the Dutch disease from
the shift from the current equilibrium to the industrial equilibrium, which, by
definition, corresponds to a current-account surplus.
54. Thus, new developmentalism claims, counterintuitively but logically, that mid-
dle-income countries do not need foreign capital to grow; they will grow faster
if they present current-account surpluses most of the time.
Development strategy
55. A growth strategy may be wage-led, neutral, or export-led, depending on
whether the openness coefficient of the country is falling, constant, or
56. New developmentalism rejects a wage-led strategy, because such a strategy
supposes protectionist tariffs, which are legitimate for countries that are begin-
ning their industrialization, but not for middle-income countries, which must
compete in the international markets.
57. New developmentalism favors an export-led strategy after the once-and-for-all
depreciation required to move the value of the national currency from the cur-
rent to the industrial equilibrium has had its short-term effect, and up to the
moment when low wages represent a competitive advantage in relation to
rich countries. After that, the strategy should be neutral or balanced in so far
as the openness coefficient achieves its appropriate level, given the size of
the country as the main factor.
Microeconomics and distribution
58. Prices vary according to the demand and supply around the value of the good or
service, which is defined by the social labor required. Or, more simply, defined
as the cost plus reasonable profit involved in its production.
59. The allocation of factors in the competitive sector is made by the market
through the tendency toward the equalization of the rates of profit, whereas
in the non-competitive sector (particularly in infrastructure), planning or state
coordination is required.
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60. Industrial policy is part of the competitive game among nations, but it should be
adopted strategically, as an addition to the right macroeconomic prices, particu-
larly the profit and the exchange rate, never as a substitute.
61. The once-and-for-all depreciation of the exchange rate required to make the
shift from the current to the industrial equilibrium implies an increase in the
profit rate and a reduction of all revenues (wages, salaries, interest, dividend,
and rent revenues); this is necessary to make the competent business enterprises
competitive and assure full employment.
62. Minimum wage policy, a progressive tax structure and a low level of interest
rates not an overvalued currency are the three legitimate and indispensable
means to reduce economic inequality, which is inherent in capitalism.
63. The protection of the environment and a reasonable growth rate require a per-
manent compromise and a persistent search of winwin solutions.
Political economy
64. Capitalism is either market- and state-coordinated, or almost exclusively mar-
ket-coordinated; in the first case the state will be developmental, in the second,
economically liberal.
65. The first historical form of capitalism in each country the one where the for-
mation of the nation-state and the industrial revolution occurs is always devel-
opmental and authoritarian. Considering only the countries that first
industrialize, the first historical form of developmentalism was characterized
by a mercantilist class coalition. Considering the latecomer or developing coun-
tries, the class coalitions had as models the Meiji Restoration and the Bismarckian
class coalitions.
66. Economic liberalism was just a nineteenth-century attempt, never fulfilled, to make
the coordination of capitalist economies depend only on self-regulated markets.
67. It was followed by a second developmentalism: the Fordist or social-democratic
developmentalism. Neoliberal capitalism was a second and short-lived attempt
to go back to the past.
68. A developmental class coalition associates business entrepreneurs, the public
bureaucracy and the workers, whereas a liberal class coalition associates rentier
capitalists, the financiers who manage the wealth of the former and the foreign
69. Developmentalism was historically authoritarian and conservative. It only
became democratic and progressive with social democracy or Fordism in the
New Deal and the Golden Years of Capitalism.
70. New developmentalism, which focuses on middle-income countries that are
supposed to be democracies, searches to be a progressive alternative not only
to neoliberalism, but also to conservative developmentalism. In democratic
middle-income countries, developmentalism is consistent with social democ-
racy, not with socialist policies that underestimate the fact that a satisfactory
profit rate is a condition for capitalist growth.
The 2008 global financial crisis represented a major setback for economic liberalism or
neoliberalism; not for conservatism, which remains strong. The real option that not
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only middle-income countries but also rich countries face is not to choose either neo-
liberalism or developmentalism, but either conservative or progressive developmental-
ism. New developmentalism is an attempt to offer new ideas for developing countries,
mainly middle-income countries, but should be ignored by rich countries. In econom-
ics new theories are very infrequent, almost inexistent. Nevertheless, I believe that
most of these ideas are new or relatively new, and, besides being critical of neoclassi-
cal economics, are critical of both classical developmentalism and Keynesian Macro-
economics. For that reason, the followers of these schools of thought will be resistant
to it. This is part of the eternal game of ideas and interests. Economists who remain
attached to classical developmentalism will argue that this strategy is export-led,
which is meaningless; they will say that only workers will lose, which is false. Vulgar
Keynesians will argue that I am rejecting effective demand and only think in price
terms, but economists who dont view prices as the core of their science are not
real economists. As to liberal mainstream economists, they will probably ignore
these new models because their theories are based on the hypothetic-deductive
method; because, against all evidence, they reject an active role for the state and
believe in self-regulated markets; and, above all, because they dont have sympathy
for theories, like my model of the Dutch disease, which, when not neutralized, repre-
sents a major competitive disadvantage to the countries that suffer it, and when neu-
tralized lead the country to display current-account surpluses. An outcome like this is
not seen with sympathy by rich countries and their economists, because the basic legit-
imization of the investments of their multinational enterprises is the supposed needor
benefitthat developing countries would have for receiving their capital a need or
benefit that proves false when the outcome of the neutralization of the Dutch disease is
necessarily a current-account surplus.
A way of summarizing developmental microeconomics is to say that it rejects the
existence of self-regulating markets, but views markets as an irreplaceable institution
to coordinate the competitive sector of the economy, whereas a way of summarizing
developmental macroeconomics is to say that it is based on the right or balanced macro-
economic prices, particularly on a competitive exchange rate that makes economically
competitive the business enterprises that are technologically competitive. The hetero-
doxideas that economics should not deal with equilibrium, and that growth and sta-
bility may be achieved without costs, make as little sense as does the orthodox
assumption that meaningful theory can be built based on the axiom that economic
agents are rational and markets self-regulated.
New developmentalism is a project, a work in progress. Its contribution to macroe-
conomics and particularly to the theory of the exchange rate is already reasonably
defined. The same cannot be said about its contribution to microeconomics, but the dis-
tinction of a competitive and a non-competitive sector in capitalist economies will play a
major role in it. As to the political economy of new developmentalism, the theories on
the crucial change that represents the capitalist revolution for each country, on the com-
petition between nation-states in globalization, on the nature of developmental state, on
economic nationalism, and on class coalitions, are its building blocks.
Returning to the beginning, new developmentalism is not a form of capitalism, but
a theoretical framework. In a previous article (Bresser-Pereira 2016), I tried to portray
it as something really existing, but I was mistaken. New developmentalisms predeces-
sor is classical developmentalism, and it is associated with the post-Keynesian and
French regulation schools of thought. New developmentalism includes a methodologi-
cal critique of neoclassical economics, which adopts a hypothetic-deductive method,
which is inconsistent with a substantive social science like economics (Bresser-Pereira
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2009a). Instead, new developmentalisms models are not inferred from a supposed
rational agent, but from the regularities and tendencies that can be observed in the
economic systems. The hypothetical-deductive method is properly adopted by the
methodological sciences like mathematics, statistics, econometrics, and economic
decision-making theory, whereas the empirical deductive method or the historical
deductive method are appropriate to the substantive sciences, that is, the natural and
the social sciences.
The new developmentalism project is a broad system of economic, political and
social theories and policies that aim to understand how developing countries grow
and the challenges they face. It will become influential only when a large number
of economists and political scientists contribute to it. This is already taking place prin-
cipally in Brazil,
but there are also non-Brazilian economists associated with new
developmentalism, particularly the ones who originally subscribed to the 10 Theses
on New Developmentalism, who have shown a definite interest in the new ideas
and models.
Will new developmentalism bring enough people together and consti-
tute a new Latin American school of thought, as the French Regulation School
does? That is difficult to predict. It depends, essentially, on the consistency and
truth of the theorys main ideas. When Robert Boyer, from the Regulation School,
wrote the preface to the French edition of Globalization and Competition (2009), he
said that a new school of thought was in the making. I was surprised at that moment,
but now it may well be that he was right.
Many developing countries adopt a developmental approach because they reserve an
important economic roleto the state, but few countries adopt the right new-developmental
policies that would assure their growth with financial stability. That failure is due to the
fact that the capability of their states is poor, that the demands of the population for
immediate consumption is high, and that their economists are often incompetent and as
populist as are their politicians. New developmentalism is an effort to offer competent
policies to these countries, particularly the middle-income countries. It is by design and
by necessity a socialdevelopmentalism, which looks to combine growth with a reduc-
tion of inequality. It is by design social, because its followers know well that, if capit-
alism is left free, it will be essentially unfair to the poor; it is by necessity social, because
in democratic countries the poor are strong enough to demand and obtain the provision
by the state of large and universal social services.
A final caveat. The adoption of new developmentalism is no guarantee of success.
Comparing new developmental policymaking with liberal policymaking, the latter is
an inferior choice because (i) it will tend toward financial instability, in so far as neo-
classical economists believe that the private sector is market-coordinated and is always
in equilibrium, which is false; (ii) it will be characterized by low growth, in so far as
major market failures, beginning with the Dutch disease and the tendency to the
13. Among Brazilian economists, I cite Yoshiaki Nakano, JoséLuis Oreiro, Nelson Marconi,
Paulo Gala, Lauro Gonzales, Carmen A. Varela, Eliane Araújo, AndréNassif, Carmen Feijó,
and Pedro Rossi, who were my co-authors in texts developing or applying the new ideas. I cite
also contributions by Francisco Eduardo Pires de Souza, Luiz Fernando de Paula, Vera Cepeda,
Marcus Ianoni, Ricardo Bielschowsky, Lauro Mattei, Marco Flávio da Cunha Resende, and
Gilberto de Assis Libanio, as well as by those who compared new developmentalism with
social-developmentalism: Maria de Lourdes Rollemberg Mollo, Adriana Amado, Pedro Cezar
Dutra Fonseca, and Fernando Ferrari.
14. I cite Robert Boyer, Jan Kregel, Gabriel Palma, Ha-Joon Chang, Roberto Frenkel, José
Antonio Ocampo, Jan Priewe, Philippe Faucher, Arturo Guillén, Robert Guttmann, Robert
Blecker, Pierre Salama, Jaime Marques-Pereira, and Martin Rapetti.
350 Review of Keynesian Economics, Vol. 4 No. 3
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overvaluation of the exchange rate, are not neutralized; and (iii) it will lead to
increased income inequality, given the commitment of their policymakers with the
rentier class coalition. But developmental policymaking requires more technical com-
petence than liberal policymaking, because it is more proactive. Incompetent liberal
policymakers often engage in excessive fiscal austerity and exchange-rate irresponsi-
bility, whereas incompetent developmental policymakers, besides showing exchange
rate lack of responsibility, often incur fiscal irresponsibility, because they succumb
to vulgar Keynesianism, which sees an increase in state expenditures as the solution
to all problems. Note that the two mistakes are symmetrical. However, these orthodox
recurrent mistakes lead the economy to unemployment, low growth, and recurrent
financial crises, whereas the heterodox recurrent mistakes lead the economy, addition-
ally, to fiscal crisis and inflation. This is more risky for the politicians in power, and is
the main reason why developmental politicians often call on orthodox economists to
run their finance ministries, leaving other ministries, like economic planning, industrial
development, education, and health-care, to the heterodox economists. This is embar-
rassing to the latter, and should be something for us to think about. We will not be able
to persuade the rentiers and financiers, but we should be able to persuade the industri-
alists and the progressive politicians, who are sympathetic to developmentalism, that
our theory and our policies are superior.
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... Teori developmentalisme, begitu berjaya sejak akhir perang dunia kedua sehingga mampu meletakkan dasar episentrum baru sebagai tolak ukur kemajuan ekonomi sampai keberadaban. Dari developmentalisme klasik yang mewakili ekonomi Keynesian sampai teorisasi barunya yang disebut -New-Developmentalism‖ (Bresser- Pereira, 2016). Rumus pembangunan mereka, kemudian menjadi resep mujarab yang disasarkan pada obyek negara-negara yang baru merdeka. ...
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