Toward a Counter-Counterrevolution in Development Theory

During the 1940s and 1950s a distinctive set of ideas emerged in development economics nomicst hat stressed the importance of increasing returns and pecuniary external economies arising from the effects of market size. Unfortunately, the economists who proposed these ideas were at first unable, and later unwilling, to codify them in clear, internally consistent models. At the same time the expected standard of rigor in economic thinking was steadily rising. The result was that development economics as a distinctive field was crowded out of the mainstream of economics. Indeed, the ideas of “high development theory” came to seem not so much wrong as incomprehensible. This paper argues that in light of new developments in industrial organization, international economics, and growth theory, the old development economics now looks much more sensible than it seemed during the “counterrevolution” against interventionist development models. While development economics has been used to justify some highly destructive economic policies, there is a valid and useful set of core ideas that can be usefully resurrected. Thus this paper calls for a “counter-counterrevolution” that restores some of the distinctive focus that characterized development economics before 1960.