The Economic Depression of 1930s had wide ranging impact on economic and political thinking. The affects of Great Depression of 1930s brought the timely modifications in Classical Growth Model of development. This was provided by the Neo-Classical economist J.M.Keynes, whose ideas were dominated the 20th century economic thought in the West and Third World countries also. Keynes evolved the concept of ‘Welfare State’ another liberal optimism, with insistence on state’s role, as contrast to the Classical Economic Thought. In resolving the problem of industrial over production resulted from the prevailing notion of development, which equated with growth, Keynes emphasised on the state to provide employment and rise the consumption capacity of the people. This idea was further extended by liberals into the concept of social rights of individuals--the right to work, to education and health. This was theorised as the state had an obligation to provide opportunities to all its citizens.
This change in the nature of the concept of development was also partly the result of the raising bargaining power of working classes with the state. Commenting on the origin of the idea of social rights in relation to welfare state, M.S.Gore opined that “it (welfare state) was a response to the growing power of the working classes and to the establishment of Socialist State in Russia at the end of First World War. It was also an effort to combine the promise of a working class dominated Socialist State with the individual freedom of the Liberal democratic state”. These premises, however, finally led to overcome the 1930s economic crisis by the USA and the Western European countries.
The post-Second World War period witnessed marked global political changes, which led to the beginning of de-colonisation, emergence of international organisations like UNO, IMF, World Bank and the dawn of Cold War. The former colonies of the Asia, Africa and Latin America have started to evolve strategies and models to transform their societies. As said earlier, largely under the impact of Western colonialism and the post-colonial hegemony, the Third World countries adopted Western model of development based on the capitalist mode of production.