This post discusses the evolutions of concept of development in the light of Liberal Economic Thought. The 20th century witnessed different variants of social change under the basic current of liberal capitalism. These are the welfare state model, developmental state, the modernization theories and the contemporary neo-liberal rhetoric under aegis of World Bank and IMF, as latest representatives of developed countries. All these variants are only the timely modifications, without altering the basic outlines of capitalist mode of production. So it is necessary to discuss the basic principles of liberal capitalism, in the process of understanding its different versions in different times.
Historically, Liberal Democracy and Capitalism are associated both at the theoretical and practical levels. In fact, the evolution of political democracies in the West was the result of economic and political aspirations represented by the newly emerging industrialist classes. This was realised through the Industrial Revolution in economic sphere, which has its intellectual representation from the thoughts of Adam Smith, J.S.Mill, J.B.Say and Ricardo.
Liberal conception of development based on its faith in the ‘individual rationality’ of man in all walks of life emphasised that the world consists of free and equal individuals, who are in a position to realise their own capabilities with the help of their inherent rational thinking. This principle was extended by Classical economists to the economic sphere, through the principle called ‘Laissez-fare policy’. This implied that the state should not interfere in realising the potential of individual reason for his own growth. It further emphasised that the mechanisms for regulating individuals in pursuit of their interests were to be the constitutional state, private property, the competitive market economy and distinctively patriarchal family.
The key presupposition of liberalism was that the collective good could be properly realised in many domains of life, only if individuals interacted in competitive exchanges. In this process, the state should not be entrusted to interfere and regulate the free market mechanisms in any way. In the 18th and 19th centuries, this principle helped to the growth of Western economies, which was called as Industrial Revolution. It was thought that after sometime this growth in the economy would result in trickle-down effect. In this stage only state intervention was envisaged to provide social justice.
In relation to the international trade, liberalism assumes a benign international interdependence and free trade leading to a mutually beneficial specialisation of production and mutually advantageous pattern of international trade. It does not consider the existing power relations among various countries and its implications in the international trade.