Economic development: A market process perspective

This study explores the evolution of development economics and offers a critical interpretation of what is called "the development debate." Parties to this debate are classified as "the mainstream of development," "the dissenters of development," and "the radicals." The goal of this historical review is to determine the extent to which the equilibrium perspective about markets and competition permeated the approach to economic development which started after World War II. This interpretation of the development debate maintains that, in general, the emphasis on states of equilibrium resulted in an inadequate treatment of the entrepreneurial role in the development process, and in a deficient understanding of the role markets and prices play in that process. This critical analysis is inspired in the theoretical framework developed by modern Austrians, particularly Israel M. Kirzner. The market, as envisioned by these theorists, is a process of discovery kept in motion by the activities of profit-seeking entrepreneurs. Entrepreneurs act upon discovering profit opportunities that disequilibrium prices offer. In turn, this disequilibrium exists as a result of market ignorance concerning the relevant data necessary for decision-making. It is also argued that this market process, entrepreneurial perspective provides a suitable framework to approach development issues. Entrepreneurial discoveries are responsible for bringing into the realm of action those resources which standard theory has correctly identified as vital for the development of nations. From this perspective, it is the innovative action of the entrepreneur, who notices that which the rest of the market is overlooking--a new technology, a new marketing strategy, a new organizational design, a natural resource, an underestimated human capital--that keeps the process of economic development going. Economic development is seen as the outcome of the market process as it tends to solve the "knowledge problem," i.e., that of discovering what the relevant data are.