Introduction

One of the most startling empirical puzzles in modern political economy is the lack of convergence between the rich and poor countries in terms of per capita income over time. The East Asian countries grew rapidly in recent decades, but Africa stagnated. Why would development not follow, especially when countries in the so-called third world have received both financial and technical assistance from the rich countries of the West? The ‘great divergence’ does not easily fit into the intellectual framework that economists developed after WWII to explain economic growth and development.

The last twenty years have seen a vibrant debate emerge among economists and political economists concerning this issue. At a conference at Princeton honoring P. T. Bauer in 2004, Amartya Sen was asked what the biggest difference was between the state of the art in development economics in 1964 and in 2004. He replied that the most obvious difference is that in 1964, the market was viewed as a source of exploitation while in 2004 the market was seen as the arena of mutually beneficial exchange and as a source of liberation. From Hernando de Soto to C K Prahalad it is now common-place to hear intellectuals extol the virtues of the small scale trading and beginnings of capital accumulation that P T Bauer emphasized in his work, as opposed to foreign assistance programs. Two books by William Easterly have documented this divergence between the West and the rest and the failed efforts by the West to aid the rest.