Download ird 103: development concepts and application

MOI UNIVERSITY
SCHOOL OF HUMAN RESOURCE DEVELOPMENT
DEPARTMENT OF DEVELOPMENT STUDIES
IRD 103: DEVELOPMENT CONCEPTS AND APPLICATION
Topic one: Conceptualization of development
 Definition of development
 Dimensions/ conceptions of development i.e. economic, political, social, cultural
and environmental
 Measurement and indicators of development, i.e. GNP, GDP, NNP, Per capita
income, savings, investment, population and development, capital formation,
accumulation, depreciation, cost
 Economic growth and limitations of its instruments
 Economic growth and development
Topic two: Characteristics of transitional societies
 Dual economies: i.e. geographical, social, technical, dual economies causes and
effect on development
 Poverty: absolute poverty, mass poverty, poverty line, vicious cycle of poverty,
causes and effect of poverty on development of a country
 Low income: low, savings, low investment, low capital accumulation, poor socioeconomic infrastructure and low productivity, causes and effect on development
of a country
 High population growth: causes of population pressure, economic burden on the
country’s natural resource and socio-economic infrastructure
 Low technology: low productivity, low income, the role of traditional appropriate
and advanced technology on development of a country scarce natural resources,
underutilization of existing natural resources. The role of available natural
resources, i.e. land of a country
 Environmental degradation of the available resources, Poor human capital
formation and unemployment in the country
 International demonstration effects
Topic three: Theories of development
 Adam Smith classical theory of development
 Rostow six stages of development theory
 Karl Marx theory of development
Topic four: Africa’s development objectives
 The structural characteristics of the African economy in the 1970s and 1980s
 Africa’s development objectives in the 1980s and 1990s
o Alleviation of mass poverty
o Sustainable development (sustained growth and development)
o Economic integration (regional and collective reliance)
1

The African development objectives in the 21st century
o Evaluating the success of the above objectives
o The role of NEPAD, AGOA, etc. in the African continent
o Debt problem in the 21st century
Topic five: Sectoral Strategies & development in Kenya since independence in 1963
 Agriculture and rural development
 Informal sectors
 Industry or formal sector and urban development
 Tourism and infrastructural development
Topic six: Strategies for development in Kenya since 1963
 Economic systems adopted by Kenya since independence
o Centralized/ top-down planning
o Decentralized/ bottom-up planning
o District focus for rural development
o Capitalism and market economy in the 1990s and the 21st century
Topic seven: Development in the global perspective and international aid
 Foreign aid and development
o Why countries accept foreign aid
o Why donors give foreign aid
o Effects of foreign aid in the development of a country like Kenya
o Foreign direct investment (FDI)
o Globalization and Africa’s development
 Structural adjustment policies and reforms and their impact on development
o The rationale for structural reforms
o The various kinds of reforms or policies being implemented
o Impact of structural adjustment programs in specific sectors (e.g.
education, health and agriculture)
 Millennium Development Goals (MDGs)
o MDGs and their indicators
o Rationale for MDGs
o Effects of MDGs and their success
References
No single textbook will be adequate for the course. A number of basic textbooks, some of
which are substitutes with respect to specific topics, have therefore been suggested. In
addition a reference list will be made for most articles that will be handed over after some
lectures. The main textbook is: Todaro, M.P. 2000. Economics for a developing
world
Acyer J. and Maitha J.K. 1976. Development in Kenya: An economic perspective.
Nairobi: Oxford University Press.
Baran, P. 1957. The political economy of growth. New York: Monthly review press
Bruce F. Johnson and Peter Kilby. 1975. Agriculture and structural transformation.
London: Oxford University Press
Conlilin, P. and Ikiara, G.K. 1983. Industrialization in Kenya. Nairobi: Heinemann
2
Frank, A.G. 1999. Capitalism and underdevelopment: London: Penguin Harmondsworth
Jhingan. 1985. The economics of Development and planning. New Delhi: Vaili
Educational Books
Kindelberger, C.P. 1985. Economic Development. New York: McGraw Hill Peri Book
Company
Meier, G.M. 1980. Leading issues in economic development. New York: Oxford
University Press
Rodney, W. 1989. How Europe underdeveloped Africa. Nairobi: Heinemann
Schuniachar, E.F. 1973. Small is beautiful. New York: Harper and Row Publisher
Wilber, C.K. 1990. The political economy of development and underdevelopment. New
York: Random House
World Bank. 1981. Accelerated development in sub-Saharan Africa. Washington: IBRD
–The World Bank
World Bank. World Development Reports (various issues)
Zurekas, C. 1979. Economic development. London: Macmillan
3
IRD 103: DEVELOPMENT CONCEPTS AND APPLICATION
THE DEFINITION OF DEVELOPMENT
The term development has come to mean different things to different people.
According to the Webster dictionary: “To develop is to bring about growth or enlargement or unfold gradually.
For development, Webster says…is a gradual growth or advancement
through progressive changes”.
Similarly, for the majority involved in uplifting the standard of lives of the masses in
rural areas such as community development officers, development for them has been
identified with a host of programmes aimed at alleviating malnutrition, diseases,
ignorance, indigence, socio-economic inequalities etc.
“The purpose of development should not be to develop things, but to
develop man” – COCOYOC Declaration.
The word development is a catchword and sometimes confusing. The confusion is
invited by the various interpretations, which have been attached to this word as well as
the misconception of what it means and what is involved in it. It means different things
to different people. It is due to this that former Tanzanian president the late Mwalimu
Nyerere once rightly lamented:
“Everyone wants development, but nobody understands and accepts the
basic requirements for development”.
i)
For the majority of field officers/workers involved in various development
activities, development is identified with host of programmes aimed at alleviating
malnutrition, disease, ignorance, socio-economic inequalities etc.
ii)
To a politician, development may imply the provision of socio-economic
infrastructure (i.e. roads, electricity, telephone, health centres, schools, water
facilities, etc.) in his constituency or area.
iii)
To a scientist, development may imply developing of various research institutions
which will enhance the chances of further research in attempt to develop high
technology i.e. KARI, KEMRI, KEFRI, etc.
In (essence), development is taken to mean growth plus change; there are essential
qualitative dimensions in the development process that extend beyond the growth or
expansion of an economy through a simple widening process. This qualitative difference
is especially likely to appear in the improved techniques of production in our control over
nature. It is also likely to appear in the development of institutions and a change in
attitudes and values. The significant dimensions of development are economic, political,
social, cultural, environmental, administrative, scientific, legal, etc. It is important to
note that:
 Growth is a gradual and steady change in the long-run which comes about by general
increase in the rate of savings and GNP.
 Economic development is not equivalent to the total development of a society; it is
only a part or one dimension of general development.
 We usually focus on nation-state as the unit of development, but “national
development” is a term that encompasses at minimum, social and political
development as well as economic development, in the building of national identity.
To a common man, development implies the alleviation of poverty, unemployment,
checking the inflation rate, provision of the basic needs – food, shelter etc., adopting
4
programmes which ensure high GNP, hence per capita incomes, hence high standard of
living.
The concept of development has literally been defined as a futuristic concept meaning to
bring forth from a latent state, to cause to grow it a higher, fuller and mature condition. In
this sense it is assumed that that a country has latent or potential properties that need to be
activated into a more dynamic or desired social form. Most developing countries have
been classified thus.
In the 1950s and 1960s, development tended to be looked at strictly in economic terms.
Economic growth was considered synonymous with development and thus the total
development of society. During this period also referred to as the first development
decade, the term development was used to refer to the capacity of a national economy,
whose economic condition has been more or less static for a long time, to generate and
sustain an annual increase in its GNP at rates of 5% and over. Let us consider some
definitions of development put forward by economists at this time.
Buchanan & Ellis – “Development is a means of developing the real income
potentialities of the underdeveloped by using investment to effect those changes and to
augment those productive resources which promise to raise real income per person.
Meier M.G. – views development as a process whereby the real per capita income of a
country increases over a long period of time”.
Okun and Richardson – “states that development is a sustained, secular improvement in
material well being which we may consider to be reflected in an increasing flow of goods
and services”.
The experience of the first development decade, when a large number of developing
countries attained higher levels of per capita incomes but the levels of living of the
masses remained for the most part unchanged made it clear that it is wrong to equate
economic growth to development. Development is much broader than economic growth.
Economic growth focuses on short run changes. It considers such factors as GDP per
capita, investment per capita, and household consumption per capita. Development
considers the whole question of human welfare. Essentially, it is concerned with the
problems that have hindered or pledged the third world countries in their attempts to
break themselves away from an underdeveloped state. These problems are not only
economic although some of them exacerbate the economic conditions. Thus during the
1970s development came to be redefined in terms of the reduction or elimination of
poverty, inequality and unemployment within the context of a growing economy.
Todaro (1986) states that, “Development is a multi-dimensional process involving the reorganization and reorientation of entire economic and social systems”. In addition to
improvement in incomes and output it typically involves radical changes in institutional,
social and administrative structures as well as in popular attitudes, acceleration of
economic growth, reduction of inequality and the eradication of absolute poverty. Further
development encompasses environmental and international dimensions.
Thus development is the whole gamut of change by which an entire social system, tuned
to the diverse basic needs and desires of individuals and social groups within that system,
moves away from a condition of life widely perceived as unsatisfactory and towards a
5
situation or condition of life regarded as materially, socially, culturally, and spiritually
“better”. {Development is simply a process of transformation}.
The process of development is influenced by economic and non-economic factors. The
economic factors include natural and human resource, capital, entrepreneurship,
technology, etc. The non-economic factors include social institutions, cultural attitudes,
moral values, institutional and political values.
Walter Rodney (1989) asserts that, “Development in human society is a many sided process. At the individual level,
it implies increased skill and capacity, greater freedom, creativity, self-discipline,
responsibility and material well being. At the level of social groups development
implies an increasing capacity to regulate both internal and external
relationships”.
In their book (Economics of change in Less developed Countries), - Coleman David and
Nixon Fredrick argue that,
“Development can be considered as a process of improvement with respect to a
set of value prevalent in a particular society”.
In this regard development portrays an ethical phenomenon dependent on value
judgement about institutions and processes through which the good society can be
achieved. Therefore, development is not value free.
Current debates on development indicate that it must be defined as a selective attack on
the worst forms of poverty. Development goals and policies must be defined in terms of
progressive reduction and eventual elimination of malnutrition, disease, illiteracy,
unemployment and inequalities.
In essence, there are different interpretations of the concept of development, since each
society has its unique value, lifestyles, preferences etc. which determines what constitutes
the desired conditions for a “good society”. It constitutes a wide range of variables. These
include the social, economic, cultural, political and environmental process that results in a
perceptible and cumulative improvement in the standard and quality of life for an
increasing proportion of the population. The quality of life has been conceptualized by
the UNDP in form of Human Development Index (HDI) as an appropriate measure of the
level of development of all nations.
UNDERDEVELOPMENT
Having defined development, it is also important to define underdevelopment.
Underdevelopment refers to the process whereby a country, characterized by subsistence
agriculture and domestic production progressively becomes integrated as a dependency
into the world market through patterns of trade and investment. The production of that
country thus becomes geared primarily to the demands dictated by the industrialised
nations with a consequent lack of integration within the country between the various parts
of its domestic economy.
Jhigan, M.L. (1982) The economics of development and planning – Defines
underdevelopment as follows: “An underdevelopment country is a country which has
good potential prospects for using more labour or more capital or more available natural
resources, or all those, to support its present population on a high level of living, or of its
6
per capita income level is already fairly high to support a large population on a not lower
level of living”.
Rodney, W. 91989) How Europe Underdeveloped Africa - Contends that
underdevelopment deals with the comparative economics of nations. It expresses a
particular relationship of exploitation, namely the exploitation of one country by another.
Exploitation is mainly through trade and investments. Trade exploitation is mainly
through unfavourable terms and grabbing of African wealth. The whole import/export
relationship between Africa and its trading partners is one of unequal exchange and of
exploitation. Besides there is (some) ownership of the means of production by nonAfrican citizens. Investment exploitation manifests itself as restrictions placed upon the
African capacity to make the maximum use of its economic potential.
CONCEPTIONS OF DEVELOPMENT
Development is a broad and complex concept. It has been used to mean different things
to different people. Essentially it relates to a set of variables which are connected to
determine the process of general advancement of people within a community. The
process of development can be represented by a mathematical relationship. This
relationship shows the main components or conceptions of the development process.
D = f (E, P, S, C, En)
D - Development
E – Economic conception
P – Political conception
S – Social conception
C – Cultural conception
En – Environmental conception
The Economic Conception (Economic Growth)
The economic conception of development basically deals with economic growth or
progress. In order that a proper understanding of the term “economic growth” is achieved,
it is imperative that definitions of other terms relating to it are given. Such terms are gross
domestic product (GDP), gross national product (GDP), net national product (NNP), and
national income.
Definition of terms used in the discussion of economic growth
 Gross Domestic Product (GDP): This is the money value of all the goods and
services produced in a country from resources located in that country, wherever
their owners happen to live, over a period of one year. Todaro (1985) defines
GDP as “the total final output of goods and services produced by the country’s
economy, i.e. within the country’s territory by residents and non-residents,
regardless of its allocation between domestic and foreign claims”.
 Gross National Product (GNP): This is the money value of all goods and
services produced in a country from resources owned by the residents of a country
wherever these resources happen to be located. Todaro (1985) defines GNP as
the total domestic and foreign output claimed by residents of a country. It
comprises GDP plus factor incomes accruing to residents from abroad, less the
income earned in the domestic economy accruing to persons abroad. GNP can
also be thought of as the sum of the value added by economic agents at all stages
of production. GNP is also defined as the total money value of all final goods and
7
services produced by an economy in a given period of time, usually one year.
Final goods and services are those purchased (and not resold) by their final user in
the period concerned. GNP measures production and demand as well as the
components which make up both. It is therefore a measure of the overall level of
economic activity. GNP can be computed using constant and/or current prices,
thereby giving “real” and “nominal” GNP respectively. Real GNP is GNP valued
in terms of the prices of a base year i.e. constant prices. It values current output at
prices of an arbitrary selected base year. It is a measure of aggregate production
that eliminates the effects of inflation and therefore shows what is happening to
the economic activity apart from the movements in prices. Real GNP is therefore
another measure of aggregate economic activity. Nominal GNP is GNP valued at
current prices, i.e. prices used are concurrent with the year in question.
 Gross national product per capita (GNP per capita): is the total money value
of all final goods and services produced by an economy divided by the total
population within a given time, usually one year. GNP Per Capita = GNP/ total
population. Thus a rising GNP per capita demands achieving or sustaining the
growth of GNP at a rate higher than the growth of the total population. GNP per
capita is often used as a summary index of the relative economic well being of the
people in different nations.
 The difference between GDP and GNP is largely a matter of ownership. Foe
example some of the Kenyan output is produced by resources owned by
foreigners and this leads to a flow of income (interest and profits) out of the
country. On the other hand, Kenyan owned assets abroad lead to a corresponding
flow of income from abroad into Kenya. The net difference between these flows
is recorded as net property income from abroad. If this item is added to GDP we
arrive at the GNP figure. GDP + Net property income from abroad = GNP. The
word “Gross” as used in GNP or GDP indicates that no deduction has been made
for that part of total output which is needed to maintain the nation’s stock of
capital assets. The value of output required to replace worn-out capital is known
as depreciation, or capital consumption. The total output of capital goods is
described as gross investment and the net addition to the stock of capital is known
as net investment. Thus gross investment less (-) depreciation equals net
investment.
 Net National Product (NNP): This is a measure of net output after deducting an
amount needed to replace capital used up in the course of producing that output.
It consists of all goods and services becoming available for consumption together
with net additions to the nations stock of capital. NNP = GNP - Depreciation
 National Income is the sum of the total payments of wages, rent, interest and
profits to the factors of production. It is also referred to as income at factor cost.
The term economic growth refers to increase over time in a country’s real output of goods
and services (GNP) or real output per capita. Here emphasis in attaining higher levels of
living considers three main indications: - Raising GNP
- Increasing the level of investment in the economy.
- Providing incentive, which would encourage consumers to save more.
Professor Simon Kuznets has defined a country’s economic growth as a “long term rise
in capacity to supply increasingly diverse economic goods to its population, this growing
capacity based on advancing technology and the institutional and ideological
adjustments that it demands”. This definition has three important principal components: 8

First, - sustained rise in national output is a manifestation of economic growth, and
the ability to provide a wide range of goods is a sign of economic maturity.
 Second, advancing technology provides the basis or preconditions for continuos
economic growth.
 Third, for an efficient and wide use of technology and its development, institutional,
attitudinal and ideological adjustments must be made to affect the proper use of
innovations generated by advancing stock of human knowledge.
Todaro (1985) defines economic growth as “the steady process by which the productive
capacity of the economy is increased overtime to bring about rising levels of national
income”.
Economic growth also refers to the aggregate and strictly economic and material
improvement in an economy. It is an aggregate quantitative change in a country’s
development process with regard to various economic parameters like GNP or GDP,
national income, savings, consumption, investments, per capita income, employment etc.
In particular, the GNP or GDP per capita has been universally adopted as a measure or
indicator of economic growth and thus a country’s level of development.
Measurement of Gross National Product (GNP)
Total output consists of a vast range of different goods and services whose quantities can
not be added together in physical units. The only common unit of measurement available
is money. If all goods and services have money prices, the products of the quantities and
prices will give as the total money values.
Three approaches of measuring GNP and they are based on three different views of GNP.
i)
GNP may be viewed as the total output from domestically owned resources
during the course of one-year (the output approach).
ii)
GNP may be viewed as the total value of incomes (wages, rent, interest and
profits) earned by the factors of production engaged in producing the national
output (the income approach).
iii)
GNP may be viewed as the total amount of money spent on purchasing the
national output i.e. the total expenditure of the economy on all final goods and
services (the expenditure approach).
Expenditure can be classified by major sectors so that the GNP equals the sum of
spending by households, business, government and foreign (net exports). GNP = C + I +
G + (X-M).
Hence National Income, National Expenditure and the volume of product are
simply different ways of looking at the same thing. The output of goods and services is a
continuous process so that in trying to measure what is produced we are dealing with a
flow and not a stock (static figure). [This flow can be illustrated diagrammatically in
what is known as a circular flow of income].
The circular flow of income [and/or expenditure]
(National Expenditure at Market Prices)
Consumption Expenditure
Households
(Individual
public)
Goods & services
produced (Volume of
NationalofOutput)
Factors
production
(land, labour, capital)
Business (Firms)
9
LEAKAGES
National Income
INJECTIONS
- Savings
(Wages, rent, interest
- Investment
- Taxes
profit)
- Export
- Imports
- Govt.
spending
The Expenditure Method
The expenditure method measures GNP in terms of categories of expenditure required
purchasing the total production in a country. This is done by metering all of the
expenditure flows between households and businesses. It is important in this
measurement to count only the value of final, not all, goods and services produced. [Final
goods and services are those purchased and (not resold) by their final user in the period].
Usually total expenditure is broken down into five big categories: Consumption (C),
Investment (I), Government Expenditure (G), Exports (E), and Inputs (M). Thus, GNP =
C+I+G+(X-M).
C
Consumption = Personal Consumption Expenditure - It represents the amount
spend on final products by households and non-profit institutions.
I
Investment = Gross Private Investment = Spending for final products by business.
Investments = Purchases of currently produced capital goods. Investment
includes purchases by businesses of structures and producer's durable equipment,
investment in residential construction and investment in inventories.
GGovernment purchases of goods and services = expenditures for current
production.
Transfer payments by governments are not included, only
expenditures for final products are included.
(X-M) -Net Exports of Goods and Services. * This component is only provided for in an
open economy that transacts in foreign trade.
[We must be careful to include that only that part of government expenditure which
represents payments for goods and services. Government expenditure on transfer
payments must be excluded. Transfer payments are not included because they are not
government expenditures on goods and services of current production]
Income Method
The value of any economic good is exactly equal to the total incomes generated in its
production. Thus, another way of measuring GNP is to count the wages, interests, rent
and profits and other incomes which business are paying to households for the resources land, labour, capital - needed in production. These factor earnings are the costs of
producing the final product. These flows are called Gross National Income. The value of
income paid for the resources will exactly equal the value of the goods produced. Wages
are paid for the services of labour, rent for the use of land, interest for the use of capital,
and profits are the return to the entrepreneur for the risk taking. Profit = what is left over
from the sale of product after payment for the other factors - wages, interest, rent. The
income approach measures GNP at factor cost.
[It does not value output in terms of market prices because these market prices include indirect taxes. All
personal incomes are not included in GNP calculations. Only incomes earned as a result of some work
done are is include. Transfer payments include unemployment benefits, old age pensions, child benefits,
etc. All these are transfer payments not because they are paid out of taxes but because they are not
payments for services rendered – there is no contribution to current real output of recipients.]
GNP calculated from this approach is the total cost of the output that business is paying
out as earnings to the public or households. Businesses are paying wages, rent, interest
10
and profits. These factor earnings of land, labour, and capital are the costs of production
of the society’s final goods.
GNP = wages + rent + interest + profit + indirect business taxes + depreciation
Indirect business taxes = taxes on business property. They show up as an expense of
producing the flow products. In this case GNP equals gross national income (GNI).
[Double counting is avoided using the "value added" principle. In this context intermediate goods are not
included. Intermediate goods = Are goods/products produced during all the stages leading up to the final
product. According to the value added principle, the final value of a commodity is equal to the sum of the
value added to the commodity at each stage of production. National product is the sum of the value added
by the economic agents at all stages of production. Disposable income = the amount families have
available to spend or not. It equals factor incomes increases by receipts from transfer payments and
reduced by taxes paid and undistributed profits.]
The Output Method
GNP is measured by adding up the output of each firm to get total volume of the nation's
output. However, it should be noted that if we merely add up the market values of output
of all firms we would obtain a total greatly in excess of the value of output actually
available for use (due to double counting).
Thus the output approach measures GNP in terms of the value added by each of
the sectors of the economy. Exports are included because they are part of the national
output, but imported materials and services are excluded. Suffice to note that if the valueadded method is used, imports will automatically be excluded since we only record
values added in our country. This will now give us GDP and to this total, the net property
income from abroad must be added.
If the general level of prices has been changing in the course of the year, it is
necessary to make adjustments for the purely monetary changes in the value of the stock.
A rise in prices increases the value of existing stocks even where there is no change in
their volume. In order to obtain an estimate of the real changes in stocks it is necessary to
make a deduction equal to the “inflationary” increase in value. This deduction is
described as stock appreciation.
Problems in using GNP per capita for international comparisons
Statistics of national income per head are the most frequently used basis for comparing
living standards in different countries. Such comparisons need to be used with a lot of
caution because: i)
The level of accuracy in measurement may differ very widely. If the population
figures are not accurately recorded, the resulting per capita figure will be
misleading.
ii)
Subsistence economy - in countries where agriculture is the main activity, there
is a large element of guesswork in the final computation and in most cases a lot of
output is not included.
iii)
Income distribution - There are great discrepancies in the patterns of income
distribution in different countries. Two countries may have the same income per
head figures but the standard of living will be very different if in one the income
is fairly evenly distributed, while in the other income distribution is very unequal.
iv)
Composition – The Composition of total output may be different. For instance,
one country may devote a much greater proportion of its resources to defence than
another country yet the two countries may have very similar figures for incomes
per head. Some differences arise from climatic conditions or geographical
11
v)
positions. Inhabitants of cold countries have to spend relatively, large proportion
of their incomes on keeping warm, while people living in sparsely populated
countries will have to spend relatively more on communications and transport. It
does not follow that living standards are lower where these expenditures are
lower.
Currency- International comparisons require the conversion of values measured
in one currency to values measured in another currency. Usually comparisons is
made using either the US dollars ($) or the Sterling pounds (£) using the official
exchange rate. This rate of exchange, however, may not be a good indicator of the
relative domestic purchasing power of the two currencies. Moreover, the official
exchange rate always takes account of the commodities entering into international
trade and these may represent a very small selection of the commodities traded
within each nation. The exchange rate may also be held at an artificially high level
due to various measures of exchange rate. The use of national income figures for
the purposes of comparing international standards of living need to be
supplemented by various social indicators such as the number of hospital beds and
doctors per population, numbers in further education, and the nature and quality
of the different welfare services.
GNP should not be confused with national well being although it is closely related. Some
of GNP’s limitations are: 1) GNP ignores many non-market transactions, such as the value of a person who works
in the home but is not paid by his or her spouse. Also imported income earned in the
underground economy.
2) GNP ignores the value of leisure; some people prefer leisure to work.
3) GNP ignores ecological costs of producing output, i.e. pollution.
4) GNP focuses on output but it is consumption that affects our nations welfare e.g. can
produce more and eat less.
5) Government spending is valued at cost not its value. Worthwhile projects are thus
undervalued and worthless projects are overvalued.
Economic Development
Definition 1: Economic development is the process whereby the real per capita income
of a country increases over a long period of time subject to the stipulations that the
number below an ‘absolute poverty line’ does not increase, and that the distribution of
income does not become more unequal.
Definition 2: Rodney (1989) defines economic development as an increase in the
capacity for dealing with the environment, this capacity dependent on the extent of
understanding of the laws of nature (Science), the extent to which this understanding is
put into practice by devising tools (technology) and the manner in which work is
organised.
Definition 3: Economic development refers to the structural transformation of an
economy such that over time it becomes increasingly capable of sustaining its capacity
for further expansion utilising its own resources. It is further a process whereby real per
capita income of a country increases over a long period of time couples with qualitative
change in various economic parameters, e.g. equitable distribution of natural resources,
ease of accessibility to investable resources, efficiency in the production process &
effective economic management.
12
It demands appraisal of a country’s economic structures and resource base for the
purposes of diversification, transformation, merger, etc. so that an economy does not rely
on single fragile foundation. For example most developing nations rely on the
agricultural or mineral sector for the national development. This foundation has been
seen to be unreliable due to various domestic and international factors, thus making
development economies susceptible to fluctuations and in-activeness.
The essence of economic development is economic independence arising specifically
from economic structural transformation and diversification. In most developed countries
this has been achievable mainly due to investment in industry and internalisation of
technology to produce a variety of consumable and durable goods for domestic
consumption and export.
It stresses on increasing reliability on utilisation of domestic resources to propel national
development. Hence a fundamental question facing developing countries is whether they
have the capacity to economically develop. One pathetic situation in these nations is that
the industrial, agricultural, and tourism industries are all foreign oriented.
The industrial sector heavily relies on imported inputs to produce even the most basic
products. The agricultural sector relies on the foreign market to dispose off local
agricultural products like coffee, tea, and cocoa, to earn foreign exchange. The tourism
sector relies on the good will of foreign countries and is susceptible to fragile domestic
political situations.
Hence economic development in most developing countries is derived from external
demand and availability of foreign exchange. In this situation it is hard to achieve a
sustainable economic development process due to lack of a viable domestic resource
base.
The environmental conception
Until the 1970s developing nations and a number of developed nations generally regarded
environmental quality as a luxury that could be afforded only after they had attained a
considerably higher application of western development models. This has increasingly
led to:a) Poisoning or destruction of fragile ecosystems
b) Plunder and waste of irreplaceable resources
c) Belief that man can mould nature with little or no need to take account of nature’s
reactions to such violation.
Today environmental concerns encompass a broad range of issues including:i)
Public health and environmental safety.
ii)
Control of air, water and land pollution.
iii)
Sound management of renewable natural resources.
iv)
More efficient use of natural resources through multiple use, recycling and
erosion control.
v)
Conservation of unique habitats especially for rare or endangered species
(respect for bio-diversity).
vi)
Cultural preservation and conservation.
The United Nations environment programme (UNEP) has spearheaded environmental
conservation and introduced the concept of Eco-development. The concept of eco13
development simply means – ecologically sound development. Its basic principles are
that:- Development should respect the ecosystem
- It should minimise waste and recycle as much as it can.
- That it should respect local social and cultural patterns by involving the local
population in deciding the style and pace of development.
- It should conserve resources using renewable resources where possible.
- The overriding issue in eco-development is:
i)
how to avoid environmental damage OR,
ii)
reduce it to an acceptable minimum without slowing the pace of
development.
The environment constitutes natural capital. Its benefits and services (like water flows,
soil, protection, and breakdown of pollutants) support and enhance economic
development.
When poorly planned development may contribute to the depreciation of a country’s
national capital base. Even when properly planned economic development process
inevitably causes some modification of natural ecosystems and generates waste and
pollutants. Therefore, among the objectives of development policy should be how to
manage a country’s renewable resources so as to yield the greatest present benefits
possible without reducing their potential to meet future needs.
Ecologically sound development is, therefore, a sensible precondition for sustainable
development. We should live today with tomorrow in mind. In practice eco-development
is not easy to carry out. It demands careful study of the local ecology of man and nature.
Political conception
Politics is a process of making governmental policies with respect to relationships among
people and allocation of resources within a given society. It includes the decision making
and enforcing process in any organisation, which makes and enforces rules for the
members. In essence, politics is a process of enquiry into why things happen the way the
do.
The process of development is also very much linked to the political structure of the
country concerned. Strength of political stability in the country promotes the degree of
social and economic development. Development therefore, cannot take place in situations
where those who have power are resolutely opposed to it. Among other factors,
development requires support and encouragement from political systems. Such systems
must adhere to various dimensions of domestic governance like: public management,
effectiveness, legitimacy of power & responsiveness, public accountability, information
openness (transparency) and policy pluralism. In essence the state must provide an
enabling environment for fostering development.
It is therefore, not possible to realise rapid development in an economy facing the
following problems:
i)
A political environment dominated by tribal and agrarian elite who may see rapid
socio-economic change as a threat to their authority.
14
ii)
iii)
A political environment lacking an administrative capacity to stimulate, coordinate and regulate economic activities of its citizens.
A political environment plagued by violence and uncertainty. Development is not
sustainable under such an environment. Civil and military strife and the political
fragility which it reflects has several negative economic effects:
a) It forced the post independence leadership to give especially high priority to
short-term political objectives.
b) It triggers large-scale displacements of people – (the refugee problem).
c) Civil strife induces a diversion of resources to military spending. For
instance, Uganda has the best resources in East Africa but lack of political
stability has overtime hindered its economic and social advancement.
The challenge of political development is to create a system of political institutions
capable of controlling the states population, of mobilising the state’s human and material
resources to accelerate the development process. Thus, economic decisions can not be
divorced from their political, social, institutional, environmental and cultural contexts.
During the nineteenth century the role of the state was confined to the maintenance of law
and order, protection of external aggression and provision of various public goods and
services. However since the end of the Second World War the role of the state has
expanded from non-interaction in economic affairs to among others:
i)
The active participation in economic resource management, regulation and
management of both monetary and fiscal policies and participation in
investments in large business concerns.
ii)
Management of monopolies, which distort price systems through
encouragement of competition.
Socio-cultural conception
The concept of development concerns itself with human beings in totality. It looks at the
overall outlook of the welfare of a country’s citizens. It takes into account the social,
cultural, and psychological aspects of human beings. It typically involves radical changes
in institutional, cultural, social and administrative structures as well as popular values,
attitudes, customs, beliefs and morals.
National values, aspirations and the uniqueness of their local cultures are important in
motivating the people to improve their well being. As such social and cultural values
should be the guiding light for a nation’s development process in addition to serving as
the cornerstone for any development efforts. Moreover, socio-cultural development
emphasises: i)
Eradication of social problems like disease, poverty, illiteracy etc.
ii)
Equitable distribution of national resources to reduce the disparities between
the halves and halve knots.
iii)
Provision of basic needs.
iv)
Promotion of social discipline to enhance harmony, understanding, and mutual
social responsibility.
This approach derived from the dissatisfaction experienced from over-reliance on
economic indicators as measurements for development. Hence development agencies and
governments came up with a variety of ideas and policies to resolve it. Development
15
programmes that fail to take into account the social and cultural environments of a given
society run the risk of failure.
The other important socio-cultural factor, which affects the process of development, is
the national will of the people. The national will involves the values, morals, feelings and
determination of the people. If the national will is weak, coupled with rigid sociological
and cultural values the process of development will be severely retarded. If a society is to
develop the people must be willing to adjust their values, attitudes, perceptions and be
ready. This is because traditional customs can at times retard the development process.
For example:
a) The extended family system in Africa has some negative effects. It affects those
who can break away from poverty.
b) Religious institutional set-up i.e. Arabs discourage women from mixing with men
in industrial production thus curtailing or limiting their productivity.
The World Bank introduced the concept of redistribution with growth in which it
advocated a combination of economic growth with social justice. It targeted the
poorest groups of the population, marginal farmers, landless labourers and slum
dwellers in its lending programs for rural and urban development. The argument was
that past economic policies marginalized between 30 – 60% of national populations.
Accordingly, with 40% of the population receiving 75% of national income it was
possible for GNP to grow while incomes of the poor fell drastically.
The maximisation of growth of income for the poorest groups required radical shifts in
national policies aimed at diversification of development resources from urban
orientation to social-economic issues like land reform, education, roads, health, credit and
subsidies for the poor.
The ILO introduced the concept of basic needs as an improvement on redistribution with
growth. It means a concern not just for improving overall incomes of the poor but with
making sure that they set all the essential elements for a life of dignity free from absolute
need – i.e. adequate food, clothing, shelter, health care, education, employment and the
right to participate in making decisions that affect them. Therefore, the role of
development planning should be to provide minimum targets in each category of need
and pursue policies to achieve them.
It is important to note therefore, that without changes in the social and cultural values,
changes in economic variables may be affected adversely by forces originating from the
social and cultural setting. Changes in the values of such institutions as religious
organisations, schools, families, political values are all required to undergo some basic
changes in their arrangements to effect development.
16
THE THEORIES OF DEVELOPMENT
Literature on economic growth has generally revolved around the linear stages of
economic growth theories and neo-classical structural change models. The 1950s and
1960s focussed mainly on the concept of stages of economic growth in which the process
of development was viewed as a series of successive stages through which all countries
must pass. It was primarily an economic theory of development in which the right quality
and mixture of savings, investment and foreign aid were all that was necessary to enable
third world countries to proceed along an economic growth path that historically had been
followed by the more developed countries.
There is no single theory which fully explains the causes of development, nor can one
draw general conclusions from the economic history of the rich industrial nations whose
experiences have been unique- but it can only be learnt that growth and development are
exceedingly complex processes. They combine changes in social and political
institutions, the country’s sense of values and belief systems with changes in methods of
production and in the means of exploiting productive resources. It is therefore noted that
no single theory can be used to explain the ways in which full development might be
achieved in LDCs that have diverse social, geographical and economic characteristics.
The following theories therefore highlight only a few of the main factors, which can
contribute to industrialization and economic development.
1) CLASSICAL THEORY OF DEVELOPMENT
This theory asserts that the major cause of economic development is the rate of
investment which in turn, depends on the share of profits in the National Income. The
higher the rate of profits, the faster will be the rate of investment and the rate of economic
development.
Harrod - Domer's growth classical model stipulates that for economies to grow they
should save and invest a certain proportion of their GNP (i.e. between 15 - 20%), the
17
more they can save, the faster they can grow. Hence savings and investment are the prime
factors of Gross National Product (GNP).
Classical writers like Adam Smith, David Ricardo and J. S. Mill, made contributions to
this theory. They maintained that growth of capital would make more division of labour
and specialisation possible and so lead to increase labour productivity and higher wages.
As development proceeded, - both profits and wages would be high but high wages
would encourage earlier marriage and a higher birth rate, leading to rapid population
growth. In the course of time, as capital accumulated and population grew, with a fixed
rate of land, diminishing returns would set in, wages would gradually return to the
subsistence level and profits would decline. Investment would then cease and the
development process would come to an end.
At this point, the ceremony was said to have reached a stationary state as a result of the
law of diminishing returns (and the Malthusian theory of population).
CRITICIMS OF THE THEORY
a) They made little or no allowance for the effect of technological change on the process
of development.
b) The theory fails to provide any guidance to development planners as to the ways of
generating increased employment opportunities and reducing poverty and inequality.
2) ROSTOW’S STAGE THEORY OF DEVELOPMENT
This theory asserts that the transition of the economy from being less developed to being
developed is possible through a series of stages. Rostow's stages of growth stipulates the
possibility of identifying all societies in their economic dimensions as lying within five
categories:
a) The traditional society
b) The preconditions for take-off
c) Self-sustaining growth (take-off)
d) The drive to maturity
e) The age of High Mass consumption.
a) The Traditional Society
18
There is a limit on the possible production levels due to lack of technology. More than
75% of the population is engaged in Agriculture. The industrial sector is undeveloped.
b) Pre-Condition to take off
The necessary element for any take-off was mobilisation of domestic and foreign savings,
to generate sufficient investment to accelerate economic growth
This requires radical changes involving:
i) Building up of social overhead capital to enlarge the market and to exploit natural
resources.
ii) Technological revolution in agriculture so that agricultural productivity increases to
meet the requirements of a rising general and urban population.
iii) An expansion of imports including capital imports financed by efficient production
and marketing of natural resources for exports. * There is also rise in investments.
c) Self Sustaining Growth (take-off)
Rostow defines this as an industrial revolution tied directly to radical changes in methods
of production.
Conditions
Rise in rate of productive investments i.e. 5% to 10% of NNP.
Development of one or more substantial manufacturing sectors with a high rate of
growth.
Emergence of a social, political framework to exploit impulse to expansion i.e. ability of
the economy to mobilise larger savings out of an expanding income to raise effective
demand and create external economies through expansion of leading sectors. Take-off is
initiated by a sharp stimulus e.g. development of a leading sector or a political revolution
which brings a change in production process (e.g. privatisation of industries, change of
attitude towards work)
d) The Drive to Maturity
This is derived as the period when a society has effectively applied the range of modern
technology to the bulk of its resources. It is a period of long sustained economic growth
extending well over 4 decades. The character of the working force changes. It primarily
becomes skilled. Real wages start rising and workers organise themselves in order to
have greater economic and social security. Character of entrepreneurship changes. The
society looks for something new (i.e. specialisation in uncommon things such as spacecraft, nuclear and weaponry etc.)
19
e) The Age of High Mass Consumption
This is pursuit of national policies to enhance power and influence beyond National
frontiers. Pursuit for a welfare state by a more equitable distribution of National Income
through progressive taxation, increased social security and leisure to the working force
(e.g. tours to far places or places of interest-planned holidays organised in advance).
CRITICIM OF THE THEORY
The theory viewed development simply as a matter of higher savings and investment
ratios, which can be negated by the worsening of unemployment and income inequalities.
Economic growth focuses on short-run changes in a country's development. It considers
such factors as the increase in GDP per Capita, Investment per Capita and Household
consumption patterns. This concept fails to capture the reality of a developing nation, for
the limitations of using economic growth, as indicators of people's welfare are obvious.
For instance it subordinates questions regarding changes in prices, the structure of the
society, the size and composition of the population, society's institutions, culture, the
resource patterns and the distribution of output among the society's members.
An
increase in per Capita income may not raise the real standard of living of the masses. It is
possible that while per capita income is increasing, per capita consumption might be
falling. However, it is useful for statistical purposes, development plans, international and
regional comparisons.
3) MARXIAN THEORY OF DEVELOPMENT
Karl Marx’s theory strives to combine economics and sociology and views economic
development as a continuous change in the social, cultural and political life of the society.
Such a change is brought about by changes in the methods of production and in property
rights by a class of people in society seeking economic power and prestige. According to
this theory, the major factor in economic development is the rate of accumulation of
‘labour surplus value’ i.e. the rate of profit appropriated by capitalists from workers. Such
surplus value arises in every society irrespective of its stage of development because
labour, the sole producer of value is capable of producing more than is necessary for
payment of subsistence wages. Labour surplus value, is the difference between the value
of what is produced and the amount paid in wages. It follows that the nearer wages are to
the subsistence level, the larger will be the surplus for investment.
20
CRITICIMS OF THE THEORY
1) A fall in the rate of profit becomes inevitable when capitalist society reaches
advanced stages of industrialisation.
2) In an effort to arrest the decline in profits, capitalists resort to labour-saving
technology and so add to the ‘reserve army’ of unemployed workers.
-
This intensifies the struggle between capitalists and workers until capitalism is
replaced by a new social order.
NB: This theory emphasises on the organic [organ(s)] composition of capital leading to
the fall rate of profit.
21