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Approaches to Developments and its influences Nepalese Development Plans Rabi S. Sainju National Planning Commission Secretariat Rabi S Sainju NASC : Professional Course on Management and Development 20 Nov 2014 Presentation Outline The quest for development Economic System Development Plan and its necessity Approaches to development Growth Situation in Nepal Conclusion Rabi S Sainju NASC : Professional Course on Management and Development 20 Nov 2014 The quest for development Economic development is the process that transforms a country’s capacity to provide for the material well-being of its people. associated with economic growth; which needs to be sustained over time for successful development success of process usually judged also by distributional effects Concern for development was an outgrowth of the determination post-WWII to avoid a recurrence of the 1930s Initial focus on recovery of war-ravaged economies; from mid1950s, emphasis shifted to growth prospects of poorer countries Rabi S Sainju NASC : Professional Course on Management and Development 20 Nov 2014 Economic System • Political ideology and economic system are connected • In countries where individual goals are emphasized free market economies are likely • There are three types of economic systems: • Capitalist or market economies • Socialist or command economies • Mixed or welfare economies Rabi S Sainju NASC : Professional Course on Management and Development 20 Nov 2014 Capitalist Economy • In a capitalist economy all productive activities are privately owned. • Price systems are used in the market, which means price determines everything. • Production is determined by the interaction of supply and demand • The motivating force of Capitalism is self interest. • The role of government is to encourage free and fair competition between private producers • The distribution of goods in a capitalistic society is to each according to his/her quantity and value of contribution to society. • This distribution scheme causes an unequal spread of income and wealth. Rabi S Sainju NASC : Professional Course on Management and Development 20 Nov 2014 Socialist Economy • In a socialist or command economy, the government plans the goods and services that a country produces, the quantity that is produced, and the prices as which they are sold • All businesses are state-owned, and governments allocate resources for “the good of society” • However, because there is little incentive to control costs and be efficient, command economies tend to stagnate • It is a planned economy in which resources are allocated by need. • The spread of wealth and income is more equal in a socialistic society, however the individuals tend to lose motivation because the pay off is vastly less. • This distribution scheme is a humane, but mostly an inefficient one. Rabi S Sainju NASC : Professional Course on Management and Development 20 Nov 2014 Mixed Economy • Welfare Capitalism is a prime example of a mixed economy. • The principles of capitalism are followed, but with government involvement. • Certain sectors of the economy are left to private ownership and free market mechanisms while other sectors have significant state ownership and government planning • Governments tend to own firms that are considered important to national security • The government will step in to take care of citizens and help to maintain a minimum standard of living. Rabi S Sainju NASC : Professional Course on Management and Development 20 Nov 2014 Development Plan • A key tool which influences decisions about priorities and resource allocation, and aims to influence the direction, and pace of development • Often involves linkages between different sectors of development and levels of government • An opportunity to ensure micro-macro links • An opportunity to integrate actions of different government and non-government agencies • A major point where integration and the Sustainable Livelihoods principles of holism and partnerships can be fostered • A set of actions to achieve a certain goal 8 Rabi S Sainju NASC : Professional Course on Management and Development 20 Nov 2014 Necessity of National Planning • Depends on a country’s stage of development – the political or administrative structure are also relevant • Few high-developed countries have national planning systems – Korea terminated its planning ministry a few years ago. • Fragile countries generally have ineffective planning systems – Their plans promise more than the government can deliver • Developing countries have the most potential for national planning – Their plans can prepare the way for investments and policy initiatives that stimulate development • Current circumstances appear highly favorable – The fact that many developing countries has indicated they can make 9 effective use of formal planning systems Rabi S Sainju NASC : Professional Course on Management and Development 9 20 Nov 2014 9 Approaches to Economic Development Literature on economic development is dominated by the following four strands of thought: Linear-stages-of-growth model: 1950s and 1960s Theories and patterns of structural change: 1970s Neo-classical, free-market counterrevolution or market fundamentalism: 1980s and 1990s New Approached to Development :Right based Approach/ Inclusive Development • Four major and often competing development theories, all trying to explain how and why development does or does not occur. • Newer models often draw on various aspects of these classical theories. Rabi S Sainju NASC : Professional Course on Management and Development 1 0 20 Nov 2014 Approaches to development • In the 1950’s and 1960’s, linear-stages-of-growth models were popular. They described the process of development as a series of successive stages. • These models were replaced in the 1970’s by Structural Change and International Dependence models. • Structural change models emphasized the internal process of structural changes that a developing country must go through, • International dependence models viewed underdevelopment in terms of international and domestic power relationships, institutional and structural rigidities and the resulting proliferation of dual economies and dual societies both within and among nations of the world. Rabi S Sainju NASC : Professional Course on Management and Development 20 Nov 2014 Approaches to development • In the 1980’s and 1990’s the neoclassical counterrevolution focused on the beneficial role of free markets, open economies and the privatization of public enterprises and suggested that the failure of some economies to develop is a result of too much government intervention and regulation. • In 2000s, much attention in this decade to other “solutions” to under-development and used various aspect of classical approach. Development economist are more focused on inclusive development approach and right based approaches Rabi S Sainju NASC : Professional Course on Management and Development 20 Nov 2014 Linear-Stages-of-Growth Models • Assumed that the developing countries could learn a lot from the historical growth experience of the now developed countries. • Representative Models are: • Rostow’s Stages of Growth • Harrod-Domar’s Growth Model • Emphasis was on: Central planning Industrialization Import substitution • Emphasized the role of: accelerated capital accumulation; augmented savings/investment; and adequate supplies of foreign exchange (for imports of capital goods). • Strong bias towards western model of modernization which tries to fit economic progress into a linear system . Rabi S Sainju NASC : Professional Course on Management and Development 1 3 20 Nov 2014 Influence of Linear Growth Model in Nepal • Periodic Plans: First Plan: 1956-61 Second Plan: 1962-65 Third Plan : 1965-71 • Started its initial plans under the complete absence of data and information and any infrastructure to begin with. • Plans focused mainly on growth led strategies giving priority to the expansion of infrastructures to develop industrial Sector. • Plans emphasized the role of capital formation and increase investment in the modern industrial sector. • Import substitution policy adopted failed to sustain economic development. In fact, reliance on external market increased due to growing needs of capital goods and intermediate inputs Rabi S Sainju NASC : Professional Course on Management and Development 1 4 20 Nov 2014 Structural-Change Models In the 1970s • Representative examples of this strand of thought are The Lewis theory of development Chenery’s patterns of development These models tend to emphasize the transformation of domestic economic structures from traditional subsistence agriculture economies to more modern, urbanized and industrially diverse manufacturing and service economies. Shift in emphasis: • basic needs and poverty reduction – McNamara, Nairobi 1973 integrated area development investment in social sectors – human capital • Concerns for the distributional consequences of growth; sharing benefits of development more equally 15 Rabi S Sainju NASC : Professional Course on Management and Development 15 20 Nov 2014 Influence of Structural-Change Model in Nepal Periodic Plans Fourth Plan : 1971-76 Fifth Plan : 1976-81 Sixth Plan 1981-86 • During early 1970s, it had become clear that the modernization strategies of the initial plans could not induce industrial investment. • Adopted regional approach in development planning • Adopted distributive approach in development strategies • Nepal adopted the ideology of Basic Needs and Integrated Rural Development in this era. 16 Rabi S Sainju NASC : Professional Course on Management and Development 20 Nov 2014 The Neoclassical Counterrevolution: Market Fundamentalism • • • • • The debt build-up from the 1970s became burdensome as the developed countries took steps to eliminate inflation. Interest rates rose sharply, trade growth slowed, and further oil price increases. Neoclassical counterrevolution in 1980s called for freer markets, dismantling of public ownership, and government regulations Neo-classicist also obtained controlling power of the world’s two most influential international financial agencies –WB & IMF Argued that underdevelopment is the result of poor resource allocation due to incorrect pricing policies and too much state intervention. Four component approaches : • • • • The Free Market Approach: markets alone are efficient and effective Public-choice theory: Government can do nothing right Market-friendly Approach: government need to facilitate the markets New institutionalism: success or failure depend on fundamental institutions 17 Rabi S Sainju NASC : Professional Course on Management and Development 17 20 Nov 2014 Influence of The Neoclassical Counterrevolution in Nepalese Plan • Plan Period Seventh Plan : 1986-1991 Eight Plan : 1993-1998 Ninth Plan : 1998 – 2002 • The failure of previous development strategies had created macroeconomic imbalance. • Accepted IMF Stabilization package and WB's Structural Adjustment Programme and shifted towards the ideology of liberalization and open market policies. • The main objectives of these plan were attainment of sustainable economic growth, poverty alleviation. • Efforts made to adopt the market based economy by promoting private sector participation and investment and by reducing the role of the state. 18 Rabi S Sainju NASC : Professional Course on Management and Development 20 Nov 2014 New Approaches to development Since 2000: • Much attention in this decade also to other “solutions” to underdevelopment, including: establishment of appropriate institutions (“more important than policy”) promotion of better governance: anti-corruption democracy bureaucratic competence corporate oversight • And more proposed remedies that have something of the “silver bullet” about them: micro-credit; social entrepreneurship • Finally, renewed emphasis on human capital – partly a result of the focus on knowledge; distributional issues; and growing concern 19 about environmental impacts of growth. Rabi S Sainju NASC : Professional Course on Management and Development 20 Nov 2014 Influence of New Approaches in Nepalese Plan Plan Period Tenth Plan 2002-2007 Eleventh Plan 2007 – 10 Twelfth Plan : 2010 – 13 • These plans focused more on poverty alleviation, reconstruction, rehabilitations and peace mitigations. • Realized that that governments do fail, but so do markets; a balance is needed • Attentions to institutional and political realities • Focused on inclusiveness in planning 20 Rabi S Sainju NASC : Professional Course on Management and Development 20 Nov 2014 Economic Growth Situation in Nepal Plan Period ICOR Economic Growth at base price (%) Third Plan (2022-27) 2.2 Fourth Plan (2027-32) 1.8 Fifth Plan( 2032-37) 2.3 Sixth Plan (2037-42) 4.4 Seventh Plan (2042-47) 4.57 2047-48; 2048-29 Poverty line (%) Gini Coefficient Remark 34 (NPC) 49 NPC 7.03; 4.66 Eighth Plan ( 2049-54) 4.3 4.84 41.76 (NLSS I) 0.34 Ninth Plan (2054-59) 4.1 3.70 38 Tenth Plan (2059-64) 4.3 3.58 30.85 (NLSS II) 0.41 TYIP (2064-67) 4.8 4.65 25.16 (NLSS III) 0.33 TYP ( 2067-70) 5.0 3.96 23.8 NPC CBS/NPC 21 Rabi S Sainju NASC : Professional Course on Management and Development 20 Nov 2014 Sectoral Growth Rate Sectors Agriculture, fishery and Forestry 7th Plan 8th Plan 4.17 2.95 9th Plan Construction Retail and wholesale trading Hotel and restaurant Transport, storage and communication General administration and defense Education Health and social work Other community, social and individual service 12th Plan 2.88 3.62 3.58 5.20 2.77 0.35 4.24 4.17 3.18 5.49 5.19 6.29 7.32 4.89 2.87 4.35 2.88 3.86 13.94 6.42 6.02 6.02 8.94 5.18 8.82 2.96 -0.17 4.07 4.35 2.19 5.38 5.25 4.67 6.33 4.37 5.95 1.13 0.98 3.83 5.24 8.11 7.29 5.32 7.43 5.89 13.58 4.69 4.47 4.41 5.13 2.29 5.15 7.94 9.01 3.99 7.94 7.62 4.05 4.04 7.31 Financial intermediation Real estate, rent and business activities 11th Plan 3.43 Non agriculture Mining and quarrying Manufacturing Electricity, gas and water 1 10th Plan 5.24 5.73 2.98 6.61 6.18 8.67 7.45 Total value added at base price 4.57 4.84 3.70 3.58 Rabi S Sainju NASC : Professional Course on Management and Development 11.34 6.32 4.65 3.97 20 Nov 2014 HDI trends on new component and new methodology Year Life Expected Mean GNI per expectancy at years of years of capita (2005 birth schooling schooling PPP$) HDI value Remark 1980 48.2 4.5 0.6 0,566 0.234 5th Plan 1985 51.1 5.5 1.2 0,633 0.285 6th Plan 1990 54 7.4 2 0,706 0.341 7th Plan 1995 57.5 8 2.2 0,811 0.37 8th Plan 2000 61.6 8.8 2.4 0,902 0.401 9th plan 2005 65.6 8.9 2.7 0,960 0.429 10th Plan 2010 68.5 8.9 3.2 1,090 0.458 11th Plan 2012 69.1 8.9 3.2 1,137 0.463 12th Plan 2014 69.1 12.4 3.2 2194 0.540 13th Plan Rabi S Sainju NASC : Professional Course on Management and Development 20 Nov 2014 Human Development Index Trend Year 2014 2012 2011 2010 Nepal 2005 2000 1990 1980 Low HD Medium HD South Asia 2012 LDCs World Norway HDI 0.540 0.463 0.460 0.456 0.429 0.401 0.314 0.234 0.466 0.640 0.558 0.449 0.694 0.955 MPI 0.197 0.217 GII 0.479 0.485 0.350* 0.498 0.627 0.649 0.578 0.457 0.568 0.566 0.463 0.065 IHDI 0.384 0.304 0.310 0.485 0.395 0.303 0.532 0.894 NI-HDI Remark 0.526 0.524 0.523 0.486 0.445 0.371 0.224 0.487 0.661 0.577 0.475 0.690 0.977 12 Plan * 2006 data Rabi S Sainju NASC : Professional Course on Management and Development th th 11 Plan th 10 Plan th 9 Plan th 7 Plan th 5 Plan 24 20 Nov 2014 Conclusions • In an environment of widespread institutional rigidities and severe socioeconomic inequality, both markets and governments will typically fail. • The linear-stages model emphasizes the crucial role of savings and investment. • The Lewis two-sector model emphasizes the importance of attempting to analyze the many linkages between the traditional sector and the modern industry • International dependence theories highlight the role of the structure and workings of the world economy and the impact of decisions made in the developed world on the growth prospects for LDCs. • The neoclassical economic models point to the promotion of efficient production and distribution through a proper functioning price system and the damaging effect of government-induced domestic and international price distortions. Rabi S Sainju NASC : Professional Course on Management and Development 20 Nov 2014 Conclusion • There is a need to have a broad based and inclusive growth to benefit all sections of society and improve economic growth. • It is more challenging for the country to achieve inclusive growth than getting 8 to 10 per cent growth in GDP • There are strong social, economic and political reasons for achieving broader and inclusive growth. • Socially, lack of inclusive growth leads to unrest among many people. • There is also an economic argument. The measures which raise equity also promote economic growth. • Lastly, the political argument is that no government in a democracy can afford to ignore large sections of workers and non-working population. • If it is not inclusive it can generate very severe social tensions. Thus, politically, for having a stable and democratic society one needs to have inclusive growth. Rabi S Sainju NASC : Professional Course on Management and Development 20 Nov 2014 Thank You All for your kind attention Rabi S Sainju NASC : Professional Course on Management and Development 27 20 Nov 2014