FANA HAGOS BERHANE (LL. B) (LL.M)
Sponsored by the Justice and Legal System Research Institute
UNDERSTANDING THE CONCEPT OF DEVELOPMENT
Chapter 1- PRINCIPLES AND CONCEPTS OF DEVELOPMENT
The study of economic development is one of the newest, most exciting, and most challenging branch of the broader disciplines of economics and political economy and this chapter is mainly to give you highlight about the important concepts and nature of development economics, core values, and objectives of development , and indicators of development and growth. At the end of this chapter you will be able to
§ describe the importance of studying development economics
§ identify the difference between growth and development
§ assess the core values of development
§ elaborate the important objectives of development
1.1 The Nature of Development Economics
Traditional economics is concerned primarily with the efficient least – cost allocation of scarce productive resources and with the optimal growth of these resources over time so as to produce an ever – expanding range of goods and service. By traditional economics it simply means the classical and neoclassical economics taught. Traditional neoclassical economics deals with an advanced capitalist world of perfect markets. consumer sovereignty. automatic price adjustments. decisions made on the basis of marginal, private – profit and utility calculations; and equilibrium outcomes in all product and resource markets. It assumes economic “rationality’’ and a purely materialistic, individualistic and self- interested orientation towards economic decision making. Political economy goes beyond traditional economics to study, among other things, the social and institutional processes through which center groups of economic and political elites influence the allocation of scares productive resources now and in the future, either exclusively for their own benefit or for that of the larger population as well. Political economy is, therefore, concerned with the relationship between politics and economic decision making.
Development economics has an even greater scope. In addition to being concerned with the efficient allocation of existing scarce (or idle) productive resources and with their sustained growth over time, it must also deal with the economic, social, political, and institutional mechanisms, both public and private, necessary to bring about rapid (at least by historical standards) and large-scale improvements in levels of living for the masses of poverty – stricken, malnourished, and illiterate peoples of Africa, Asia, and Latin America. Unlike the more developed countries, in the Less Developed Countries (LDCs), most commodity and resource markets are highly imperfect, consumers and producers have limited information, major structural changes are taking place in both the society and the economy, and disequilibrium situations often prevail (prices do not equate supply and demand).
In many cases, economic calculations are dominated by political and social priorities such as building a new nation in Africa, replacing foreign advisors with local decision makers, resolving tribal or ethnic conflicts, or preserving religious and cultural traditions, religious and cultural traditions. At the individual level, family, clean, religious, or tribal considerations may take precedence over private, self – interested utility or profit – maximizing calculations.
Thus, development economics, to a greater extent than traditional neoclassical economics or even political economy, must be concerned with the economic, cultural, and political requirements for effecting rapid structural and institutional transformations of entire societies in a manner that will most efficiently bring the fruits of economic progress to the broadest segments of their populations. As such a larger government role and some degree of coordinated economic decision making directed toward transforming the economy are usually viewed as essential components of development economics.
We, who study law and development economics, must therefore be sensitive to the uniqueneness and diversity of third world societies. We must also recognize that there are few, if any, truly universal principles or “laws’ of economics governing economic relationships that are immutable at all times and in all places. There are at best only tendencies. For example, increased consumer demand tends to elicit a greater quantity supplied. But, as we shall discover later, conditions do exist in many developing countries under which this positive supply response may not operate.
Because of the heterogeneity of the developing world, there can also be no single development economics, no universal third world economics applicable to any or all LDCs. Rather, development economic must be eclectic, attempting to combine relevant concepts and theories from traditional economic analysis along with new models and new broader multidisciplinary approaches derived from studying the historical and contemporary development experience of America, Asia, and Latin America. Today development economics is field on the crest of a breaking wave theories and new data continuously emerging. These theories and statistics sometimes confirm and sometimes challenge traditional ways of viewing the world. The ultimate purpose of development economics, however, remains constant: to help us better understand third world economies on order to help improve material lives of three-quarters of the global population.
1.2 Some Critical Questions: Why Do We Study Development Economics?
An introductory course in development economics should help students gain a better understanding of a number of critical questions about the economies of developing nations. The following is a sample list where 20 such questions followed by the chapters (in parentheses) in which they are discussed. They illustrate the kinds of issues faced by almost every developing nation and indeed, every development economist.
1. What is the real meaning of development, and how can different economic concepts and theories contribute to a better understanding of the development process?
2. What are the sources of national and international economic growth? Who benefits from such growth and why? Why do some countries make rapid progress toward development while many others remain poor?
3. Which are the most influential theories of development and which of them are compatible? Is underdevelopment an internally (domestically) or externally (internationally) induced phenomenon?
4. What can be learned from the historical record of economic progress in the now developed world? Are the initial conditions similar or different for contemporary LDCs from what the developed countries faced on the eve of their industrialization?
5. How can improvement in the role and status of women have an especially beneficial impact on development prospects?
6. Is rapid population growth threatening the economic progress of developing nations? Do large families make economic sense in an environment of wide spread poverty and financial insecurity?
7. Why is there so much unemployment in the developing world, especially in the cities, and why do people continue to migrate to the cities from rular areas even though their chances of finding a job are very slow?
8. Do third world educational systems really promote economic development, or are they simply a mechanism to enable certain select groups or classes of people to maintain positions of wealth, power, and influence?
9. As 60% to 70% of many LDC populations still reside in rural areas, how can agricultural and rural development best be promoted? Are higher agriculture prices sufficient to stimulate food production, or are rural institutional changes (land redistribution, roads, transport, education, credit, etc. also needed?
10. What do we mean by “environmentally sustainable development”? Are there serious economic costs of pursuing sustainable development as opposed to simple output growth, and who bears the major responsibility for global environmental damage-the rich north or the poor south?
11. Is expanded international trade desirable from the point of view of the development of poor nations? Who really gains from trade, and how are the advantages distributed among nations?
12. Should exports of primary products such as agricultural commodities be promoted, or should all LDCs attempt to industrialize by developing their own heavy manufacturing industries as rapidly as possible?
13. How did developing nations get into such serious foreign – debit problems, and what are the implications of this debt for the economies of both less developed and more developed nations?
14. When and under what conditions should LDC governments adopt a policy of foreign – exchange control, rise tariffs, or ser quotas on the importation of certain “nonessential “goods in order to promote their own industrialization or to ameliorate chronic balance of payments problems” and world bank “structural adjustment” lending on the balance of payments and growth prospects of heavily indebted LDCs?
15. Should large and powerful multination corporations be encouraged to invest in the economies of poor nations, and if so, under what conditions? How have the emergence of the “global factory” and the globalization of trade and finance influenced international economic relations?
16. What is the impact of foreign economic aid in rich countries? Should developing countries continue to seek aid, and if so, under what conditions and for what purposes? Should developed countries continue to offer such aid, and if so, under what conditions and for what purpose?
17. Are free markets and economic privatization the answer to development problems, or do third world governments still have major roles to play in their economies?
18. What is the role financial and fiscal policy in promoting development? Do large military expenditures stimulate or retard economic growth?
19. How did the economic transition from communism to capitalism in the former Soviet Union and Eastern Europe affect international private investment and foreign aid to the third world?
20. What are the most significant issues facing the development world in the twenty-first century? Will greater global interdependence between first and third world nations help or hinder development prospects?
These and many similar questions are analyzed and explored in the following chapters. The answers are often more complex than one might think, Remember that the ultimate purpose of any course in development economics is to help students think systematically about economic problems and issues and formulate judgments and conclusion on the basis of relevant analytic principles and reliable statistical information. Because the problems of development are in many cases unique in the modern world and not often easily understood through the use of traditional economic theories, we may often need unconventional approaches to what may appear to be conventional economic problems. Traditional economic principles can play a useful role in enabling us to improve our understanding of development problems, but they should not blind us to the realities of local conditions in less developed countries.
1.3 The Role of Values in Development Economics
Economics is a social science. It is concerned with human beings and the social systems by which they organize their activities to satisfy basic material needs (e.g. food, shelter, and clothing) and nonmaterial wants (e.g. education, knowledge, spiritual fulfillment). Because they are social sciences, economists face the some what unusual situation in which the objects of their studies – human beings in the ordinary business life – and their activities are rooted in the same social context. Unlike the physical science, the social science of economics can claim neither scientific laws nor universal truths. As mentioned earlier, in economics there can only be tendencies, and even these are subject to great variations in different countries and cultures and at different times. Many so – called general economic models are in fact, based on a set of implicit assumption about human behavior and economic readerships that may have little or no connection with the realities of developing economies. To this extent, their generality and objectivity may be more assumed than real. Economic investigations and analyses cannot simply be lifted out of their institutional, social, and political context, especially when one must of the human dilemmas of hunger, poverty and ill health that plague so much of the world’s population.
It is necessary, therefore, to recognize from the outset that ethical or normative value premises about what is or not desirable are central features of the economic discipline in general and of development economics in particular. The very concept of economic development and modernization represent implicit as well as explicit value premises about desirable goals for achieving.
1.4 Traditional Economic Measures
In strictly economic terms, development has traditionally meant the capacity of a national economy, whose initial economic condition has been more or less static for a long time, to generate and sustain an annual increase in its gross national product (GNP) at rates of perhaps 5% to 7% or more. (A measure similar to GNP- known as the gross domestic product, (or GDP) is also used. The difference between GNP and GDP will be explained in Chapter2. A common alternative economic index of development has been the use of rates of growth of income per capital or per capital GNP to take into account the ability of a nation to expand its output at a rate faster than the growth rate of its population. Levels and rates of growth of real per capital GNP (monetary growth of GNP per capital minus the rate of inflation) are normally used to measure the over all economic well – being of a population–how much of real goods and services is a variable to the average citizen for consumption and investment.
Economic development in the past has also been typically seen in terms of the planned alteration of the structure of production and employment so that agriculture’s share of both declines and that of the manufacturing and service industries increases. Development strategies have therefore usually focused on rapid industrialization, often at the expense of agriculture and rural development. Finally, these principal economic measures of development have often been supplemented by casual reference to non economic social indicators: gain in literacy, schooling, health conditions and services, and provision of housing, for instance. A description of various attempts to generate these social indicators of development to supplement per capital GNP, in particular the United Nations human development.
On the whole, therefore, prior to the 1970s, development was nearly always seen as an economic phenomenon in which rapid gains in overall and per capital GNP growth would either “trickle down” to the masses in the form of jobs and other economic opportunities or create the necessary conditions for the wider distribution of the economic and social benefits of growth, problems of poverty, unemployment, and income distribution were of secondary importance to “getting the growth job done”.
1.5 The New Economic View of Development
The experience of the 1950s and 1960s, when many third world nations did realize their economic growth-targets but the levels of living of the masses of people remained for the most part unchanged, signaled that something was very wrong with this narrow definition of development. An increasing number of economists and policymakers now clamored for the “dethronement of GNP”and the evaluation of direct attacks on widespread of absolute poverty, increasingly inequitable income distributions, and rising unemployment. In short, during the 1970s, economic development came to be redefined in terms of the reduction or elimination of poverty, inequality, and unemployment within the context of a growth of economy. “Redistribution from growth” becomes a common slogan. Dudley seers posed the basic question about the meaning of development succinctly when he asserted:
The questions to ask about a country’s development are therefore: What has been happening to poverty? What has been happening to unemployment? What has been happening to inequality? If all three of these have declined from high levels, then beyond doubt this has been a period of development for the country concerned. If one or two of these central problems have been growing worse, especially if all three have, it would be strange to call the result “development” even per capita income double.
This assertion was neither idle speculation nor the description of a hypothetical situation; a number of developing countries experienced relatively high rates of growth of per capita income during the 1960s and 1970s but showed little or no improvement or even an actual decline in employment, equality, and the real incomes of the bottom 40%, of their populations. By the earlier growth definition, these countries were developing; by the newer poverty, equality, and employment criteria, they were not. The situation in the 1980s and early 1990s worsened further as GNP growth rates turned negative for many LDCs and governments, facing mounting foreign – debt problems, were forced to cut back on their already limited social and economic programs.
But the phenomenon of development or the existence of choric state of underdevelopment is not merely a question of economics or even one of quantities measurement of incomes, employment, and inequality. Underdevelopment is a real fact of life for more than 3 billion people in the world-a state of mind as much as a state of national poverty. As Denis Goulet has so forcefully portrayed it:
Underdevelopment is shocking: the squalor, disease, unnecessary deaths, and hopelessness of it all ! No man understands if underdevelopment remains for him a mere statistic reflecting low income, poor housing, premature mortality or underemployment. The most empathetic observer can speak objectively about underdevelopment only after undergoing personally or vicariously, the ‘shock of underdevelopment”. This unique culture shock comes to one as he is initiated to the emotions which prevail in the “culture of poverty”. The reverse shock is felt by their life is nether human nor inevitable….the prevalent emotion of underdevelopment is a sense of personal and social impotence in the face of disease and death, of confusion and ignorance as one groups to understand change, of servility toward men whose decisions govern the course of events, of hope lessens before hunger and natural catastrophe. Chronic poverty is a cruel kind of hell, and one cannot understand how cruel that hell is merely by gazing upon poverty as an object.
Development has been treated by economists as if it were nothing more than an exercise in applied economics, unrelated to political ideas, forms of government, and the role of people in society. It is high time we combine political and economic theory to consider not just ways in which societies can become more productive but the quality of the societies which are supposed to become more productive – the development of people rather than the development of things.
When we deal in parts two and three with such major issues of development as poverty, inequality, unemployment, population growth, rural stagnation, and environmental decay, the mere identification of these topics as problems conveys the value judgment that their improvement or elimination is desirable and therefore good. That, there is widespread agreement among many different groups of people – politicians, academics, and ordinary citizens-that these are desirable goals do not alter the fact that they arise not only out of a reaction to an objective or normative value judgment about what should be.
It follows that value promises, however carefully disguised, are an integral components of both economic analysis and economic policy. Economics can not be value-free in the same sense as, say, physics or chemistry. Thus the validity of economic analysis and the correctness of economic prescriptions should always be evaluated in light of the underlying assumptions or value premises. Once these subjective values have been agreed on by a nation or, more specifically, by those who are responsible for national decision making, specific development goals (e.g., greater income equality) and corresponding public polices (e.g., taxing higher incomes at rates) based on “objective” theoretical and quantitative analyses can be pursued. However, where serious value conflicts and disagreements exist among decision makers, the possibility of a consensus about desirable goals or appropriate policies is considerably diminished. In either case, it is essential, especially in the field of development economics that one’s value premises always are made clear.
1.6 Economies as Social Systems: The Need to Beyond Simple Economics
Economics and economic systems, especially in the third world, must be viewed in a broader perspective than that postulated by traditional economics. They must be analyzed within the context of the overall social system of a country and, indeed, with an international, global context as well. By social system we mean the interdependent relationships between so-called economic and non economic factors. The latter include attitude towards life, work, and authority; public and religion; cultural traditions; systems of land tenure; the authority and integrity of government agencies; the degree of popular participation in development decisions and activities; and the flexibility or rigidity of economic and social classes. Clearly these factors vary from one of the world to another and from one culture and social setting to another.
Throughout this module we shall discover that resolving problems to achieve development is a much more complicated task than some economists would lead us to believe. Increasing national production, raising levels of living and promoting widespread employment opportunities are all as much a function of the values, incentives, attitudes and benefits, and institutional and power structure of both the domestic and the global society as they are the direct outcomes of the manipulation of strategic economic variables such as saving, investment, product and factor price, and foreign- exchange rates. Looking back over these years, it is now clear that, in their preoccupation with growth and its stages and with the provision of capital and skills, development theorists have paid insufficient attention to institutional and structural problems and to the power of historical, cultural and religious forces in the development process.
Just as some economists occasionally make the mistake of confusing their theories with universal truth, so they also sometimes mistakenly dismiss these non-economic variables as “non-quantifiable” and therefore of dubious importance. Yet these variables often play a critical role in the success or failure of the development effort.
Many of the failures of development policies have occurred precisely because these non-economic variables (e.g., the role of traditional precise rights in allocating resources and distributing income or the influence of religion on attitudes towards modernization and family planning) were intentionally or unintentionally excluded from the analysis. Although the main focus of this module is in development economics and its usefulness and in understanding problems of economic and social progress in poor nations, we will olso try to be mindful of the crucial roles that values, attitudes, and institutions play in the overall development process.
What do we mean by development?
Because the term development may be different things to different people, it is important at the outset to have some working definition or crop perspective on its meaning. Without such a perspective and some agreement on measurement criteria, we would be unable to determine which country is actually developing and which is not. According to World Bank, which during the 1980s championed economic growth as the goal of development, joined the chorus observers taking a broader perspective when, in its 1991 world development report, it asserted:
The challenge of development is to improve the quality of life. Especially in the world’s poor countries, a better quality of life generally calls for higher incomes but it involves much more. It encompasses as ends in themselves better education, higher standards of health and nutrition, less poverty, a cleaner environment, more equality of opportunity, greater individual freedom, and a richer cultural life.
Development must therefore be conceived as a multidimensional process involving major changes in social structures, popular attitudes, and national institutions, as well as the acceleration of economic growth, the reduction of inequality, and the eradication of poverty. Development, in its essence, must represent the whole gamut of change by which an entire social system, turned to the divers basic needs and desires of individuals and social groups within that system, moves away from a condition of life widely perceived as unsatisfactory toward a situation or condition of life regarded as materially and spiritually better.
1.7 Three Core Values of Development
Is it possible to define or broadly conceptualize what we mean when we talk about development as the sustained elevation of an entire society and social system toward a “better’’ or “more human” life? What constitutes the good life is a question as old as philosophy and humankind, one that must be periodically reevaluated and answered afresh in the changing environment of world society. The appropriate answers for third world nations in the first decade of the twenty first century is not necessarily the same as it would have been in previous decades. But we agree with Goulet and others that at least three basic components or core values should serve as a conceptual basis and practical guide line for understanding the inner meaning of development. These core values sustenance, self-esteem, and freedom- represent common goals by all individuals and almost all societies and cultures at all times. Let us therefore examine each one of the values in short.
1.7.1 Sustenance: The ability to meet Basic needs
All people have certain basic needs without which life would be impossible. These life-sustaining basic human needs include food, shelter, health, and protection. When any of these is absents or in critically short supply, a condition of “absolute underdevelopment” exists. A basic function of all economic activities, therefore, is to provide as many people as possible with the means of overcoming the helplessness and misery arising from a lack of food, shelter, health, and protection. To this end, we may claim that economic development is a necessary condition for improvement in the quality of life and there by for development. Without sustained and continuous economic progress at the individual level, as well as the societal level, the realization of economic human potential would not be possible. One clearly has to “have enough in order to be more’ Rising per capital incomes, the elimination of absolute poverty, greater employment opportunities, and narrowing income inequalities. Therefore , having economic growth constitute the necessary but not the sufficient conditions for development.
An alternative way of saying much the same thing was put forth in the United Nations’ 1994 human development report. The report asserts the following;
Human beings are born with certain capabilities. The purpose of development is to create an environment in which all people can expand their capabilities, and opportunities can be enlarged for both present and future generations. The real foundation of human development is universalism in acknowledging the life of everyone. Wealth is important for human life. But concentrating on it exclusively is wrong for two reasons. First, accumulating wealth is not necessary for the fulfillment of some important human choice. Second, human choices extend far beyond economic well-being.
1.7.2 Self-Esteem: To be a person
A second universal component of the good life is self-esteem-a sense of worth and self-respect, of not being used as a tool by others for their own needs. All peoples and societies seek some basic form of self-esteem although they may call it authenticity, identity, dignity, respect, honor, or recognition. The nature and form of this self-esteem may vary from society to society and from culture to culture.
However, with the proliferation of the “modernizing values” of developed nations, many societies in third world countries had a profound sense of their own worth suffer from serious cultural confusion when they come in contact with economically and technologically advanced measure of worth.
The relevant point is that underdevelopment is the problem of the majority of the world’s population. As long as esteem or respect was dispensed on grounds other than material achievement, it was possible to resign oneself to poverty without feeling disdained. Conversely, once the prevailing image of the better life includes material welfare as one of its essential ingredients, it becomes difficult for the materially “underdeveloped” to feel respected or esteemed
1.7.3 Freedom from Servitude: to Able to Choose
A third and final universal value that we suggest should constitute the meaning of development is the concept of human freedom. Freedom here is to be understood in the sense of emancipation from alienating material conditions of life and from social servitude to nature, ignorance, other people, misery, institutions, and dogmatic beliefs. Freedom involves an expanded range of choices for societies and their members together with a minimization of external constrains in the pursuit of some social goal called development. W.Arthur Lewis stressed the relationship between economic growth and freedom from servitude when he concluded that ‘the advantage of economic growth is not that wealth increases happiness, but that it increases the range of human choice.” Wealth can enable people to gain greater control over nature and the physical environment (e.g., through the production of food, cloth, and shelter) than they would have if they remained poor. It also gives them the freedom to choose greater leisure, to have goods and service, or deny the importance of these material wants and choose to live a life of spiritual contemplation. The concept of human freedom should also encompass various components of political freedom including. but not limited to, personal security with the rule of law, freedom of expression, political participation, and equality of opportunity. Some of the most notable economic success stories of the 1970s and 1980s (Saudi Arabia, Chile, South Korea, Singapore, Malaysia, Thailand, Indonesia, Turkey, and Chin among others) did not score development program (UNDP).
1.8 The Three Objectives of development
We may conclude that development is both a physical reality and state of mind in which society has, through some combination of social, economic, and institution process, secured the means for obtaining a better life. Whatever be the specific components of this better life, development in all societies must have at least the following three objectives:
1. To increase the availability and widen the distribution of basic life-sustaining goods such as food, shelter, health, and protection.
2. To raise levels of living, in addition to higher incomes, the provision of more jobs, better education, and greater attention to cultural and humanistic values, all of which will serve not only to enhance well-being but also to generate greater individual and national self-esteem.
3. To expand the range of economic and social choice available to individuals and nations by freeing them servitude and dependence not only in relation to other people and nation-states but also to the forces of ignorance and human misery.
1.9 Summary and Conclusions
Development economics is a distinct yet very important extension of both traditional economics and political economy. While necessarily also concerned with efficient resource allocation and the steady growth of aggregate output over time, development economics focus primarily on the economic, social, and institutional mechanism needed to bring about rapid and large-scale improvements in levels of living for the masses of poor people in third world nations. As such, development economics must be concerned with the formation of appropriate public policies designed to effect major economic, institutional, and social transformations of entire societies in the shortest possible time. Otherwise, the gap between aspiration and reality will continue to widen with each passing year. It is for this reason that the public sector has assumed a much broader and more determining role in development economics than it has traditional neoclassical economic analysis.
As a social science, economics is concerned with people and how best to provide them with the material means to help and realize their full human potential. But what constitutes the good life is a perennial question, and hence economics necessarily involves values and value judgments. Our very understanding with promoting development represents an implicit value judgment about good (development) and evil (underdevelopment). But development may mean different things to different people. Therefore, the nature and character of development and the meaning we attach to it must be carefully spelled out.
Any realistic analysis of development problem necessitates the supplementation of strictly economic variables such as incomes, price, and savings rates and with equally relevant information’s of non-economic or institution factors, including the nature of land tenure arrangements; and influence of social and class stratifications; the structure of credit, education, and health system; the organization and motivation of government bureaucracies; the machinery of political administration; the nature of popular attitudes to ward work, leisure, and self-improvement; and the values, roles, and attitudes of political and economic elites. Economic development strategies that seek to raise agricultural output, create employment, and eradicate poverty have often failed in the past because of economic elites.
Despite the great diversity of developing nations-some large, others small; some resource-rich, others resource-barren; some subsistence economies, others modern manufactured-good exporters; some private-sector-oriented, others run by the government-most share common problems that defined their underdevelopment. We will discuss these diverse structures and common characteristics of LDCS