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ECONOMIC DEVELOPMENT
Different scholar views:
Schumpeter defines development as a discontinuous and spontaneous change in the stationery state which forever alters and displaces the equilibrium state previously existing while growth as a gradual and steady change in the long run which comes about by gradual increases in the rate of savings and population. Friedmann defines development as an innovative process leading to the structural transformation of social system while growth as an expansion of the system in one or more dimensions without a change in the structure thus economic growth is related to a quantitative sustained increase in the countrys per capita output or income accompanied by the expansion in its labour force, consumption, capital and volume of trade.
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According to Myrdal, economic development is a wider concept taken to mean growth plus change i.e. it is related to qualitative changes in economic wants, goods, incentives, institutions, productivity and knowledge or upward system of the entire social system. He argues that economic development embraces both growth and decline. An economy can grow but it may not develop because poverty, unemployment and inequalities may continue to persist due to the absence of technological and structural changes.
Despite these apparent differences, some economists use both terms (development & growth) as synonyms. Arthur Lewis in this book the theory of economic growth argues that most often we shall refer to only growth but occasionally for the sake of variety, to progress or to develop
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MEASUREMENT OF ECONOMIC DEVELOPMENT Economic development is measured in 4 (four) ways: 1. 2. 3. 4. GNP (Goss National Product) GNP per Capita Welfare Social Indicators
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WELFARE
This measure focuses on the economic welfare. According to Okun and Richardson, economic 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.
Criticisms: 1. Weight used for computing the consumption of individuals. Consumption patterns depend on the tastes and preferences of individuals thus it is not correct to have the same weights in preparing the welfare index of individuals. 2. Composition of total output and how this output is being valued. It should be noted that the total output may be composed of capital goods at the cost of a reduced output of consumer goods. 3. Valuation of output- output may be valued at market prices whereas economic welfare is measured by an increase in real national output or income. 4. Consider not only what is produced but how it is produced because the expansion of real national output may have raised the real costs and social costs in the economy. 5. It is not true that with an increase in the national income, the economic welfare will have improved. It could be that the rich might have become richer and the poor poorer thus a mere increase in economic welfare does not lead to economic 8 development till the distribution of national income is equitable.
SOCIAL INDICATORS
Some economists have tried to measure economic development in terms of social indicators. Social indicators are often referred to as the basic needs for development. Basic needs focus on alleviation of poverty by providing basic human needs to the poor which include; health, education, food, water, sanitation and housing The merit of social indicators is that they are concerned with ends i.e. economic development is thus a means to these ends. Social indicators tell us how different countries allocate the GNP among alternative uses. 9
SUSTAINABLE DEVELOPMENT
The concept of Sustainable Development was presented for the first time in 1987 by the World Commission on Environment and Development, in the report Our Common Future. The commission was created by the United Nations, and was made of 21 nations, including Canada. The commission headed by Norwegian Prime Minister Gro Harlem Brundtland, said that the planet needs " a new era of environmentally sustainable sound economic development." Dr. Brundtland also said that "government must strongly support a new political approach to environment and development, where economic and fiscal policies, trade and foreign policies, energy, agriculture, industry, and other sectoral policies, all aim to induce development that is not only economically but 11 ecologically sustainable."
SUSTAINABLE DEVELOPMENT
The Brundtland Report came up with two definitions (Technical and non technical) The technical definition of SD was given as being : "a sound balance among the interactions of the impacts (positive and/or negative), or stresses, on the four major quality systems: People, Economic Development, Environment and Availability of Resources." The non-technical definition was given as being: "a sound balance among the interactions designed to create a healthy economic growth, preserve environmental quality, make wise use of our resources, and enhance social benefits. Simply put: "Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs."
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Defined as development that is likely to achieve lasting satisfaction of human needs and improvement of the quality of life and encompasses: Help for the very poorest who are left with no option but to destroy their environment to survive Idea of self-reliant development with natural resource constraints Cost effective development using different economic criteria to the traditional i.e. development should not degrade environment Important issues of health control, appropriate technologies, food self-reliance, clean water and shelter for all People centered activities are necessary- human beings are the resources in the concept
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SD contd..
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Water pollution; main sources of water pollution include, flushing waste down the domestic sewage, industrial effluents containing organic pollutants, waste of chemicals, heavy metals and mining activities. - Major polluting industries are refineries, breweries, fertilisers, pesticides, leather pulp and paper. All these effluents flow into lakes, rivers, coastal areas, and wider ground water sources. Since they are untreated, they endanger the aquatic life species. 3. Solid and hazardous wastes; these create both air and water pollution especially in urban areas. - Unregulated urban growth without facilities such as collection, transportation, treatment and disposal of solid wastes pollutes the atmosphere and water sources. Blocked drains and rotting garbage spread 15 communicable diseases & pollute under ground water
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Deforestation; is the felling of trees and natural plant growth for setting up industries, construction purposes, towns, roads, highways etc. this destroys the flora and fauna and also leads to localised flooding especially in hilly and adjourning areas. 5. Soil degradation; is caused by water and wind. Soil erosion in hilly areas is caused by rain and rivers, thereby leading to landslides and floods. Deforestation, overgrazing and step farming in hilly areas further cause the soil erosion. Floods in rivers especially in the plains too cause erosion. Water logging on irrigated and intensive agriculture lead to salination and soil degradation. Areas with desert arid conditions suffer from wind erosion caused by the expansion of the desert, dust and storms. All types of soil degradation reduce the soil fertility.
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6. Urbanisation; rapid and unplanned urbanisation has led to degradation of the urban environment. Slums and shanty towns pollute air, water and generate a lot of solid and hazardous waste which are not properly disposed of which lead to environmental degradation. 7. Foreign indebtedness; in order to repay their debts, LDCs produce commercial crops for export that displace subsistence crops which are subsequently grown on marginal lands. They also export minerals by exploiting then recklessly thus depleting them for future generations. 8. Market failure; it means poor functioning of markets for environmental goods and services. It also reflects government policy in removing market distortions created by price controls and subsidies. Market failure is caused by lack of property rights and jointness in either production or consumption. 19
3. Market based approaches; besides regulatory measure, there is urgent need for adopting market based approaches for the protection of the environment. These are aimed at consumers and industries pointing out the costs of using natural resources on the environment. The costs are reflected in the prices paid for goods and services so that industries and consumers are guided by them to reduce air, land and water pollution. 4. Public Participation; public awareness and participation are highly effective to improve environmental conditions, this may be through formal or informal education programmes.
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5.
Regulatory policies; regulators have to make decisions regarding price, quantity, and technology for regulating the environmental problem directly or indirectly.- regulatory standards should be set for both private and public sector polluters or resource users. 6. Participation in global environmental efforts; there are several International conventions and agreements on environmental protection, the most recent being the Kyoto protocol, aimed at fighting global warming achieved through stabilization of green house gas concentrations in the atmosphere at a level that would prevent dangerous anthropogenic interference with the climate system. Others include; Montreal protocol regarding the phasing out of ozone-depleting chemicals, Rio declaration on environment & Development and the Agenda 21 which is operational programme for sustainable development. 22
7. Economic incentives; economic incentives relate to price, quantity and technology. Incentives are usually in the form of variable fees to resource users for the quantity of pollution in the air, water and on land. 8. Trade policy; trade policy in relation to the environment has 2 implications, first concerning the domestic policy reforms and second relating to the International trade policy. Domestic trade policies emphasise the establishment of less polluting industries away from the cities and the use of environmental friendly process for polluting industries by adopting cleaner technology.
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UNDERDEVELOPMENT
Underdevelopment is a term often used to refer to economic underdevelopment, symptoms of which include lack of access to job opportunities, health care, drinkable water, food, education and housing. Eugene Staley defines underdevelopment as follows "A country characterized by mass poverty which is chronic and not the result of some temporary misfortune, and by some obsolete methods of production and social organisation, which means that poverty is not entirely due to the poor natural resources and hence could presumably lessened by methods already proved in other countries". The U.N experts have defined an underdeveloped country as one "in which per capita real income is low when compared with the percapita real incomes of U.S.A, 24 Canada and Australia.
1. 2. 3. 4. 5.
Agriculture- the main occupation Population Pressure (Demographic features) Unemployment and disguised unemployment Poor income and Poor savings Under-utilisation of resources (underdevt of natural resources) 6. Capital deficiency 7. Low levels of Technology(Technological backwardness) 8. Foreign Trade orientation 9. Poor Economic Organization (economic backwardness) 10. Lack of suitable Socio-Economic Setup (Lack of Enterprise & Initiative) 11. General Poverty
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Agriculture- the main occupation; two-thirds or more people in underdeveloped countries live in rural areas and their main occupation is agriculture. Some such countries specialise in the production of raw materials and foodstuffs. The tertiary sector is also quite underdeveloped i.e. banking & insurance services, transport, commerce among others Population Pressure (Demographic features); underdeveloped countries differ greatly in demographic position and trends. Diversity exists in the size, density, age structure and the rate of population growth. Almost all the underdeveloped countries have high population growth potential characterised by high birth rate and high but declining death rate.
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Unemployment and disguised unemployment; there is vast open unemployment and disguised unemployment in underdeveloped countries. The unemployment levels are spreading with urbanisation and increased spread of education but the industrial sector has failed to expand along with the growth of the labour force thus increasing urban unemployment. On the other hand underemployment (disguised unemployment)is also a notable feature in underdeveloped countries. Here people are prepared to work but they are unable to find work the entire year due to lack of complementary factors. Such unemployment is found in rural landless and small farmers due to the seasonal nature of farm operations. Another form of disguised unemployment is where a person is forced by unemployment to take a job that he thinks is not adequate for his/her purpose or 29 training.
Poor income and Poor savings; As a result of unemployment, propensity to consume will be high resulting in low saving and low investment. In view of these various reasons the per capita income of such countries will also be low. Capital deficiency; underdeveloped countries are also characterised as capital poor or low saving and low investing economies. The root cause of this capital deficiency is the problem of under saving and under investment in productive sectors capable of increasing their rate of economic growth. Under-utilisation of resources (underdevt of natural resources); the natural resources of underdeveloped countries are underdeveloped in the sense that they are either under utilised or misutilised. For instance the forest wealth of Africa and South America still remains un explored/ unpenetrated this may be due to factors such as; inaccessbility, lack of technical expertise, non 30 availability of capital etc.
Technological backwardness; technological backwardness is reflected in high average cost of production despite low money wages, high labour output, average given factor prices thus low productivity of labour and capital, predominance of unskilled and untrained workers etc. capital deficiency hinders the process of scrapping off the old techniques and replace them with modern techniques, illiteracy and absence of skilled labour are the major hurdles. Foreign Trade orientation; underdeveloped countries are generally foreign trade oriented. This orientation is reflected in the exports of primary products and the imports of consumer goods and machinery. Foreign trade orientation also manifests itself through the flow of foreign capita to undeveloped countries.
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Economic backwardness; manifestations of economic backwardness include; low labour efficiency, factor mobility, limited specialisation in occupation and trade, economic ignorance, values and social structure that minimise the incentives for economic change. Low labour efficiency is the basic cause of backwardness resulting from general poverty which is reflected in nutritional standards, ill health, illiteracy, and lack of training and occupational immobility. Theres also prevalent child labour and womens status and position are inferior to men. Lack of Enterprise & Initiative; theres lack of entrepreneur activity. Entrepreneurship is inhibited by the social system which denies opportunities for creativity. The force of custom, the rigidity of status and distrust of new ideas etc combine to create an environment that prevents experience and innovation.
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Vicious circles of poverty; there are circular relationships that known as vicious circles of poverty that tend to perpetuate the low level devt in LDCs. It simply implies a circular system of forces tending to act and react upon one another in such a way as to keep a poor country in a state of poverty. The vicious circle stems from total productivity being low due to capital deficiencies, market imperfections, economic backwardness among others. The vicious circle operate both on the demand side and supply side. Low rate of capital formation; stems from the vicious circle of poverty above. In underdeveloped countries, the masses are poverty riden. They are mostly illiterate, unskilled, use outdated capital equipment and methods of production, practice mostly subsistence farming, lack mobility and have little connection with the market sector of the economy.
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Socio-cultural constraints; Inappropriate social system such as outdated religious beliefs, caste system, irrational attitude toward family planning etc. is also a constraint on the economic development of developing countries. Under developed countries possess social institutions and display such attitudes that are not conducive to economic devt. for instance a family is the primary economic and social unit, thus family attitudes are responsible for population pressures and attachment to land, they also limit the range of individual freedom in making economic decisions which in turn influence the motives to save and invest. Also, social attitudes towards education do hinder economic progress. Education is purely academic which trains people for government and other clerical jobs rather than for technical and professional.
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Agricultural constraint; majority of LDCs are predominantly agricultural countries. Agricultural production constitutes a great share of their GDP and agricultural products form a considerable part of value of their total exports. However, agricultural practices are controlled by custom and tradition. The LDCs located in the tropical and sub tropical zones are at a disadvantage in terms of climate due to heat and torrential rains their soils are poor leading to poor agricultural yields. Constraints are to be found in provision of agricultural incentives, technology available to them, investments, provision of prices and inputs, provision of irrigation and the climate. Thus the poor performance of the agricultural sector is a major constraint on the sluggish economic growth of LDCs.
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Human resources constraint; In addition to physical capital, human capital is also limited in developing countries. Undeveloped human resources are a big impediment to economic development in LDCs. Such countries lack in people possessing critical skills and knowledge required for al round development of the economy. The existence of surplus labour in them is to a considerable extent due to shortage of critical skills. The HR constraint is manifested in low labour productivity, factor immobility, limited specialisation in occupation and traditional & customary values that minimise the incentives for economic development. The quality of population as measured by its skills, education and health is far below the standard in developed countries of the world. Diseases, starvation, glut of unskilled workers stand in the way of economic development of the developing countries of the world.
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Foreign exchange constraint; with the opening of world markets to LDCs, there has been a rise in exports from these countries leading to the growth of the export sector at the expense of other sectors. Too much dependence on exports has exposed these nations to international fluctuations in demand for prices of their products and unstable exchange rates.
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Political Instability;
In most of the developing countries, the governments are not stable. A new government comes into power overnight, either through coup defeat or army take over. The new government introduces a new system of rules for the operation of business which causes frustration and discontentment among the people. Political instability affects growth in the following ways; Influence of political instability - When there is lack of political stability in the country, it directly affects economic growth. It closes off sources of internal and external investments. The external investors - The external investors do not invest in a country where there is political instability. The flow of investment in countries where there is civil war coups, army take over etc. is either negligible or zero. Internal investment - Political instability also limits internal investment. The wealthy class in developing countries have enough income to spare. They can invest their savings in profitable projects. Generally, they avoid investing funds in their own country for fear of nationalization of their projects, large scale interference by militant trade unions, harsh and exploitative attitude of the various govt. agencies involved in the setting and operation of the projects etc. The well off people including the politicians in developing countries prefer to take their money outside the country or channel their investment out of their own country. The developing countries are therefore, deprived of investment funds which adversely affect economic growth. Internal disorder - The defeated political parties, the rich landlords, the various ethnic groups etc. who are not able to capture power take up and support anti govt. activities by taking out processions, involving themselves in terrorist activities etc. All these activities result in creating political instability in the country and as such 39 adversely affect economic development.
Right Education; The provision of right education to the citizens of a country is a necessary component of any successful development strategy. In developing countries, the educational system is defective. There is mush-room growth of English medium schools in cities. The syllabus taught to the students at each level of education reflects the Western culture and not the culture and requirements of their own country. The result is that the students holding degrees remain jobless which creates discontent and frustration among them. The brilliant students of the developing countries go outside the country. The outdated syllabus of various classes, the mass failure of the students in various board and university examinations, outflow of the brightest students from less developed countries to the developed countries (Brain drain) create gaps in business, administrative circles and become obstacles 42 to economic growth.
Over Population; Developing countries are struggling very hard to avoid the Malthusian fate. In these countries about 60% to 80% of the population is engaged in agriculture. The diminishing marginal productivity has exceeded technological change. The result is a falling output per person and a slow economic growth. The rapid population growth in developing countries is a major obstacle to economic growth. Effective measures shall have to be taken to reduce population growth, failure of which development of these countries will remain a dream.
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Dual Economy; In developing countries, there are two types of economies which are generally functioning. These economies are somewhat unrelated to each other. One economy is the market economy and the other is a traditional non market or subsistence economy. The life style of the people, social customs, the methods of production etc. differ very much from each other in these two different economies. The occurrence of dualism stand in the way of optimum utilization of resources. Thus dualism is also considered an important obstacle to economic growth. Demonstration effect; Demonstration effect on consumption level is also a major constraint on the path of economic development of under developed countries. The international demonstration effect increases propensity to consume of the people and reduces the rate of saving and investment in the 44 countries.
Inadequate infrastructure facilities; The under developed countries suffer from lack of basic infrastructure such as transport and communication system, power supply, banking and other financial facilities. The provision of inadequate infrastructure facilities stand in the way of economic development of the poor countries. Market imperfections; Market imperfections in the form of immobility of factors of production, ignorance of market conditions, price rigidity etc. are serious obstacles in the path of economic development of the backward 45 countries.
SUMMARY
Summing up we can say that economic development is a complete process. It is directly influenced by economic, social, cultural, administrative and political factors. Ragnar Nurkse has rightly said, ''Economic development has much to do with human endowments, social attitudes, political conditions and historical accidents. Capital is necessary but not a sufficient condition of progress.''
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