Development 101
Updated: Jul 1, 2020
Sourabh Rai
BA (H) Economics, Hansraj College
'Development', has led to furious debates among prominent academics and toppled many governments, is as old as civilization. Right from the beginning of the Greco-Roman civilization, it serves as a noble idea to address the well-being of mankind.
At the onset, the idea of development was dependent on natural and positive phenomena, with its expansion only contained by the conscience of limit. Following a long dispute between those called the Modern and Ancient, ending with the victory by the Modern, Leibniz (1646-1716) inaugurated the concept of infinite progress. Then came the Age of Enlightenment, with the ground-breaking work of Nicolas de Condorcet (ca. 1780–90), he launched the bases of thinking that would predominate in the second half of the 20th century, in defending the idea that Europeans would end up respecting the independence of their ex-colonies and, then, should contribute to them through civilizing their people.
The term development, in this new paradigm, prevailed on concepts such as modernization or liberation. This predominance appears to be the result of the need for a broader concept to represent the multiple dimensions necessary for human well-being. The origin of this era, in which we are supposedly still living, maybe at the end of the first half of the 20th century, possibly in North American President Harry S. Truman's international policy, when he decided to highlight the importance of extending the technical assistance offered to some Latin American and other less favoured nations.
In a nutshell, development narrative originated with capitalism evolution and feudalism's demise.
But what is the reason behind the World leader's snap to attention to the idea of development? Perhaps this is because of the eventual realization of developed nations that 'poverty everywhere is a threat to prosperity everywhere, some also claim that the most cogent explanation behind this revolutionary confidence in growth is also the cold war between Russia and the West so that each player tries to enlist the support and allegiance of underdeveloped countries by encouraging greater aid than the other.
Economists argue that economic growth also has an export benefit for both the aid-giving countries and those seeking aid. Rich countries need an ever-increasing rate of development to avoid secular stagnation which must be accompanied by an outlet for the use of their growing capital stock. Poor countries need speeding up the rate of development to increase their export potential to avoid balance of payments deficits.
Ironically even after years of evolution, the house is still divided when it comes to defining the term development, the economists viewed development primarily in terms of economic growth, sociologists instead emphasized broader processes of change and modernization. There is one to be emphasized many of us use words economics development and economic growth interchangeably, however, both are different, for instance, Maddison makes the distinction between the two terms in this sense when he writes: "The raising of income levels is generally called economic growth in rich countries and in poor ones it is called economic development. But this view does not specify the underlying forces which raise the income levels in the two types of economies.
Mrs Hicks points out in this connection that the problems of underdeveloped countries are concerned with the development of unused resources, even though their uses are well-known, while those of advanced countries are related to growth, most of their resources being already known and developed to a considerable extent, and Friedman defines growth as an expansion of the system in one or more dimensions out a change in its structure, and development as an innovative process leading to the structural transformation of the social system.
Despite these apparent differences, some economists use these terms as synonyms. Arthur Lewis is his "The Theory of Economic Growth" writes that “most often we shall refer only to growth but occasionally for the sake of variety, to progress or development”.
Indicators of Economic Development
1. GNP (Gross National Product)
One of the methods to measure economic development is in terms of an increase in the economy's real national income over a long period. However, this indicator is suffered from so many limitations, such as it measures the total output of goods and services in real terms so it is obvious that it will ignore the price level changes, moreover it does not accounts to change in the population of the economy and there many conceptual difficulties in measuring GNP. In this connection, an OECD report emphasizes that the developed countries "had taken for granted that GNP growth, largely concentrated in the industrial sector, would automatically bring full employment and eradicate poverty as it seemed to do for them. They did not remember that population growth was slow during their period of early industrialisation technology was quite laboured.
2. GNP per capita
The second measure relates to an increase in the per capita real income of the economy over the long period, as Meier defines economic development "as the process whereby the real per capita income of a country increases over a long period subject to the stipulations that the number of people below an ‘absolute poverty line’ does not increase, and that the distribution of income does not become more unequal.” This indicator of economic growth purports to emphasize that for economic development the rate of increase in real per capita income should be higher than the growth rate of population, but the limitation of this indicated remained same as of the earlier one, what if the increased income goes to the few rich instead of going to the many poor; GNP per capita fails to take into account problems associated with basic needs like nutrition, health, sanitation, housing, water, and education. The improvement in living standards by providing basic needs cannot be measured by an increase in GNP per capita. Despite these limitations, the real GNP per capita is the most widely used measure of economic development.
3. Welfare
There is also a tendency to measure economic development from economic welfare. Economic development is regarded as a process whereby there is an increase in the consumption of goods and services of individuals. This indicator is also not free from limitations as a problem arises concerning the weights to be attached to the consumption of individuals. Consumption of goods and services depends on the tastes and preferences of individuals. It is, therefore, not correct to have the same weights in preparing the welfare index, and from the welfare point of view, we must also consider not only what is produced but how it is produced. The expansion of real national output might have raised the real costs (pain and sacrifice) and social costs in the economy.
4. Social Indicators
Certain economists have tried to measure it in terms of social indicators. Economists include a wide variety of items in social indicators. Some are ‘inputs’, such as nutritional standards or number of hospital beds or doctors per head of population, while others may be ‘outputs’ corresponding to these inputs such as improvements in health in terms of infant mortality rates, sickness rates, etc. Social indicators are often referred to as the basic needs for development.
The merit of social indicators is that they are concerned with ends, the ends being human development. Economic development is a means to these ends. Social indicators tell us how different countries prefer to allocate the GNP among alternative uses. Some may prefer to spend more on education and less on hospitals. Moreover, they give an idea about the presence, absence, or deficiency of certain basic needs.
For instance, Hicks and Streeton consider the following social indicator
• Health- Life expectancy at birth.
• Food- Calorie supply per head.
Comparison of Different approaches
Let us compare the effects over time of GNP/GNP per capita, welfare, and basic needs approach on economic development. The figure shows three paths, including A1, A2, and A3. Time is taken on the horizontal axis and the rate of growth is determined on the vertical axis by consumption per capita of the poor.
Path A1 refers to the per capita GNP / GNP strategy. This shows that the per capita intake of the poor declines in the beginning up to T1 due to rapid industrialization and urbanization, deprivation, unemployment, and inequalities. When the gains from the growth of GNP / GNP per capita "trickle-down" to the poor increase their employment and income, and the consumption per capita also increases from T1 upwards.
Path A2 relates to the welfare approach which shows a gradual increase in per capita consumption of the poor. It lags behind path Al from time T2.
Path A3 relates to the basic needs approach. In the beginning, high priority is given meeting the basic minimum current consumption level of the poor which may be below the consumption levels of the GNP/GNP per capita and welfare approaches up to time T3. When the basic needs of the poor are met over time and their levels of productivity and incomes increase, growth is steeper from time T3 upwards. Path A3 overtakes first path A2 at point B and then path A1 at point C.
Thus, the basic needs strategy is better than the GNP/GNP per capita and welfare strategies of economic development as it is providing a more stable path to economic growth.
References:
1. Soares Jr, Jair, & Quintella, Rogério H. (2008). Development: an analysis of concepts, measurement and indicators. BAR - Brazilian Administration Review, 5(2), 104-124. https://doi.org/10.1590/S1807-76922008000200003
2. A. Maddison, Economic Progress and Policy in Developing Countries, 1970.
3. U. Hicks, “Learning about Economic Development”, O.E.P., Feb. 1957.
4. John Friedmann, in Growth Centres in Regional Economic Development, (ed.), N.M. Hansen, 1972.
5. OECD, Development Cooperation 1973 Review, 1973, Italics mine.
6. G.M. Meier, Leading Issues in Economic Development, p.7.
7. Norman L. Hicks and Paul P. Streeten, "Indicators of Development: The Search for a Basic Needs Yardstick," World Development, Vol.7, 1979 .