HISTORY OF ECONOMIC THOUGHT, Essays (university) of Economics

Download HISTORY OF ECONOMIC THOUGHT and more Essays (university) Economics in PDF only on Docsity! ECON 3051 DEVELOPMENT ECONOMCS I 1. OVERVIEW MEANING OF ECONOMIC DEVELOPMENT The meaning of the term economic development is not as clear as you might expect. Indeed, as you would appreciate, economies are complex. Many internal and external factors impact whether an economy is able to grow, provide employment to its working-age population, and reduce poverty. Further, different people hold different views as to what constitutes economic development. Some believe that economic development means higher incomes. Others believe that economic development is a change in the structure of society or of institutions. Still others consider economic development as an improvement in the health and education outcomes of a given population. ECONOMIC DEVELOPMENT DEFINED Conceived broadly, economic development may be thought of as the process whereby countries attain a rise in their per capita income, achieve a diversification of their production and employment structures, and secure an improvement in the standard of living of their population. Hence, this process involves quantitative growth, qualitative transformation, and economic welfare and affects individuals as well as the broader structures of the national economy within which they act and interact. Economic Growth refers to an increase in the value of all the goods and services produced in an economy during a given period, usually a year. In essence, therefore, growth refers to the percentage increase in Gross Domestic Product (or Gross National Product). Growth could be expressed in either nominal terms (that is, based on current prices) or real terms (that is, based on constant or fixed prices). Qualitative transformation refers to the changing patterns and structures within the economy that result in different and more efficient ways of producing goods and services. It therefore represents all the processes occurring in the economy as a whole, which affects individuals as well as the broader structures of the national economy within which they act and interact. Economic welfare refers generally to the issue of an improvement in the standard of living of the population. The standard of living refers to both the quantity and quality of goods and services consumed by the population. If the quantity and quality of goods and services consumed by the population are increasing over time, then, there is an improvement in the standard of living of the population. In a nutshell, the standard of living is related to the quality of life of the population. PAGE 12 In essence, therefore, despite the differences in these concepts, it seems logical that economic development does incorporate the notions of both economic growth and economic welfare. In practice, development is also characterised by other, no less important, social, political, cultural, religious and ideological factors. Important as these are to understanding development as a whole, they do not fall within the principal constituency of development economics. Interest in the sources of growth and distribution, and concern with the determinants of poverty and wealth of nations, has a long and well-established history within economics. The study of developing countries as a distinct strand within the economics discipline, however, represents a relatively more recent tradition. With the rise of development economics in the last half century or so, a wealth of ideas, theories and insights has been offered for the analysis of the particular problems faced by the poorer nations. GOALS/OBJECTIVES OF ECONOMIC DEVELOPMENT In order to discuss the goals or objectives of economic development, we will contrast the views of two economists—Meier and Seers. Meier’s Approach to Economic Development Meier defines economic development as 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 of people below an absolute poverty line does not increase, and that the distribution of income does not become more unequal. Given this definition, Meier argues that in order to remove mass poverty, then, the primary goal of economic development should be a rise in real per capita income. He also stresses a long period of time because to achieve economic development, there must be a sustained increase in real income. Increases in real income over short periods are only the results of business cycles. According to Meier, economic development should also be characterised by a number of sub- goals. These include, inter alia: • More even distribution of income • Reduction in economic inequality • Reduction in poverty • Minimum level of consumption • Maximum level of employment/minimum level of unemployment • Low disparities in sectoral growth within the economy • Economic diversification • Increased life expectancy • Reduced infant mortality • Improvement in basic literacy PAGE 12 • Being happy—as a state of being—may be valued as a functioning Capability: “Represents the various combinations of functionings (beings and doings) that the person can achieve. Capability is, thus, a set of vectors of functionings, reflecting the person’s freedom to lead one type of life or another...to choose from possible livings.” Intrinsic and Instrumental Value: “The ‘good life’ is partly a life of genuine choice, and not one in which the person is forced into a particular life—however rich it might be in other respects.” Dimensions of Human Development: • life (health, reproduction, security) • knowledge • work and play • relationships • spirituality • participation • inner peace • appreciation of beauty • harmony with the non-human world From Sen’s Capability Approach, we can derive three core values of economic development: (i) Sustenance: The Ability to Meet Basic Needs (ii) Self-Esteem: To Be a Person (iii) Freedom from Servitude: To Be Able to Choose RELEVANCE OF DEVELOPMENT ECONOMICS Development economics has been severely criticised and, at the same time, strongly defended over the past decades. Hirschman has criticised development economics, claiming that the discipline has no central role to play in dealing effectively with the problems of underdevelopment and economic backwardness. While it is generally accepted that development economics does suffer some flaws, it is also felt that it does have a meaningful role to play in economic growth and development in developing countries. Sen, in his defense of traditional development economics, makes the following observation: (a) In terms of policy, development economics has had as some of its major strategic themes: (i). Industrialisation (ii). Rapid capital accumulation PAGE 12 (iii). Mobilisation of unemployed manpower (iv). Planning and an economically active state (b) The discrediting of development economics has been associated with the emergence of neoclassical economics, which viewed the market as the ultimate solution to development problems. (c) That enterprise was the real bottleneck to development, not capital, so that to emphasis on capital accumulation and the creation of surplus—was to climb the wrong tree. (d) Industrialisation was characterised by the misallocation of resources, especially for the domestic market. Quite logically, these, as well as other criticisms, led to the decline of development economics. By examining existing economic data, Sen concludes that empirical evidence did support most of the themes that were associated with development economics. In fact, he notes the following: (a) That economic growth was higher in countries with larger levels of capital accumulation. (b) That economic growth was higher in countries with higher shares of industry in GDP. (c) That economic growth was high in countries that utilised labour-intensive modes of production. (d) That economic growth was high in countries that practiced planning and state control as well as in countries that allowed the market to dominate. This empirical evidence, in Sen’s views, supported the policy implications of the main strategic themes associated with development economics. As a result, Sen concludes his discussion by pointing out that there is still much relevance in the broad policy themes which traditional development economics has emphasised. But, the strategies have to be adopted to particular conditions and to national and international circumstances. CHARACTERISTICS OF CARIBBEAN COUNTRIES The Economic Commission for Latin America and the Caribbean (ECLAC, 1986) and Jesson and Rodríguez (1999) present a vivid picture of the structure of Caribbean economies. Caribbean countries are characterised by: • Relatively small economies, land mass, and population. In 2001, Caribbean countries had a combined nominal gross domestic product (GDP) of US $33 billion, a combined land area of 462,834 square km, and total population of 14.6 million PAGE 12 • High degree of trade dependency • Price taking in international markets • Narrow export base, mainly agricultural products such as bananas, rice, rum and sugar; tourism and offshore financial services; oil and natural gas; and bauxite • Heavy dependence on taxes on international trade and transactions • Acute reliance on trade preferences • Favorable, yet challenging locations. Caribbean countries are near the U.S. and feature tropical conditions. However, they suffer from high per-unit transportation cost STRUCTURE OF CARIBBEAN ECONOMIES Every Caribbean country is today dominated by services. That certainly was not always the case. In fact, as you can see from Table 1, the share of agriculture in the national economy has been declining for most countries in the region. Yet, agriculture still remains a major source of foreign exchange earnings and employment for Belize, Dominica, Guyana, and Haiti, among others. TABLE 1: SECTORAL CONTRIBUTION TO GDP Country Series 1980 1990 2000 2005 Antigua and Barbuda Agriculture, value added (% of GDP) 7.1 4.2 .. 3.6 Antigua and Barbuda Industry, value added (% of GDP) 18.1 20.1 .. 22.9 Antigua and Barbuda Services, etc., value added (% of GDP) 74.8 75.7 .. 73.5 Bahamas, The Agriculture, value added (% of GDP) .. 2.6 2.8 .. Bahamas, The Industry, value added (% of GDP) .. 16.4 19.7 .. Bahamas, The Services, etc., value added (% of GDP) .. 81.0 77.5 .. Barbados Agriculture, value added (% of GDP) 9.9 7.4 4.3 3.7 Barbados Industry, value added (% of GDP) 22.5 19.7 16.3 18.0 Barbados Services, etc., value added (% of GDP) 67.5 72.9 79.4 78.3 Belize Agriculture, value added (% of GDP) 27.4 20.0 17.0 15.3 Belize Industry, value added (% of GDP) 30.9 22.2 21.1 17.4 Belize Services, etc., value added (% of GDP) 41.7 57.8 61.8 67.3 Dominica Agriculture, value added (% of GDP) 30.7 25.0 18.1 17.9 Dominica Industry, value added (% of GDP) 20.9 18.6 23.4 23.8 Dominica Services, etc., value added (% of GDP) 48.4 56.4 58.4 58.3 Grenada Agriculture, value added (% of GDP) 24.7 13.4 7.7 5.3 Grenada Industry, value added (% of GDP) 13.1 18.0 24.3 31.6 Grenada Services, etc., value added (% of GDP) 62.2 68.6 68.0 63.1 Guyana Agriculture, value added (% of GDP) 23.4 38.1 31.1 31.0 Guyana Industry, value added (% of GDP) 35.8 24.9 29.0 24.5 Guyana Services, etc., value added (% of GDP) 40.9 37.0 39.9 44.5 Haiti Agriculture, value added (% of GDP) .. .. 28.4 .. Haiti Industry, value added (% of GDP) .. .. 16.6 .. Haiti Services, etc., value added (% of GDP) .. .. 55.0 .. Jamaica Agriculture, value added (% of GDP) .. .. 7.0 6.0 Jamaica Industry, value added (% of GDP) .. .. 25.5 25.3 Jamaica Services, etc., value added (% of GDP) .. .. 67.4 68.7 PAGE 12 • Policies of rich countries that harm the poor such as agricultural subsidies and greenhouse gas emissions are omitted • Some key constraints keeping people living in poverty including basic rights are not addressed • More recently the MDGs have also been criticised for operating over too long a time (15 years) for an effective prod to action and accountability of leaders; for lacking a global social security system or safety net guaranteeing all people the bare minimums of life; and for measuring the poverty line by income rather than in a multidimensional way. The Way Forward Incorporating some of the major critiques into reformulated goals and associated targets may seem a likely outcome but there are several difficulties: • Most of the suggested new goals will be controversial for at least a subset of countries. Some in newly high-income countries will view as unfair a proposal that more of the development assistance burden should be borne by their countries. • Some countries with less women’s rights will be threatened by a proposed expanded focus on gender issues. • Countries lacking rights for the poor may feel threatened by language emphasising expansion of legal and political rights. • Some countries apparently have an overriding wish to define their policies largely as a contrast to those of competitor countries. As a result a more minimalist approach may prevail. That is, keeping the same 8 goals and assigning them new targets for the following 15 years. For example, a revised target might be halving the hunger rate from its 2015 levels, basically setting aside that the original target will be far from met globally; but possibly of halving hunger from what the rate would have been had the 2015 hunger goal been met. Targets for each existing goal may be similarly set. • Some will say: the MDGs were effective in energising public opinion and spurred progress. “Why fix it if it’s not broken?” But advocates will stress that much is broken— the existing goals are not getting met fast enough, and too few goals are included. IMPORTANT READINGS 1. Meier, Gerald M: Leading Issues in Economic Development, Oxford University Press, 5th edition, 1989, Chapter 1. PAGE 12 2. Seers, Dudley: What are we trying to Measure? In Baser, Nancy (ed.): Measuring Development: the Role and Adequacy of Development Indicators, Frank Cass, London, 1972, pp. 21-36. 3. Sen, Amartya: Development: Which Way Now? The Economic Journal, Vol. 93, December 1983, pp. 745-762. PAGE 12