31 Aug 2008

Models of Development

Models of Development
by Aditya Bastola

The concept of "development" cuts across many levels. It refers to macro issues (such as patterns of a nation's growth), as much as it refers to meso problems (such as river-basin plans), or to micro problems (such as local community development). All three levels are interwoven. The conceptual understanding discussed in this paper is of macro level issues related to Development through a dominant paradigm.

Development practice is not new. As said by Gustavo Esteva (1992); for two-third of the people on earth, this positive meaning of the word “development” is a reminder of what they are not. It is a reminder of an undesirable, undignified condition. To escape from it, they need to be enslaved to other’s experiences and dreams.

Development practice dates back to the European colonies, when colonizers enforced a "civilized," ordered, white, male, Christian ethic. Development theory, however, came along much later, emerging as a stable, academic field of inquiry only after World War II, when European countries were trying to keep their former colonies at arm's length.

The development field has always been highly influenced by economic thought, as exemplified by the fact that development has been primarily measured by increases in gross national product (GNP). According to Dennis Rondinelli, during the 1950s and 60s, development intervention assumed that "successful methods, techniques, and ways of solving problems and delivering services in the U.S. or other economically advanced countries would prove equally successful in the developing nations."[1] Therefore, at the very start of development theory, there was a notion of direct transferability, or a "one size fits all" type of development assistance. However, delivering aid was not just a technical matter; it also involved political concerns. For example, during the Cold War, U.S. provision of aid was largely directed to those countries that were, or could come, under Soviet influence.

The years since World War II have witnessed the political emancipation of most of the Third World from colonisation and the birth of the UN, marking the formal beginning of development aid to Third World Countries. Concern for the plight of the people in the Third World counties moved US President Truman to propose the 1949 Point Four Program, which was to be the Third World version of the Marshall Plan. The philosophical consistencies between the Marshall Plan and the Point Four program were very clear. Both aimed to alleviate suffering and both aimed to do so via capital investment. During the period of implementing the European Recovery Program (ERP) through funds from US as Marshall Plan various economist and socialist critiqued the action against US, which again was never reciprocated in the post ERP phase when these nations shared a common understanding to support the Third World nations through modernisation strategies.

One of the paradigm emerged by the post WW II with enormous social, cultural and economic consequences was that of modernisation. Theories and concepts that reiterated the development of West Europe and North American nations were used to generate models of development for the Third World. In the modernisation theories, the definition of a modern nation resembled Western industrialised nations in all areas of society, including political and economic behaviour and institutions, attitudes towards technology and science, and cultural norms. Forgetting the past of once these nations were colonised by the West.

The economic model that grounded modernisation theories was the neo-classical approach that had served as the basis of Western economics. The dominant paradigm was mainly concerned with economic growth as measured by GNP rates and encouragement of all factors and institutions that accelerated and maintained high growth in areas such as capital-intensive industrialisation, high technology, private ownership of factors of production, free trade and the principle of laissez-faire.[2]

The economic model of development was based on the following theory discussed below:
Comparative Advantage: It states that different countries have diverse factor endowments such as climate, skilled labour force, and natural resources which vary between nations. Therefore some countries are better placed in the production of certain goods than others. Economic theory predicts all countries gain if they specialise and trade the goods in which they have a comparative advantage.

Comparative advantage was first coined by Robert Torrens in 1815. Later the concept was explained by David Ricardo in 1817 through an example between England and Portugal. He exemplified in Portugal it was possible to produce both wine and cloth with less work than in England. However the relative costs of producing those two goods were different in the two countries. In England it was very hard to produce wine, and moderately difficult to produce cloth. In Portugal both were easy to produce. Therefore while it was cheaper to produce cloth in Portugal than England, it was still cheaper for Portugal to produce excess wine, and trade that for English cloth. And conversely England benefits from this trade because its cost for producing cloth has not changed but it can now get wine at a cheaper cost, closer to the cost of cloth.

Comparative advantage exists when a country has lower opportunity cost in the production of a good or service. It is used to justify free trade and oppose protectionism. Comparative advantage is based on differing opportunity costs reflecting the different factor endowments of the countries involved. The theory assumes free trade, willingness to specialise and factor mobility. Specialisation and trade benefits countries providing at an exchange rate between the respective opportunity cost ratios. Countries benefit if they specialise in the production of a good or service in which they have a comparative advantage i.e., a lower internal opportunity cost.

Harrod-Domar Model: Harrod-Domar model was developed in the 1930s to analyse business cycles. He suggested savings could provide funds for investment purpose through borrowing. He stated economy's rate of growth depends on, the level of saving and the savings ratio and significantly the productivity of investment for example the economy's capital-output ratio.

Harrod-Domar exemplified economic growth depends on the amount of labour and capital [NY = f (K, L)]. When developing countries have an abundant supply of labour it may lack of physical capital that holds back economic growth hence economic development could take place when more physical capital is generated for production. Higher income allows higher levels of savings.

For example, if £8 worth of capital equipment produces each £1 of annual output, a capital-output ratio of 8 to 1 exists. A 3 to 1 ratio indicates that only £3 of capital is required to produce each £1 of output annually.

In fact, Rostow and other defined when countries that are able to save 15% to 20% of GNP could grow at a much faster rate than those that saved less. The mechanisms of economic growth and development, therefore, are simply a matter of increasing national savings and investments. Growth in this manner is hypothesised as self-sustaining.

Rostow Model: Developed by W.W. Rostow in the 1950s states, the Linear-stages-of-growth suggests that there are a series of five consecutive stages of development which all countries must go through during the process of development. These stages are “the traditional society (where barter system exist, output is consumed by producer), the pre-conditions for take-off (surplus for trading emerges due to transport and entrepreneurship emergence), the take-off (industrialization increases, workers switching from land to manufacturing but concentrated in one or two areas), the drive to maturity (diverse growth due to innovation of technology), and the age of high mass-consumption.

Lewis Model: Lewis Model is a structural change model that explains how labour transfers in a dual economy. Dual economy consist mainly the traditional, overpopulated rural subsistence sector characterised by zero marginal labour productivity and a high productivity modern urban industrial sector.

The primary focus of the model is on both the process of labour transfer and the growth of output and employment in the modern sector. Both labour transfer and modern sector employment growth are brought about by output expansion in that sector. The speed with which this expansion occurs is determined by the rate of industrial investment and capital accumulation in the modern sector. Such investment is made possible by the excess of modern sector profits over wages on the assumption that capitalists reinvest all their profits. Extra incomes increase demand for domestic products while increased profits fund increase investment. Hence rural urban migration offers self-generating growth.

Lewis assumes that urban wages would have to be at least 30% higher than average rural income to induce workers from their home areas.

Dependency Theory: Dependency Theory was developed in the late 1950s under the guidance of the Director of the United Nations Economic Commission for Latin America (ECLA). It was developed out of the fact that economic growth in the advanced industrialised countries did not lead to growth and development in poorer countries. As a result in the early 1960’s the group of scientist from ELCA critique the Modernisation Theory and theoretically conceptualised the approach as Dependency Theory.

Dependency refers to over reliance on another nation. Dependency theory uses political and economic theory to explain how the process of international trade and domestic development makes some Less Developed Countries (LDC's) even more economically dependent on developed countries ("DC's"). It sees underdevelopment as the result of unequal power relationships between rich developed capitalist countries and poor developing ones.

The theory was based on the Marxist Analysis of inequalities in the world system but contrast with the view of free market (which often argue of free trade advances poor states along an enriching path to full economic integration). In this process the poor nations were to provide their markets accessible to wealthy nations.

Balanced Growth Theory: Also know as ‘Big Push’, argues that as the large numbers of industries grow simultaneously in all sector and regions of the economy, each would generate a market for one another.

Balanced Growth Theory is an extension of Say’s Law[3] which states the demand for one product is generated by the production of another. It requests investments in such sectors which have a high relation between supply, purchasing power, and demand as in consumer goods industry, food production, etc. It is often argued free markets were unable to deliver the balance growth because entrepreneurs did not expect a market for additional output, when skilled workers were required they were not willing to hire and train unskilled staff who then leave work for rival firms, and were unable to raise finance for projects.

As a result for fair distribution of growth Government interventions are necessary through training of labour, large-scale investment, nationalising strategic industries and undertaking infrastructure investments (for example building roads). The real bottleneck lies in breaking the narrow market which is seen with the shortage of capital, and, therefore, all potential sources have to be mobilized. If capital is available, investments will be made. However, in order to ensure the balanced growth, there is a need for investment planning by the governments.

Development is seen here as expansion of market and an increase of production including agriculture.

As the greater critique aroused about the development concepts and significantly when the developing nations suffered from serious financial crisis, they could not pay their external debts, and as a result had to adopt economic adjustment measures imposed by the International Monetary Fund (IMF) and the World Bank in order to borrow money. Such measures included cuts in public expenditure, and the development of a more efficient, transparent and accountable state.

During the 90s, the IMF maintained its structural adjustment plan, while the World Bank gained a deeper understanding of other factors that can affect economic performance. In this process, a series of world summits organized by the United Nations was taken place to discuss development. Environment and development was the theme of the 1992 Rio de Janeiro summit. In 1993, a human rights conference took place in Vienna. Cairo hosted a conference on population and development in 1994. Social development was discussed at the Copenhagen 1995 world summit. Gender issues, especially the role of women, were discussed in 1995 in Beijing. The last conference, Habitat-II, took place in Istanbul to discuss urban issues.

Development, when realised, consisted of innumerable variables such as economic, social, political, gender, cultural, religious and environmental issues as a result the holistic approach was adopted through UN. This formed an interdisciplinary field which illustrated the Millennium Development Goals.

Today Development practice discourse is often grounded on the principles of participation and emancipate dialogue which hypothesise a process of empowerment of the poor and women.

Bibliography
1. Sen Amartya, 1984. “Resources, Values and Development”, Oxford University Press, New Delhi.
2. Sen Amartya, 2000. “Development as Freedom”, Oxford University Press, New Delhi.
3. Steeves, H.L and Srinivas M.R, 2001. “Communication for Development in the Third World: Theory and Practice for Empowerment”, Sage Publications, New Delhi.
4. Todaro M.P, and Smith S.C, 2003. “Economic Development”, Pearson Education, New Delhi.
5. http://www2.ihis.aau.dk/internationalaffairs/DIR/F%2007/Development%20theory%202.pdf
6. http://www.professor-frithjof-kuhnen.de/publications/causes-of-underdevelopment/1-2-1.htm
7. http://tutor2u.net/economics/content/topics/development/development_models_introduction.htm
8. http://en.wikipedia.org/wiki/Marshall_Plan
9. http://www.revision-notes.co.uk/revision/619.html
10. http://www.spartacus.schoolnet.co.uk/USAmarshallP.htm

References
[1] http://peacestudies.conflictresearch.org/essay/development_conflict_theory/?nid=1158
[2] It is generally understood to be a doctrine that maintains that private initiative and production are best allowed to be free of economic interventionism and taxation by the state beyond what is necessary to maintain individual liberty, peace, security, and property rights. (http://en.wikipedia.org/wiki/Laissez-faire)
[3] http://en.wikipedia.org/wiki/Say%27s_Law