Issues in development theory

Issues In Development Theory

“The only kind of development that matters is economic growth – everything else will follow”.

ISSUES IN DEVELOPMENT THEORY

INTRODUCTION

This paper reviews some ideas surrounding the complex but contested concept of development, including those relating to economic growth. A distinction between development and economic growth models was attempted to expose ideas from these models and my own perception about models.

In analysing, contemporary issues on development and growth of any nation, it can be looked at from various perspectives ranging from policy failures and / or implementation failures or resources inadequacy and / or sub optimality in the allocation of resources.  In fact, problems emanating out of domestic market failure and / or government failure are always manifested in increased levels of unemployment inflection and poverty.

The concepts of development in general and economic development have often been treated as synonymous concepts. However, the theory of economic development of a country may be associated with (amongst other things) rising incomes and related increases in consumption savings and investment. (Berkeley Hill, 2006) From my own point of view, there is far more to economic development than growth in incomes.  It is therefore suffice to say that if income distribution is highly skewed, growth may not be accompanied by much progress towards the goals that are usually associated with economic development.  Development is also traced to the economic causes of continued poverty and under-development of various nations which actually indicates level of employment and standard of living in a particular nation (IFPRI 2009).  In essence, increasing the output or the gross national income of any nation should automatically lead to increase in social welfare, happiness and longevity due to increase in total production and consumption.

The contemporary any issues are not recent issues but issues that have emanated since the inception of development economic while others crept in with temper of time.

A lot of contemporary issues relating to development economics have been in existence for so long.  Some of the issues relating to development are indeed as old as human civilisation!

HISTORICAL PERSPECTIVES OF DEVELOPMENT

This paper proposes that the meaning of development is contentious because of how it has been defined and viewed over time. Since the end of Second World War, when both existing and post war obstacles like underdevelopment, leadership problem, lack of cooperation or coordinating Bodies like UN in the world, underutilization of  available resources. According to Nayyar 2003, since the end of Second World War, more attentions had been paid to underdevelopment; mainstream development theory was largely the ambit of economists. Due to this, much of early development discourse, centered on economic theories and models, which emphasised and aimed to achieve production and resource allocation efficiency. The primary aim of the theories was to enhance productivity, effective resources allocation and improve standard of living. It is mostly believe rapid economic growth will improve the standard of living of people who participated in it through the trickle down effect. These theories were heavily criticised when there were no signs of economic growth and development which led to development of alternative approach. The alternative approaches supplemented the existing theories in promoting equitable and sustainable economic growth with enhance standard of living. However, as a result of previously developed theories, this paper will select, describe and further analyse a few of the theories to illustrate their different perspectives of economic development. Basis of controversy will be analysed and finally gradual steps of mainstream development thinking and practice will be shown with the enlargement of development agenda, making the meaning of development less contentious than its has been in the past.

During the 1950’s and 1960’s, development theories like Rostow’s and Harrod – Domar’s growth models, postulated development as series of stages that a country will naturally pass through (Todaro and Smith, 2006), (Gore, 1999). These stages are invariably noted in European countries and other developed countries but seemed not yet taken place in Africa countries because there were no notable signs of economic developments. According to Thirlwal 2003 ‘they only required meeting the right conditions such as saving and investment levels to move from one stage to another’. These theories believe for there to be economic development there must be massive capital investment and definitely economic growth would automatically follow failing to take cognizance of other factors like good planning, even distribution of income, corruption free environment, effective budget implementations and review.

They only required meeting the right conditions such as saving and investment levels to move from one stage to another (Thirlwal, 2003). They argued that many developing countries were in same situation that developed countries had been in before they developed. It should be noted that most of these developed countries had no reference point or direct guidance like economic theories on how best to develop then while all these theories, models and planning tools are available at the disposal of developing countries to develop now they still find it difficult if not impossible to develop. This means there are other silent techniques, information or management theories that are directly involved in economic developments.

Around the same period from 1960 to 1970 development meant modernisation through the structural transformation of an economy as in Lewis’ model (Thirlwal, 2003),(Stiglitz, 2001).

This is true in actual fact because they i.e Thirlwal and Stiglitz based their studies and assumptions of developed countries having undergone series of economic growth stages supported by adequate government policies and strategies which increase the standard of living positively. Simultaneously, there were some structural transformations of economic in underdeveloping countries like Nigeria that did not bring on economic developments. For instance, Operation Feed The Nation introduced by General Obasanjo did not actually improved the standard of living and there were no signs of economic development because of other factors like lack of amenities, management and leadership problem, Inconsistency in government policies and strategies, Political Instability.   This model and others like it described development as the

transformation of a typically rural subsistence economy to a more modern urbanised industrial one (Todaro and Smith, 2006).

Advanced economies consistently ensure economic stability, economic growth and increase in per capital income to ensure there is economic development. This transformation was done by more efficient resource utilisation which led to improvements in productivity and economic growth. It was also implicitly assumed that economic growth due increased productivity would result in increased earnings for firms, and workers, which would eventually lead to improvement of human welfare (Elliott, 2002), (Todaro and Smith, 2006). Most of these theories assumed that there is direct relationship between economic growth, efficient resources allocation and production efficiency. They argued that before economic development could be achieved, there must be increased savings and investments, domestic and international factors like inflations, exchange rate, interest rate, unemployment level must be effectively considered and factors into policies and strategies. They believed that if these constraints were removed, developing countries could grow at an even faster rate than the industrialised nations (Todaro and Smith, 2006).

From critical angles, it is believed that most of the developing countries’ problem are from developed countries through bad debt management system, lack of adequate knowledge in financial market and instruments, balance of trade, insincerity of the political leaders and some other indices.

During the 1970’s Dependency theories emerged which expressed discontent with previous development models (Desai and Potter, 2002). This theory i.e dependency theory studied relationship between industrial economies and developing economies. It showed the business and non business interaction between the developed and developing countries. Contributions and impacts of both economies were analyzed to identify loopholes and provide further studies for future reference of the economic developments. These models, it was argued, had a narrow meaning of development and only served to further uplift the already well off and suppress the poor (Leys, 1996), (Thirlwal, 2003).  This theory complements the existing theories that economic development is a function of economic growth and improved standard of living. While many of their principles were essentially structuralist in nature (Hettne, 2002) and acknowledged that economic growth was necessary for development, they had no faith in relying solely on market forces and the ‘trickle down effect’ as a mechanism for facilitating development. They argued that the trickle down effect often failed to materialise and the privates sector could not, due to its profit motive, promote equitable income distribution, provide essential goods and services to poorer sections of society and remote areas at affordable prices (Gore, 1999), (Todaro and Smith, 2006). They assumed the government role is prominent and can only supplement if needed. But their assumption was wrong because most of the countries that adopted the thoughts failed and there were no much development in the countries. This is because government policies and strategies were not properly supported to ensure even distribution of income due to profit maximization objective of private firms. Some of the developing countries especially Africans developmental plan failed due high level of corruption, lack of financial planning and review, lack of institutional capacity, political and economic instability and uneven distribution of incomes. In addition because their views were drawn from Marxist ideology many of their views were attacked and discredited by influential western critics. Its influence was further eroded by the collapse of the Soviet Union (Leys, 1996),(Shuurman, 2002). This thought were criticised by many theorist and western critics, who believe both government and private firms should balance the economic development goals.

In the 1980’s the neoclassical counterrevolutionaries or neo – liberals like earlier classical theorists advocated that development was caused by economic growth which could be achieved through applying supply side macroeconomic policies, rational expectations theories and privatisation of public corporations, freer trade, export expansion, removal of state planning and regulation of economic activities (Desai and Potter, 2002), (Todaro and Smith, 2006). They are of opinion that market is determined by the interaction of demand and supply of goods and services while at times government policies and strategies could negatively affect economic developments. In support of their arguments, countries like Mexico, Taiwan, Singapore South Korea and several other Asian countries were given as examples of free market success stories (Gore, 1999). Unfortunately, the East Asian crisis led to questions being asked about the soundness allowing free market polices drive the economy while the state interfered little

(Chang, 2003),

(Desai and Potter, 2002). However, surprisingly, the actual contributions of the free market and government to “Asian Tigers” success and crash  is also a controversial issue (Onis and Senses, 2005), (Adelman, 2001). The theories are of opinions that government influence on market should be little while the interaction of demand and supply of determine price and market with government monitoring through budgets and financial instruments like treasury bills, treasury certificate, bonds etc.

Since the late 1980’s neo -liberalism, just like earlier classical theories, has been criticised for its overemphasis on economic growth as the key to development (Onis and Senses, 2005). They argued that much emphasis was placed on economic growth as the key component of economic development. They believed there are other components that must be present before economic development could be proclaimed. Furthermore, despite the initial success of a few East Asian countries, many countries which had implemented recommendations advocated by the major proponents of neo – liberalism , the IMF and the World Bank (Gore, 1999) , did not record much or robust improvement and in some cases became poorer (White, 2002), (Leys, 1996), (Thirlwal, 2003). They argued that if the necessary components of economics developments other than economic growth are available poverty would be reduced and standard of living will improve especially those in developing countries.

DEVELOPMENT AND ECONOMIC GROWTH

Some theories were developed in 1990’s, proposed some approaches to development e.g Sen’s capability approach, UNDP’s sustainable human development approach. These theories are of opinion that any economic development or whatsoever depends on human capital/resources of a nation. According to Allen 2000, It is believed that economic policies or strategies should be ‘people centred’ as opposed to the ‘growth centred’ Sen 1999 also argued development means an individual is able to obtain physical necessities, have a job, participate in government, belong to a nation that is truly independent, have adequate education, be treated as an equal, meet their needs of the present without compromising the ability of future generations, and be free from social dislocation, violence and war, poverty, tyranny, poor economic opportunities, systematic social deprivation through neglect of public facilities and intolerance or over activity of a repressive state.

This school of thought believe if human beings or citizens of a nation are well developed and catered for definitely the economy will be growing and automatically lead to economic development. It also means there cannot be anything refers to a country or nation without its citizens and all economic activities and operations of the country is carried out by nobody except those that have been adequately and properly developed. Despite these criticisms, UNDP’s approach did not entirely discredit the Washington Consensus agreeing with and reinforcing its economic growth centred development and macro level policy reform recommendations (Gore, 1999). This therefore means that for an economy to develop, there must be economic growth, good human resources/capital and improved standard of living.

The Washington consensus was challenged by Southern Consensus in 1990’s. Gore

explains that like earlier dependence school theorists they argued that previous theories based on market and production efficiency and effectiveness fundamentals could not be used as a standard model that every developing country must follow. This then followed argument that theories that market and production efficiency and effectiveness should not be used as standard yardstick for all developing countries. They didn’t disregard all the recommendations of classical theorist that placed emphasis that economic growth is the core component of economic development but argued that intensive capital savings and accumulations supported by favourable balance of trade/payment, standard of living and efficient utilisation of resources were necessary to ensure rapid economic development. They also are of opinion that active utilisation of opportunities provided by international trade/relationship like foreign aids/grants, exports and importation, foreign investments, innovations   should be considered in both macro and micro economic policies and strategies.

Another theory of economic development that share the same view with the Sen’s capability Approach and UNDP’s Sustainable Human Development approach is the Alternative Development Approach. Alternative Approach supports people and participatory centred practices and redefining the objectives of development. It has some similarities with the classical approaches to development. It was developed after due consideration to the criticisms of previous development approaches. Alternative development can be considered as a combination of the criticisms of previous development approaches (Pieterse, 2001).

Due to its inclusive nature, it was argued that it did not present any new perspective to meaning or definitions of economic development. Alternative Approach basically selected useful recommendations/thoughts from different approaches to develop its theory/thought.

He and Kothari and Minogue (2002) further argued that the distinction between alternative development and mainstream development theories varies with time as mainstream development thinking integrates many of the principles of theories which have criticised it.

This then supports the earlier argument of Pieterse 2001 that Alternative approach use combination of criticisms of previous development approaches.

Neo – liberation adopted many concepts and assumptions of Washington Consensus policy despite its earlier criticisms of the policy. The final product , as some had proposed and predicted, was a form of post Washington consensus with a broader development agenda (Stiglitz, 2001) (Gore, 1999), (Onis and Senses, 2005). The neo-liberation worked extensively on recommendations of Washington Consensus in developing its own theories.

This new version is evident in current IMF and World Bank development assistance packages which emphasise integration of previous top down and bottom up approaches as is evident in the formulation processes of country poverty reduction strategy papers which are a prerequisite to obtain assistance from them (Wolfensohn and Fischer, 2000).  Because of its advance work and recommendations on Washington Consensus Policy, IMF and World Bank used its recommendations in formulating policies in granting assistances to countries that need financial aids.

In the early 1990’s another developmental theories came on board called Right Based Approach to Development. Musembi and Cornwall explained that its origins

are that many struggle for the realisation of all sorts of rights that have been taking place ever since the advent of colonialism, such as countries likes Kenya, Nigeria, and Zimbabwe. This occurred basically when these countries believed the welfare of the countries and their citizens could be better when given freedom. They believed that economic development would be faster than when managed by colonial masters.  This approach is basically to integrate human right with economic development. The United Nations has been advocating that human right and freedom is the key to economic development for the past four decades. Just recent it has emerged that sustainable human development and human right approach are core components of economic development for any nation. The Right Based Approach did not present totally new idea/thought just like Alternative Development Approach to economic development but mere advanced recommendations on previous theories with adequate considerations to current economic issues.  However, what is striking about it is that it attempts to introduce a sense of collective responsibility and precise obligations on the international community to create a conducive environment for the realisation of the rights to development (OHCHR, 1986).  The Right Based approach to Development only makes recommendations to ensure freedom to all countries and grants fundamental human right to everybody believing if this is done economic growths, enhanced standard of livings, even distribution of incomes that would speed up economic development would be easily realized.

Of late Neo – liberal ideals have culminated in the form of globalisation (integration into the world economy) (Hettne, 2002) advocating that it is not only a means of ensuring efficiency and equity but growth and development of the world economy (Chang, 2003).  It was argued that there are hidden benefits and advantages that would accrue if the concept of globalization was embraced particularly by underdeveloped countries.  Benefits like latest technology and innovations, information, financial exchanges, flows of goods and services, openness, direct investments, international trade, ideas and opinions will move from one country to another with different knowledge, experience, resources and technical know-how which will ultimately lead to development. The fundamental belief is that it will increase prosperity for those join the system and marginalise those who do not (Gore, 1999). This concept was developed in 1970’s but recently been promoted more by the advanced countries after fall of communism.  However, despite the claims that it is a driver of development it has generated uneven results with some countries prospering and other becoming more impoverished (Watkins and others, 2005). This is because there are some silent variables that have direct influence on all economic development variables like available resources to back policies, corruptions with the system, economic and political stability, consistency in leadership and management programme. This is one of the reasons why one policies or approach will work like a magic in one country and will fail woefully in another country. For Instance, most of these approaches work in advanced economies but otherwise in developing countries like Nigeria, Ghana where economic and political are not stable, corruptions is on high side, planning and implementations are not in place talk less of constant review and adjustments.

According to Kothan and Minogue, 2002 one reason why the development theories mentioned above and others like them disagreed on development is due to failure to agree on what the objectives of development are. This means there are lots of arguments of what could be regarded as economic developments. There are numerous types of objectives that may be set as the purpose of development explicitly or otherwise (Potter, 2002).  That is why what many people see as development many only be regarded as just growth by others. It is claimed that objective may be political, economic or social, the most important is what the country/nation set to achieve. For instance classical theories promoted the concept of development as economic growth by modernisation, changing from old to newer more efficient and effective ways of resources use and allocation, and production (Stiglitz, 2001). Meanwhile, more egalitarian objectives are set out to be achieved by others like people centred approaches, dependence theorists. They argued that those who were unable to participate in the structural transformation processes were often marginalised, remained poor or became poorer because they did not have the required skills, knowledge or financial resources (Todaro and Smith, 2006). That is they encouraged citizens to be empowered and trained because they are whatever the country achieved. They argued that they are the real economic development driver.

Steps in economic developments and associated changes are also causing disagreements. While linear stage theorists argued that Development is a process which countries, regions or societies go through either naturally or deliberately (Todaro and Smith, 2006) , others rejected the notion of having a blue print and time frame for development that is applicable to all countries (Gore 1999), (Adelman, 2001). They argued that different countries are in different stages and situation and therefore required different attentions. The factors like economic, political, cultural, social, technological of one country differs from other, have effects on its economic development policies and strategies and must be monitored accurately to achieve economic development.  This then embraces call for a bottom up rather than a top bottom theory. Development may be universally accepted as improvement in well being but the there can be no prescription of what this well being entails (Pieterse, 2001), (Nayyar, 2003), (Sen, 1999), (Stiglitz, 2001), (Gore, 1999). And they also argued that economic growth resulted from natural resources is no substitutes for features like corrupt free environment, justice and equity treatment and stable economic environment.

Classical and neoclassical theorists believed the core basis of economic development is gross domestic product per capital. The interpretation of economic growth as meaning development and the use of changes in gross domestic product per capita, by the classical and neoclassical theorists,  has also been criticised for its unsuitability  as a measure of development (Thirlwal, 2002).  They are criticised because they believe there are other parameters in measuring economic development. They further argued that increases in material wealth or total productions is only what economic growth deals with but failed to consider others like income distributions, composition of goods and services and general standard of livings. Furthermore, it has been noted that the rewards of improved productivity and economic efficiency accrue largely to owners of capital and the majority of the population are left only slightly better off (Pieterse, 2001).  They argued that components of economic development include economic growth, even distribution of income and standard of livings.

Roles play by government of countries in economic developments is largely influenced by international factors. Conflict also may arise because governments have to contend with the decline in their sovereignty over their country’s development (Thomas and Allen, 2000). Government has to make efficient and effective utilization of resources available while also considering the influence of international communities and bodies. Development is now being influenced to a large extent by international finance, official development agencies, non governmental agencies, and community based organisations (Khor, 2003), (Kothari and Minogue, 2002).  The effect of international factors on economic developments of every nation is very important most especially developing countries that rely mostly on international loans and grants to supplement their revenues.  According to Desai and Potter, 2002 government now merely provide a conducive atmosphere in which these international agencies can promote development. This has been on increase in recent times whereby government make provisions for international agencies aids and grants in the annual budget basically for capital projects that stimulate economic developments.

Conflict also may arise because governments have to contend with the decline in their sovereignty over their country’s development (Thomas and Allen, 2000). Development is now being influenced to a large extent by international finance, official development agencies, non governmental agencies, and community based organisations (Khor, 2003), (Kothari and Minogue, 2002).  Governments now merely provide a conducive atmosphere in which these agencies can promote development (Desai and Potter, 2002).  This has naturally given rise to sources of resentment, since governments are sometimes sidelined. Suspicions also arise concerning who is meant to benefit from aid and loan conditions, which recommend macro and micro level policy reforms. Misunderstandings often arise about whose development is being sought. For instance it has been argued that donors often provide assistance to further their own interests (Kothari and Minogue, 2002). They formulate loan conditions and support development projects with the aim of improving their own industries’ profitability by providing business through establishing new markets, investment opportunities, and  tied aid (Desai and Potter, 2002), (Thomas and Allen, 2000) or access to cheap raw materials as during the colonial era (Leys, 1996), (Thirlwal, 2003), (Pieterse, 2001). Assistance provided in this manner may not benefit the recipient country in the long run since most of the aid will be repatriated in the case of tied aid. Some have even argued that despite the large amounts of aid provided to developing countries very few of them have actually developed much because much of it was not intended for development  (Thomas and Allen, 2000).  This means that for foreign loan or aids to achieve its developmental objectives, governments must channel them to appropriate sector of economy and ensure good and effective management of the resources.

The promotion of economic growth and drive towards globalised world has also met with resistance due to the replacement of old way of life with new ones (O’Connor, 2002). This issue is really retarding economic development because some people find it extremely very difficult to adapt to changes. Some in developing countries has expressed concern and their discontent with  foreign influences which have invaded their ways of life, stressing that development does not necessarily have be accompanied with disposal of even the good cultural values that previously existed (Athreya, 2002), (Varley, 2002), (O’Toole and Macgarvey, 2003). It is argued that that is direct relationship between economic development and ways of life. Some of the fundamental cultures of developed countries are introduced to developing countries because they assumed it is the part of development theories that succeed in the developed countries. Meanwhile, most of the developing countries have their ways doing things and find it difficult to change. In addition economic growth does not compensate for the depletion of damage caused to the environment from which peoples livelihoods, health and future development depend (Thirlwal, 2003). This therefore means that economic development include economic growths, even distribution of incomes, enhanced standard of livings and increased productivity.

Another aspect of development worth noting is definition of scope of development by different entities over time. Some choose to define it narrowly as was the case in colonial days, while others such as dependence theorists and most of the people centred and sustainable development approaches have a broader conceptualisation of development (Leys, 1996), (Pieterse, 2001), (Nyamu-Musembi and Cornwall, 2004).  They all see development from different angle and perspective but they all pointing to one direction that economic development is something that must be pursue and achieved. This is more so of current rights based approaches and in particular the United Nations Millennium Development Goals which articulate development as a set of entitlements which people have the right to demand realisation of from their governments and the international community (Nyamu-Musembi and Cornwall, 2004), (OHCHR, 1986). It is the duty of every government to ensure economic development and ensure it is supported with productivity and adequate resources. Due to this broader meaning, development is no longer confined to prescriptions from donors, special interest groups, elected representatives or technocrats. It includes everything required for human well being (Nayyar, 2003), (Sen, 1999) . Development ensures freedom to all citizens and empowered them towards contributing meaningfully to the success of their state.