THE ECONOMICS OF DEVELOPMENT – CONCEPTS AND APPROACHES

Meaning of the term ‘Economic Development’

Actually, there are broadly two main approaches to the concept of economic development :

1. The Traditional Approach or ‘The Stages of Economic Growth’ Theories of the 1950s and the early 1960s.
2. The New Welfare Oriented Approach or ‘The Structural-Internationalist’ Models of the late 1960s and the 1970s.

1. The Traditional Approach :

The thinking of the 1950s and early 1960s focused mainly on the concept of the stages of economic growth. Here the process of development was viewed as a series of successive stages through which all countries had to pass. The propounders of this approach advocated the necessity of the right quantity and mixture of saving, investment and foreign aid to enable the LDCs to proceed along an economic growth path. They based their conclusions on the fact that this economic path historically had been followed by most of the more developed countries. Thus, in this period development had become synonymous with rapid, aggregate economic growth.

This approach defined development strictly in economic terms and it implied :

• A sustained annual increase in the GNP at rates varying from 5 to 7 pcpa or more;
• Such changes in the structure of production and employment that the share of agriculture declines in both, while the share of manufacturing and the tertiary sectors increase.

The policy measures that were suggested in this period were the ones which induced industrialization at the expense of agricultural development. The objectives of poverty elimination, economic inequalities reduction and employment generation were mentioned but only as a passing reference. In most cases it was assumed that the rapid gains in overall growth in the GNP would ‘trickle-down to the masses’ in one form or the other.

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2. The New Welfare Oriented Approach:

Jacob Viner was probably the first economist (1950’s) to argue that an economy could not boast of having achieved economic progress if the incidence of poverty in that economy had not diminished. But it was in the early 1970’s that economists began to realize that Jacob Viner’s stance was relevant, as nearly 40 % of the developing world’s population had not benefited at all from the rise in the GNP and from the structural changes that had taken place in their respective economies during the 1950’s and 1960’s.

Hence, in the 1970s it became necessary to redefine the concept of economic development. This modern approach views underdevelopment in terms of :

• international and domestic power relationships;
• institutional and structural economic rigidities; and,
• the proliferation of dual economies and dual societies both within and among the nations of the world.

This approach places emphasis on policies that would lead to the eradication of poverty, provide more diversified employment opportunities, and reduce income inequalities. This approach insists that these and the other egalitarian objectives have to be achieved only within the socio-economic context of the respective growing economy. Thus today, economic development is a process whereby the general economic well-being (especially of the masses) of an economy is affected for the better.

Meier defines economic development very concisely as:

‘Development is the process whereby the real per capita income of a country increases over a long period of time – subject to the stipulation that the number below an absolute poverty line does not increase and that the distribution of income does not become more unequal’.

This definition thus highlights the following aspects of the term economic development :

1. Development is a PROCESS :

Today, development implies the operation of certain socio-economic forces in an interconnected and causal fashion. This interpretation is more meaningful than merely to identify development with a set of conditions or a catalogue of characteristics.