What is development

1. What is development? The concept of development can be traced back to the writings of Sir William Petty in 1676. He was concerned not merely with growth but also with the exact content of the standard of living. He estimated national income using both the income and expenditure approaches and went on to judge the conditions of people including issues of �Common Safety� and �Happiness�.

2. What is development? Development is ultimately judged in terms of what it does to the lives of human beings. The enhancement of living conditions must clearly be the objective of the exercise.

3. Growth and Development The close link between economic development and economic growth needs clarification. Increase in economic growth must contribute to the living conditions of the people and it is not surprising that the literature on Development after the Second World War did not make a clear distinction between economic development and economic growth. However the relationship between GDP and living conditions is far from simple.

4. Growth and Development

5. Growth and Development Life expectancy is a limited measure of the quality of life and is more an index of quantity. The factors that lead to mortality, such as morbidity, ill health and hunger, etc. also tend to make the living conditions of the people more painful, precarious and unfulfilling.

6. Growth and Development In fact some of the variables related to living conditions e.g. the prevalence of crime and violence may sometimes have a perverse relationship with average material prosperity. The literature also suggest a limited role of real income in self-assessment of personal wellbeing.

7. Growth and Development Economic growth is concerned with GDP per head, and leaves out the question of the distribution � Look at theories of income distribution and development. GDP captures only those means of wellbeing that are transacted in the market, and this leaves out benefits and costs that do not have a price tag attached to them. And even when the above are included their valuation is based on goods which have a market (e.g. leisure and the wage rate)

8. Growth and Development The real income enjoyed by a person in a given year reflects at best the extent of well-being enjoyed by that person at that period of time. However, in assessing what kind of a life the person has succeeded in living, we have to take a more integral view of that person�s life � length and quality.

9. Growth and Development GDP is a measure of the amount of the means of well-being that people have, and does not tell us what they actually get out of these means. Two individuals with the same amount of resources may attain different levels of well-being depending on their levels of waste or different metabolic rates.

10. Development as Functionings development analysis has to include the nature of life that people succeed in living � this approach includes the length of life and quality of life one lives. Sen argues that people value their ability to do certain things and to achieve certain types of beings (such as being well nurished, being able to move about freely. These doings and beings are called functionings of a person. The well-being of a person can be seen as an evaluation of the functionings achieved by that person.

11. Development as Functionings The functionings achieved by a person relate to the characteristics of the commodities used or consumed, the availability of public goods and the possibility of using private goods freely provided by the state. Within this approach freedom of choice and capabilities are important. When a person fasts she/he is clearly starving, but the nature of that functioning includes the choice not to so starve. A person who has no option but to starve (because of extreme poverty) cannot be said to be fasting.

12. Theory of development - overview The theory of economic development was established in Britain between 1650 to Adam Smith�s The Wealth of Nations (1776).

13. Theory of development Development, as contrasted with mere growth of the economy, is, according to Schumpeter, �a distinct phenomenon, entirely foreign to what may be observed in the circular flow or in the tendency towards equilibrium. It is spontaneous and discontinuous change in the channels of flow, which forever alters and displaces the equilibrium previously established� (Schumpeter 1911). Economics writing after the second World War viewed the developing economies as being caught in a �low-level equilibrium trap� or a vicious circle of poverty.

14. Theory of development The problem of development was described as taking the economy out of this equilibrium and setting it on a path of self-sustaining growth. Schumpeter emphasized the importance of innovation and the anticipation of entrepreneurial profit as major factors explaining development. Most development economists writing in the late 1940s and 1950s emphasized a dominant role for the state in initiating and sustaining development. This view came to be tempered with the sobering experience of the decades following the Second World War. Desired Growth not achieved, Asian tigers

15. Theory of development In the past-war era the neoclassical parable of the invisible hand was rigorously restated in terms of two theorems of welfare economics. (1) Under a set of mild restrictions on production technology and individual preferences, the equilibrium of a laissez-faire market economy is Pareto optimum (this does not imply that it is fair � in fact the distribution of income or welfare associated with a laissez-faire Pareto optimality could be highly unequal). Pareto optimality obtains if any departure from it cannot make every one better off, that is, benefit for some can only come at the expense or loss in welfare of others.

16. Theory of development (2) any Pareto optimum is also a competitive equilibrium provided income of individuals can be redistributed through lump-sum transfers or other non-distortionary means. In other words both efficiency of resource allocation and distributional equity (in the sense of Pareto optimality) can be achieved in a competitive equilibrium.

17. Theory of development Recent theoretical work on development investigates the origins and consequences of incomplete markets, imperfect information, transactions costs, and imperfect competition. In this light the allocation of resources may not be Pareto optimal, and once agian there is a role for government intervention.

18. Theory of development Early development economists based their analytical case for state intervention, arguing that in the early stages of development: Externalities are pervasive and scale economies are significant, particularly in transportation and communications sectors, which provide the infrastructure for the functioning of the economy. Capital markets are likely to be segmented and imperfect; and the financial system primitive and not performing intermediation to any significant extent The entrepreneurial class is likely to be small or absent or alien. Markets for risk pooling and sharing were absent and thus the scope for entrepreneurial severely circumscribed. Under these conditions market failures was the rule rather than the exception, justifying the state performing the role of the schumpeterian entrepreneur as well as intervening in existing markets, through appropriate taxes and subsidies, to ensure that externalities were appropriately reflected in private calculations.

19. Theory of development In contrast to the Neoclassical approach there is the historical Marxian approach. In this approach the forces of production and the existing relations of production determine the equilibrium. Exogenous technology progress, i.e. shifts in the forces of production disturb such an equilibrium inducing a realignment of relations of production that replaces those of the pre-existing equilibrium which are no longer functional: capitalistic production relations replaces those of feudalism In turn, with recurring crises capitalism were expected to lead to socialism and eventually to communism.

20. Theory of development In the structuralist view of development, rigidities of various kinds precluded the rapid and quantitative significant response of the changing incentives as conveyed by market signals � supply response So that even if market failures in the neoclassical sense were absent, development will be hampered unless strategies that alleviate the structural rigidity are adopted. Dualism between the traditional and rural agriculture and urban and modern industries is another example of a structural rigidity.

21. Theory of development Sen argues that a major difficulty with the concept of development arises from value-heterogeneity, i.e. that people differ in their views as to what things are valuable to promote and value-endogeneity, i.e. in fact that the process of change involved in development alters the valuations of people. Yet, he argues that it is often possible to separate the relatively uncontroversial judgements from the controversial ones.

22. Theory of development Development is also associated with the transfer of labour from agriculture to manufacturing and services. The analysis is done within the framework of dual economy models beginning with Arthur Lewis. Other theories such as world systems theory, postmodern theory and globalisation are also important in this debate and will be addressed later.

23. Pro-Poor Growth Empirical studies show that both high levels of poverty a high degree of inequality can have a negative impact on overall economic growth.

24. Pro-Poor Growth Pro-poor growth is focused on promoting the economic potential of poor and disadvantaged people Enable poor and disadvantaged who are excluded from growth process to contribute and benefit from them

25. Pro-Poor Growth Relative Definition: If the average income of poor people increases by two per cent whilst the overall rate of economic growth is one per cent, then this is described as pro-poor. Absolute Definition: Economic growth is pro-poor when it results in as large a number of poor people as possible being lifted above the poverty line.

26. Pro-Poor Growth There is a call for PPG approach to be extended to include other dimensions, e.g. wealth, health, education, social security and political participation, all of which determine the ability of poor and disadvantaged people to achieve higher incomes in the future.

27. Pro-Poor Growth In order to give a geographical and sectoral focus on Pro-poor Growth to development activities, an understanding of their chains of impact is needed. The causes of poverty as well as the impact of alternative options must be carefully investigated first of all.

28. Pro-Poor Growth PPG calls for programmes as projects to be based on the existing and emerging potential of the target group Not just sectors and regions in which poor people are working and living required but also sectors and regions to which they may gain access.

29. Pro-Poor Growth An essential element here is removing regulatory and administrative hurdles, thereby making it easier to formalise entrepreneurial activities and employment relationships. Risks to which poor and disadvantaged people are particularly vulnerable are dealt with in such a way that these people are not forced to focus solely on daily survival.

30. Pro-Poor Growth Sustainable funding of national poverty reduction strategies and social security systems is a prerequisite for pro-poor growth. There is a inter-relationship �..

31. Class Groups 1. The classical approach to development. 2. The neo-classical approach to development. 3. The structuralist approach to development. 4. The dependency school or neo-Marxist. 5. Post development Approaches. 6. globalization, Poverty and Inequality.

32. Class Assignment Are economic development, growth and pro-poor growth all the same? Discuss. Has the human development index developed by the UN advanced our understanding of Development? Critically analyse the issues of income distribution and growth and the policies for transformation.