Economic Development Essay

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Economic development studies are concerned with how societies have, could, and should pursue improvement in the quality and quantity of life for their inhabitants. Since the decades following World War II when development studies began and were implemented as policies, there has been neither consensus on how to pursue the goal of economic and social improvement nor unqualified improvement in the quality of life for most of the world’s population. Nonetheless, the politically and socially important pursuit of economic development continues and involves academics, nation-states, regional and international organizations, non-governmental organizations, and philanthropic foundations.

Development scholarship arose out of the major social, political, and economic changes that accompanied the end of World War II and the restructuring of the global geopolitical map. As a consequence of the war, there was both a felt need to reconstruct the destroyed economies of Europe and Japan, and to supply financial assistance to the newly freed colonial possessions of losing states. Early efforts focused on the construction of critical industrial goods and state-owned infrastructures, and the overall modernization of political and economic institutions. Rebuilding activities were based on assumptions of social and economic ”convergence”: a belief that all societies progress in a stepwise fashion from traditional social orders toward increasingly modern social and economic systems as manifest by western industrial states.

During the early period, economic development theories were largely based on the belief that all societies developed through a set of stages that ultimately would lead to a modern nation-state and industrial economy. This evolutionist approach urged political and social reforms that would develop ”primitive” or ”backward” societies into modern economic systems like those in the west.

By the mid-1960s ideas about evolutionary progress and convergence toward a single model had been formalized in scholarly research and development policy such as modernization theory. Modernization theory (Rostow 1969) reflected three geopolitical trends that characterized this period: (1) the rise of the US as a superpower and with it Anglo-American style capitalism; (2) the simultaneous rise of the Soviet Union and its influence over Eastern Europe, China, and North Korea; and (3) the disintegration of the European colonial empires in Asia, Africa, and Latin America.

By the 1970s, another state-centric view of development emerged to counter the modernist view. An outcome of the turbulent experiences of Central and South America, Asia, and Africa as states there attempted to mimic first-world economies and states, scholars noted, was that developing countries, far from improving their economic circumstances, continued to be both dependent on and increasingly impoverished because of their relationship with western industrial states. Called dependency theory, these theorists pointed out that the underdeveloped world reflected colonial pasts that had not been substantially changed despite decades of development attempts to alter institutions and practices through economic loans and subsidies.

By the early 1980s, however, it became increasingly evident that state-centric ideas, whether of the modernization or dependency schools, could not entirely capture the whole of development outcomes for the rich and especially the poorer parts of the world. Attention by Wallerstein (1980) and others to global exchange structures painted a picture of a capitalist world economic system where economic outcomes are not determined by the actions of any one state. All states are part of a networked capitalist system and the prospects of any one state are influenced by its place in that system and its relation to other states.

During the 1980s and continuing into the 1990s, a resurgence in economic theorizing had an especially strong influence over global development institutions, especially lending institutions and donor countries. The World Bank and International Monetary Fund promoted neoclassical economic precepts, including laissez-faire trade policies such as low tariffs, few import controls, no export subsidies, and free labor markets through loan conditions and repayment terms. Taken together as a neoliberal policy agenda, these practices are known as the Washington Consensus and include the willingness of a developing nation to conform to fiscal discipline, lower taxes, a competitive exchange rate, liberalized foreign direct investment policies, privatization, property rights, and deregulation. These conditions have been a prerequisite for developing nations receiving funds from global development bodies.

Critics of the Washington Consensus point out that these policies and programs create an environment favorable to transnational firms wanting to do business in developing countries, and do not place the social and economic needs of those countries first.

Economic growth typically has been measured in terms of an increase in the size of a nation’s material output. Gross domestic product, which supplanted the use of gross national product in the 1990s, is the most frequently used index of both the size and health of a domestic economy. Calculating a nation’s GDP involves adding domestic consumption rates with investment, government purchases, and net exports. Increasingly, consumption has become the largest component in this measure.

While GDP details gains of economic significance, according to development scholars critical of this metric, it masks declines in the quality of life experienced by a good portion of the world’s population, instead mostly capturing gains for elite countries and specifically the elites within those countries. Critics have devised a number of more inclusive measures of ”well-being,” such as the United Nations Development Program’s Human Development Index (HDI) (UNDP 2001), among a growing list of such efforts. In addition to the traditional economic indicators of growth, ”Quality of Life Indexes” typically try to move toward a fuller representation of both economic and non-economic well-being and include measures of ”social health” such as education rates, income distribution, and national health. In some instances, indexes go so far as to include crime rates, measures of social benefits and safety nets, and rates of pollution, resource depletion, and long-term environmental damage. Advocates contend that these metrics better assess the overall health of a nation, not just the state of its material economy.

Bibliography:

  1. Rostow, W. W. (1969) The Stages of Economic Growth. Cambridge University Press, Cambridge.
  2. United Nations Development Program (2001) Human Development Report, 2001. Oxford University Press, New York.
  3. Wallerstein, I. (1980) The Modern World-System II: Mercantilism and the Consolidation of the European World-Economy, 1600—1750. Academic Press, New York.

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