Economic Development and Planning

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Welcome You

to the class

on

Economic Development

and Planning

Concept and relationship:



Economic development is a problem of UDCGrowth is a problem of Developed countries.

MaddisionRaising income level is – Growth in DC

and

it is Development in UDCHicks:

Problems of UDC is development of unused

natural resources.and

Problem of DC is growth.



Economic Development is generally

defined as-

a) Development is what brings sustained growth of

income (with improved standard of living)

b) It is increase in per capita GNP over time on asystematic & sustainable basis.

c) Growth plus change involving entire society.

d) Transformation from a given condition to an

improved condition.



•Schumpeter „Development is discontinuous

& spontaneous change in the stationary

state which forever alters and displaces thepreviously existing equilibrium state. Growth

is gradual & steady process in the long run

which comes about by a gradual increase in

the rate of saving and population.

• Kindleberger „Development means more output

& changes in the technical & institutional

arrangement by which it is produced & distributed.There may be growth, but no development due topoverty, unemployment & inequalities. But, there isno development without growth.



Arthur Lewis took both the terms (Development and

Growth) as synonyms.

World development report 1999-2000 emphasizes on

sustainable improvement in the qualities of life for all

people as the principal goal of development.

Measurement of development:

1) GNP

2) GNP per capita

3) Welfare

and

4) Social indicators.



Fifty Years of development economics:

Over past 50 years emphasis shifted from growth tothe creation of employment, redistribution of income,

basic human need, structural adjustment and

sustainable development.

GNP per capita: In 1950s development meant growth

of GNP or GNP per Capita. In 1960s the UN set the

target of 5% GNP growth through industrialization

and urbanization for take off (3rd stage of Rostow) in

LDCs with the hope that GNP growth would

automatically trickle down to the poor in the form of

more employment and more income.



And also, removal of vicious circle would set free

the natural resources automatically leading to

higher growth. On such assumption Rosenstein

Rodan‟s „ Big Push‟ Nurkse‟s „Balanced Growth‟

& Leibenstein‟s Critical Minimum Effort‟ theories

were given. To them foreign aid needed to meet theshortage of capital, technology, foreign exchange

etc. David Morawetz estimated its result as an

average 3.4% growth rate in LDCs during 1950-75

which was more than that in similar period prior to1950 and also more than that of the DCs. But

poverty, un-employment and inequalities remained

there as before.



From 1970s, emphasis shifted to quality of developmentprocess- progressive fall in poverty, un-employment andinequalities. In 1954, Arthur Lewis as solution to un-employment problem of LDCs suggested for movingsubsistence labors (Agriculture to urban sector).Consequently, during 1950s LDCs had industrial output &economic growth, but no growth in employment. Since1970s emphasis shifted to income generating schemes for the

poor.

Income inequality: In 1950s and 1960s, the incomeequality was thought to be reduced with growth

automatically. Kuznet suggested based on DC‟s experiencesthat income inequality had a tendency to increase first andthan decrease as the country is developed. It was provedtrue empirically But in many UDCs income inequalities hadwidened.



Basic Human needs:

The basic human needs strategy emphasized on providing

basics needs in the form of health, education, water, food,clothing & shelter. World Bank mission emphasized thisstrategy for the first time in 1950. ILO exposed the conceptin world Employment conference, 1976.

Stabilization and structural Adjustment:In 1980s fall in growth rate and rising oil price world-wide,the emphasis shifted to “Stabilization and structural

Adjustment” which was prescribed and supported by theIMF & World Bank. But these led to reduction in govt.Spending on social services like health & education. As aresult, poverty & un-employment had increased.



Human Capabilities:

During the period of liberalization and adjustment,Prof. Amartya Sen emphasized on promoting humancapabilities. To him, at the core of human well being isfreedom of choice by enhancing human capabilities.Standard of living of a society is to be judged by

people‟s capabilities-what a person can or can not do,can or can not be. It is the entitlements the set ofalternative commodity bundles that a person cancommand in a society that generate these entailments.

The relevant capabilities are: being free fromstarvation, hunger & under-nourishment, participationin communal life, being adequately sheltered and so no.Expansion of these capabilities implies freedom of

choice-Political, social, economic and cultural freedom.



Human Development:The UNDP incorporated human development first inits human Development Report 1990. It defined human

development as “a process of enlarging people‟s choices” that are created by expanding humancapabilities. Economic development is the means tohuman development, but human development isequally important as economic development.

Sustainable development:In 1987, the World Commission on Environment anddevelopment (Brandtland Commission)used theconcept of sustainable development. It was defined as

“meeting the needs of the present generation. Bysustainability it is meant that the economicdevelopment should keep going. By living standardmeant-health, education, participation in public life,clean environment, inter-generational equity & so on.



Some Important Concepts:Human Development Index (HDI)

• The HDI is a composite index of achievements in three

fundamental dimension a long healthy life, knowledgeand a decent life.

HDI calculation:

• Longevity: life expectancy at birth: 25 years and 85 yrs.

•

Educational attainment: Adult literacy (0%-100% & weight-2/3)and combined primary, secondary & tertiary enrolment (0%-100% &weight-1/3).

• Standard of living: Per capita real GDP on purchasing power parity

basis: PPP$ 100-4000.The HDI is the simple average of these three indicators, i,e sum ofthese three divided by 3. Finally, HDI value of all three indicators isreduced to 0-1.



ve s age o eve opmen y . .Rostow:1.) Traditional society, 2) Pre-take off, 3) Take-off, 4) Drive tomaturity & 5) High mass consumption.

Traditional society:• Limited production function, primitive social structure, pre-

Newtonian attitude to physical world.

• No use of science & technology & a ceiling on

production increase existed.

• Dominating family & clan connection, regional

political power & majority on agriculture.

Pre-take-off: a) Idea grows as progress possible, b) Newenterprising men coming in, c) Capital mobilizinginstitutions appear, d) investment increase e) Scope fortrade & commerce widens.



Take-off: Conditions- a) 5%-10% productiveinvestment increase, b) One or more high growth

manufacturing sector development, c) Quick emergence ofsocial, political & institutional framework to supportmodernization.

Drive to maturity: (1) labor changed unskilled skilled &real wage increase. (2) polished & polite efficientmanagers come up & hardworking managers go behind.A stage of self-sustained growth with improvedtechniques of production.

High mass consumption- 1) Expansion of national power beyond own border, 2) Welfare state with equitableincome distribution 3) creation of new commercial centres& leading sectors-like auto-mobiles.



According to Nurkse, It implies a circular constellation of forces

tending to act and react upon one another in such a way as to keep a

poor country in state, of poverty. Alternatively, it is said “A countryis poor, because it is poor” The basic circle stems from the fact that

in LDC total productivity is low due to capital deficiency, market

imperfection and economic backwardness.

There are three vicious circles as given below:

(1): (Resources side vicious circle)

Market imperfection1

1

1 Backward People 1

1

1 Underdevelopment

Natural resources



(2): (Supply side vicious circle)

1 Low Productivity1

1 Low investment 1

1 Capital deficiency1

1 Low income 1

1

1

1 Low saving 1

1

1

1

1

1

1

1

1



(2): (Demand side vicious circle)

1 Low Productivity1

1

1

1 Capital deficiency1

1 Low income 1

1 1 1

1

1 Low investment 1 1 Low Demand 1

1 1 1

1



Laissez-Fair Policy: The classical economists assumeexistence of an automatic free market which in perfectlycompetitive and free from govt. interference. It is the

invisible hand which maximizes the national income.

Stationary state:End of capital accumulation when profits starts declining

till become zero. It is the scarcity of natural resources thatfinally stops growth & leads to stationary state.

Planning:

Robbins: Planning is a collective control or superseding

of private activities of production and exchange.

Hayek: Direction of productive activity by a centralauthority.



Dalton: deliberate direction by persons in charges oflarger resources of economic activity towards chosen

end.

Dickinson: The making of major economic decisions

what & how much is to be produced, how, when &where it is to be produced, to whom it is to be allocated,

by the conscious decision of a determinate authority on

the basis of comprehensive survey of the economicsystems as a whole.



Planning by inducement: Democratic planning or planning

by market manipulation(inducement). There is no

compulsion, but persuasion. Freedom is subject to state

control & regulation.Imperative planning: In this system all economic

activities & resources are directed by the state & factors of

production are totally controlled by the state. No consumers’

sovereignty- they are to get fixed amount of goods at a fixed price.

Rolling planning: A current year plan/budget as exact and

2-3 years future plan as indicative where with the lapse ofcurrent year, next year’s indicative plan becomes current &

exact plan and a new year is added to indicative plan.

Perspective Plan: Long-term plan of 10,15,20 or more.

Pl i b di i C l Pl i A i



Planning by direction or Central Planning: As in

USSR.A central authority plans, directs orders execution

of plan having pre-determined targets & priorities.

Indicative Planning: As in France. Govt. gives target for both public & private sector, but does not control & direct

private sector. It differs from mixed economic planning in

respect of the fact that govt. in mixed economic plan

controls & directs private sector through license, qouta,

financial incentives etc.



Finally, development is a goal and planning is the tool for

achieving the goal

S i



Some important concepts:

Poverty: Lack of means to satisfy minimum basic needs.

Absolute poverty: Poor in absolute sense, no comparison

with others.

Relative poverty: How poor in comparison with others.

Upper poverty line: Income enabling 2122 k.cal a day or

less than that.Lower poverty line: Income enabling 1800 k-cal a day or

less. It is hardcore or extreme poverty.

M t f t



Measurement of poverty:

1) Head-count poverty index: % of poor in total popn.

poverty line income ─ poor people’s mean income

2) Poverty gap index: ------------------------------------------

poverty line income

3) Squared Head count index

poverty gap: --------------- (poverty line – poor‟s mean income)

poor people‟s mean income



4) Food energy intake method: An income needed to

meet minimum energy requirement.

5) Cost of basic need method: Income needed forminimum basic needs.

Gini coefficient of income inequality:

Economic Development and Planning

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