Development Economics

I

Introduction

Development Economics, branch of economics dealing with development of economies. How do economies change from simple forms of organization and production to complex modern ones? This is the subject of development economics. Originally men and women lived in small, self-sufficient communities, dependent on things they found in their environment—if food, fuel, or materials ran out, they would simply move on. One of the first main social and technological developments was the transition from a nomadic way of life to agricultural cultivation in settled communities, from which began societies as we know them today.

Economists distinguish between growth, by which they basically mean more of the same—more goods and services; and development, growth with structural and technological change. Typically, in the early stages of development economies have most of their production and labour force in agriculture; later, the manufacturing and service sectors bulk larger. (“Services” include government, defence, construction, transport, finance, insurance, banking, and the like, as well as the work of people who do not produce physical objects like cars or radios, apples and oranges—accountants, lawyers, teachers, hairdressers.)

An important feature of development is when goods and services enter into markets and monetization. People have always eaten; but as they have meals away from home and pay for restaurant services, a restaurant sector grows up which enters into what is measured as the gross domestic product. The process of development includes specialization and the “division of labour”: as people take on specialized economic functions and the scale of production increases, the output of each person, or her productivity, rises. This type of organizational change is as important a part of technological progress as mechanical invention or scientific discovery.

Another key feature is poverty; whole economies can be poor; or they can grow but still leave large sections of their people in poverty. In the second half of the 20th century, a strong awareness grew up of the difficulties of a large number of countries in the developing world, most of them former colonies of the industrialized nations. Development economics became more or less synonymous with the study of how these countries could progress out of being poor, or out of experiencing widespread poverty. Likewise, economic historians, who had long examined how the industrialized countries achieved their material advance, appreciated that these countries too were once “underdeveloped”—much of economic history became the history of economic development.

II

Accumulation and Industrialization

Theories of growth and development abound. The most basic ones stress the accumulation of the principal factors of production: labour and capital—the other main factor, land, is there to begin with. Capital is accumulated by savings. The theory rests on the idea that the more capital there is for each person, the more he or she produces. Someone can dig so much with his hands, more with a spade, more still with a mechanical digger. Obviously it is not just a question of how much capital, but what kind of capital and how effective it is—hence the importance of technology. Today theory also pays a great deal of attention to “human capital”—not just what is invested in machines and infrastructure, but in people: the education and health of a population has a lot to do with the productivity of labour.

Theories of accumulation were closely allied to those of industrialization—for many development thinkers, and particularly for developing world intellectuals themselves, industrialization was almost synonymous with economic development. In the 1960s and 1970s as developing countries were overcoming colonialism and achieving independence, the industrial countries appeared to have all the advantages in the world economy. It was they who had colonized the developing world; and the colonial powers appeared to have kept the developing world down by pushing them into primary commodity production, producing the raw materials which the industrial world wanted, and hindering their attempts to become manufacturing economies. The development debate divided between a range of more or less radical views, which stressed the difficulties faced by developing countries in the world economy, and more orthodox views, which stressed the potential for development from within, helped if necessary by the industrialized countries.

III

Marxism

Karl Marx himself wrote little directly on development, but was certainly an influence on thinking about it—though only through some of what he wrote. Marx held that capitalism would help development by breaking down the obstructive precapitalist “modes of production” which he believed to prevail in the colonies. This was part of his stage theory, in which economies inevitably progressed from capitalism to socialism to communism. More influential in development thinking were his views on class relations and exploitation, and the “extraction of surplus” and its importance to the accumulation of capital, all representative of Marxist economics.

IV

Dependency Theories

There were also less Marxist but still radical views known as “dependency” theories, particularly prominent in Latin America, but common elsewhere. They stressed how markets favoured the industrialized countries, which continued to get raw materials cheaply from the developing world, owned the technology developing countries needed, and had the economic power to admit exports from the developing world only when it suited them. Such views gave a strong bias in the development world to a belief in the virtues of autonomous development. Developing countries could only grow behind protective barriers which kept out exports from the industrialized world; investment by multinationals would mainly harm them and was regarded with suspicion; and since markets would not generate adequate growth and structural change, governments had to have a major hand in planning and promoting the economy, including public sector enterprises to undertake the investments that the market would not provide. For some thinkers even foreign aid was suspect, a “neo-colonial” instrument to preserve the dominance of the industrial countries and make the world safe for capitalism.