TU Dresden OAZ Economic Development and Culture 03.11.05 María Belén Garrido Cornejo ALTERNATIVES THEORIES AND THE MEANING OF DEVELOPMENT Todaro Michael P. Development is a multidimensional process, where changes in the economic, institutional, social and administration structure are necessary, as well as in popular attitudes, customs and beliefs. 1. Economic Development Theories: 1.1 The linear Stages of growth model: 1950-1960. Rostows Stages of Growth: See the transition from underdevelopment to development through a series of successive stages that each country has to pass. Harrod-Domar Growth model: + Savings → +Investments → + Growth How much can a country grow, will depend in how productive the investments were. In poor countries, due to low levels of savings, it is necessary foreign aid or private foreign investments to fill this gap. Critics: →Savings and Investments are not a sufficient condition for development. →The role of external forces in a complex international system is not taken into account. 1.2 Structural Change Models: 1970 Transformation from an agriculture system into a modern industrialized system. 1.2.1. The “Two Sector Model” of Lewis: 1) traditional rural subsistence sector 2) modern urban industrial sector. o The rural sector transfers labor force to the modern sector. o Two constants are taken as given: 1) constant and determined wages. 2) perfect elasticity of the curve of rural labor force. Critics: The assumptions cannot be applied to the reality of most Third World countries. 1) Reinvestment from capital in the production. 2) The beneficiaries of the profits are the owners of the industry. 3) Assumption of surplus in rural areas and full employment in urban areas. 4) Constant labor wages. 1.2.2. The “Pattern of Development” of Chenery: 1950-1973 1) Development is an identifiable process of growth and changes whose main features are similar in all countries. 2) Savings and investments are not sufficient to economic growth. It is necessary interrelated changes. 3) There are domestic and international constraints, which have to be overcome. The transition of Third World countries will be easier, since they are part of the international system. Critics: Does not recognize the differences among countries. 1.3 The International Dependence Revolution: 1970 Third World countries are invested by institutional, political, and economic rigidities, both domestic and international, and caught up in a dependence and dominance relationship to rich countries. 1.3.1 The neocolonial Dependence Model: underdevelopment→ historical evolution of a highly unequal international capitalist system of rich and poor countries relationships. This cause that the possibility to be self-reliant and independent is very difficult if not impossible. The main objective of the small ruling class is the perpetuation of the international capitalist system of inequality. 1.3.2 The False-paradigm Model: underdevelopment→ faulty and inappropriate advice provided by well-meaning but often uninformed, international “expert” advisers from developed country assistance agencies and multinational donor organizations. 1.3.3 The Dualistic-Development Model: dual world: one of poor nations and other of rich nations. Four key elements: a) coexistence of different sets of conditions, b) a chronic coexistence, c) increase of this tendency and d) unwillingness to do something. 1.4 The Neoclassical counter Revolution:1980 Underdevelopment → poor resource allocation, incorrect pricing policies, too much state intervention. The problem is intern not in the international system. Against: state intervention, governmental regulations and price distortions in factor, product and financial markets. There is too much corruption, inefficiency and lack of economic incentives. Support: Free market, Free trade, welcoming of foreign investors, planning and regulation of economic activities in developing countries, privatization of public corporations, more foreign aid, control the growth of the population. Critics: 1.There is not competitive markets in Third World Countries. 2. Less consumer sovereignty. 3. Produces have great power in determining market prices and quantities sold. 2. The meaning of Development: 2.1 Traditional view: In economic terms means the capacity of a national economy to generate and sustain an annual increase in its gross national product at rates of 5% to 7% or more. Economic development: as a planned alteration of the structure of production and employment in the agriculture. Development strategies: focused in rapid industrialization, often at the expense of agriculture and rural development 2.2 The new economic view: In the 70 economic development was redefined in terms of the reduction or elimination of poverty, inequality and unemployment within the context of a growing economy. → is both a physical reality and a state of mind in which society has, through some combination of social, economic, and institutional processes, secured the means for obtaining a better life. 2.3 Three important values of development: 2.3.1 Life Sustenance: The ability to provide basic needs like: food, shelter, health and protection. 2.3.2 Self-Esteem: a sense of worth, self-respect and not being used as a tool by others for their own ends. In other words being a person. 2.3.3 Freedom: As the capacity of being able to choose; freedom from social servitude, ignorance, misery, institutions, other people and dogmatic beliefs. Freedom, it is seen as an expanded range of choices for societies and their members together with the minimization of external constraints. 2.4 Three Objectives of Development: a. More access and wider distribution of basic life- sustaining goods. b. To raise levels of living. c. The expansion of economic and social choices.