Module 2

Part 1

Development Goals and Models

The module is divided into three main parts: 1. A discussion of the changing concept and
nature of development and the Goals and Objectives commonly associated to this ideal; 2.
The different theories and models on how development is pursued, and 3. The common
development policies and programs associated with this cherished ideal.

1. The Concept and Nature of Development

The traditional concept. For sometime now, development has been seen by policy
makers in strictly economic terms. It has traditionally meant the capacity of a national
economy, whose initial economic conditions has been more or less static for some time, to
generate and sustain an annual increase in its Gross National Product(GNP) of from 5 to
7% or even more.

Prior to the 1970’s , development was always nearly seen as an economic phenomenonin
which rapid gains in GNP growth would either “trickle down”to the masses in the form of
jobs and other economic opportunities or create the necessary conditions for the wider
distribution of the economic and social benefits of growth. Problems of poverty,
discrimination, unemployment and income distribution were of secondary importance to
simply attaining growth.

The new economic view of development. The experience of the Philippines from the
1950’s and 1960’s showed that despite the attainment of their economic growth targets,
the levels of living of the masses of people remained for the most part, unchanged. This
signalled something was wrong with this narrow definition of development.

Thus, the World Bank in its 1991 World Development Report asserted, “the challenge of
development … is to improve the quality of life. A better quality of life generally calls for
higher incomes- but it involves much more. It encompasses better education, higher
standards of health and nutrition, less poverty, a cleaner environment, more equality of
opportunity, greater individual freedom , and a richer cultural life.

In this context, development must therefore be conceived of as a multidimensional process

involving major changes in social structures, popular attitudes, and national institutions, as
well as the acceleration of economic growth, the reduction of inequality and the eradication
of poverty. The process must represent the whole spectrum of changes by which an entire
social system, moves from an impoverished socio-economic, cultural lifestyle toward
something better.
On the basis of the discussion above, watch the following:
https://www.youtube.com/watch?v=ixkW-IMmKGQ

Task # 1, Answer the following questions:(for submission through my email on or

before September 30, 2020.

1. How similar or different are the ideas of the presentor in the video with the ideas
presented in the previous page of this module?
2. How do you characterize the Philippines from within the new idea/view of
development presented by both this paper and the presentor?
3. What insights do you have regarding the stage of development our country is in now
and how is it faring vis-à-vis the ideals of development? Why so?

What is meant by economic development in the Philippines? Materials coming out of

NEDA(the Philippine’s Planning Agency) contain the following passages that captures
their conception of economic development.

In the economic study of the public sector, economic and social development is the

process by which the economic well-being and quality of life of a nation, region, local
community, or an individual are improved according to targeted goals and objectives.

What are the targeted goals of national economy?The goals of the national

economy are a more equitable distribution of opportunities, income, and wealth; a
sustained increase in the amount of goods and services produced by the nation for the
benefit of the people; and an expanding productivity as the key to raising the quality of
life for all, and

Goals included alleviation of poverty, generation of more productive employment,

promotion of equity and social justice, and attainment of sustainable economic
growth.

2. The Different Theories and Models on Development

Post WW II: Classic Theories of Economic Development : Four Approaches. After

World War II, economic development thought has been dominated by four major strands of
thought: 1.the linear-stages-of-growth-model, 2. Theories and patterns of structural
change,; 3. The international dependence revolution, and 4. The neo-classical, free-
market counter-revolution.

2.1 The Linear Stages Model viewed the process of development as a series of successive
stages of economic growth through which all countries must pass. It is a development
theory which advocated the idea that the right quantity and mixture of saving, investment,
and foreign aid were all that was necessary to enable developing nations to proceed along
an economic growth path that historically been followed by the more developed countries.
Two growth theories predominate in this school: Rostow’s Stages of Growth and the
Harrod-Domar Growth Model.

Rostow’s Stages of Growth Theory was a doctrine developed by the American Economic
Historian Walt W. Rostow. According to this doctrine, the transition from
underdevelopment to development can be described in terms of a series of steps or stages
through which all countries must proceed. In his book “The Stages of Economic Growth”,
he said:

“This book presents an economic historian’s way of generalizing the sweep of

modern history…it is possible to identify all societies, in their economic
dimensions,
as lying within one of five categories: the traditional society, the pre-conditions for
take-off into self-sustaining growth, the take-off, the drive to maturity and the age
of high mass consumption. These stages are not merely descriptive. They are not
merely a way of generalizing certain factual observations along the sequence of
development of modern societies. They have an inner logic and continuity… They
constitute, in the end, both a theory about economic growth and a more general, if
still highly partial, theory about modern history as a whole.”

For a more detailed explanation, watch the following video:

https://www.youtube.com/watch?v=YJEQi9IKmaI&t=109s

Task # 2 – Critique the Rostow’s Stages of Growth in terms of its applicability to the
new concept of development. For submission on or before October 2, 2020.

Harrod-Domar Growth Model. One of the principal economic strategies for an economy to
take-off is the mobilization of domestic and foreign savings in order to generate sufficient
investment to accelerate economic growth. The economic mechanism in which investment
fuels growth is the gist of the Harrod-Domar Growth Model.

The theory revolves around the idea that an economy must save a certain proportion of its
national income to replace worn-out or impaired capital goods(buildings, equipment, and
materials). In order to grow, new investments representing new additions to the capital
stock are necessary. Investment domestically usually comes from savings. However, the
model does not discount other sources of “capital infusion” as foreign and “own
government” investments, direct or portfolio.

It follows then that any net additions to the capital stock in the form of new investment will
bring about corresponding increases in the flow of national output ,consequently bringing
forth economic growth.
Proponents of the model defined the required condition for the take-off stage of an
economy. Countries that can save 15% to 20% of their GNP could grow at a much faster
rate than those that saved less. Economic growth and development is seen simply as a
matter of increasing national savings and investment.

The constraint seen in developing countries is their inability to foster domestic capital
formation to the desired level. This then served as a justification to justify massive transfers
of capital from other countries to fill the domestic “savings gap”. Experience in many
developing countries has shown the opportunistic tendency of foreign investors to repatriate
earnings which became counterproductive in the long run for the targeted “savings
accumulation” expected. In other words, development economists have mistakenly believed
that savings was a “sufficient” condition to growth which it was not. Many countries have
shown that savings accumulation is a “necessary” but not a sufficient condition for growth
and development.

2.2 The Structural Change Models. The perceived failure of the linear stages model has
spawned the emergence of other theories with the intent of addressing the perceived flaws
of the linear model. The structural change theory advocates the transformation of
domestic economic structures from a heavy emphasis on traditional subsistence agriculture
to a more modern and more industrially diverse manufacturing and service economy. Two
well known examples of the structural change approach are 1. The two sector surplus
labor mdel of W. Arthur Lewis and 2. “patterns of development” empirical analysis of
Hollis B. Chenery.

The Lewis Theory of Development. Formulated in the mid-1950’s by Nobel laureate W.

Arthur Lewis in the mid-1950’s and later modified by John Fein and Gustav Ranis. The
Lewis two-sector model served as development template for many surplus labor third
world countries during most of the 1960’s and early 1970’s . Many economists still adhere
to the model, partially or wholly.

According to the model, third world economies consist of two sectors: a traditional, over
populated rural subsistence sector with “surplus labor”, the kind of labor that can be
withdrawn from the agricultural sector without any loss of output and a high productivity
modern urban industrial sector into which labor from agriculture is gradually transferred.

The movement of labor from agriculture to industry is seen to expand the productivity of
virtually unproductive workers in agriculture. This would consequently increase wages,
income, savings and investment which is plowed back into industry to further boost
industrial productivity and thus, economic growth.

The process of expansion of the modern industrial sector is assumed to continue until all
surplus rural labor is absorbed in the new industrial sector. Thereafter, withdrawal of
agricultural labor entail higher cost of lost food production. By this time, the structural
transformation of the economy will have taken place, with economic activity shifting more
to odern urban industry and less traditional rural agriculture.

Some criticisms have been thrown the way of this theory contesting some of its
assumptions. For one, they question the ready absorbability of labor coming from the rural
sector seemingly ignoring the presence also of urban unemployment. Another is the
assumption of the continued expansion of the industrial sector ignoring also the fact of
substantial capital flight.

The Lewis two sector model, although some consider it flawed, is valuable as an early
conceptual portrayal of the development process, of sectoral interaction and structural
change. However, it requires modification in assumptions and analysis to fit the reality of
contemporary developing nations.

Structural Change and Patterns of Development. The patterns of development analysis of

structural change, like the Lewis’ model focuses on the sequential process through which
the economic, industrial, and institutional structure of an underdeveloped economy is
transformed over time to permit new industries to replace traditional agriculture as the
engine of economic growth. In contrast to the Lewis’ model, increased savings and
investment is seen as necessary but not sufficient conditions for economic growth.

In addition to physical and human accumulation of capital, a set of interrelated changes in

the economic structure of a country are required for the transition fom a traditional to a
modern one. Structural changes prescribed include the transformation of production and
changes in the composition of consumer demands, international trade and resource use as
well as changes in the socio-economic factors as urbanization and the growth and
distribution of a country’s population.

Analysts of this school emphasize both domestic and international constraints on

development. Domestic economic constraints include a country’s resource endowmentsand
its physical and population size as well as institutional constraints as government policies
and objectives.

International constraints include access to external capital, technology and international

trade. For them, developing countries provided with access to capital, technology and
manufactured imports as well as markets for export can transition at a faster rate than
before. This recognizes the fact that developing countries are part of a highly integrated
international system that can promote(or hinder) their development.

Hollis B. Chenery, a Harvard economist examined patterns of development in many

developing countries after WWII. He identified several characteristic feature of the
development process, to wit;

a. Shift from agricultural to industrial production;

 b. The steady accumulation of physical and human capital;
c. The change in consumer demands from emphasis on food and basic necessities to
manufactured goods and services;
d. The growth of cities and urban industries;
e. The migration of people from farms and small towns to urban centers;
f. Decline in family size and overall population growth.

2.3 The International Dependence Revolution. International Dependence Models view

developing countries as beset by institutional, political and economic rigidities, both
domestic and international, and caught up in a dependence and dominance relationship
with rich countries . Three major streams of thought within this general approach are: a.
the neo-colonial dependence model; 2. The false paradigm model, and 3. The dualistic
development thesis.

The Neocolonial Dependence Model. This is an outgrowth of Marxist thinking. It

attributes underdevelopment of countries to the evolution of a highly unequal international
capitalist system of rich country-poor country relationships. This is characterized by an
unequal power relationships between the center(the developed countries) and the
periphery(the developing countries) which renders attempts of poor countries to be self-
reliant and independent difficult and sometimes even impossible.

Certain groups in poor countries which include landlords, entrepreneurs, military leaders,
merchants, public officials, etc) who enjoy high incomes, social status and political power
has as principal interest, knowingly or not , is in the perpetuation of the international
capitalist system on inequality and conformity by which they are rewarded.

The ruling elite serve as surrogates on international special interest groups including
multinational corporations, national bilateral aid agencies and multilateral assistance
organizations like the World Bank-International Monetary Fund.

In short, the model attributes poverty and underdevelopment of developing countries to the
existence and policies of the industrial capitalist countries of the Northern Hemisphere and
their extensions in the form of small but powerful elit. Underdevelopment is thus seen as
an externally induced phenomenon.

The False Paradigm Model. A less radical model than the first one, the model attributes
underdevelopment to faulty and inappropriate advice provided by well-meaning but often
uninformed and biased international “expert” advisers from developed country assistance
agencies and multinational donor organizations.

3. The Dualistic Development Thesis. Spouses the idea of the presence of dual
societies- of rich and poor nations or within countries, areas of opulence and
poverty. Dualism represents the existence and persistence of increasing divergences
between rich and poor nations and rich and poor peoples on various levels.
Dependence theories have two major weaknesses. First although they offer an explanation
of why many poor countries remain underdeveloped, they offer little formal or informal
explanations of how countries initiate and sustain development. Second, the actual
experience of poor countries that have pursued revolutionary campaigns of industrial
nationalization and state-run production has been mostly negative. This has resulted to the
popularity of what is called the Neoclassical Counterrevolution.

https://globalnation.inquirer.net/191019/eu-sanctions-on-ph-to-cut-200k-jobs-labor-group-
warns

Task # 3. Read the news item provided in the link above. Does it serve to illustrate any
one among the models under the International dependence model. Explain why. For
submission on or before October 5, 2020.

2.4 The Neo-Classical Counterrevolution:Market Fundamentalism

The ascendancy of conservative governments in western countries like US, Canada, Britain
and West Germany brought about the resurgence of Neo-Classicism in economic theory
and policy. This favoured supply-side macroeconomic policies and the privatization of
state corporations. In many developing countries, this called for freer markets and the
dismantling of public ownership, state planning and the government regulation of economic
activities.

The central argument of the neoclassical counterrevolution is that underdevelopment

results from poor resource allocation due to incorrect pricing policies and too much state
intervention by overly active developing nation governments. Proponents of this school of
thought argued that this very state intervention in economic activity that slows the pace of
economic growth.

The neoliberals argue that by permitting competitive free markets to flourish, privatizing
state-owned enterprises, promoting free trade and export expansion, welcoming foreign
investment, and eliminating government regulations and price distortions in factor, product
and financial markets, economic efficiency and growth will be stimulated.

From the traditional ladder type stages of development to the neo classical
counterrevolution, it can be seen that each one is a reaction to a partial or full failure of a
development model. This brings to the fore the realization that not one among the many
development models can offer a comprehensive approach to the development problems of a
country. This is so for each country has a distinctive set of structural and institutional
arrangements that would require differentiated models to pursue development with . It has
also grown increasingly popular that countries derive an “eclectic mix” of all prescriptions
sourced from the different models offered.
Task # 5 – Provided with the readings in this module, answer the six questions for
discussion at the end of this case study. Submit your output on or before October 12, 2020.