A central question in the study of economic development has turned out to be ‘in what precisely does the economic development of a society consist?’ For about twenty years after 1945, the accepted view was that the prolonged and steady increase of national income was an adequate indicator of economic development. This was held to be so because it was believed that such an increase could be sustained over long periods only if specific economic (and social) processes were at work.
These processes, which were supposed to be basic to development, can be briefly summarized as follows:
1
The share of investment in national expenditure rises, leading to a rise in capital stock per person employed.
2
The structure of national production changes, becoming more diversified as industry, utilities and services take a larger relative share, compared with agriculture and other forms of primary production.
3
The foreign trade sector expands relative to the whole economy, particularly as manufactured exports take a larger share in an increased export total.
4
The government budget rises relative to national income, as the government undertakes expanded commitments to construct economic and social infrastructure.
Accompanying these structural changes in the economy, major changes of social structure also occur:
5
The population expands rapidly as death rates fall in advance of birth rates. Thereafter, a demographic transition occurs in which improved living conditions in turn bring the birth rate down, to check the rate of overall population increase.
6
The population living in urban areas changes from a small minority to a large majority.
7
Literacy, skills and other forms of educational attainment are spread rapidly through the population.
This conceptualization of economic development as the interrelation of capital accumulation, industrialization, government growth, urbanization and education can still be found in many contemporary writers. It seems to make most sense when one has very long runs of historical statistics to look back over. Then the uniformities which this view implies are most likely to be visible. One doubt has always been whether generalizing retrospectively from statistics is not an ahistorical, rather than a truly historical, approach. It presupposes some theory of history which links the past to the future. The theory may not be transparent, or it may be unsubtly mechanistic and deterministic.
Another major doubt about the adequacy of the view of development described in processes 1–7 centres around the question of income distribution. If the basic development processes described above either do not make the distribution of income more equal, or actually worsen the degree of inequality for more than a short period, some theorists would argue that economic development has not taken place. They prefer to distinguish economic growth from economic development which, by their definition, cannot leave the majority of the population as impoverished as they originally were. For them, indicators of growth and structural change must be complemented by indicators of improvement in the quality of everyday life for most people.
The latter can be of various kinds. They can focus on the availability of basic needs goods—food, shelter, clean water, clothing and household utensils. Or they can focus on life expectation tables and statistics of morbidity. The availability and cost of education opportunities are also relevant. Although the distribution of income may be a good starting-point, the distribution of entitlements (to use a concept expounded by A.K.Sen 1981) to consume of all kinds is the terminus. Similar kinds of consideration arise when one examines the role of political liberty in economic development. Is rapid growth and structural change induced by an oppressive, authoritarian regime true development? Those who object to the ‘costs’ of the development strategies of the former Soviet Union or the People’s Republic of China do not think so. From a libertarian standpoint, they refuse to accept the standard account of economic development as sufficiently comprehensive.
The difficulty here is clearly with weighting all of the different indices involved to arrive at a single measure of the degree of development in this extended sense. Perhaps it cannot be done; and perhaps, if policy rather than international league tables is our main concern, this failure is not very important. The most familiar recent attempt in this vein is the United Nations Development Programme’s Human Development Report series (UNDP 1990–).
Linked with these questions about the meaning of development is the problem of conceptualizing the process of development. Perhaps the most famous of all models of this process is the classically-based model of Sir Arthur Lewis (1954). This attempts to capture the simultaneous determination of income growth and income distribution. Its key assumptions are the availability within traditional, technologically backward agriculture of surplus population (surplus in the sense that their marginal product in agriculture is zero); and the existence of a conventional subsistence wage in the industrial sector which does not rise as the surplus agricultural population is transferred to industrial employment. The transfer of labour from agriculture to industry at a constant wage rate (which may or may not involve physical migration, but usually does) permits industrial capitalists to receive an increasing share of a rising national income as profit and to reinvest their profits in activities which progressively expand the share of industry in the national output. Thus Lewis explained what he regarded as the central puzzle of economic development, namely to understand the process which converted economies which habitually saved and invested 4–5 per cent of the national income into economies which save and invest 12–15 per cent.
The Lewis model can be elaborated to explain other stylized facts of development. If labour transfer involves physical migration, urbanization will follow. If capitalists are defined as those with an accumulation mentality (as Lewis does), they can operate in the public as well as the private sector, and expansion of the government share in national output can be understood in these terms. If industrial employment in some sense requires labour to be healthy and educated, these major social changes—including a demographic transition—may be set in train.
Much of the subsequent literature on economic development can be read as an extended commentary on the Lewis model. Neo-classical economists have criticized the assumptions of the model, questioning whether labour in the agricultural sector does have a zero marginal product, and whether labour transfer can be effected without raising the real wage rate (Lal 1983). Alternatives to the Lewis model as an account of rural-urban migration have been proposed (e.g. by Harris and Todaro 1970).
The Lewis model’s sharp focus on physical capital formation has been strongly questioned. Some critics have gone so far as to deny that physical capital formation is necessary at all to economic development (e.g. Bauer 1981). A less extreme view is that human capital formation or investment in the acquisition of good health and skills is a prerequisite, rather than an inevitable consequence, of the successful operation of physical capital. A balance is therefore required between physical and human investments to ensure that an economy raises its level of technological capability in advance of a physical investment drive.
The sectoral destination of investment in the Lewis model also provoked a strong reaction. Although less narrowly focused than Dobb’s model (1955) where investment priority was given to the capital goods sector of industry, the Lewis model’s focus on investment in the modern industrial sector was seen as inimical to the development of agriculture, and the failure of agricultural development was increasingly identified as a cause of slow growth and income maldistribution in developing countries (as argued by Lipton 1977). The debate about sectoral investment balance has since been subsumed into the analysis of project appraisal, as pioneered by Little and Mirrlees (1974) and others. This provides, in principle, a calculus of social profitability of projects in all sectors of the economy. It is worth noting, however, that the rationale for the social pricing of labour in the Little and Mirrlees method is based on the Lewis conception of agriculture-industry labour transfer.
The Lewis model recognized the possibilities of state capitalism as well as private capitalism. The infrequency in practice with which such potential has been realized has led to demands that governments confine themselves to their so-called ‘traditional functions’ and the creation of an incentive and regulatory framework for the promotion of private enterprise. This has been one of the major thrusts of the counter-revolution in development thinking and policy of the 1980s (Toye 1993).
Foreign trade plays a minor role in the Lewis model and other early models of economic development. This reflected the pessimism of many pioneers (such as Prebisch (1959) and Singer (1950) about the tendency of the terms of trade of primary commodity producers to decline. It also responded to a belief that, historically, isolation from the world economy had spurred development in Meiji Japan (Baran 1973) and Latin America in the 1930s (Frank 1969). More recently, the expansion of manufactured exports has been seen as a major element in the astonishingly successful development performances of East Asian countries like South Korea and Taiwan. Debate still rages, however, about whether this kind of trade expansion experience validates liberal trade and finance policies, or an intelligent and selective style of government intervention in these markets (as argued by Wade 1990).
The concessional transfer of finance and technical assistance from developed to developing countries fitted well with the Lewis emphasis on physical capital formation as the key to growth and income distribution. More recently, the effectiveness of aid has been questioned. Although simple supporters and enemies remain vocal, it is common now to see more clearly the complexities of the aid process, and to stress the many lessons that have been learned from hard experience to improve the likelihood of aid achieving its desired objectives (e.g. Cassen and Associates 1986; Lipton and Toye 1990).
Somewhat greater agreement exists on the facts of recent economic development than on the methods of bringing it about. That many poor countries have experienced much economic growth and structural change since 1945 is widely accepted. Few still claim that growth in developed countries systematically causes increased poverty in other, poorer countries. A weaker version of this thesis is that there is an ever-widening gap between richest and poorest, which can arise when the welfare of the poorest is constant or rising. Even this weaker version is controversial, on the grounds that countries are ranged evenly along a spectrum of wealth/poverty, and thus to split this spectrum into two groups of rich and poor in order to compare group statistics of economic performance can be somewhat arbitrary. In fact, the measured growth rates of developed and developing countries since the early 1960s show relatively small differences and ones that may well lie within the margins of error that attach to such estimates. The countries classified as developing also show increasing differentiation among themselves. But, although the overall record of economic growth at least need not give cause for deep gloom, certain geographical regions do appear to have markedly unfavourable development prospects. Such regions include sub-Saharan Africa and parts of South Asia, and of Central and South America. The reasons for their poor prospects vary from place to place. Some are held back by severe pressure of population on cultivable land; some by inability to generate indigenous sources of appropriate technical progress; some by the persistence of intense social and political conflict; some by unenlightened policy making; and some by the continuing failure to evolve a worldwide financial system which does not tend to amplify the inherent unevenness (over place and time) of economic development.
It is also true that the rapid increase in the world’s population makes it possible for the absolute number of people whose consumption falls below a given poverty line to increase, even when the percentage of the world’s people who are poor on this definition is falling. This is what seems to be happening at the moment. Despite all the evidence of widespread economic development, theoretical and practical work on poverty alleviation has, therefore, a growing urgency and relevance.
John Toye
Institute of Development Studies
References
Baran, P. (1973) The Political Economy of Growth, Harmondsworth.
Bauer, P.T. (1981) Equality, the Third World and Economic Delusion, London.
Cassen, R.H. and associates (1986) Does Aid Work?, Oxford.
Dobb, M. (1955) On Economic Theory and Socialism, London.
Frank, A.G. (1969) Latin America: Underdevelopment or Revolution?, New York.
Harris, J. and Todaro, M.P. (1970) ‘Migration, unemployment and development: a two-sector analysis’, American Economic Review March.
Lal, D. (1983) The Poverty of ‘Development Economies’, London.
Lewis, W.A. (1954) ‘Economic development with unlimited supplies of labour’, The Manchester School 22(2).
Lipton, M. (1977) Why Poor People Stay Poor, London.
Lipton, M. and Toye, J. (1990) Does Aid Work in India?, London.
Little, I.M.D. and Mirlees, J.A. (1974) Project Appraisal and Planning for Developing Countries, London.
Prebisch, R. (1959) ‘Commercial policy in the underdeveloped countries’, American Economic Review 49.
Sen, A.K. (1981) Poverty and Famines: An Essay on Entitlement and Deprivation, Oxford.
Singer, H.W. (1950) ‘The distribution of the gains between investing and borrowing countries’, American Economic Review 40.
Toye, J. (1993) Dilemmas of Development: Reflections on the Counter Revolution in Development Economics, 2nd edn, Oxford.
United Nations Development Programme (UNDP) (1990–) Human Development Report, New York.
Wade, R. (1990) Governing the Market, Princeton, NJ.
Further reading
Kitching, G. (1982) Development and Underdevelopment in Historical Perspective, London.
Little, I.M.D. (1983) Economic Development: Theory, Policy and International Relations, New York.
