Underdevelopment, Growth and Rural Development Introduction

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Module Two
Lesson 2
Underdevelopment, Growth and Rural Development
Cultural and socio-economic environment, policies and theoretical thinking about rural development have been continuously changing over time. Rural development, therefore, is an opaque concept used by various interests with different meanings. Today, no agreement exists as to what development is: as a process, as a goal or as an achievement; or what should be considered 'special' about rural development, as opposed to other types of development (Buller and Wright 1990). For the past thirty years, rural development as an academic and a political subject or as the ‘life of everyday rural people’ has held many different meanings.
Earlier approaches to rural development started from the modernization paradigm, trying to modernize all aspects of rural life: agricultural production, social structures, culture and physical infrastructure. Rationalization, intensification and economic growth were important aims thought to be achieved mainly through external intervention. As significant drawbacks of modernization and external intervention became obvious, an endogenous and sometimes preservationist approach towards development started to emerge. This operated with a different set of principles building on local resources and participation, ‘process type aims’, traditional values, and so on. This approach worked to counter many earlier problems
At the end of the last millennium, emerging socio-economic changes in the countryside could no longer be understood within the old paradigm. The rural economy and the aims and circumstances of agricultural production all changed considerably. Therefore, a new rural development paradigm started to take shape, trying to explain current socio-economic changes of the European countryside. It draws together various scientific concepts and operates with old and new ideas, such as networks, institutions, control, development repertoires and ‘re-peasantization’. Nevertheless, the new paradigm is based on practical examples, rather than theoretical thinking, and it is still being formulated (van der Ploeg et.al 2000).

It is hard to pinpoint the origins of rural development as an opening topic. Traditionally, much of the research is focused on developing the poorest parts of Africa, South America and Asia. So this leads to one of the first questions. How far can traditional approaches to understanding the dynamics of rural development comprehend change in the post-socialist world? Do their key concepts and approaches developed so far help us understand the conditions in the transition countries or, is there a need for adaptation?

Foremost question is migration from the countryside to the urban areas. Is everyone leaving the community? Rural in and out migration is obviously a key consideration in the state of the rural areas. Many communities are continually changed by the effects of emigration and immigration. Whereas the arrival or departure of a small number of people might have little noticeable effect on a town or city, for a village, the impact is much more magnified. In the topic we want to characterize the different kinds of migration that affect rural areas, assess some of the impact that they have and examine past and present policies for mitigating some of the negative effects of rural migration.
The Land Question
The way that land is owned and used obviously has huge significance for the development of a rural region. If it is badly managed, it can stifle economic growth. If it is not known who owns land, particularly in ancestral lands, there is more chance of conflict. If lands are basically in the hands of a few individuals (big landownership such as haciendas), this can be the source of huge local economic and political power. Land distribution, restitution and the break up of state and collective ownership were key issues in the rural transition. In many places, the creation of property systems that work for rather than against rural development is still a serious challenge. This topic considers both the general relationship between land policies and economic development, but also looks at a specific issue that is critical for a number of countries, that is, land fragmentation.
The Agrarian Question
The basic issue for this topic is what kind of agricultural sector holds the most promise for the development of the rural areas. In its day, collectivization was at the center of the modernization of rural production. It was designed to replace tiny, inefficient, labor intensive farms with larger mechanized farms, made by pooling local land and resources. Since the collapse of that system, in many parts of central and Eastern Europe, and in the former Soviet Union, a noticeably dual structure of farming has appeared. A relatively small number of very large mechanized farms have remained, while at the other extreme, an enormous number of very small holdings have emerged. It is not certain whether it is accurate to call these smallholdings farms. Still, and in reflection of their function for many households, they are very significant in their numbers and their future role. For agricultural economists and policy makers they have come to be known as semi-subsistence farms.
Dealing with the “C” word. Rural Development and Co-operation
In the past, certain portions of a village were held in common for all, for example, pasture land, water courses, woods and forests. The costs of maintaining, in an environmentally sound way of course, such resources are often more than any one individual can afford, and so, some co-operation amongst local users seems to make sense. It is possible to find many examples in the rural and agricultural literature extolling the advantages of co-operation and there is indeed a long tradition of rural co-operatives throughout Europe. A more recent problem in former socialist countries is that, to some audiences, insisting on co-operation as the basis for accessing water or forests or pasture starts to sound a little like the Communists.
Developing the non-farm rural economy
These classes will look at the economic potential of non-farm rural development. This topic has attracted much attention in the past few years. It brings together a number of theoretical approaches such as the economic livelihoods approach, the reconfiguring rural assets approach as well as more general theories of economic development. The general idea seems to be to take a broad look at the resources that are already in the rural areas, assess those that need to be brought in, and then work out how new incomes and economic opportunities could be made in combination.
Quality and Openness in Local Governance
The question of the role of village authorities in rural development does not get as much attention as it perhaps deserves. Research studies tend to be attracted to the new regional bodies or the county and municipal level authorities.
Anthropological studies of local governance often stress the corrupt or charismatic nature of local power, and international agencies often stress the role of civil society or partnership approaches. Arguably, rural development that ignores the power and potential of local authorities is both undemocratic and naïve.
I. Underdeveloped Countries
Third World is the general designation of economically developing nations. The term arose during the cold war, when two opposing blocs - one led by the United States (first), the other led by the USSR (second) - appeared to dominate world politics. Within this bipolar model, the Third World consisted of economically and technologically less developed countries belonging to neither bloc. Originated by the Martinique-born Marxist writer Frantz Fanon, the designation was essentially negative and not always accepted by the countries concerned. Although political and economic upheavals in the late 1980s and early 1990s marked the collapse of the Soviet power bloc, “Third World” remains a useful label for a conglomeration of countries otherwise difficult to categorize.
The countries of the Third World, containing some two-thirds of the world's population, are located in Latin America, Africa, and Asia. Politically, they are generally nonaligned. Some are moving out of their previous situation and may soon join the ranks of industrialized countries. Others, with economies considered intrinsically incapable of development, are at times lumped together as forming a “fourth world.”
Political instability caused by precarious economic situations is widespread in the Third World. Democracy in the Western meaning of the term is almost completely absent. Both the Western and the former Soviet blocs have tried to entice the Third World to follow their own examples, but the countries concerned generally prefer to create their own institutions based on indigenous traditions, needs, and aspirations; most choose pragmatism over ideology. It is debated whether China is part of the Third World, with which it once identified itself on racial, cultural, and developmental grounds, proclaiming that the exploited countries should unite against imperialist forces, both Western and Soviet. After the death of Mao Zedong (Mao Tse-tung) in 1976, however, the Chinese attitude moderated.
The Third World displays little homogeneity; it is divided by race, religion, culture, and geography, as well as frequently opposite interests. It generally sees world politics in terms of a global struggle between rich and poor countries—the industrialized North against the backward South. Some nations, such as those of the Organization of Petroleum Exporting Countries (OPEC), have found ways to assert their economic importance as sources of raw materials indispensable to advanced societies, and others may follow suit. Widely advocated within the Third World is a so-called New Economic Order, which through a combination of aid and trade agreements would transfer wealth from the developed to the developing nations.
II. Rural Development Experiences in the Asia Pacific Region

The issues of agriculture and rural development, and their interaction with industry and urban development, have long received special attention from prominent theoreticians in the economic and broader social-science literature around the world.

In the post-World War II era, particular mention must be made of at least three prominent theoretical schools that have been especially influential, and which differ significantly in regards to the key issues and relationships between agriculture and industry in the process of economic development.

The role of agriculture in industrialization

Bruce Johnston and John Mellor (1965) ascertained that a strong and dynamic agricultural sector would be a key factor in supporting industrial development and in promoting a rapid rate of growth for the entire national economy. According to these authors, agriculture has five key roles to play:

  • to supply cheap foodstuffs and raw materials for the urban/industrial sector;

  • to export farm products to earn foreign exchange which could be used to finance technological and material imports for urban and industrial development;

  • to release labour to provide the work force for the industrial sector;

  • to expand the domestic market for industrial products; and

  • to increase domestic savings to be used to finance industrial expansion.

At about the same time, Simon Kuznets (1965) also confirmed the contribution of agriculture to economic growth through commercial transactions. Products would be provided to be used by other sectors within the country or abroad, such as foodstuffs, industrial raw materials, labour, capital, and markets for the industrialization process.

Although these authors highlighted the important role of agriculture, their theories stress the need for structural change, reducing the share of agriculture in gross domestic product (GDP) and in the national work force, and increasing the manufacturing and urban-service sectors. The role of development policy was to facilitate the biggest possible extraction out of agricultural and rural resources to promote industrialization and urbanization. In terms of the process of development within the agricultural and rural sector in the industrialization process, these theories provided little or no insights as to how this should be accomplished. Similarly, the publication La Grande Encyclopédie Française (1986) asserts that: "The industrial revolution is accompanied by a general urbanization and the gradual death of rural civilization."

According to Professor Hainsworth’s writings (1992), the Western orthodox economic theories, based on the development experience of Britain, other European countries, and North America during rapid industrialization and urbanization (from approximately 1776 to 1973), typically and too simplistically assigned to agriculture the role of "Cinderella" or servant to the pampered "ugly sister" demands of urban and industrial expansion.

"Big leap" into industrialization and urbanization

The most well-known representative for this school of thought is W.W. Rostow (1960). In his book, The Stages of Economic Growth, he asserted that Western countries, and in particular the United States, have attained such a high level of development that their experience should become the model for others to follow. All countries and peoples in the world thus should, in effect, construct schemes to make their economies as identical as possible to the United States. According to Rostow, the development of an agricultural society in an industrial, and then a "post-industrial" society, should be conducted simultaneously according to four approaches: economic, spatial, sociopolitical, and cultural - industrialization, urbanization, internationalization, and Westernization. Obviously, in Rostow’s theory, there was no clear perception regarding the complex role and process of agricultural and rural development, and especially how this should apply to developing countries.

Somewhat similar to Rostow’s ideology, but more restrained, were the recommendations of several Western experts writing in A Future for European Agriculture (Bergman et al. 1970). They also tend to minimize the role of agriculture in the national economy. In their opinion, agriculture in Europe is "essentially directed toward food-production." Therefore, the only way to maintain economic growth is to reduce substantially the work force in agriculture. This is a frequently encountered viewpoint among a wide range of authors.

As a matter of course, the proportionate reduction of the work force in agriculture, and the increase of the work force employed in industry and services, is an inevitable trend in countries undertaking industrialization. However, the continuing "five key roles" of agriculture should not be forgotten,. Nor should it be assumed that one can bypass stages in order to make a leap or accomplish a "big push" from being a predominantly agricultural country to becoming an industrial economy. It should also not be forgotten that, in the European countries, as well as in North America, the process of industrialization occurred over centuries. England started its industrialization in the late eighteenth century, followed by France and the US in the 1840s or 1850s, and Germany, Italy, (and Japan in Asia) in the 1860s.

There is another aspect of this early industrialization experience that is not often mentioned. Based on their industrial techniques, the advanced industrial countries pursued a flagrant policy of colonialism, or a more subtle policy of economic domination (neocolonialism). This was designed to induce the less developed, colonial and other dependent countries not only to supply foodstuffs, cheap raw materials, and labor at minimum cost, but also to serve as outlets for their surplus manufactured commodities during the process of industrial development.

It has only been since World War II, and especially since the 1960s, that some countries have been able to take advantage of their position as latecomers (particularly by virtue of the modern scientific-technological revolution, and their favourable geo-economic and geo-political conditions). Therefore, some countries and territories in East Asia, Latin America, and the Middle East have been able to achieve the status of "newly industrializing countries" (NICs) within intervals as short as 30-40 years.

Due to a lack of proper attention to rural and agricultural development during the industrialization and urbanization process, the socioeconomic panorama and performance of these countries has not been so rosy. In particular, there have been several negative repercussions caused from bypassing industrialization policy in many underdeveloped or developing countries in Africa, Asia, and Latin America. In many of these countries, policymakers thought that by making an "outright leap" to industrial development (based on Western capital, technology, expertise, and management methods), they could quickly escape poverty and backwardness, and attain the status of a modern, prosperous, industrial civilization.

The outcome of such development policies has often been just the opposite of what was intended. The appropriate balance in agricultural/industrial, and rural/urban, development have been abruptly distorted and disrupted. Endemic shortages of foodstuffs have often occurred, and industry has been deprived of the necessary endogenous factors for development. In the meantime, streams of people have surged into towns and cities, crowding into slums, leaving behind a destitute, miserable countryside. Poverty does not decline in such a disruptive "transition," but only increases and becomes more hopeless, creating an array of virtually insoluble social contradictions, miseries, and conflicts.

Harmonious links in the development process

Particular mention must be made in this section to E.F. Schumacher (1917-77), a British economist and a leading representative of this ecological, balanced-growth, and people-centred approach. In his major work Small is Beautiful (1973), he expressed the belief that, for genuine economic development to be achieved, "the central concept of wisdom is permanence" (p. 30). According to Schumacher, "an entirely new system of thought is needed, a system based on attention to people, and not primarily attention to goods" (p. 70). In order to realize this new approach, adequate attention must be paid to agricultural and rural development, specifically in the developing countries where the majority of people still live in rural areas, and where the largest share of the social work force is in agricultural occupations.

Without negating the reasonable elements put forth by Johnston and Mellor (1969) and Kuznets (1965) on the role of agriculture as providing the foundation for urban/industrial development, Schumacher outlines a more profound viewpoint, in which agriculture fulfilled three additional fundamental tasks: (i) to keep man in touch with living nature; (ii) to humanize and ennoble man’s wider habitat; and (iii) to bring forth the foodstuffs and other materials which are needed "for a becoming life" (ibid., p. 105). It would be a mistake, however, to conclude that Schumacher was opposed to industrialization. In fact, he only disagreed with an industrialization policy being achieved by relentlessly "squeezing" agriculturalists and the rural resource base. On the contrary, he advocated a program of balanced development between industry and agriculture, and saw the potential for industrial achievements to make rural people’s lives less arduous and their livelihoods more productive, secure, and sustainable.

Historical realities have shown that, with the exception of a few territories and city-states such as Hong Kong and Singapore, all the existing "dragons," such as South Korea and Taiwan - and the would-be Asian dragons like Malaysia, Thailand, Indonesia, and more recently China - have paid special attention to agricultural and rural development. This is not only viewed as building an essential foundation for industrialization and urbanization, but also as a key sector of concern in a long-term strategy for maintaining sustainable economic development for their countries.

Of course, not all countries can hope to achieve an easy and harmonious equilibrium in development between agriculture/rurality and industry/urbanity from the outset, or during the course of "struggling to become dragons". Each nation must solve its own particular problems and build its development on its own distinctive ecological, social, cultural, and political arrangements.

Most countries of Asia-Pacific region are predominantly rural and agrarian, characterized by unequal distribution of productive resources, high incidence of poverty, widespread unemployment and under-employment, household and regional income inequality. Hence, rural development encompassing growth and development of agriculture and nonagricultural sector continues to be the priority agenda of the national development strategies in these countries. In Asian countries, the concept of rural development encompasses economic and social development, and aims at widening the opportunities for gainful employment to the poorer section of the society. This is rightly so, because food security, lack of employment and income-generating opportunities are among the most important causes of poverty in the region.
The concept of rural development (RD) went through a long process of evolution since 1950s, in tandem with the significant changes of development strategies nationally and internationally. Table 1 shows the trend of major development paradigms and poverty reduction-strategies since 1950s. It is seen that in 1970s integrated rural development, popularly known as IRD, was launched to address the failure of a single sectoral approach of 1960s. The main thrust of IRD approach was to develop an effective delivery mechanism through integration of different rural development related sectors. Several Asian countries initiated rural development programs of various kinds and adopted various approaches in planning and implementation. South Asian countries like Bangladesh, India, Nepal and Pakistan initiated RD-related programs and activities in the name of IRD, while South-East Asian nations labelled it under different names such as Integrated Agriculture Development Programme (IADP) in Malaysia,
Development (IAD) in the Philippines and IAD in Thailand. IRD in Vietnam had the main thrust on agricultural production. In Indonesia RD programmes aimed at integration with national development goals along with improvement in the living standard and the quality of life of the rural population. During the initial period, most countries opted for a strategy of self-reliant growth by mobilizing resources for basic physical and social infrastructure, through planned development approach. In their endeavors for self-reliance and for elimination of poverty, the Asian countries accorded high priority to agriculture development through seed-fertilizer-irrigation technology. At that time the active role of the national governments was to develop physical and institutional infrastructure, and to evolve and promote land augmenting or yield increasing technologies. These contributed to strengthening the supply-side factors in rural areas, especially those largely beyond the scope of the individual farmers and the private sector.
By the early 1970s, it was realized that increase in production was accompanied by growing income inequalities. The production gains were in the ‘favourable areas’ and to ‘progressive farmers’. The emphasis on output expansion accompanied by effective measures for reducing income inequity emerged as a major policy issue. The ‘package approach’ clearly did not result in a broad-based rural development nor did attack the growing problem of rural poverty. Hence, new approaches like ‘target groups’, ‘basic minimum needs’, etc. came into prominence later. On the whole, the IRD concept could not gain the expected momentum, mainly due to the poor performance by the national governments and IRD institutions. In the contemporary administrative set-up with traditional values and norms and compartmentalized sectoral working modalities, there is no wonder that the IRD model, with multi-disciplinary approach and multi-sectoral operation, could not be successful to improve the quality of life in the rural areas.
During 1980s, ‘self-reliance’ and ‘participatory endogenous development’ dominated RD efforts, and during the 1990s, poverty reduction and broad based economic growth with higher budgetary support for basic services and social sectors have been emphasized, in which human capital formation, improvement of quality of life through income and employment and market-based approaches have dominated the policy. In most countries, labour intensive growth and improved social services were considered to offer a powerful and viable route to poverty reduction.
The table also illustrates a constant shift of poverty alleviation strategies from supply side to demand-driven interventions and the innovations attempted to create wealth, social capital and markets for those at the bottom of the pyramid. Such strategies have acquired a new sense of urgency to derive policy and programme support from the beneficiaries. For example co-operative development in 60s and IRD programmes in 70s focused mainly on the supply side while the poverty alleviation approach in 80s, social mobilization and micro credit in 90s and the Millennium Development Goals (MDGs) since 2000 have emphasized the activation and institutionalization of the demand side to make sustainable impact on the people themselves. This transition makes CIRDAP Member Countries (CMCs) to review their own policies and institutional infrastructure at national as well as regional levels to suit the changing circumstances.
III. Growth and Development
Economists distinguish between growth, by which they basically mean more of the same - more goods and services - and development, by which they mean growth with structural and technological change. Typically, in the early stages of development economies have most of their production and labor force in agriculture. Later, the manufacturing and service sectors become larger. The service sector includes government, defense, construction, transport, finance, insurance, banking, and the like, as well as the work of people who do not produce physical objects such as cars or radios. Thus, accountants, lawyers, teachers, and hairdressers are considered part of the service sector.
An important feature of development is when goods and services enter into markets. For example, we know that people have always eaten, but as they have meals away from home and pay for restaurant services, a restaurant sector grows up. This sector, in turn, is measured as part of the gross domestic product (GDP, the total of all goods and services produced within a country). The process of development includes this kind of specialization, also known as the “division of labor.” As people take on specialized economic functions, the scale of production increases and the output of each person rises. This type of organizational change is as important a part of development and technological progress as mechanical invention or scientific discovery.
Another key feature of development is poverty. Entire 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, economists became acutely aware 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 poverty. Likewise, economic historians, who had long examined how the industrialized countries achieved their material advances, appreciated that these countries too were once “underdeveloped.” As a result, much of economic history became the study of economic development.

Accumulation and Industrialization

Theories of growth and development abound. The most basic ones stress the accumulation of the principal factors of production, which are labor, capital, and land. Capital is accumulated by savings. The theory of capital accumulation rests on the idea that the more capital there is, the more will be invested to increase productivity. For example, someone with little capital to invest will dig with bare hands, someone with more capital will buy a spade and dig more, while someone with still more capital will invest in a mechanical digger and dig the most of all. 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 (facilities for economic activity such as roads and power stations), but what is invested in people. For example, the education and health of a population has a lot to do with the productivity of their labor.

Theories of accumulation were closely allied to those of industrialization. For many development economists, particularly those in the developing world, industrialization was almost synonymous with economic development. In the 1960s and 1970s as developing countries were achieving independence from colonialism, the industrial countries appeared to have all the advantages in the world economy. It was they who had colonized the developing world, and they appeared to have kept the developing world in an inferior position by pressuring them to produce the raw materials the industrial world wanted, thus hindering their attempts to become manufacturing economies. The development debate divided between 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.

Historical Development Theories

A. Modernization Theory

Modernization Theory is a theory of development which states that the development can be achieved through following the processes of development that were used by the currently developed countries. Scholars such as Walt Rostow and A.F.K. Organski developed stages of development through which every country develops. Samuel Huntington determined development to be a linear process which every country must go through. Modernization Theory, in contrast to Classical Liberalism, viewed the state as a central actor in modernizing "backward" or "underdeveloped" societies. Talcott Parsons' functional sociology defined the qualities that distinguished "modern" and "traditional" societies.

Education was viewed as key to creating modern individuals. Technology played a key role in this development theory because it was believed that as technology was developed and introduced to lesser developed countries it would spur growth. One key factor in Modernization Theory is the belief that development requires the assistance of developed countries to aid developing countries to learn from their development. In addition, it was believed that the lesser developed countries would develop and grow faster than developed countries. Thus, this theory is built upon the theory that it is possible for equal development to be reached between the developed and lesser developed countries.

B. World Systems Theory

In response to some of the criticisms of Dependency Theory came World Systems Theory, which the division of periphery and center was further divided into a trimodal system consisting of the core, semi-periphery and periphery. In this system, the semi-periphery lies between the core and periphery and is exploited by the core and exploits the periphery. This division aims to explain the industrialization within lesser developed countries. World Systems Theory was initiated by Immanuel Wallerstein in, among other writings, World Systems Analysis, Durham NC: Duke University Press, 2004, and focuses on inequality as a separate entity from growth in development and examines change in the global capitalist system.

One distinguishing feature of this theory is a distrust for the state and a view in which the state is seen as a group of elites and that industrialization cannot be equated with development. Out of this theory stem anti-systemic movements which attempt to reverse the terms of the system's inequality through social democratic and labor movements.

C. State Theory

In response to the distrust of the state in World Systems Theory, is State Theory. State Theory is based upon the view that the economy is intertwined with politics and therefore the take-off period in development is unique to each country. State Theory emphasized the effects of class relations and the strength and autonomy of the state on historical outcomes. Thus, development involves interactions between the state and social relations because class relations and the nature of the state impact the ability of the state to function. Development is dependent upon state stability and influence externally as well as internally. State Theorists believe that a developmentalist state is required for development by taking control of the development process within one state.

c.1 Free Market Economy
Laissez-Faire (French, “let things alone”), in economics, policy of domestic non-intervention by government in individual or industrial monetary affairs. The doctrine favors capitalist self-interest, competition, and natural consumer preferences as forces leading to optimal prosperity and freedom. It arose in the late 18th century as a strong liberal reaction to trade taxation and nationalist governmental control known as mercantilism.
In Western Europe during the 18th century it was believed that the natural economic order, untouched by regulations or adjustments, was best designed to produce maximum well-being for all. Pioneer economists in France, known as the physiocrats, first developed the theory of laissez-faire, which stressed noninterference with commercial ventures. The most important and influential proponent of laissez-faire capitalism, however, was the 18th-century British economist Adam Smith, who believed that individual welfare was more important than national power. In his book The Wealth of Nations (1776), he advocated a policy of free trade so that the “invisible hand” of competition could act as an economic regulator. Smith's advocacy of private enterprise as the best stimulus to equitable distribution of wealth gained increasing support in the early 19th century, partly because of the wave of libertarian revolution sweeping Europe and the U.S. His theories were further developed by the British economists David Ricardo and John Stuart Mill.
The principles of laissez-faire and free trade appealed strongly to the growing class of capitalists of the Industrial Revolution. These business owners and merchants wished to be free of government regulation and taxation in order to pursue their own interests. Inevitably, with the tremendous growth of industry, laissez-faire policies led to abuses, especially in the use of child labor. Gradually, more and more businesses combined to control production and prices for the benefit of their owners. Thus, competition - a basic tenet of the laissez-faire system - was eliminated. This trend toward monopolies, in turn, led to calls for reform. Throughout the Western world government controls were reasserted.
c.2 Liberalism and Mercantilism
Advocates of liberal policies in international economics support free economic markets and trade and oppose active legislative or regulatory intervention of governments. A commitment to free trade is the foundation of comparative advantage, an idea developed by British economists Adam Smith and David Ricardo in the late 18th and early 19th centuries.
According to the idea of comparative advantage, a country can produce and export certain goods and services more efficiently than another country because it has a greater abundance of natural resources and labor skills needed to produce these goods and services. Nations should specialize in producing goods and services in which they have a comparative advantage, using the revenues gained to import other needed goods and services. Liberals argue that such practices maximize the creation of global wealth, increasing the fortunes of each individual country, although not necessarily equally.
Mercantilist policies, by contrast, favor greater political control over markets and exchanges. In particular, mercantilists advocate the use of protectionist policies - tariffs, subsidies, and other measures to protect domestic industries against foreign competitors. Mercantilists regard policies involving trade, money, and business as a basis to strengthen the power position of a nation relative to others. In the 16th and 17th centuries, for instance, monarchies controlled national economies in Europe. At that time, government officials viewed a trade surplus (when export revenues exceed import costs) as a way to build a “war chest” of gold and silver that would be available for military needs in the event of war. Mercantilists concern themselves less than liberals with maximizing global wealth. They focus more upon the political and economic strength of their nations in relation to rival countries.
Liberals tolerate temporary protection of domestic industry in selective cases, as when an automotive or steel industry in a country needs time to establish itself before competing in global markets. Policies may also focus on protecting industries considered essential to national security. In the 1980s, for example, the U.S. government developed policies to protect the militarily strategic semiconductor industry from Japanese competitors. Specific industry and labor groups threatened by foreign competition often lobby government officials to protect the markets for their products by raising tariffs or other barriers to trade.
D. Radical Views of Development
Radical views of development generally fall into two camps: Marxist theorists and dependency theorists. Both are critical of free-market capitalism.

d.1 Marxism

The German political economist and philosopher Karl Marx wrote little that touched directly on development, but he was certainly an influence on thinking about it - although 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 prevailed 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, particularly the “extraction of surplus value,” or profits, from the labor of workers and the importance of this surplus value to the accumulation of capital.

d.2 Dependency Theories

There were also less Marxist but still radical views known as “dependency” theories, which were particularly prominent in Latin America. Dependency theorists stressed how markets favored industrialized countries, which received raw materials cheaply from the developing world. In addition, industrialized countries owned the technology that developing countries needed and had the economic power to admit exports from developing countries only when it suited them. Such views gave a strong bias in the developing world to a belief in the virtues of autonomous (self-sufficient) development. According to the dependency theorists, developing countries could only grow behind protective trade barriers that kept out exports from the industrialized world.

Dependency theorists also believed that investment by Western multinational corporations would mainly harm developing countries and so regarded such investment with suspicion. Since free markets alone could 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 dependency thinkers even foreign aid was suspect, seen by some as a “neocolonial” instrument to preserve the dominance of the industrial countries and make the world safe for capitalism.

E. Orthodox Theories
Quite opposed to these ideas were the standard, or orthodox, views of most Western economists. They believed free, unregulated markets played a mainly positive role in development and argued that developing countries’ policies of interfering with free markets were largely self-defeating. In particular, they argued that attempts to hold agricultural prices down and force savings out of farmers (“surplus extraction”) were destructive of agricultural growth.
Orthodox economists pointed to economic history to show that agricultural growth was important for industrialization. Furthermore they argued that governments in the developing countries were often incapable of the tasks they took on. In their view foreign investment helped growth and the transfer of technology, and foreign aid supplied the additional savings and foreign exchange that poor countries could not generate themselves.

International Aspects of Development

This conflict between radical theories and orthodox theories of development often played out as part of the Cold War between the industrialized capitalist countries and the Union of Soviet Socialist Republics (USSR). During the Cold War the chief capitalist countries and the Soviet bloc competed for the allegiance of the developing world, and the rhetoric of exploitative versus benign capitalism played a part in this competition. But many developing countries wanted to separate themselves from this competition.

A movement grew up, much of it organized in an official body known as the Nonaligned Movement, which reached its zenith in the 1970s. There was a demand for a New International Economic Order in which the inequities of the world economy as the developing world saw it would be corrected. When the power of the oil-producing countries within the developing world was at its height, it looked as though the developing countries might have some leverage to get what they wanted. See the Sidebar, “The New Global Economic Order.”
But eventually oil prices collapsed, and related swings in financial markets produced a problem of international indebtedness that both weakened and divided the developing world. At the end of the 1970s a new set of world leaders - United States president Ronald Reagan, British Prime Minister Margaret Thatcher, and German chancellor Helmut Kohl - brought a new conservatism to international debate, and the kinds of international cooperation implied by the New Economic Order went off the map of political possibility.
Theory and Reality
If one looks across the developing world at the beginning of the 21st century, there is a huge range of national experiences. At the more prosperous end of the spectrum are the successful economies of East Asia, such as China and South Korea; Southeast Asia, such as Thailand and Singapore; some oil-rich countries of the Middle East; and some Latin American countries. At the poorer end are the heavily populated countries of South Asia - such as Bangladesh, Pakistan, and to a lesser extent India - and most of Africa south of the Sahara. What has produced these outcomes? It certainly is not just a matter of where the countries began. South Korea, one of the most successful countries today, was regarded as a hopeless case in the 1950s. Argentina in the 1930s had living standards similar to Australia and a quite similar economic structure; yet Australia today is far more prosperous. Many African countries were going backwards in development terms in the 1980s and 1990s and were actually worse off economically than they had been in earlier decades. Population growth in Africa, which is often an indicator of a troubled economy, continued at very high levels, unlike most of the rest of the world where it was declining. Few of the broad theories of development really explain this varied experience, although they have all contributed useful insights.
The success of the East Asia and Southeast Asian economies has been a powerful influence on thinking since the 1970s and 1980s. These countries did not accept the pessimism about exports that most of the developing world did. Despite the protective barriers erected by industrial countries, these countries managed to generate rapid expansion of manufacturing exports by skillfully selecting products and markets. With this came fast economic growth, first for the “four tigers”—Hong Kong, South Korea, Singapore, and Taiwan—now being followed by others such as Indonesia, Malaysia, and Thailand. It became obvious that “dependency” did not prevent their development. So why could not others follow suit?
Far from developing rapidly, economies with large-scale government intervention, trade protection, and inward-looking development were looking very sick by the end of the 1980s. Recession in the world economy exposed their weakness. An unsustainable balance of payments, domestic deficits, rapid inflation, international debt, and low growth or even economic decline reached the point where it was widely acknowledged that things had to change. The fact that socialist economies too were beginning to throw off the rigidities of the command economy (centrally planned economy) and move into varying degrees of reliance on free-market economy was influential.
A worldwide consensus began to arise that greater reliance on market forces was essential for speeding up development where it was lagging, although how far governments should be involved in the development process remained, and remains, controversial. In the 1980s and early 1990s, more and more economies as different as China and India, Brazil and Tanzania, underwent market-oriented reforms. The East Asian and Southeast Asian experience for some was a triumph of the marketplace; but for others it demonstrated the power of combining market forces with skillful government intervention—more skillful perhaps than could be easily copied by others.
In the mid-1990s it appeared that much of Asia and Latin America was set on a more effective development path than before. But the failure of development in much of sub-Saharan Africa gave economists cause for concern. Much has been learned about how development happens; but without effective government and good policies, and without people in good health and equipped with education and skills, this knowledge is hard to put into practice. The main lesson for development economics may be that it has given insufficient attention to the human factor and to political development.
Alin Rus, ‘Rural Development versus Traditionalism and Synergy versus Poverty in Rural Romania’, East European Countryside, 10, 2004
Caroline Ashley and Simon Maxwell, ‘Rethinking Rural Development’, Development Policy Review 2001, 19 (4) 395-425
Davis, J.R. (2004) The Rural Non-Farm Economy, Livelihoods and their Diversification: Issues and Options. Chatham: Natural Resources Institute. ISBN: 0 85954 563-6
Inna Kopoteva, ‘Migration as a factor of instability of rural society’, East European Countryside, Vol.10, 2004, 81-96
Ivan Penov, Insa Theesfeld and Franz Gatzweiler, ‘Irrigation and Water Regulation Systems in Transition: The Case of Bulgaria in comparison with Latvia, East Germany and Romania’, from F. Gatzweiler and K. Hagedorn (eds.) Institutional Change in Central and Eastern Europe: Agriculture and Environment, FAO, Rome, 2003
Zvi Lerman, Csaba Csaki and Gershon Feder, Agriculture in Transition, Land Policies and Evolving Farm Structures in Post-Soviet Countries, Lexington Books, Lanham, 2004,
Retrieved from "http://en.wikipedia.org/wiki/Development_theory"

  • Barlett, Andrew (2007). Plans or People: What are our Priorities for Rural Development?. Rural Development News. (No.1) Agridea.

  • Bhaduri, Amit (2005). Development With Dignity. National Book Trust. ISBN 8123745966

  • Escobar, A. (1995) Encountering development: the making and unmaking of the third world, Princeton. ISBN 0691034095

  • Parfitt, T. (2002). The end of development? Modernity, Post-Modernity and Development. Pluto press. ISBN 0745316379

  • Schuurman, F.J. (1993) Beyond the impasse: new directions in development theory. Zed Books. ISBN 1856492109

Tutor Marked Assignments for Lesson 2 (Module Two)

Exrcise 1

  1. How did the characterization of First, Second, and Third World Descriptions of countries came about? Do you agree with them, and why?

  1. Using your country as an example, what development theory does it used in attaining its economic status?

Activity 1

  1. What differentiate “Development” from “Economic Growth?”; “Classical Development” and “Revolutionary Development?”

  1. Write an essay on the role of agricultural development in the industrialization / economic development of third world countries..

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