Chapter 2

HISTORICAL PERSPECTIVE OF ECONOMIC DEVELOPMENT

JOSEPH A. SCHUMPETER in his book, The Theory of Economic Development,

proclaims in this classical analysis of capitalist society first published in 1911 that
economics is a natural self-regulating mechanism when undisturbed by “social and
other meddlers.” Despite weaknesses, he argues, theories are based on logic and
provide structure for understanding fact. He proceeds to demonstrate that there
are underlying principles in the phenomena of money, credit, and entrepreneurial
profit that complement his earlier theories of interest and the business cycle.
An early champion of entrepreneurial profit, Schumpeter argues that in a
developing economy where an innovation prompts a new business to replace the
old (a process Schumpeter later called “Creative Destruction”), booms and
recessions are, in fact, inevitable and cannot be removed or corrected without
thwarting the creation of new wealth through innovation.
https://www.hup.harvard.edu/catalog.php?isbn=9780674879904
ECONOMIC DEVELOPMENT originated in the post-war period of reconstruction
initiated by the United States. In 1949, during his inaugural speech, President
Harry Truman identified the development of undeveloped areas as a priority for the
west:
“More than half the people of the world are living in conditions approaching misery.
Their food is inadequate, they are victims of disease. Their economic life is primitive
and stagnant. Their poverty is a handicap and a threat both to them and to more
prosperous areas. For the first time in history humanity possesses the knowledge
and the skill to relieve the suffering from these people ... I believe that we should
make available to peace-loving peoples the benefits of our store of technical
knowledge in order to help them the realize their aspirations for a better life… What
we envisage is a program of development based on the concepts of democratic fair
dealing ... Greater production is the key to prosperity and peace. And the key to
greater production is a wider and more vigorous application of modem scientific
and technical knowledge."
There have been several major phases of development theory since 1945.
ALEXANDER GERSCHENKRON argued that the less developed the country is at
the outset of economic development (relative to others), the more likely certain
conditions are to occur. Hence, all countries do not progress similarly. From the
1940s to the 1960s the state played a large role in promoting industrialization in
developing countries, following the idea of modernization theory. This period was
followed by a brief period of basic needs development focusing on human capital
development and redistribution in the 1970s. Neoliberalism emerged in the 1980s
pushing an agenda of free trade and removal of import substitution
industrialization policies.
In economics, the study of economic development was borne out of an extension to
traditional economics that focused entirely on national product, or the aggregate
output of goods and services. Economic development was concerned with the
expansion of people's entitlements and their corresponding capabilities, morbidity,
nourishment, literacy, education, and other socio-economic indicators. Borne out
of the backdrop of KEYNESIAN ECONOMICS (advocating government
intervention), and neoclassical economics (stressing reduced intervention), with the
rise of high-growth countries (Singapore, South Korea, Hong Kong) and planned
governments (Argentina, Chile, Sudan, Uganda), economic development and more
generally development economics emerged amidst these mid-20th century
theoretical interpretations of how economies prosper. Also, economist ALBERT O.
HIRSCHMAN, a major contributor to development economics, asserted that
economic development grew to concentrate on the poor regions of the world,
primarily in Africa, Asia and Latin America yet on the outpouring of fundamental
ideas and models.

It has also been argued, notably by Asian and European proponents of

infrastructure-based development, that systematic, long-term government
investments in transportation, housing, education, and healthcare are necessary to
ensure sustainable economic growth in emerging countries.
DURING ROBERT MCNAMARA'S 13 YEARS AT THE WORLD BANK, he
introduced key changes, most notably, shifting the Bank's economic development
policies toward targeted poverty reduction. Prior to his tenure at the World Bank,
poverty did not receive substantial attention as part of international and national
economic development; the focus of development had been on industrialization and
infrastructure. Poverty also came to be redefined as a condition faced by people
rather than countries. According to Martha Finnemore, the World Bank under
McNamara's tenure "sold" states poverty reduction "through a mixture of
persuasion and coercion."
ECONOMIC DEVELOPMENT GOALS. The development of a country has been
associated with different concepts but generally encompasses economic growth
through higher productivity, political systems that represent as accurately as
possible the preferences of its citizens, the extension of rights to all social groups
and the opportunities to get them, and the proper functionality of institutions and
organizations that are able to attend more technically and logistically complex
tasks (i.e. raise taxes and deliver public services). These processes describe the
State's capabilities to manage its economy, polity, society and public
administration. Generally, economic development policies attempt to solve issues in
these topics.
With this in mind, economic development is typically associated with improvements
in a variety of areas or indicators (such as literacy rates, life expectancy, and
poverty rates), that may be causes of economic development rather than
consequences of specific economic development programs. For example, health and
education improvements have been closely related to economic growth, but the
causality with economic development may not be obvious. In any case, it is
important to not expect that particular economic development programs be able to
fix many problems at once as that would be establishing unsurmountable goals for
them that are highly unlikely they can achieve. Any development policy should set
limited goals and a gradual approach to avoid falling victim to something
PRITTCHET, WOOLCOCK AND ANDREWS call ‘premature load bearing’.
Many times the economic development goals of specific countries cannot be
reached because they lack the State's capabilities to do so. For example, if a nation
has little capacity to carry out basic functions like security and policing or core
service delivery it is unlikely that a program that wants to foster a free-trade zone
(special economic zones) or distribute vaccinations to vulnerable populations can
accomplish their goals. This has been something overlooked by multiple
international organizations, aid programs and even participating governments who
attempt to carry out ‘best practices’ from other places in a carbon-copy manner
with little success. This isomorphic mimicry –adopting organizational forms that
have been successful elsewhere but that only hide institutional dysfunction without
solving it on the home country –can contribute to getting countries stuck in
‘capability traps’ where the country does not advance in its development goals. An
example of this can be seen through some of the criticisms of foreign aid and its
success rate at helping countries develop.

Beyond the incentive compatibility problems that can happen to foreign aid
donations –that foreign aid granting countries continue to give it to countries with
little results of economic growth but with corrupt leaders that are aligned with the
granting countries’ geopolitical interests and agenda –there are problems of fiscal
fragility associated to receiving an important amount of government revenues
through foreign aid. Governments that can raise a significant amount of revenue
from this source are less accountable to their citizens (they are more autonomous)
as they have less pressure to legitimately use those resources. Just as it has been
documented for countries with an abundant supply of natural resources such as
oil, countries whose government budget consists largely of foreign aid donations
and not regular taxes are less likely to have incentives to develop effective public
institutions. This in turn can undermine the country's efforts to develop.
https://en.wikipedia.org/wiki/Economic_development#Economic_development_goals

SUSTAINABLE DEVELOPMENT GOALS

Goal 1. End poverty in all its forms everywhere
Goal 2. End hunger, achieve food security and improved nutrition and promote
sustainable agriculture
Goal 3. Ensure healthy lives and promote well-being for all at all ages
Goal 4. Ensure inclusive and equitable quality education and promote lifelong
learning opportunities for all
Goal 5. Achieve gender equality and empower all women and girls
Goal 6. Ensure availability and sustainable management of water and sanitation
for all
Goal 7. Ensure access to affordable, reliable, sustainable and modern energy for all
Goal 8. Promote sustained, inclusive and sustainable economic growth, full and
productive employment and decent work for all
Goal 9. Build resilient infrastructure, promote inclusive and sustainable
industrialization and foster innovation
Goal 10. Reduce inequality within and among countries
Goal 11. Make cities and human settlements inclusive, safe, resilient and
sustainable
Goal 12. Ensure sustainable consumption and production patterns
Goal 13. Take urgent action to combat climate change and its impacts*
Goal 14. Conserve and sustainably use the oceans, seas and marine resources for
sustainable development
Goal 15. Protect, restore and promote sustainable use of terrestrial ecosystems,
sustainably manage forests, combat desertification, and halt and reverse land
degradation and halt biodiversity loss
Goal 16. Promote peaceful and inclusive societies for sustainable development,
provide access to justice for all and build effective, accountable and inclusive
institutions at all levels
Goal 17. Strengthen the means of implementation and revitalize the global
partnership for sustainable development
* Acknowledging that the United Nations Framework Convention on Climate
Change is the primary international, intergovernmental forum for negotiating the
global response to climate change.
https://sdgs.un.org/2030agenda
https://www.undp.org/sustainable-development-goals