Ronald A Shearer stated, “The literature of social sciences is a testimony to the errors: unnecessary confusions and prolonged debates which can result from an ambiguity on the level of basic conceptualization”
Long story short
The concept of economic growth
It may be defined as a rate of expansion that can move an underdeveloped country from a near-subsistence mode of living to substantially higher levels. In the case of developed economies, it is the continuation of existing growth rates.
Economic growth can be described in terms of greater commercialisation of economic activities.
- Rise in GDP - GDP: total of products produced and services rendered in a financial year inside the territory
- Rise is per capita product - instead of quantity produced the structural changes in the economy are crucial for economic growth.
- Charles Bettelheim stated, “the aim should be not quantitative change(large production) only, but qualitative change too(i.e., higher productivity of labour). Only on the basis of such qualitative change can an economy as a whole rise to higher level.”
The concept of economic development
Mahbub ul Haq stated, “the problem of development must be defined as a selective attack on the worst forms of poverty. Development goals must be defined in terms of progressive reduction and eventual elimination of malnutrition, disease, illiteracy, squalor, unemployment and inequalities.”
Charles P. Kindleberger and Bruce Herrick argued, “Economic development is generally defined to include improvements in material welfare, especially for persons with the lowest incomes, the eradication of mass poverty with its correlates of illiteracy, disease and early death, changes in the composition of inputs and outputs that generally include shift in the underlying structure of production away from agricultural towards industrial activities”
Dudely seers put forward that the status of development of a country depends upon the answers to three basic questions:
- Status of poverty?
- Status of unemployment?
- Status of inequality?
If reduction in all three from a higher level to a lower level means definitely the development has taken place.
Jean Dreze and Amartya Sen state, “The opportunity to live the kind of lives that people value - and have reason to value - depends among other things on the nature and robustness of the environment. In this sense, development has to be environment-inclusive”
Purely economic growth need not necessary to be trickle down to economic development.
Jean Dreze and Amartya Sen stated, “Economic growth is indeed important, not for itself, but for what it allows a country to do with the resources that are generated, expanding both individual incomes and the public revenue that can be used to meet social commitments.”
Dualism - the coexistence of developed and underdeveloped sectors in a country’s economy side-by-side. In such an economy, one sector or subsector experiences perceptible growth, while the rest of the economy does not.
Economic Underdevelopment
Occupational distribution and underdevelopment: It is widely held that the countries in which the primary sector provides employment to a large proportion of the labour force, are underdeveloped.
Low per capita income: It can be an indicator of underdevelopment. An underdeveloped country is one in which per capita real income is low when compared to the USA, Western Europe, etc. But several Arab states have high GNP but still, there are poor and least developed communities.
Poverty: Development is a process involving the elimination of poverty, income inequalities and unemployment. Thus underdevelopment is a situation characterised by the worst kind of deprivation.
Development potential: Jacob Viner defines an underdeveloped country as one “which has good potential prospects for using more capital or more labour or more available natural resources, or all of these, to support its population on a higher level of living, or if its per capita income level is already fairly high, to support a larger population on a not lower level of living.”
The Indian planning commission defines an underdeveloped country as “one which is characterised by the coexistence, in greater or less degree, of unutilised or underutilized manpower on the one hand, and of unexploited natural resources on the other.”
Common characteristics of underdeveloped or developing countries
Low GNP per capita
GNP per capita in underdeveloped countries is low and the difference between developed and underdeveloped is huge in terms of GNP.
Scarcity of capital
The rate of capital formation is relatively low in most of the low-income underdeveloped economies due to widespread poverty. Ragnar Nurkse has argued that most underdeveloped countries have been caught in the vicious circle of poverty and thus their capacity to save is very low. On the demand side, the smaller size of the market acts as a disincentive and the potential savers indulge in wasteful consumption which they might not do if adequate investment opportunities are available.
Rapid population growth and high dependency burden
Fast growing population in third-world countries is both a cause and an effect of underdevelopment. Huge investments have to be made in order to raise the living standard of the growing population which indeed is difficult.
Low levels of productivity
According to Todaro, “low levels of living and low productivity are self-reinforcing social and economic phenomena in Third-world countries, and, as such, are the principal manifestations of and contributors to their underdevelopment.”
Technological backwardness
It may be due to a lack of R&D, but also intentional ignorance of the system to avoid replacing labour with machines in order to check unemployment.
High levels of unemployment and underemployment
“almost 35 per cent of the combined urban and rural labour forces in poor nations is unutilised.” underemployment is due to companies doesn’t want to scale their business due to poverty and less demand in the third-world countries which is in fact due to unemployment.
Lower level of human well-being
three indices are used to measure a person’s well-being: his current and prospective real income, his health and education attainments. all these are low in third-world countries.
Wide income inequalities
World Development Report 2006 asserts that “From an equity perspective, the estimation of opportunities matters more than the distribution of outcomes.” unequal opportunities are large within many underdeveloped countries. Inequalities in health and education in these countries often translate into unequal economic opportunities.
High incidence of poverty
Due to inequality in income distribution, poverty is widespread in underdeveloped countries. The World Bank now uses a poverty line of $1.9 (2011 purchasing power parity) a day a person to compare poverty levels.
Agrarian economy
According to Harvey Leibenstein, “underdeveloped economies are essentially agrarian in their character.” J. K. Galbraith has stated, “a purely agricultural country is likely to be unprogressive even in its agriculture.” More people are depending upon agriculture, but agriculture is not able to produce that much employment so it results in low productivity. Technological backwardness and population pressure on land also made agriculture a non-sustainable and non-productive economic activity.
Lower participation in foreign trade
Due to technological backwardness, underdeveloped countries are not able to produce for large exports and also lack of infrastructures such as transportation, trade organisation and banks with overseas branches prevents the growth of foreign trade. Due to the size of the country, the ratio between output and foreign trade cannot be measured properly, so according to Simon Kuznets, the effect of the size should first be quantified and eliminated. “Once this adjustment is made, it becomes clear that the extent of participation in foreign trade by underdeveloped countries is distinctly lower than that of developed countries.”
Dependence
Due to the colonial past, underdeveloped countries are forced to become primary producers than industries, thus less economical development. Also, most of the population in underdeveloped countries are orthodox and traditional in nature and hardly make an effort to change the outdated socio-economic relations. As compared to the developed countries, human capital is also far less developed in the third world countries. And moreover, underdeveloped countries are soft states, that have poor legal and legislative systems and powerful people regulating all affairs and these in return are obstacles to economic development.