copied and edited by: Jasmine M. Fakhry
Economics is often defined as the study of ‘how societies can best allocate scarce resources among alternative uses’ so as to maximize something – usually the level of each individual’s (or household’s) satisfaction or utility – the presumption being (though it is usually an unexamined proposition), that maximizing individual satisfaction also will maximize society’s total well-being simultaneously. The process of a country becoming more developed, of getting on the path to development and away from the path that has reinforced a lower level of growth and progress, however, is not simply about the efficient allocation of existing resources within a given institutional regime. It is not simply about maximizing utility or profits within the constraints of what is currently given to that society from the past. Rather, development is fundamentally about regime change and about the search for an optional growth path, or at least one that is superior to the existing allocation of resources and current efficiency levels, accompanied by the changing institutional patterns and organizational structures necessary to support such a dynamic process of change. To get a country on the road to development very often does require a ‘leap’ – often a quite substantial one – away from the past structures. Marginal modifications of the economy and society simply may be insufficient to propel the economy and society forward in the needed new direction and on to a higher path in the future. For the less-developed nations, development compels them to undertake substantial qualitative structural change; the future cannot be, for the poor nations, just an extension of the past. The past, and the path-dependent mature of its weight on the present, is precisely what has made these nations poor and is what needs to be transcended.
There are a number of major structural changes and patterns identified by development economists and economic historians that are believed to be characteristic of successful development processes which can be briefly introduced as follows:
1- Industrialization
Economic growth and development is strongly associated with an increasing share of a nation’s output and labour force becoming involved in industrial, especially manufacturing, activities. Wages tend to rise in the industrial sector as the level and use of technology expands with increased production, and the fruits of higher productivity can be shared by workers and owners as higher income. Production methods are, or become, relatively intensive in the use of knowledge – human capital – and physical capital. As part of this unfolding process, the urban population tends to grow both relatively and absolutely, compared to the rural, agricultural population.
2- Changing trade patterns
Successful development is almost always marked by a maturation in the structure of trade, as a limited range of primary exports – agriculture products, unprocessed mining and other extractive minerals, and forestry products – is replaced by both a greater diversity of exports and by and export mix that evolves from traditional, primary products toward simpler manufactured and non-traditional primary exports, and ultimately toward more complex commodity exports, from motor cars to computers to biotechnology products to information technology. As a result of this evolutionary transformation. Manufacturing exports typically come to dominate the export profile of more developed nations.
3- Increased application of human capital and knowledge to production
Economic growth and development require increases in the productivity of labour to be applied to production in all sectors, so that incomes and the standard of living of the population can be raised. This is achieved partly, but quite importantly, through improvements in the training and education of the existing and potential labour force through increases in what economists call human capital accumulation, via both the formal schooling process and as a result of ‘learning-by-doing’ at the work place. Increased productivity is also the consequences of an expansion of the use of more physical capital, and increased rates of physical capital accumulation, capital which typically embodies more advanced technology and knowledge that can help to make a properly trained labour force even more efficient.
Human capital accumulation, physical capital accumulation, and technology all increase the productivity of the labour force. At the same time, they contribute to the possibility of higher wages for labour and an easier, because less labour-intensive, work-place environment, both of which contribute to the potential well-being of the labour force. We shall stress again and again the essential complementarity of human and physical capital accumulation and the urgency for the less-developed nations to not only tap into the existing pool of technology available on the world level but also of developing over time an autonomous technological capacity.
4- Institutional change
Economic growth and development require institutional change. New organizations such as banks, stock and bond exchanges, and insurance companies gain new importance. The role of the central government – what is often termed the state – must change so as to facilitate and not thwart private initiatives. The social infrastructure of roads, ports, communications, the provision of electricity, water, and other power must be improved, and the state plays a central role in these areas, particularly during early stages of structural transformation. Further, enforcing the rule of law and the definition and defence of property rights are fundamental tasks of the state, which itself typically must be greatly modified and streamlined, if economic growth and development are to be advanced effectively.
But institutional change runs deeper, to basic values and motivations; business increasingly must be operated with more attention to efficiency and profitability in a more competitive and open atmosphere. Old ways of thinking and doing are threatened by an often unsettling attention to profit maximization by the ‘new’ entrepreneurs in industry and agriculture. Even the family often is redefined, as the extended family of the past is replaced by the nuclear family of more modern society. Economic growth and development, however, definitely require a break with the past, and some of the most cherished institutions of many societies today, such as their close family structures and interpersonal relations, their religious traditions, and the pace of life will be altered over time, becoming more and more like those institutions in other societies on the path to development.
These are not the only structural changes that most less-developed nations must foment if they wish to make progress toward development. There are others, such as changes in macroeconomic policy to control inflation, for example, and the role of the state in a broader context that attend the process of becoming developed.
copied and edited by: Jasmine M. Fakhry
Media Team
YES Country Network Egypt
Sustainable Development Association
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