Fashions in ‘development’ discussion

Perceptive observers of economic development discussion in the country will notice that these days, there is much reference to “inclusive” development. This terminology is only of recent origin.

“Fads and fashions in development.” A caricature definition of inclusive development is development that benefits “all.” It is in contrast with other paths of development that only do good for some. Inclusive development also contrasts with “trickle down” development, which is development that does not reach the masses of people.

The Philippine development plan that the government pursues today refers to inclusive development as a strategic objective of the economic program.

In the past, references of government plans called for “social justice,” “growth with equity,” “empowerment,” and many equally and fashionably descriptive terms, including the conquest of poverty.

“Sustainable development” is another phrase that is often employed, sometimes taking different meanings depending on who brings on the message. It could be about the current development effort, about environmental impact, or, “more globally,” about the future of humanity.

Reaching the desired outcome is another thing. The policies that the government employs lead to the economic outcomes. Words and phrases used in discussion and public debates often contain loaded messages. In fact, words can be appropriated by those whose intentions often lead to the opposite of what the word conveys technically.

“Mainstream development ideas.” In the years that I have been engaged in the study and practice of economics, major shifts in the way economists and policy-makers discuss economic and social policy have come and gone.

We might well demonstrate this with regard to the discourse on “economic development” policy and practice. Over the years, economists have made major shifts in thinking about the problems of economic development.

“Economic structure of developing countries.” In the early 1950s, economic development was described as a process in which the large pool of labor dependent on traditional agriculture was absorbed into productive jobs in the modernizing industrial sector.

A more sophisticated version of this economic transformation was done by referring to the historical performance of the early industrializing countries. Development took place as structural regularities were observed along three broad fronts.

First, there was a rise of the industrial sector at the expense of agriculture. Second, urban centers of population grew at the expense of the rural centers. Finally, the rise of factories meant employing large numbers of workers into productive occupations with high productivity.

Multilateral development institutions (such as the World Bank) that were monitoring and promoting economic development further gave analytical validity to this by examining the changing internal characteristics of the developing countries. They described an ever expanding mix of new goods and services that led to a transforming sectoral composition. The economic, industrial and institutional arrangements of these economies underwent a process of growing complexity in their product mix.

“How to achieve transformation.” Achieving rapid and sustained economic development was one thing. As macroeconomic tools of analysis improved, the planning of economic growth involved understanding how new investments (additions to capital) led to quantifiable levels of economic growth. This meant that planners employed tools like capital-output ratios and fiscal and other methods to raise national saving rates and to attract foreign capital.

An element of these efforts emphasized how the preconditions of the development process could be speeded up. From a low starting point for an underdeveloped country, major prior investments in infrastructure and in human resources were emphasized.

Strategic investing was needed because of limited resources. One school of thought was to make for the “big push.” This meant undertaking investments in a coordinated way, both in volume and in terms of major complementarities of the investments.

A variant of this program was to undertake investments in related industries that had strong “forward” and also “backward” linkages to the rest of the economy. Linkages simply meant a focus of industrial promotion where strong sector relationships existed.

High linkages meant emphasis on industries that traded heavily with each other – that is, buying and selling products and raw materials through the input-output structure of the economy. Whether or not this existed in fact or was only projected as an objective of the plan depended on those who proposed the industrial plan. From these strategies also came the distinction between “balanced” and “unbalanced” growth.

Another concept that gained popularity was one that observed the manner in which an economy sustained its own growth path. The acceleration of the growth was described as “economic take-off,” a most apt analogy with airplanes. Once the economy is on the growth path, its acceleration was maintained by internal mechanisms of investments, saving, and the actions of all the economic actors.

A setback of these strategies was their dependence on external support when implemented as an economic program to be pursued in the country. They were aid-dependent, oftentimes, through development project assistance.

“Foreign trade dependent import substitution model.” An aspect of development strategy stressed the need for industrialization in order to reduce dependence on exporting only commodities – mainly agricultural and natural resources products – to the industrial countries.

An industrialization program was justified based on the promotion of new industries that would be protected with tariffs. This strategy flourished during a time in world economic history when exchange rates for the major currencies were fixed.

By the actions called for under the program, the currencies of the developing countries that adopted import substitution development often led to balance of payments deficits as their investment and spending programs tended to outpace their export earnings.

This was one reason why they invariably resorted to exchange and import controls. Many countries adopted this development strategy, especially in Latin America and the Philippines as well.

Controls, tariffs, administrative processes all combined to encourage “rent-seeking” activities. These occurred because most productive efforts required government permits to be undertaken.

Monopolies, oligopolies, and political controls often resulted in incentives for bureaucrats to add their own “demands” as approving authorities to the costs of the processes. Moreover, these also led to enormous artificial scarcities.

“The export-driven and FDI-driven East Asian model.” Two trading entrepot cities whose economies were totally open to trade – Hong Kong and Singapore – developed naturally with the promotion of industries built to sell export goods to other countries. Soon, South Korea and Taiwan – frustrated by the limitations offered by their import substituting experience — developed an alternative model.

These countries relied essentially on the market trends to encourage foreign investors to set up factories taking advantage of their inexpensive labor to export new goods to other countries. .

As experience has shown, the strategy paid off handsomely for the countries. The same strategies would be copied later even by China after it reformed its highly regulated centrally planned economy to open it to international trade. –Gerardo P. Sicat (The Philippine Star)

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