The growth of an idea called development

Despite claims that economic development as a branch of economic science emerged only in the 1950s, there is no doubt that the notion of development existed even in classical economic thought processes, emerging from the writings of Adam Smith and David Ricardo. The recognition of development economics as a discipline over the past 50 years earmarked changes in our understanding of development. The wealth of experiments revealed that there are clearly no sure-fire formulas for success.

Yet, the primary focus of economic research remained confined to developed nations till the 1930s. It was Colin Clark’s quantitative study in 1939 that made economists realise that most of humankind lived outside of the advanced capitalist economic system.

Yet, the early concern was still post-war European reconstruction and the industrialisation of its eastern fringes. Decolonisation and the post-war formation of the United Nations and its attendant agencies such as the World Bank, the IMF, the ILO, and various regional commissions, provided an impetus to the shift in focus. Asia, Africa and Latin America drew some attention.

It was thought that underdevelopment in some of the economies would be converted to development over time. There was a parallel movement of the Marxist thinking of development that influenced a few nations. Central European economists such aslike Michael Kalecki, Kurt Mandelbaum, Joseph Steindl and Paul Rosenstein-Rodan were more familiar with Marx than with Keynes.

The success of the Soviet five-year plans played a significant role in their approaches. Newly formed economies like India also followed the planning processes, and their growth models were based on the Soviet experience.

It was generally accepted that the state must play a central role in economic transformation because the private sector was either dominated by landed and commercial oligarchies with vested interest in the status quo or was simply too weak and disorganised.

On the other hand, neoclassical development theorists started emphasising the important role that international trade played as a substitute for low domestic aggregate demand. Many economies have revealed considerable faith in this framework and have relied extensively on export-oriented growth. This has been the main characteristic of Southeast Asian economies and present-day China. Interestingly, export facilitation in many of the Southeast Asian economies resulted in pegged exchange rate regimes and free international mobility of capital. Although phenomenal economic growth has been achieved, yet there have often been problems of capital flight caused by the lowering of interest rates as currencies were devalued to promote exports.

TW Schultz was the first to recognise the need for human capital formation as an important appendage to physical capital formation. This led to an emphasis on education and training as pre-requisites of growth and the identification of the problem of brain drain from the Third World to the First.

The social positions of development became even more prominent with the adoption of Human Development Index (HDI) as a somewhat rough measure of development in the 1990s.

Amartya Sen termed HDI a “vulgar measure”. Over time, when environmental concerns entered into development, a more holistic definition of development emerged in the form of sustainable development. The concept came into general use following the publication of the 1987 report of the Brundtland Commission.

However, there is a misconception that sustainable development is all about environment and ecology. The 2005 World Summit Outcome Document refers to the “… interdependent and mutually reinforcing pillars” of sustainable development as economic development, social development, and environmental protection.

The Economic Commission for Africa defined the following indicators of development: food, health, ICT and transport, knowledge, macro-framework, infrastructure, institutions, sustainable environment, culture, diversification, growth, gender, employment and income, and household amenities.

Growth can only be a necessary but not sufficient condition for promoting development. Can India pioneer the creation of a new index of development?

The writer is chief economist at Multi Commodity Exchange of India Ltd

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