LESSON – 6
UNDERDEVELOPMENT AND GROWTH
Objectives
After going through this chapter, you should be able to
· Understand the meaning and characteristics of underdevelopment
· Know the determinants of underdevelopment
· Understand the concepts of growth and development
STRUCTURE
6.1. Meaning of underdevelopment
6.1.1 Characteristics of underdevelopment
6.1.2 Determinants of Economic Development
6.1.2.1 Economic Factors
6.1.2.2 Non-Economic factors
6.2. Concepts of Growth and Development
Unit Questions
6.1. Meaning of underdevelopment
The Indian Planning Commission defined underdevelopment as one “which is characterized by the co-existence, in greater or less degree, of unutilized and under-utilized man power, on the one hand, and of unexploited natural resources on the other. Eugene Staley defines underdevelopment as follows : “A country characterized by mass poverty which is chronic and not the result of some temporary misfortune, and by obsolete methods of production and social organization, ‘which means that the poverty is not entirely due to the poor natural resources and hence could presumably be lessened by methods already proved in other countries.”
6.1.1 Characteristics of underdevelopment
Harvey Leibenstein has classified the characteristics of underdevelopment under four major heads, namely (1) Economic ;
(2) Demographic ; (3) Cultural and Political; and (4) Technological and Miscellaneous. The underdevelopment chart is given in Figure.
(2) Demographic ; (3) Cultural and Political; and (4) Technological and Miscellaneous. The underdevelopment chart is given in Figure.
1. Preponderance of Agriculture: An underdeveloped country is exclusively a primary producing economy. It will mainly depend on the production of agricultural materials and minerals and the industries will be mainly agro—based. The share of the primary sector is larger in the national income of the underdeveloped country. India
2. Population Pressure and Unemployment: Another feature of underdeveloped countries is that they are invariably over-populated. The size of the population in these countries is increasing at a faster rate than in advanced countries. The economic development in these countries is not capable of keeping pace with the increase in population. In India India
3. Poor Income and Poor Savings: Another important feature of underdevelopment is the low per capita income of the people and the consequent little or no savings in the economy. India India U.S.A. Canada Japan Russia India India
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4. Under-Utilization of Resources: The natural resources of the undeveloped economy are either unutilized or under-utilized. Generally, underdeveloped countries may not be deficient in natural resources like land, water, minerals, etc. The main problem would be that these resources are poorly used. Poor utilization may be due to various reasons like inaccessibility, lack of technical knowledge, shortage of capital and limited markets. India
5. Capital Deficiency: Capital occupies a strategic role in production and economic development of a nation. Underdeveloped countries would suffer from capital deficiency. Not only the stock of capital will be small, but also the rate at which it is being formed will be low. In the case of India
6. Low Level of Technology: In backward economies, there will be a terrible dearth of skilled personnel and as such the methods of production will be carried on under primitive methods. Consequently, the productivity either in agriculture or in industries will be very low Lack of technical know-how and poor scientific advancement and obsolete technique, combined with poor entrepreneurship would result in poor quality products.
7. Foreign Trade Orientation: Most of the underdeveloped countries depend upon the export of a few traditional commodities, consisting mainly of raw materials and minerals. They will be importing consumer goods and machinery. The ratio of export production to total output will be normally high. Any drastic change in the foreign demand for the products of poor economies will result in dislocation in the economy. Any reduction in foreign demand would depress the home market which would ultimately reduce the income and employment level.
8. Lack of Suitable Socio-economic Set Up: In underdeveloped countries, the prevailing socio-economic set up would be the greatest impediment to development. Mass poverty and illiteracy combined with caste systems, religious beliefs, etc., would adversely affect the course of economic development. In India
9. A Dualistic Economy: Another important feature of underdevelopment is ‘Dualism’. Dualism is the presence of dualistic nature of economic activities and this is one of the important characteristic features of any backward economy on the way of development. Indian economy exhibits this dualistic features in full, as it is not fully developed. We have fast-moving electric trains and also slow-moving country-carts. We have capital markets and stock exchanges with many communication facilities like STD, ISD and Fax system in cities; while we have no proper roads in the rural areas and many villages are unconnected with the railway system. The barter system is still prevailing in many villages. This type of dualistic feature is not conducive to economic development. This dualism is almost an unique feature of all the underdeveloped economies in the process of development.
10. Mass poverty, Misery and Low-Standard of Living: Most of the people in underdeveloped countries are economically very backward, poor and leading a miserable life without any norms of standard of living. The backwardness, poverty and poor standard would result in low labour productivity, factor immobility, lack of entrepreneurship and poor specialization.
6.1.2.1 Determinants of Economic Development
The process of economic development is determined by two sets of factors, economic and non-economic.
6.1.2.1 Economic Factors
1. Natural Resources: The main factor influencing economic development is the natural resources available in the country, particularly ‘Land’. ‘Land’ includes all nature resources, including fertility of land, its situation and composition and forest wealth, etc. Existence of natural resources alone cannot initiate economic development, unless the resources are properly harnessed. In the event of harnessing the natural resources for development, a country with abundant natural resources can be developed quickly and largely than the country with poor resources. In underdeveloped countries, the resources are either unutilized or under-utilized. This is one of the reasons for their backwardness.
2. Transport and Communications: The means of transport and communications initiate economic development. More facilities of transport would reduce the cost of transport and thereby increase the external and internal trade of the country. In countries where road, rail, canals and rivers are interconnected with each other, economic growth is encouraged. Transport and communications ensure easy mobility of factors of production, raw materials, etc., help in breaking economic isolations and encourage educational development and intermingling of cultures. Above all, transport and communications are essential for urbanisation.
3. The Rate of Capital Formation: Capital Formation is the crux of the problem of economic development. The level of production and material well-being of the community depend largely on the stock of capital at its disposal. Capital formation can take place under private enterprise, or under public enterprise. But the core of the problem in underdeveloped countries is the lack of capital for investment and capital formation. These economies will be caught in the vicious circle of poverty and they will continue to remain poor simply because they are poor.
4. Capital output Ratio: Another determinant of economic development and growth is the capital output ratio. The term capital-output ratio refers to the requirements of capital for a definite output in units. For instance, if we establish a factory at a cost of Rs.5 crores which will help to produce annual output worth Rs. 1 crore, we can say that capital - output ratio is 5:1. A lower capital-output ratio tends to lead to a comparatively higher growth rate of output. Generally, in the underdeveloped countries, the capital.. output ratio is higher, i,e, more capital is required for lesser output due to wastage in the process of production, low level of technology and inefficiency of factors, and inadequate infrastructure.
5. Technological Progress: Technological changes are the most important factors in the process of economic growth. Technological changes are related to production, processing, marketing and distribution. Changes in technology lead to increase in productivity of labour, capital and other factors of production. The technological changes not only reduce the cost of production, but also increase the quality of the product.
6.1.2.2 Non-economic Factors
Non-economic factors are much more powerful than economic factors in influencing the extent of economic development and growth. Non economic factors maybe social, cultural, political and climatic which would either accelerate or impede economic development and growth.
1. Social Factors: Social factors, have been responsible for economic development and growth. Western culture and education had led to the spirit of physical adventure and discoveries leading to the rise of new mercantile classes who were interested in savings and investments and in undertaking risks in order to earn lot of profits. This spirit was responsible for Industrial Revolution in European countries in 18th and 19th centuries. In underdeveloped countries, the activities of the people would be based on tradition religion and customs. The traditional values like morality, truthfulness, contentment, simple living and non-materialistic attitude, etc., would not be conducive to economic development. In such countries, the family would be the primary economic and social unit, and relationships would be personal and patriarchal; and decisions would be influenced by caste, creed and religion at the social level. The people would be inimical to economic development. If economic development is to take place, social attitudes, values and institutions will have to be changed.
2. Human Factors: Rate of growth of population has an important factor in modern economic growth. Mere growth in the size of the population would not lead to economic development. It depends on the efficiency of the people. This phenomenal increase of population in European countries had resulted in increase in GNP. This is due to increased efficiency of labour force and this is called human capital formation. This could be achieved by good expenditure on health, education, sanitation and on social services and security measures. But in backward economies, increase in population is a great hindrance to economic development. Hence, family planning and control of population should form part and parcel of economic development and planning in developing countries.
3. Political Factors: Political and administrative factors also help in modern economic growth. Enlightened electorates, educated politicians and morally straight administrators would ensure greater economic development and growth. Weak political structure, instability, corrupt politicians, officials, and inefficient administration would be a hindrance to economic development.
4. Climatic Factors: Among the non-economic factors, climatic conditions stand foremost in determining economic development. If we make a study of the geographical and climatic conditions of the countries of the world in relation to development, we may find that most of the countries in the North and South Temperate Zones of the world had succeeded in becoming rich or nearly rich with per capita GNP over £ 1,000 or ranging from £300 to 1,000, whereas most of the tropical countries were poor or very poor with per capita GNP under £ l00. The climatic factors severely hamper development through their impact on man and agriculture.
CONCEPTS OF DEVELOPMENT AND GROWTH
Meier and Baldwin, define economic development as “a process whereby an economy’s real national income increases over a long period of time.”
Features of economic development :
(i) It is a process leading to certain positive results in the economy (ii) The process involves the working of certain forces which bring about a change in the economy. (iii) The development process results in increase in real national income and not mere money income. (iv) The increase in real national income (i.e. net national product) must be a sustained one for a prolonged period of time. (v) Temporary increase in national income due to boom in business cycle should not be considered as economic development.
Generally economic development means simply economic growth. More specifically, it is used to describe not quantitative measures of a growing economy (such as the rate of increase in real income per head) but the economic, social or other changes that led to growth. Growth is measurable and objective; it describes expansion in the labour force, in capital, in the volume of trade and consumption. And economic development can be used to describe the underlying determinants of economic growth, such as changes in techniques of production, social attitudes and institutions. Such changes may produce economic growth’.
Unit Questions
1. Define and explain the concept of ‘Underdevelopment’.
2. Discuss the characteristic features of underdevelopment.
3. What are the determinants of underdevelopment.
4. Distinguish between economic development and economic growth.
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