Political Economy of Development and Under-Development

Political Economy of Development and Under-Development

Economic and Political Development: Meaning and Content

Traditionally, economics and political science are separate disciplines in universities. In the real world, they impact each other. Economic independence is an important ingredient in the maintenance of political independence.

The 1998 Nobel Prize Winner for Economics, Professor Amartya Sen, said, “We live in a world where the disassociation of the economic from political and social justice is just not possible.”

It is now acknowledged that “economic growth and political development are two strands of an integral approach, and unless there is parallel development in the two strands, industrial maturity is not likely to take place. Any temporary success in the economic field without parallel political development may, in actual fact, frustrate sustainable long-term development.”

Development aims at improving the quality of life of human beings. All people aspire to a higher standard of living. The economy is a system of producing, distributing, and using national wealth, while politics involves administration through a set of institutions (Parliament & Judiciary) to ensure that economic interactions have an equitable impact on society.

Economic development is a political-economic arrangement within states to meet not only the wishes and aspirations of people but also to achieve self-reliance. Good political leadership leads to overall economic development.

South Korea and Singapore may be cited as examples where a sense of determination and motivation of people coupled with good leadership led to phenomenal progress and prosperity.

Development and underdevelopment are inextricably linked with peace and conflict within states and beyond. Conflicts lead to poverty, while poverty leads to conflict. It is a vicious circle. Therefore, economic development cannot be divorced from social justice.

Meaning of Development

In 1962, the UN Economic and Social Council (ECOSOC) in the Proposals for Action of the First UN Development Decade (1960-70) stated that: “The problem of the underdeveloped countries is not just growth. But development…. Development is growth plus change. Change in turn social, and cultural as well as economic and qualitative as well as quantitative…. The key concept must be improved quality of people’s life.”

Dudley Seers measures development by asking a series of questions: What has been happening to poverty? What has been happening to unemployment? What has been happening to inequality? “If all three of these have declined from high levels, then, according to Seers, beyond doubt this has been a period of development for the country concerned.”

As noted earlier, development includes social development. It aims at improving the quality of life, and several indices are considered to measure the “quality” of life, including:

  1. literacy rate
  2. life expectancy
  3. the proportion of infant mortality per thousand of live population
  4. consumption of electricity (energy) per head
  5. consumption of iron and steel per head
  6. consumption of consumer goods per head
  7. the level of nutrition as measured by calorie supply per head

The UN publishes every year the Human Development Index (HDI, a fundamental change in thinking about development – from a simple measure of Gross Domestic Product (GDP) – to a broader measurement of well-being based on people in their lives including their condition of health, nutrition, longevity, education, and literacy.

In his book titled “Development as Freedom,” Professor Amartya Sen provided a new way of looking at development.

He perceived it as a means of expanding real freedom in the world and removing what he called “major sources of unfreedom: poverty and tyranny, social deprivation, neglect of public facilities and intolerance or inactivity in repressive states.”

Professor Sen believes that the end product of development should be freedom rather than the economic indicators that are currently in use in the international community.

He holds the strong belief that free education has been the backbone of economic development in East Asia, particularly in Japan and tends to use it as an explanation for the sharp rise of Southeast Asian economies in the two decades up to 1996.

Structural reforms are needed to achieve development.

For instance, if the ownership and distribution of landholdings remain unequal, poor people rarely escape the poverty trap caused by the extreme unequal distribution of wealth.

Therefore, land reforms are a precondition to economic development.

Other reforms include human resource development, planning population growth, accelerated growth of agricultural production, provision of adequate energy, protection of the environment, and investment and equitable distribution of income to all sections of people. In addition to these, economic development cannot be initiated without good governance.

Difference Between Economic Growth and Development

There remains a general perception that economic growth will lead to development. This is not always the case.

The concept of growth is limited in scope, while development is more than growth. Growth is largely measured in Gross National Product (GNP), whereas development is ascertained in terms of the overall improvement of the quality of life of all sections of people within a country.

Development is all-encompassing and includes the social, political, and cultural development of a country.

It will include at least a welfare network, gender equality, freedom of women, employment opportunities, reduction in the inequality of the distribution of income and consumption, adaptability of innovation, and the achievement of self-reliance.

The fact that economic growth may not necessarily lead to development can be understood by the following facts:

Misleading Nature of Per Capita Income

Per capita income does not accurately measure an improvement in the quality of life of the people because it does not give an indication of the distribution of income between different sectors of the population.

For instance, in Brazil during 1967-74, the GNP (per capita income) registered a rise of 10 per cent but the income of the poorest section of the community declined from 10 per cent to 8 per cent. Therefore, the rise in per capita income in Brazil did not mean any improvement in the standard of living of poor Brazilians; rather, their conditions had worsened.

Economic Growth and Employment Opportunities

A major objective of economic growth is to maximize employment opportunities. Growth may not lead to such phenomena because growth in modern times has been based on capital-intensive technology (as opposed to labor-intensive industries) and as a result, growth in employment is very limited.

Furthermore, technology has substituted the labor force. For instance, in the car industry, automation or robots have replaced human labor in assembling a car to its finished product.

The Content of Economic Growth

The rate of growth does not indicate the content of growth. A country may enjoy high growth because of a rapid increase in the production of luxury goods, while leading masses of people remain steeped in poverty.

The Long-term Impact of Foreign Investment

Foreign investment takes a long time to have an impact on the economy of a country. Consequently, despite a good record of foreign investment, national or per capita income may not initially register any increase for some years. Foreign investments have a long gestation period before their effects are visible.

Challenges in Measuring GNP in Developing Countries

In developing countries, there are statistical difficulties in measuring GNP because of the presence of black money and the barter system. Furthermore, the informal sector of the economy is not taken into account in the measurement of GNP.

Growth Rate Versus Population Growth

If the rate of growth does not match the population growth rate, development is not possible, although a fast growth rate in the national economy may indicate a buoyant economy.

Theories and Models of Growth and Development

There are mainly three perspectives on the norms of economic growth:

  1. Economic nationalism,
  2. Capitalism, and
  3. Marxism.

Principles of Economic Nationalism

Economic nationalism avoids economic dependence on others as much as possible and calls for the state to build up its economy.

The state is the main actor in the engine of economic growth and development. One of the ways to avoid dependence on others is to lay stress on import substitution industrialization.

For instance, from its independence in 1947 to 1991, India developed its manufacturing industries to produce goods to avoid imports from foreign countries. The main defect of economic nationalism is that industries do not face any competition.

This results in inefficiency, high prices, and a sloth mentality among industrial owners.

Capitalism and Private Enterprise

Capitalism does not believe in the role of the state in owning any industries or enterprise. It underscores private ownership of the means of production, distribution, and exchange of wealth. Adam Smith (1723-90), whose influential book “The Wealth of Nations” (1776) advocated free trade and private enterprise and opposed the state’s interference.

He assumed that humankind naturally would produce what it could exchange for something useful it did not have. To Smith, cheaper and better goods would be available internally and across borders based on supply and demand.

Economist David Ricardo (1772-1823), while supporting Smith, introduced the idea of comparative advantage of a country in producing a particular commodity. He implied that each country could make one thing better and cheaper than any other country.

For instance, Bangladesh can produce jute goods while Pakistan produces cotton-based products. Classical economic theory did not see any role for money in determining output and employment.

John Keynes (1883-1946) in his “The General Theory of Employment, Interest, and Money” (1936) advocated the use of government fiscal and monetary policy to adjust demand and maintain full employment without inflation.

The difference between classical and Keynesian theories lies in the way the demand and supply of money should be modified. In the classical theory, excess money will push prices upwards with a given level of output while in the Keynesian theory, an expansion of money will increase the level of investment and output and perhaps may lead to a secondary effect on prices.

Marxism and the Critique of Capitalism

Marxism, based on the writings of Karl Marx (1818-83), holds that actions and human institutions are economically determined and the class struggle is the basic agency of historical change, and that capitalism will ultimately be superseded by communism.

He expected that workers would revolt and overturn a capitalist system controlled by factory owners. Public ownership of all means of production (“state capitalism”) will benefit people.

Capitalism and communism’s way of economic growth came in sharp contrast with the rate of growth in South and North Korea in 1993.

South Korea, a capitalist country, registered a per capita Gross Domestic Product (GDP) of US$ 7,466, while communist North Korea’s GDP was US$ 904. The fall of communism in Europe demonstrated that capitalism has come to stay as the norm for the world’s economic growth and development.

The End of Communism and the Triumph of Western Democracy

Professor Francis Fukuyama wrote after the end of communism in the Soviet Union: “We are witnessing not just the end of the Cold War … but the end point of mankind’s ideological evolution and the universalization of Western liberal democracy as the final form of human government.”

The Harrod-Domar Capital Model

In theory, the Harrod-Domar (HD) model is a cross between the classical and the Keynesian theories of growth. HD underscores the importance of investment as the prime mover of the economy. Investment results in income growth.

It could allow a higher accumulation rate and, therefore, a higher economic growth since national income growth is dependent on capital formation. In short, it claims that foreign investment boosts total investment which increases economic performance.

Critics of the HD model state that when net investment slows down, the average income growth is adversely affected. If investment depends on foreign corporations, its slowdown or withdrawal of investment will create an adverse economy.

The Kaldor-Mirrlees Model

The Kaldor-Mirrlees (KM) model claims that the saving ratio can be made flexible to obtain steady economic growth. In the KM model, an investment function is specified which depends upon a fixed pay-off period for investment per worker.

KM assumes that total income is equal to the sum of wages and profits. It assumes that workers will save and the economy will grow. However, critics say that KM disregards the fact that workers may not be able to save given the pattern of life in the real world.

Understanding the Three Aspects of Globalization

Globalization has three aspects, namely economic globalization, public order globalization, and popular globalization. Economic globalization means integration of market economy and mobility of capital from one to another country.

Public Order globalization refers to governments having to work together on common issues such as combating disease and protecting the environment. Popular globalization means campaigns by non-governmental organizations, such as Amnesty International and Greenpeace, against the wrongs of authorities in society.

Historical Perspectives on Economic Globalization

According to one view, economic globalization is a phenomenon that dates back to the 80s. A second view holds that it has a long history that can be traced to the 19th century, if not earlier.

Economic globalization is based on global economics, which is different from international economics. International is embedded in territorial space. Globality transcends geography, i.e., territorial boundaries. Global conditions like Internet connections can surface simultaneously at any point on Earth.

The Capitalist View on Economic Globalization

The advocates of capitalism and free trade see economic globalization as a progressive force generating employment and ultimately raising living standards throughout the world. The growth of global market has encouraged several major extensions of capitalist activity including information industries and consumerism.

The spread of global relations has also brought new forms of capitalist production. Examples include offshore arrangements and trans-border corporate alliances. The current global situation may be called “hyper-capitalism”.

The Challenges and Inequalities of Globalization

Although economic globalization tends to increase prosperity, without careful management, it brings increasing inequality and dislocation among states. Globalization is about convergence, meaning convergence in markets for capital, goods, and labor.

But this has not been the case. Wealth is not converging under globalization. The richest 20 percent of people owned 60 times as much as the poorest 20 percent in 1990 and 74 times as much as in 2000.

Critiques of Economic Globalization

The critics see economic globalization as a means of expropriating resources of poor countries by drawing them into debt, encouraging the use of labor, and accelerating environmental degradation.

It is capital that decides what to produce where and what to grow where and how. The impact of economic globalization on society has led to community anger in developed countries, especially in rural areas.

The Disparities in Technology and Labor Markets

Technology is not converging under globalization. 90 per cent of patents are held by entities in rich countries and 88 per cent of people have access to the Internet in developed countries. Labor markets are not also converging. As the wealth differential between rich and poor countries widens, barriers keeping people out from rich countries rise, especially after the September 11 attacks on the US.

Sovereignty and Economic Control in the Age of Globalization

Furthermore because of the increasing pace of globalization, sovereign power of states has been reduced. States are confronted with the following situation:

  1. control over the national economy has been eroded because of foreign investment;
  2. trade liberalization encourages movement of manufacturing capital and goods across the globe, and
  3. financial deregulation creates a global market for the capital and the Internet is breaking down the barriers of consumers and client businesses.

Addressing Globalization’s Challenges

Globalization of the market has its benefits but the global market’s emphasis on efficiency rather than on equity has left many developing countries out in the cold. In mid-November 2000, President Clinton said in Brunei at a farewell address to the leaders of Asia Pacific Economic Cooperation (APEC) that although globalization brought great benefits to Asia, “it requires strong safety nets, more quality education, anti-poverty efforts, labor and environmental standards so people believe globalization is leading not to a race to the bottom but to a higher standard for all.”

Underdevelopment: Meaning and Causes

Underdevelopment cannot delink itself from development. It is the opposite state of development. Underdevelopment connotes undesirable and undignified conditions of people because of poverty. President Truman of the US is generally responsible for the terms “underdevelopment” or “underdeveloped” when, on January 20, 1949, the very day he took office of the President, he said the following words:

“We must embark on a bold new program for making the benefits of our scientific advances and industrial progress available for the improvement and growth of underdeveloped areas.”

Author Gustavo Esteva stated: “Underdevelopment began on January 20, 1949. On that day two billion people became underdeveloped. In a real sense, from time to time on, they ceased being what they were, in all their diversity, and were transmogrified into an inverted mirror of others’ reality: a mirror that belittles them and sends them off to the end of the queue, a mirror that defines their identity, which is really that of a heterogeneous and diverse majority, simply in the terms of a homogenizing and narrow minority.”

However, President Truman was not the first to use the word. Wilfred Benson, of the Geneva-based International Labour Organization, was probably the person who invented the term when he referred to the “underdeveloped areas” while writing on the economic basis for peace in 1942. The expression had not received circulation until President Truman used it.

In the past often the words “underdeveloped” and “backward” are interchangeable and meant the same. In the Bangladesh Constitution (1972), Article 14 uses the phrase “backward sections” of the people. Gradually, the word “underdeveloped” was replaced by the word “developing” in the 80s.

Whatever term is being used (backward, underdeveloped, or developing) to describe poverty, global inequalities in income and living standards have reached grotesque proportions between rich and poor nations as evident from statistics given below at the 2002 World Summit on Sustainable Development in Johannesburg (South Africa):

  • 1.2 billion people live on less than a dollar a day (while 200 richest people doubled their income in the past four years to US$ 1,000 billion).
  • 1 billion people do not have access to clean water.
  • More than 2 billion people have no access to adequate sanitation.
  • 1.3 billion people breathe unhealthy air.
  • 800 million people go to bed hungry.
  • The top 20 per cent of the world’s population consumes 86 per cent of the world’s income.
  • The bottom 20 per cent of the world’s population live on 1.3 per cent of the world’s income.

According to the UN Human Development Report of 1999, 3 richest people have more assets than the total assets of the poorest 600 million people.

The World Bank’s Vice President for Environmentally and Socially Sustainable Development, Ian John, underscored the importance of access to water for poor people. He said that some 12 million people die each year from a lack of water, including 3 million children who die tragically from waterborne diseases.

Causes of Underdevelopment

Colonial exploitation and transnational corporations’ dominance have historically disadvantaged developing countries, exacerbating global inequalities. Despite external factors, internal challenges like poor governance, conflict, and ineffective development strategies also contribute to underdevelopment, alongside cultural attitudes towards poverty and change.

Inequitable Global System

In the past, colonial rule led to the exploitation of developing countries’ resources. Great wealth poured into Europe from colonial countries. After the Industrial Revolution, Asia and Africa became more important as exploitative markets for industrialized countries.

Manufactured goods flooded Asia and Africa, destroying local industries that had provided balance to agriculture in colonies. The bottom line was that Asia and Africa were subordinated economically to the needs of industrial Europe.

In modern times, the influence of transnational corporations on the foreign trade of developing countries is immense.

Often, transnational corporations control export marketing and distribution of goods due to their access to a worldwide marketing network and their ownership of established brand names that are important for foreign trade.

According to the 1981 study of the Geneva-based UNCTAD (United Nations Conference on Trade and Development), the share of the final price received by primary-producing developing countries from their exports was extremely low; a cotton-producing country’s share was about 6.4 percent of the final retail price of a ready-made denim garment (e.g., cotton-producing countries received 52 cents for a piece sold at US$ 8.04).

The output of food and synthetic materials in industrialized nations is replacing food and raw materials of developing countries. The industrialized nations are not dependent on developing countries for their economic growth. Domestic spending within the countries provides growth to the US, Europe, and Japan.

Responsibility of Developing Countries

Although there is an inequitable global economic system, developing countries cannot escape from their responsibility for the causes of underdevelopment. Some of them are described below:

First, many leaders of developing countries have demonstrated unaccountability in their actions and conduct. Poor leadership coupled with bad governance was responsible for delays in decision-making. Inefficient management of public enterprises inhibited popular participation in development projects, lack of democratic institutions, and corruption eroded economic and political bases for development.

Second, racial or tribal conflicts or territorial disputes plagued developing countries. There was no mechanism within the regional institutions to resolve conflicts. Conflicts had drained the energy and resources of developing countries.

Third, development strategies pursued by developing countries lacked popular participation and public accountability and were often flawed. The South Commission, a high-level independent group set up by developing countries to look into their economies, concluded in a Report in 1990 that:

“With a few exceptions, post-war economic growth in the South did not lead to an adequate transformation and increased flexibility in economic structures, or to greater equity and social cohesion. It led more generally to greater inequalities, unplanned and usually chaotic urbanization, the co-existence of small enclaves of modern industry and large semi-traditional sectors, continued rigidity in trade patterns, increased import demand combined with lagging export capacity, and much environmental damage.”

Furthermore, the Report stated that:

“Most countries failed to raise the social and economic status of women…. They overlooked the poverty, suffering, and injustice that had accompanied the early economic advances in those countries…. Placing too much confidence in the trickle-down effect of economic growth, the South took little direct action to raise the income and productivity of the poor or to promote a fairer distribution of the benefits of growth. In particular, peasant agriculture was neglected with especially harmful results in the least developed countries.”

Fourth, most developing countries have not diversified their export base. It is concentrated on the production of one or two primary products. The price of the products depends on the demand of industrialized nations.

Finally, agriculture output failed to keep up with the growth of the population, keeping high the number living in gross poverty. The running of family planning programs in many developing countries was half-hearted and flawed, and in some countries, it was found to be culturally inappropriate or sensitive.

The Culture of Poverty

Oscar Lewis, an anthropologist, in his book Five Families: Mexican Case Studies in the Culture of Poverty (1959), came out with the idea of “culture of poverty” by observing the poor in Cuba, Mexico, and Puerto Rico. Lewis termed “the culture of poverty” that is found in the way of life that is developed under certain conditions.

It represents a sense of despair and hopelessness in achieving success in society. The culture perpetuates from generation to generation, and they are not psychologically prepared to take full advantage of changing conditions or increased opportunities in their lifetime. It is a reaction of the poor to their marginal position in a capitalist society.

Lewis also identifies that the likely candidates for the culture of poverty are the people who come from the lower strata of a rapidly changing society and are partially alienated from it. They have a low level of literacy and education, do not belong to unions, are not members of political parties, and make very little use of banks, hospitals, and shopping malls.

He wrote that the culture of poverty flourished in societies with the following set of conditions:

  1. A cash economy, wage labor, and production for profit
  2. A persistently high rate of unemployment and underemployment for unskilled labor
  3. Low wages
  4. The failure to provide social, political, and economic organization, either on a voluntary basis or by government imposition, for the low-income population
  5. The existence of a bilateral kinship system rather than a unilateral one
  6. The existence of a set of values in the dominant class which stresses the accumulation of wealth and property, the possibility of upward mobility, and thrift, and explains low economic status as the result of personal inadequacy or inferiority.

Critics point out that while Lewis has rightly identified the poorest of the poor, some of his observations are not applicable at present to many people in slum areas. Furthermore, Lewis apparently did not differentiate between the poor in rural and urban areas.

Many poor people are now willing to seize the opportunity to improve their conditions of life. Inertia and sluggishness have disappeared.

However, in the 1959 context, Lewis provided a new perspective on the life cycle of poor people living in insulting poverty.

Underdevelopment is a State of Mind

Lawrence Harrison, an official of the US Agency for International Development (USAID) who worked in Latin America, argued that the creative capacity of human beings was at the center of the development process.

What makes development happen is the ability to imagine, organize, and solve problems. The bottom line of his argument rests on the theme “if there is will, there is a way”. If a society insists on blaming the past, no progress will be made.

One has to accept the reality and then seize the opportunity available to a country and look forward to the future. He found that Latin American people had become so preoccupied with a belief in the “myth” of dependency and imperialism that they were paralyzed to the point that they did not use the resources they had to develop.

He further suggested that religion with its fatalistic view might discourage improvement in one’s conditions. He strengthened his views by quoting Gunnar Myrdal’s comments on Hinduism: Social and economic stratification is accorded the sanction of religion…. Religion has then become the emotional container of this whole way of life and work and by its sanction has rendered it rigid and resistant to change.

David Landes in his book “The Wealth and Poverty of Nations: Why Some Are So Rich and Some Are So Poor” (1998) examined many possible reasons, beginning with nature’s inequalities and differences in geography. He suggested, for example, that nations in temperate zones were more favored than those in tropical climates.

He argued that the advent of Protestantism (as opposed to Catholicism) encouraged individualism and respected manual labor. These are fundamentally important to the development of capitalism and its associated spirit of entrepreneurship that in turn inspired invention.

Landes claimed that one of the reasons why the Industrial Revolution occurred in Europe rather than elsewhere was that unfettered intellectual inquiry flourished in Europe, and empiricism (all knowledge derived from experiment and observation) was promoted.

It is noted that human curiosity leads to inventions that act as an engine of progress. None of the modern leaps of progress would have occurred by acts of the self-satisfied or frustrated.

The advocates of the status quo are never inclined to move forward. Progress in human knowledge happens because of the searching endeavors made by curious human beings.

Strategies for Development

Development, in simple terms, means largely the alleviation of poverty. The World Bank released a Report for 2000-01 after having completed the views of 60,000 poor people in more than 60 countries.

The Report argues that each country must devise its own poverty reduction strategy, and these strategies will generally need to address three sets of issues:

  • Opportunity
  • Empowerment
  • Security

Opportunity: Expanding Economic Opportunities for the Poor

Under opportunity, it suggests expanding economic opportunity for poor people by stimulating economic growth, making markets work better for them, and allowing them to acquire assets, such as land and education. The importance of opportunity – of fostering economic growth that benefits the poor – is widely accepted. Nearly all countries that have significantly reduced poverty in recent decades have adopted some version of the strategy. Those countries that have not achieved sustained economic growth have been unable to adopt this strategy.

Empowerment: The Role of Empowerment in Poverty Reduction

Empowerment gives people creativity, innovation, and improvisation. It means strengthening the participation of poor people in decision-making affecting their lives and removing social barriers that result in discrimination of gender, sex, race, ethnicity, and social status. The need for empowerment is a constant concern for poor people who often are unable to express their views on local issues and projects to bureaucrats and local officials.

Security: Protecting the Poor from Vulnerabilities

Security implies reducing poor people’s vulnerability to sickness, economic shocks, crop failure, natural disasters, and violence and promoting ways for them to cope with misfortune when it occurs. It is one of the important and frequently overlooked needs of poor people. Those with meager assets are vulnerable to unexpected misfortunes (death or disability of the income earner in a family) and are less able than others to undertake potentially high-return risks.

The Responsibility of Rich Countries in Promoting Development

Rich countries cannot escape from their responsibility in promoting development in poor countries. They have a responsibility to open their markets protected by tariff and agricultural subsidies amounting to US $ 300 billion per year. The World Bank estimates that protection in rich countries costs developing countries more than US$ 110 billion dollars, twice the value of aid flows. About half of this is caused by tariffs, particularly on agriculture, textiles, and clothing.

The Imperative of Participatory Development

The need for participation of poor people in open and transparent processes in development activities is imperative. Both developed and developing countries have to work together to banish poverty and make the 21st century one of hope and real opportunity.

Five Stages of Growth

W.W. Rostow’s classic work “The Stages of Growth” (1960) outlined his optimistic scenario that economic underdevelopment was a short-term condition and that all countries would become rich in the end. They go through five stages to become fully rich industrialized nations.

Rostow listed five stages as follows:

  • The Traditional Society
  • The Preconditions for Take Off
  • The Take Off
  • The Drive to Maturity
  • The Age of High Mass Consumption

The Concept of a Traditional Society

A traditional society is largely an agricultural society. The people have a limited capacity for production. They have a social hierarchical structure flowing from the agricultural system. They are not ambitious and are content with what they have.

Grandchildren would be happy just about what it had been for one’s grandparents. Rostow thought of the traditional society that existed in medieval Europe, before the Newtonian world.

Transition to Industrial Society

The second stage is a process in transition from a traditional agricultural society to an industrial one.

There are three distinct ingredients necessary for a transformation from an agricultural society to an industrial one, such as modernization of agriculture resulting in growth, generation of increased income, increased purchasing power, savings, and dynamic growth in productivity in other sectors.

Other signs include the emergence of an enterprising class willing to take risks in pursuit of profit, an increase in investment supported by the availability of good communication and transport facilities, and skilled labor.

The Take-off Stage

The third stage is the stage of take-off that commences when old ideas of productivity are abandoned. It takes off to a new direction just like a plane takes off from the ground. Growth becomes a normal condition with the expansion of economic activities all around. For instance, Britain came to the take-off stage around 1803.

The Drive to Maturity

The fourth stage is the drive to maturity. This stage is reached some 40 to 60 years after take-off begins. Maturity is a stage where an economy demonstrates the capacity to move beyond the original industries and to produce anything that it chooses to do.

High Mass Consumption and the Welfare State

Then, the final stage comes, where high mass consumption is the order of the day. Consumerism becomes the leading edge during this stage, and the emergence of a welfare state with safety nets for vulnerable people in society is firmly established.

Economic Globalization and the Chain of Production

Rostow could not perhaps foresee the emergence and impact of economic globalization on production. The chain of production has undergone drastic changes and it is increasingly difficult to tell the nationality of a finished product.

For instance, what is the nationality of a Reebok sneaker that has an African name, is made by an American company in South Korea, and displays the Union Jack (British flag) as a label? This complicated process of production is another stage of direction to which economic globalization is responsible.

Theory of Dependency and Underdevelopment

A modern variant of Marxism is the dependency theory advocated by a Latin American economist, Raul Prebisch, in the 70s. The bottom line of this theory is the continued economic exploitation of former colonies by industrially rich nations.

In other words, it is simply a situation that is otherwise known as “neo-colonialism”. Neo-colonialism may be described as a system whereby developing countries are subjected to dependence, subordination, and exploitation by former colonial masters.

President Kwame Nkrumah of Ghana (1909-72) in his book “Neo-colonialism: The Last Stage of Imperialism” (1965) wrote that “Neo-colonialism is … the worst form of imperialism. For those who practice it, it means power without responsibility and for those who suffer from it, it means exploitation without redress.”

The main features of dependency theory are as follows:

Understanding Dependency Theory

Dependency theory attempts to explain the widening gap between rich and poor nations. The rich nations constitute the “core” of the world economy while developing countries (poor nations) exist in the “periphery”.

The “core” draws on cheap raw materials and labor from the “periphery” and sells finished goods back to the “periphery” at a higher price. The system is a consequence of capitalism as practiced today.

The Role of Transnational Corporations

b) Export marketing is controlled by transnational corporations and primary producers in developing countries get a fraction of the sale price.

In 1976, a study found that exports of primary products were largely controlled by transnational corporations, for example, 85 percent of cocoa beans, 75 percent of bananas, 90 percent of tobacco, 85 percent of tea, 90 percent of coffee, and 90 percent of wheat were marketed by transnational corporations.

Furthermore, 80 percent of the merchant fleet that transported goods from country to country belonged to rich nations and only 12 percent were in the hands of developing countries.

Technological Imperialism and Dependence

c) Another form of dependence is the retention of technology within rich nations and the transfer of technology to poor countries is not favored. Rich nations have an edge over poor nations on technology. Some say that it is “technological imperialism”.

As Johan Galtung describes: “The total picture … is one of transfer of technology as structural and cultural invasion, possibly more insidious than colonialism and neo-colonialism, because a physical Western presence does not always accompany such an invasion”.

The Impact of International Markets on Dependency

International commodity and capital markets are responsible in many ways in creating dependency. Trade relations take place in a market that tends to lower the price of raw materials and to raise the price of finished products.

This means less income for poor nations and high expenditure for imports. To balance their budgets, poor nations borrow money from foreign agencies.

This leads them to heavy debt. It is argued that the exploitation of resources of poor countries did not bring any monetary dividends to them, rather 33 poor countries had been burdened with heavy debt as of 2000.

It means that these countries have become dependent on rich countries. They have a total debt of US$ 75 billion dollars. Furthermore, during 1996-2000 there was a net transfer of financial resources out of developing countries to rich nations.

In 1997, this was only US$ 6 billion, but in 2000, it was US$ 170 billion. The dependency theorists accuse that if the existing international system remains unaltered, poor nations will remain trapped in poverty for years to come.


Economic and political development are two strands of an integral approach. Economic independence is important for maintaining political independence. Development aims at improving the quality of life of human beings.

The UN publishes the Human Development Index (HDI) every year to measure well-being based on people’s lives. Professor Amartya Sen believes that the end product of development should be freedom rather than the economic indicators that are currently in use. Economic growth and development are different, with growth being limited in scope.