CONCEPTS OF DEVELOPMENT AND UNDERDEVELOPMENT

Introduction

In this lesson, we will learn the basic concepts of development and underdevelopment. We will
also briefly discuss some of the theories of development. These are the classical theory,
modernization and dependency theories. Some of the recent theories such as the world systems
theory will also be introduced.

Objectives

By the end of this lesson, you should be able to:

1.Define the terms development and underdevelopment

2. Explain the basic features of the theories of development

Development

We will now start our lesson by defining first the concept of development and then
underdevelopment. The concept of development is somehow problematic to define. The term
development has been given many meanings, which are not always clearly specified in practice
or in research. Phillips (1990:6) states that these meanings can include:

• general improvement in progress

• economic growth

• increased labour productivity

• satisfaction of basic human needs

• modernization including education

• social change.

The above stated view of development ends up giving the features, goals and process of
development.

Development

(From TODARO TEXTBOOK)

The process of improving the quality of all human lives and capabilities by raising people’s
levels of living, self-esteem, and freedom.

Development must therefore be conceived of as a multidimensional process involving major

changes in social structures, popular attitudes, and national institutions, as well as the
acceleration of economic growth, the reduction of inequality, and the eradication of poverty .
Development, in its essence, must represent the whole gamut of change by which an entire social
system, tuned to the diverse basic needs and evolving aspirations of individuals and social
groups within that system, moves away from a condition of life widely perceived as
unsatisfactory toward a situation or condition of life regarded as materially and spiritually better.

Three Core Values of Development

Sustenance: The Ability to Meet Basic Needs. All people have certain basic needs without
which life would be impossible. These life-sustaining basic human needs include food, shelter,
health, and protection. When any of these is absent or in critically short supply, a condition of
“absolute underdevelopment” exists. A basic function of all economic activity, therefore, is to
provide as many people as possible with the means of overcoming the helplessness and misery
arising from a lack of food, shelter, health, and protection. To this extent, we may claim that
economic development is a necessary condition for the improvement in the quality of life that is
development. Without sustained and continuous economic progress at the individual as well as
the societal level, the realization of the human potential would not be possible. One clearly has to
“have enough in order to be more.”

Rising per capita incomes, the elimination of absolute poverty, greater employment
opportunities, and lessening income inequalities therefore constitute the necessary but not the
sufficient conditions for development.

Self-Esteem: To Be a Person. A second universal component of the good life is self-esteem—a

sense of worth and self-respect, of not being used as a tool by others for their own ends. All
peoples and societies seek some basic form of self-esteem, although they may call it authenticity,
identity, dignity, respect, honor, or recognition.

Freedom from Servitude: To Be Able to Choose. A third and final universal value that we
suggest should constitute the meaning of development is the concept of human freedom.
Freedom here is to be understood in the sense of emancipation from alienating material
conditions of life and from social servitude to nature, other people, misery, oppressive
institutions, and dogmatic beliefs especially that poverty is predestination. Freedom involves an
expanded range of choices for societies and their members together with a minimization of
external constraints in the pursuit of some social goal we call development

The Three Objectives of Development

We may conclude that development is both a physical reality and a state of mind in which
society has, through some combination of social, economic, and institutional processes, secured
the means for obtaining a better life. Whatever the specific components of this better life,
development in all societies must have at least the following three objectives:

1. To increase the availability and widen the distribution of basic life-sustaining goods such as
food, shelter, health, and protection

2. To raise levels of living, including, in addition to higher incomes, the provision of more jobs,
better education, and greater attention to cultural and human values, all of which will serve not
only to enhance material wellbeing but also to generate greater individual and national self-
esteem

3. To expand the range of economic and social choices available to individuals and nations by
freeing them from servitude and dependence not only in relation to other people and nation-states
but also to the forces of ignorance and human misery

Economic growth and Economic development

According to Kindleberger, “Economic growth means more output(goods and services for a
country in a year), while economic development implies both more output and changes in the
technical and institutional arrangement by which it is produced and distributed. Growth may well
involve not only more output derived from greater amounts of inputs but also greater efficiency,
i.e., an increase in output per unit of input. Development goes beyond this to imply changes in
the composition of output and in the allocation of inputs by sectors.”
Friedman defines growth as an expansion of the system in one or more dimensions out a change
in its structure, and development as an innovative process leading to the structural transformation
of social system.

Thus economic growth is related to a quantitative sustained increase in the country’s per capita
output or income accompanied by expansion in its labour force, consumption, capital and
volume of trade. On the other hand, economic development is a wider concept than economic
growth. “It is taken to mean growth plus change.” It is related to qualitative changes in economic
wants, goods, incentives, institutions, productivity and knowledge or the “upward movement of
the entire social system”, according to Myrdal. It describes the underlying determinants of
growth such as technological and structural changes. In fact, economic development embraces
both growth and decline. An economy can grow but it may not develop because poverty,
unemployment and

CHAPTER 2 MEASUREMENT OF ECONOMIC DEVELOPMENT

Economic development is measured in four ways:

1. GNP Gross National Product. One of the methods to measure economic development is
in terms of an increase in the economy’s real national income over a long period of
time.
Disadvantages of using GNP
i. “Real national income” refers to the country’s total output of final goods and services
in real terms rather than in money terms. Thus price changes will have to be ruled out
while calculating real national income. But this is unrealistic because variations in
prices are inevitable. In this measure, the phrase “over a long period of time” implies
a sustained increase in real income A short-period rise in national income which
occurs during the upswing of business cycles does not constitute economic
development
ii. This measure fails to take into consideration changes in the growth of population. If a
rise in real national income is accompanied by a faster growth in population, there
will be no economic growth but retardation.
iii. The GNP figure also does not reveal the costs to society of environmental pollution,
urbanization, industrialization and population growth. It considers natural resources
to be free and treats the earth “like a business in liquidation.”
iv. Further, it tells us nothing about the distribution of income in the economy.
v. Moreover, there are certain conceptual difficulties in the measurement of GNP which
(a) GNP is always measured in money, but there are a number of goods and services
which are difficult to be assessed in terms of money, e.g., painting as a hobby by an
individual, the bringing up of children by the mother
2. GNP Per Capita. The second measure relates to an increase in the per capita real
income of the economy over the long period. Economists are one in defining economic
development in terms of an increase in per capita real income or output. Meier defines
economic development “as the process whereby the real per capita income of a country
increases over a long period of time subject to the stipulations that the number of
people below an ‘absolute poverty line’ does not increase, and that the distribution of
income does not become more unequal.” This indicator of economic growth purports
to emphasize that for economic development the rate of increase in real per capita
income should be higher than the growth rate of population.
Disadvantages of using GNP per capita
i. An increase in per capita income may not raise the real standard of living of the
masses. It is possible that while per capita real income is increasing, per capita
consumption might be falling. People might be increasing the rate of saving or the
government might itself be using up the increased income for military or other
purposes.
ii. There is another possibility of the masses remaining poor despite an increase in the
real GNP per capita if the increased income goes to the few rich instead of going to
the many poor.
iii. The real per capita income estimates fail to measure adequately changes in output due
to changes in the price level. Index numbers used to measure changes in the price
level are simply rough approximations. Moreover, the price levels vary in different
countries. Consumers’ wants and preferences also differ in each country. Therefore,
 the national income figures of different countries are often misleading and
incomparable.
iv. International comparisons of the real GNP per capita are inaccurate due to exchange
rate conversion of different currencies into a common currency, i.e., US dollars,
through the use of official exchange rates. These nominal exchange rates do not
reflect the relative purchasing power of different currencies.
v. The real GNP per capita fails to take into account problems associated with basic
needs like nutrition, health, sanitation, housing, water and education. The
improvement in living standards by providing basic needs cannot be measured by
increase in GNP per capita. Despite these limitations, the real GNP per capita is the
most widely used measure of economic development.
3. Welfare. There is also a tendency to measure economic development from the point of
view of economic welfare. Economic development is regarded as a process whereby
there is an increase in the consumption of goods and services of individuals. According
to Okun and Richardson, economic development is “a sustained, secular improvement
in material well-being, which we may consider to be reflected in an increasing flow of
goods and services
4. Social Indicators or Basic Needs. Dissatisfied with GNP/GNP per capita as the
measure of economic development, certain economists have tried to measure it in terms
of social indicators. Economists include a wide variety of items in social indicators.
Some are ‘inputs’, such as nutritional standards or number of hospital beds or doctors
per head of population, while others may be ‘outputs’ corresponding to these inputs
such as improvements in health in terms of infant mortality rates, sickness rates, etc.
Social indicators are often referred to as the basic needs for development. Basic needs
focus on alleviation of poverty by providing basic human needs to the poor. The direct
provision of such basic needs as health, education, food, water, sanitation and housing
affects poverty in a shorter period and with fewer monetary resources than GNP/GNP
per capita strategy which aims at increasing productivity and incomes of the poor
automatically over the long run. Basic needs lead to a higher level of productivity and
income through human development in the form of educated and healthy people.
The merit of social indicators is that they are concerned with ends, the ends being human
development. Economic development is a means to these ends. Social indicators tell us
how different countries prefer to allocate the GNP among alternative uses. Some may
prefer to spend more on education and less on hospitals. Moreover, they give an idea
about the presence, absence or deficiency of certain basic needs.
Hicks and Streeten consider six social indicators for basic needs:
Basic Needs Indicator
1. Health; Life expectancy at birth.
2. Education; Literacy signifying primary school enrolment as per cent of population.
3. Food; Calorie supply per head.
4.Water Supply; Infant mortality and percentage of population with access to potable
water.1 3
5. Sanitation; Infant mortality and percentage of population with access to sanitation.
6. Housing None. 11.
( Norman L. Hicks and Paul P. Streeten, “Indicators of Development : The Search for a
Basic Needs Yardstick,” World Development, Vol. 7, 1979).
Except for calorie supply per head, all other indicators are output indicators. Of these,
infant mortality is both the indicator of sanitation and clean drinking water facilities
because children are prone to water-borne diseases. It is also related to life expectancy at
birth and nutritional deficiencies among infants. Thus, the infant mortality rate measures
four of the six basic needs. Limitations.
The following are the limitations of social indicators as the measure of economic
development. Problems arise in constructing a composite index based on a rational
weighting system.
1. First, there is no unanimity among economists as to the number and type of items to be
included in such an index. For instance, Goldstein takes only infant mortality as an
indicator of basic needs to construct an index. Hagen, and UNRISD use eleven to
eighteen items with hardly a few common. On the other hand, Morris uses only three
items, i.e., life expectancy at birth, infant mortality and literacy rate in constructing a
“Physical Quality of Life Index” relating to 23 developed and developing countries of the
world for a comparative study.
 2.Second, there is the problem of assigning weights to the various items which may
depend upon the social, economic and political setup of the country. This involves
subjectivity. Morris D. Morris assigns equal weights to the three indicators which
undermine the value of the index in a comparative analysis of different countries. If each
country chooses its own list of social indicators and assigns weights to them, their
international comparisons would be as inaccurate as GNP figures.
3. Third, social indicators are concerned with current welfare and are not related to the
future. 4.Fourth, the majority of indicators are inputs and not outputs, such as education
health, etc.
5. Last, they involve value judgements. Therefore, in order to avoid value judgements
and for the sake of simplicity, economists and UN organizations use GNP per capita as
the measure of economic development.

Underdevelopment

Let us now define the concept of underdevelopment. Jhingan (1986:11) observes that there is not
a single definition, which is so comprehensive as to incorporate all the features of an
underdeveloped country It is, however important to note that underdevelopment does not denote
absence of development. This is because, as Rodney (1989:21) notes, every people have
developed in one way or another and to a greater or lesser extent. So underdevelopment is a
relative phenomenon. It therefore can best be explained in terms of comparison of levels of
development. This is actually in noting that different societies have different needs as well as
capacities and capabilities as well as different levels of resource endowment. Thus, there are
more developed societies and less developed or underdeveloped societies. However,
underdevelopment as a concept has largely been associated with economic backwardness, which
is characterized by low incomes, poverty, low labour productivity, and "backward" technology.

Generally, we can conclude that an underdeveloped society can be said to be developed, but only
to the extent that most material and welfare needs of the people are largely, partly or wholly
unmet.

At the international level, an underdeveloped country may have the following as some of
its basic characteristics:

• a relatively low per capita production

• a relatively higher proportion of the population working in agriculture

• relatively high unemployment and underemployment

• a relatively higher rate of population growth

• a relatively lower life expectancy

• a higher rate of infant mortality

• a relatively lower rate of literacy and a smaller percentage of young people in

schooling and training at all level

• relatively few doctors per head of population and less access to basic health care

and services and sanitation

Let us caution that the processes of development and underdevelopment should however

not be seen as mutually exclusive, such that if a society or an economy is developing

aspects of underdevelopment may not be found.

OBSTACLES TO DEVELOPMENT

VICIOUS CIRCLES OF POVERTY

The basic vicious circle stems from the fact that in Least Developed Countries total productivity is low
due to deficiency of capital, market imperfections, economic backwardness and underdevelopment.
However, the vicious circles operate both on the demand side and the supply side. The demand-side of
the vicious circle is that the low level of real income leads to a low level of demand which, in turn, leads
to a low rate of investment and hence back to deficiency of capital, low productivity and low income.
This is shown in Fig. 1. The supply side side of vicious cycle. Low productivity is reflected in low real
income. The low level of real income means low saving. The low level of saving leads to low investment
and to deficiency of capital. The deficiency of capital, in turn, leads to low level of productivity and back
to low income. Thus the vicious circle is complete from the supply side.

LOW RATE OF CAPITAL FORMATION The most pertinent obstacle to economic development is the
shortage of capital. This stems from the vicious circles of poverty analysed above. Poverty is both a
cause and a consequence of a country’s low rate of capital formation. In an underdeveloped country,
the masses are poverty-ridden, they are mostly illiterate and unskilled, use outdated capital equipment
and methods of production. They practise subsistence farming, lack mobility and have little connection
with the market sector of the economy. Their marginal productivity is extremely low. Low productivity
leads to low real income, low saving, low investment and to a low rate of capital formation.

SOCIO-CULTURAL CONSTRAINTS

No doubt shortage of capital is a serious obstacle but it is not the only obstacle to economic
development. As Nurkse said: “Economic development has much to do with human endowments, social
attitudes, political conditions and historical accidents. Capital is a necessary but not a sufficient condition
of progress.” Broadly speaking, underdeveloped countries possess social institutions and display such
attitudes as are not conducive to economic development. According to the UN Report on Processes and
Problems of Industrialization in Underdeveloped Countries there are ‘elements of social resistance to
economic change’ in underdeveloped countries which include institutional factors characterized by ‘rigid
stratification of occupations’ reinforced by traditional beliefs and values; attitudes involving ‘inferior
valuation attached to business roles and their incompatibility with the patterns of living and concepts of
social dignity upheld by the high status groups’ and ‘factionalism’

AGRICULTURAL CONSTRAINT

Another obstacle relates to the agricultural sector. The majority of LDCs are predominantly agricultural.
Agricultural production constitutes a large share of their GDP and agricultural commodities form a
considerable part of the value of their total exports. “Agricultural practices are controlled by custom and
tradition. A villager is fearful of science. For many villagers insecticide is taboo. . . . A new and improved
seed is suspect. To try it is a gamble. Fertilisers, for example, are indeed a risk. . . . To adopt these
untried methods might be to risk failure. And failure could mean starvation.” 8 It is, in fact, not the
behaviour of farmers that acts as a constraint on agricultural growth. Instead, the constraints are to be
found in the environment in which farmers operate the technology available to them, the incentives for
production and investment, the availability and price of inputs, the provision of irrigation, and the
climate.

HUMAN RESOURCES CONSTRAINT

Undeveloped human resources are an important obstacle to economic development in LDCs. Such
countries lack in people possessing critical skills and knowledge required for all-round development of
the economy. The existence of surplus labour in them is to a considerable extent due to shortage of
critical skills. Undeveloped human resources are manifest in low labour productivity, factor immobility,
limited specialisation in occupation, and in customary values and traditional social institutions that
minimise the incentives for economic development. Further, “the economic quality of the population
remains low when there is little knowledge of available natural resources, possible alternative
production techniques, necessary skills, existing market conditions and opportunities, and institutions
that might be created to favour economising effort and economic rationality.” Since LDCs have a dearth
of critical skills and knowledge, physical capital, whether indigenous or imported, cannot be productively
utilised. As a result, machines breakdown and wear out soon, materials and components are wasted, the
quality of production falls, and costs rise.

FOREIGN EXCHANGE CONSTRAINT

After the opening up of underdeveloped countries to world markets, there has been a phenomenal rise
in their exports. But this has not contributed much to the development of the rest of the economy of
these countries, as the export sector has developed to the utter neglect of other sectors of the
economy. On the other hand, too much dependence on exports has exposed these economies to
international fluctuations in the demand for and prices of their products. They have become unstable
due to cyclical-instability and balance of payments difficulties. During a depression, the terms of trade
become adverse and foreign exchange earnings fall steeply. As a result, they suffer from unfavourable
balance of payments. But they are unable to take advantage of a fall in the prices of their products by
increasing their exports due to the inelastic nature of supply of their export goods which are mainly
agricultural and mineral products.