Chapter 2: Development Theories

Understanding Development Theories

• Development theories provide a scientific explanation of why some

countries have become rich and developed, while others remain poor and
underdeveloped. It is based on facts, evidence, and local context such as
people, government and environment.

Modernization Theory

• Definition:

o Based on the concept of Modernity.

o Developed by Western scholars.
• Key Assumptions:

o A country that is modern is considered developed. While a country

that is traditional is considered poor.

o To explain why some countries became poor after World War II, then
they are given suggestions and prescriptions on how to become rich.
o Fight against (remove) socialism. Russia supported socialism.
o Promote (modernity) capitalism. (e.g., USA and Western nations).

Capitalism vs. Socialism

Capitalism
• Based on a market economy.

• Focuses on individual merit—rewards those who contribute more.

• Encourages:
o Choices, diversity, and innovation.

o Free trade, which leads to global economic exchange.

o Private sector competition, driving innovation and efficiency.

Socialism

• Focus on group-based economic distribution.

• Resources are subsidized equally rather than based on individual

contributions.

• More control by public sectors rather than private businesses.

The Role of Public and Private Sectors in Development

Public Sectors (Government-Owned Industries)

• Advantages:

o Ensure basic needs (education, healthcare, infrastructure).

o Create economic stability by regulating monopolies.

o Encourage competition and innovation, especially in sectors like

research, energy, and defense.

• Challenges – Bureaucratic Inefficiencies:

Bureaucracy refers to the administrative processes and government systems
that oversee public services. While it is essential for regulation, excessive
bureaucracy leads to inefficiencies, such as:
▪ Slow decision-making → Policies and approvals take too long due to
complex procedures.

▪ Rigid regulations → Too many rules prevent quick adaptation to

economic or technological changes.
▪ Corruption and favoritism → Bureaucratic layers create opportunities
for misuse of power.
▪ Lack of motivation → Government workers have job security,
meaning less incentive to improve efficiency.

▪ Wastage of resources → Public money may be misused due to lack

of strict accountability.
Private Sectors (Individually or Corporate-Owned Businesses)

• Advantages:

o Encourage market competition, leading to lower prices and higher

quality.
o Foster rapid innovation in technology, services, and consumer goods.

o Attract foreign investment, boosting economic growth.

• Challenges:

o Can create income inequality.

o Risk of monopolies if not properly regulated.

The Marshall Plan was a U.S. program that gave financial aid to help rebuild
European countries after World War II, aiming to restore their economies and
prevent the spread of communism.
The Modernization Process

This process is also known by different names and follows key principles:

1. Universal → Applicable to all nations.

2. Homogeneous → Results are expected to be similar worldwide.

3. Transformative → Countries move from traditional to modern economies.

4. Lengthy → Development takes time.

5. Progressive → Continuous updates and changes.

6. Imminent → Western concepts (e.g., private universities) drive development.

7. Linear → Growth follows an upward trajectory.

Key Theorists in Development Theories:

• Walt Rostow → Promotes Capitalism & Modernization Theory.
• Karl Marx → Advocates Socialism & Class Struggle.

Walt Rostow’s Model: "Linear Stages of Growth Theory"

Stage 1: Traditional Society → According to Rostow, every country started their

journey as a traditional community.
• Power is concentrated in the hands of few. Social structures are rigid and
based on hereditary status. Two types of people: King(ruler) and
Slaves(ruled).
• Political connections matter more than merit.

• Lack of innovation.
• Their economy is based on agriculture; therefore, production will be limited.

Stage 2: Transitional Society → Preconditions to Take-Off.

• Merit will be recognized rather than just political connections.

• Innovation in agriculture:
▪ Surplus of production.

▪ Savings and investment are growing.

▪ Efficient time management improves production capacity.

Stage 3: Take-off Stage

1. Agricultural commercialization. It becomes industrialized as many products

are produced from the same resource, making more industries.

Case Studies: After 1999. Green Revaluation happened

o Bangladesh: Rapid expansion in Ready-Made Garments (RMG)

industry.
o Chemical Fertilizers & Agribusiness as major drivers of growth

o Technology in Irrigation.

o Tractors instead of langol.

2. Few other industries dominates besides agriculture; Food processing

industries. Chips, Biscuits, Cold drinks; Simple industries.
3. Savings and reinvestment strategies.

Stage 4: Drive to Modernity

1. Long transition period (40-60 years).

2. Shift from simple to complex industries.

3. Heavy investments in foreign markets and regional expansion.
Case Study:
o China, India focusing on exports and industrial expansion.

4. Persistent poverty, yet a strong service sector.

5. Control over other countries’ resources.

• Traits of Simple Industry:

o Does not require skills, anyone can work.

o Unskilled or semi-skilled.
o Education is not required.

o Small Profit.

• Traits of Complex Industry:

o Resource management.

o Skilled workforce,

o Advanced technology.

o Expensive industrial projects.

o Huge profit.
Stage 5: Age of High Mass Consumption

1. Government becomes powerful.

o Strong opposition emerges but is usually controlled.

o Democracy strengthens, influencing global economic models
(reflects American economic preferences).
o Their voices matter even in other countries.
2. Service sector dominance (food, communication, education, healthcare, security).

• Case Study:

o Scandinavian countries excel in service economy.

o Bangalore is safe at night but not Delhi.

o Netherlands have elderly care which costing comes from the tax they
paid
o Childcare system in other countries.

3. Control over other economies via:

o Aid distribution.

o Large-scale funding.
o Example: Norway’s role in global finance and telecommunications.

Positive Implications (1950s-1970s): Countries that had successfully followed

Rostow’s model.

Good Examples:

• Singapore, Japan, Australia, New Zealand

• Eastern European Countries

Key Revolutions:

1. Political Revolution
o Do not have conflict of interest during power shifting. e.g., Japan’s
President’s resignation due failure controlling COVID-19.

2. Scientific Revolution

o Singapore has:

1. Port-based economy with technological advancements.

2. Fast dispatch management.

 3. Economic and political stability lead to rapid growth.

3. Economic/Industrial Revolution

o Singapore prioritized higher education and research. There is no

unemployment as they make sure of this.

Criticism: Modernity may not always be beneficial.

Rostow’s Stages of Economic Growth (From Book)

In 1960, Walt Rostow published The Stages of Economic Growth: A Non-Communist
Manifesto. His model explains how economies develop in five sequential stages,
moving from a traditional society to an era of mass consumption. His theory is part
of modernization theory, suggesting that all countries can achieve development by
following a similar path.
The 5 Stages of Economic Growth:
1. Traditional Society

o Economy based on subsistence agriculture and simple trade.

o Limited technology and resistance to change.
o Society is hierarchical with little economic mobility.

2. Preconditions for Takeoff

o Infrastructure improvements (roads, transport, banking).

o Increase in investment and savings.

o Introduction of new farming techniques and commercial agriculture.

o External influences (trade, foreign investments) drive economic

changes.
3. Takeoff

o Rapid industrialization begins (factories, manufacturing).

o High economic growth due to new technologies and industries.

o Shift from agricultural dependence to production-based economy.

o High levels of investment and reinvestment in the economy.

4. Drive to Maturity

o Diversification of the economy with strong technological

advancements.
 o Investments in education, healthcare, and infrastructure.

o Economy becomes more complex with a strong industrial and service

sector.

o Increased urbanization and improved living standards.

5. Age of High Mass Consumption

o Economy shifts towards consumer goods and services (cars,

electronics, luxury items).

o Higher wages, social welfare, and improved quality of life.

o Mass urbanization and dominance of tertiary (service) sector.

o Government focuses on social security, welfare, and global influence.