STAGE-IV: THE DRIVE TO MATURITY Modern technology was previously limited to a few take-off industries, spread to various industries, and then experienced rapid growth comparable to take-off industries. Workers become more skilled and professional The economic characteristics of this stage are: (a) Change in occupational distribution: As a result of the Industrial Revolution, many industries have been established in Great Britain and other countries. In Western Europe, the workforce shifted from the agricultural sector to the manufacturing sector. The proportion of the workforce engaged in agriculture has fallen below 20%. (b) Changes in consumption patterns: Created a new type of work, called white-collar workers. They are mainly officials or managers of the factory management organization. Because of his high income, his preference turned to luxury goods. The consumption pattern of non-agricultural commodities has thus increased. This led to the development of existing industries, and tastes and preferences changed more rapidly during this period. (c) Changes in consumption in leading sectors: It is observed that changes in composition vary from country to country. Sweden's take-off began with the export of wood, cellulose products and cardboard, followed by railways, hydroelectric power, steel, and livestock and dairy products. Russia's take-off started with grain exports, followed by railways, steel, coal, and engineering. The non-economic factors that \"mature\" are: (a) Corporate leadership: In the stage of maturity, corporate leadership has changed. The oil tycoon gave way to the administrative bureaucracy. (b) Boredom: The boredom of industrialization caused social protests against the cost of industrialization. (v) The era of mass consumption: 101 CU IDOL SELF LEARNING MATERIAL (SLM)
The economy starts from the mature period, and as the growth moves toward mass consumption, the stage when durable consumer goods such as radios, TVs, cars, and refrigerators are living in the suburbs, universities, education for one-third to half of the population Right in front of you. Furthermore, the economy has expressed its willingness to allocate more resources to welfare and social security through its political process. The definition of this stage is to shift the focus from production problems to consumption problems. STAGE-V: THE AGE OF MASS CONSUMPTION A society that is close to maturity. The economy shifted from heavy industrial products such as steel and energy to consumer products such as automobiles and refrigerators. After attaining maturity, the economy moves to the age of high mass consumption. According to Rostow, people try to seek more leisure, increased, welfare, social security, etc. In other words, this is the period of consumer sovereignty. According to the dynamic theory of production, the level of income rises in each stage of growth of the economy. This is explained in the following figure as below: Fig 5.1 The Age of Mass Consumption 102 CU IDOL SELF LEARNING MATERIAL (SLM)
According to Rostow, there are three important ways to allocate resources for achieving health: • Allocate resources for military and foreign policy needs; • Redistribute income through progressive taxes; • Consumption levels exceed necessities (food, housing, clothing) such as education, health, and infrastructure. According to the Rostow model, all countries are in one of these five stages of development. • The most developed countries are in the fourth or fifth stage • The least developed regions are in one of the three previous stages. • The model also claims that today's developed countries have passed the early stages. For example, in the first stage 2 of the nineteenth century, the United States is the first stage of the first half of the 19th century. Countries focused on international trade will benefit from exposure to consumers from other countries. To maintain competitiveness, the take-off industry should always evaluate international consumer preferences, marketing strategies, production engineering, and design technologies. This concern for international competitiveness in the export industry is filtered into higher economic areas. Despite few imperfections, Rostow's model remains one of the best-known formulations of a nation's economic and social development, and the concept of 'economic take-off' is an enduring one, and one which it may be said that the less developed countries of the world are striving to achieve. 5.4.1 Critical Appraisal Although Rostow’s efforts to implement the economic growth phase are widely praised, it has also been criticized for the following reasons: 1) The sequence of stages given by Rostow is unreasonable because the economic system is like a human system. In addition, we cannot predict the exact result of any stage, saying that it will lead to the next stage within the prescribed time limit, which is simply a fantasy. 103 CU IDOL SELF LEARNING MATERIAL (SLM)
2) The prerequisite stage shows overlapping effects because it does not have to precede takeoff. 3) The selection of historical dates for the continuous growth take-off period is vague, purely intuitive, and subjective, so it is dangerous to believe them. 4) The fact that Rostow's inadequate analysis may not help the economy to achieve sustained growth. 5) The capital-product relationship defended by Rostow made us nothing. 6) The Rostov paper, which emphasized the growing importance of leading departments, was not found to be practically feasible. 7) The prerequisites for takeoff did not occur in time. 8) The continuous growth phase is confusing and misleading because no growth is pure self- sustainment. 9) Professor Ian Drummond's point of view is that the stage, especially the take-off stage, is inherently reasonable. In addition, the definition of these stages is not precise enough. 10) Professor Higgins believes that Rostow's theory is very general, and it is far from a correct and systematic theory of economic development. However, Rostow deserves praise and praise for his unique attempt to include non-economic factors in the analysis of economic growth. Therefore, the research on the stages of economic growth in Rostow has become a necessary, analytical, and prerequisite step for modern economic growth research. Rostow defended his theory, thinking that he could replace Marx's theory. Although Marx's view of the stages of growth is embodied in the \"Communist Manifesto\" (1848), Rostow described his own work as the \"Non-Communist Manifesto.\" In fact, the conclusion is that Rostow's theory is based on the flow of Marxist theory. He criticized Marx's theory on the grounds that it was influenced by \"economic determinism.\" 104 CU IDOL SELF LEARNING MATERIAL (SLM)
A great advantage of Rostow's theory is that its main facts are related to the continuity and evolution of society, and it does not treat each stage as mutually exclusive with other stages. In addition, Rostow does not limit human behavior to simple maximization, but interprets human behavior as a balancing act of alternatives and often conflicting human goals. 5.5 SUMMARY Neo-classical growth theory is an economic theory that describes how economic growth rates are produced by a combination of three driving forces: labour, capital, and technology. Economic growth means an increase in production. Economic growth has two characteristics Gradual and continuous: just as the expansion and development of forests are gradual but not sudden, the process of economic growth is also slow and continuous. According to the classics, development is a gradual and continuous process of economic change. They also emphasize the harmony and accumulation of the development process. According to Professor Marshall, development occurs gradually and continuously. Harmony and Accumulation: Economic growth is harmonious because it benefits all classes, namely workers, capitalists, and landlords. 5.6 KEYWORD Capital Accumulation: Capital accumulation means collecting or gathering of objects that have value, increasing wealth by concentrating it or creating of wealth. Capital: Broadly defined, capital represents the tools which people use when they work, in order to make their work more productive and efficient. Resources:a resource is anything of value to us that we can use in the production (to make) of a good or service. Examples of resources include natural resources like water, wheat, and rice. Sustainability: Development that meets the needs of the present without compromising the ability of future generations to meet their own needs. Capitalism: An economic system in which the main form of economic organization is the firm, in which the private owners of capital goods hire labour to produce goods and services for sale on markets with the intent of making a profit. The main economic institutions in a capitalist economic system, then, are private property, markets, and firms 105 CU IDOL SELF LEARNING MATERIAL (SLM)
5.7 LEARNING ACTIVITY 1. Explain the drive to maturity stage _____________________________________________________________________ _____________________________________________________________________ 2. Explain the features of the Neo-Classical growth model _____________________________________________________________________ _____________________________________________________________________ 5.8 UNIT END QUESTIONS A. Descriptive Questions Short Questions 1. What does One Sector Neo-classical Model of Growth state? 2. Explain the traditional society stage one 3. State limitations of Rostow’s theory 4. Explain the drive to maturity stage 5. Explain significance of international trade as one of the feature of Neo-classical growth model Long Questions 1. ElaborateRostow’s theory of stages 2. Describe the main determinants of Economic growth 3. Explain One Sector Neo-classical Model of Growth 4. State limitations of Rostow’s theory 5. Development: A Gradual and Continuous Process. Comment B. Multiple Choice Questions 1. What causes development in terms of Rostow'stheory a. A sharp rise in investment b. Favorable propensities of people c. Changing profile of leading sectors of the economy d. All of these 106 CU IDOL SELF LEARNING MATERIAL (SLM)
2 How many stages of economic growth were defined and analyzed by Rostow which all economies are supposed to pass through in the course of their development? a. Five b. Two c. Three d. four 1. Rostow's economic stages are a. the preconditions for consumption, the replication, the drive to maturity, and the age of high mass consumption b. the preconditions for takeoff, the takeoff, the drive to maturity, and the age of creative destruction c. the learning curve, the age of high mass consumption, post-takeoff, and the drive to maturity d. the traditional society, the preconditions for takeoff, the takeoff, the drive to maturity, and the age of high mass consumption 2. What causes development in terms of Rostow's theory a. A sharp rise in investment b. Favourable propensities of people c. Changing profile of leading sectors of the economy d. All of these 3. According to classical economists, variations in savings are due to: a. Rate of interest b. Level of investment c. Level of employment d. None of these Answers 107 1-d, 2-a, 3-d, 4-d, 5-a 5.9 REFERENCES References book CU IDOL SELF LEARNING MATERIAL (SLM)
Myrdal, G., Economic Theory and Underdeveloped Regions, Duckworth, London, 1957 Bins, Tony, et al. Geographies of Development: An Introduction to Development Studies, 3rd ed. Harlow: Pearson Education, 2008. Website https://en.wikipedia.org/wiki/Rostow%27s_stages_of_growth 108 CU IDOL SELF LEARNING MATERIAL (SLM)
UNIT - 6: STRATEGIES OF ECONOMIC DEVELOPMENT PART I STRUCTURE 6.0 Learning Objectives 6.1 Introduction 6.2 Leibenstein’s Critical Minimum Effect Thesis 6.2.1 Suggestion 6.2.2 Critical Appraisal 6.3 Theory of Big Push. 6.3.1 Criticisms of the Theory 6.4 Summary 6.5 Keywords 6.6 Learning Activity 6.7 Unit End Questions 6.8 References 6.0 LEARNING OBJECTIVES After studying this unit, you will be able to: State the role of a large comprehensive program or big-push to lunch a country into a self-sustaining growth path; Role of critical minimum efforts to push growth at the initial stages of development; Role of surplus labour in initiating the process of economic growth in the underdeveloped economy; 6.1 INTRODUCTION Post-world War The approach to the theory of growth was moved to the theme of the developed country reminiscent of the section of the 12th term and involves free hosts in the countries. The literature of all literature is directed to the issue of public countries. It appeared during the 60s of the third century. Ragnar Nurkse has put the ball rolling with his shape of a bad cycle of poverty. The clubs were collected through economists. Do you have a 109 CU IDOL SELF LEARNING MATERIAL (SLM)
real problem that should be identified as a way to break the malicious circles? Featured contributions have been made by RosensteinRodan (great thrust theory), LeibenStein (critical minimum effort), Higgins (TECNOLOGICAL BIPARTICS), etc. Some self-sufficiency models will be inferred to focus on structural conversion. Between these, the precursor work was carried out by Arthur W. Lewis. The model was later held by John Fei and Gustav Ranis, standardized and expanded. Other development models based on the Movement of Ruralurban were formulated by Michael P. Todaro, which explained obviously decreased the relationships of accelerated rural movements in the increase in urban employment. 18.2 Vicious Circle The vicious cycle of poverty means a round constellation of power that tends to keep poor countries with poor countries with \"state of poverty\" and react in another way. More technically, the vicious circle is a set of interlaced equilibrium to enhance each other. Three vicious circles can be identified: i) The first of these vicious cycles is related to the capital supply. The child's theory of the country is that total production during development and after development and rear orientation, and after consumption needs, there is little excess accumulation of capital. Capital defects reduce investment and the lowest results will be lower. Therefore, degradation is explained by capital defects that work as much as the cause of low-level real retention and the result. II) Real low level income can also act differently. This time I will act on the demand side of the capital city. The low level income of the economy is presenting only a limited market opportunity for entrepreneurs. Therefore, there is almost no demand for investment purposes. As a result, low investment, there is a persistence of development and low balance of income. iii) The third vicious circle covers the resources without developing and backwards. The development of natural resources depends on the character of human productive resources. People who are economically retracted will be natural resources. Resources are not used throughout the lack of implicit, lack of skill, insufficient knowledge and real estate factor, and development will be permanent. Vicious circle attached malicious will know that economic expansion prevents. Economic expansion included new factors, new products, new manufacturing technologies, fabric changes and the introduction of considerable structural changes. The outgoing movement of the developed country is impossible for malicious 110 CU IDOL SELF LEARNING MATERIAL (SLM)
driving from the circle. If such economy is to grow, it is necessary that coordinated efforts can be made to break these vicious cycles. Methods to break the vicious circle Economic and social solutions for underdeveloped countries can only be possible after successfully breaking the vicious circle. How to do it? Generally speaking, there are two schools of thought. One group advocates \"gradual and orderly progress\" in economic development; the other group advocates \"vigorous promotion\" of economic development. The gradual development mode, with little or no emphasis on conscious industrialization, limits the degree of specific planning, and mainly relies on the mechanism of market and private forces to gradually solve development problems. pass. He argues that an economy should focus on agricultural improvement, indirect social capital and the establishment of small-scale industries in the early stage. The defence of a gradual approach to development is based on the belief that the growth of the industry is due ultimately to the expansion of other economic sectors and not to the deliberate efforts of the government in the industrial sector. Initially, income will be looted in the agricultural sector, partly through more efficient production methods and partly through projects such as mountain ranges and irrigation systems instead of roads. These projects aim not only to increase agricultural production, but also to promote the flow of basic products between rural areas and growing urban areas. At first, industrial development may only be a complement to agriculture. But this is just the beginning. The ultimate goal is to establish and promote manufacturing activities. As the level of farm income increases, farm work will have a greater effective demand for non-farm products, especially for manufactured goods consumption goals. In turn, this will increase the demand for capital goods to make manufactured goods The Big Push Approach Proponents of the big push method believe that if a development plan is to gain enough momentum for the to be successful, it must operate quickly and extensively throughout the economy. \"To insist on a 'slow' evolution is defeatism. In fact, it is dangerous. Yes, because it is evolving slowly and it cannot succeed in the face of obstacles.\" Unless there are major changes to the program, I believe that the development process will never spontaneously become cumulative: \"If a competition is to be played, a certain minimum speed is necessary.\" 111 CU IDOL SELF LEARNING MATERIAL (SLM)
The methods for defending the big momentum can be roughly divided into two categories. Some economists consider economic development as \"the relationship between the growth rate of per capita incomes and the population growth rate, and emphasized that although a small increase in per capita income will be absorbed by the population, the growth is caused by the growth of the plan. A substantial increase in per capita income that exceeds a certain \"critical minimum effort\" will free the economy from the gravitational pull of population growth. In short, a large investment of requires a rate such that the increase in production can be significantly greater than the population growth rate of. This category belongs to this category of theories, such as Leibenstein's \"critical least effort article\" and the theory of Nelson's low-level equilibrium trap. The second group of economists believe that the vicious cycle of poverty caused by narrow market and low purchasing power of people is. Therefore, by increasing the purpose and scale of, it is possible to break the vicious circle of market. These authors also emphasized the indivisibility and interdependence of the capital investment required for economic development. of this type of method was developed by Nurkse, whose balanced growth theory advocated that should simultaneously make a wide range of large-scale investments. Hirschman’s unbalanced growth theory and Rosenstein Rodin's \"big push\" theory is also based on the approach. This theory has been developed as a result of the dissertation was presented by Leibenstein. The essence of this theory is that if the development effort is smaller than the \"critical minimum size\", they do nothing. Several factors promote several factors and development to reduce development. There are zero quality factors for positive massive factors, negative factors, and economic development. The economy can advance only if the first set is greater than the last two sets. The set of first factors must be at least one critical minimum size. The theory is based on three Viz factors and relationships. (i) Revenue obtained, (ii) Population growth and (iii) Investment. 112 CU IDOL SELF LEARNING MATERIAL (SLM)
Leibenstein also identified the population as an entry factor, but the investment is a generating income factor. It is more powerful than the factor where income is generated, and economic growth is possible. Small additional investments can cause small income. Additional income can be consumed by the addition of population that can be awakened. Therefore, it is possible that efforts cannot generate cumulative growth processes. What is needed is the first substantially large amount of investment that can create conditions to exceed the growth of the population, that is, the first effort or the minimum size with the first series of efforts that is necessary. 6.2 LEIBENSTEIN’S CRITICAL MINIMUM EFFECT THESIS Harvey Leibenstein suggested an important minimum effort to solve vicious circle problems in poverty in uncovered countries. This theory affirms that the development variables (i.e., income, employment, savings, investment, etc.) move in the reverse direction and there is an inertial environment that invests in development processes. Therefore, minimum efforts are required to overcome inertia. In other words, minimum efforts are required to achieve stable aging growth to raise your income per capita. According to Leibenstein, the entire economy experiences the effects of two \"shock\" and \"stimulating\" powers. Shock refers to the power that tends to reduce results, income, employment, and investment. On the other hand, the exciter helps increase the level of income, results, employment, investment, etc. An exciter is impressed by the development of development, encouraging and called \"total income\". Therefore, it is said that the economy has developed if the impact of the impact is stronger than the effect of the stimulant. On the other hand, if the impact of the shock is weaker than the effect of the stimulant, it is said that the country will be developed. Therefore, developing countries should strengthen the power of the stimulator and weaken the shock through policy options. This theory of this critical minimum effort explains the struggle between impact and stimulating power. It is known that the impact of impact is greater than the effect of the stimulant in the early stage of development (due to the presence of poor circulation of poverty and other depressions), and such economy remains developed. To lift the development economy of development, minimum efforts are required The theory of Leibenstein can be explained with the help of Figure 113 CU IDOL SELF LEARNING MATERIAL (SLM)
Fig 6.1 Leibenstein’s Critical Minimum Effect Thesis In Figure, X-axis represents income and orientation of per capita income. Y-axis shows a decrease in induced benefits and income. Line 450 indicates an increase and decrease in inductive income. The X`x curve indicates a stimulator, and Z`Z` represents a discharge or suppression factor. At point E, the X`x curve and the z`z curve intersect each other. This indicates that there is equality between the growth rate and the growth of the income of the population. Therefore, revenues are captured in a vicious bad circle. If the income level rises from \"OE\" to OM \", the income increase is neutralized by the population boom. This again returns the level of income to\" E \"(lower level). The increase in the level of national income stronger than shock is a solution to the problem. Then, the growth of underdeveloped countries will be self-length. If the income per person rises above the point, the economy may be outside the vicious cycle of poverty. The increase in income is self-length. Therefore, developing countries must be lower than the investment level that pushes income per person 114 CU IDOL SELF LEARNING MATERIAL (SLM)
above \"OK\". The possibility of economic growth is when it turns out that income generation factors become more powerful than income control. A small amount of investment can produce a small income but will return to the first level of equilibrium. To create a state that exceeds population growth, the first substantially large amount of investment is required. According to Leibenstein, a single blow needs to minimize minimal effort. Determinants of the need for a ‘Minimum Effort’ Leibenstein has given four factors that determine the need for a minimum effort: 1. Internal economies: It is important to undertake investment above a minimum size because of indivisibilities in factors of production. 2. External economies: According to Leibenstein, industrial interdependence mainly causes foreign economies. The industry depends on each other. Then, if an industry is existing, there must be another industry. If there is no unique ability, any level of balanced investment can grow. 3. To overcome the income suppression factor, investments are required that exceed a specific minimum size. 4. Cultural and institutional attitudes in backward countries are growth-inhibiting attitudes. It is necessary to have a perspective in which success is determined by the performance of the market, which is determined by rational considerations rather than traditional ones. Therefore, to get rid of tradition and traditional attitudes, and instill new attitudes, we must make the least effort. According to Leibenstein, a critical minimum effort is necessary for the following reasons: 1. Some of the factors of production are indivisible, such that unless used in full or in minimum amounts, they will lead to internal diseconomies. To overcome these diseconomies, some minimum critical investment is necessary. 2. There is a sort of mutuality and interdependence between several firms and industries. As these develop, there emerge external economies. These economies can be reaped only when 115 CU IDOL SELF LEARNING MATERIAL (SLM)
there are at least the minimum numbers of industries operating which make these economies possible. In their absence, these economies may not arise at all. 3. The economy may be subjected to autonomously generated income depressing factors at any time and also may be subject to depressants induced by some aspects of the process of growth at the same time. A certain minimum investment is necessary to overcome them and initiate sustained growth. However, there are some difficulties particularly in the underdeveloped countries which come in the way of implementing this thesis. These are Lack of entrepreneurs; Limited investment opportunities; Deficiency of capital; and Scarcity of other resources. 6.2.1 Suggestion The key minimum effort paper puts forward some of the conditions needed to promote development. These conditions are as follows: 1. Development requires that the economic variable of the positive-sum set is greater than the sum of the negative sum set and the zero-sum set. Positive sum activities include all production activities. The first task of development planning is to see that positive-sum activities are far greater than the sum of zero-sum activities and negative-sum activities. Negative sum activities are population pressure, inflation, the balance of payments problems, corruption, etc. Zero sum’s activities include exploitation opportunities. Distribution activities are zero-sum activities because they simply transfer income from \"have\" to \"no.\" Distribution activities involve personal benefits, but not social ones. 2. Development will require positive-sum incentives to continue to exist and will not degenerate or disappear, because it will not stimulate zero-sum activities One of the problems of development is that positive-sum activities degenerate into zero-sum activities. Some of these examples are the decline in mortality due to development, which again leads to an increase in the population (where the active activity of the decline in mortality leads to an increase in the population, which he believes is a factor in the decline in income), inflation caused by large-scale development expenditures, and Technology upgrades that have caused many people to lose their jobs. It should be noted that these negative and degenerate zero-sum effects will be converted into positive-sum effects as soon as possible. 116 CU IDOL SELF LEARNING MATERIAL (SLM)
3. Development requires growth and development drivers Factors of production must become effective drivers of growth. By increasing training, motivation, and efficiency, the same group of people can become twice as effective. Capacity is more important than sheer size or quantity. Entrepreneurs and technical organizers are very important growth promoters. Entrepreneurs discover investment opportunities, invest in production resources, promote new businesses, and cooperate more effectively with other production agents. Only when the government provides convenience for the vigorous development of entrepreneurs can the role of entrepreneurs be enhanced. They should be allowed to make legitimate profits. 4. Positive-sum activities with critical minimum scale Only when the initial impulse given to the economy reaches the critical minimum scale can the vicious cycle of poverty be broken. For example, if agriculture develops at a rate below the critical minimum scale, all that is produced will be consumed and there will be no surplus for reinvestment. To overcome the indivisibility of production, technology, and psychology, to get out of the trap of the vicious circle, we must make the minimum effort. 5. The critical minimum effort most relevant to the demographic transition or explosion phase Leibenstein said that a large population is a major drag on development, but the decline in the birth rate cannot be expected to reduce the burden on the population. Leibenstein believes that if the development effort reaches the critical minimum scale, the birth rate itself will definitely fall, and if the effort is not the critical minimum scale, the demographic transition will always be a growth inhibitor. In an economically poor country, efforts to reduce the birth rate will not be effective soon, because the decline in fertility in these countries lags behind the decline in mortality. Leibenstein argues that \"the smaller the fertility lag, the smaller the critical minimum effort required for growth. The point at which the fertility rate falls will determine the height of the critical minimum level.\" Leibensteinanalyzed four key points of population growth: 117 CU IDOL SELF LEARNING MATERIAL (SLM)
a) When the income level is low When the income level is low, the fertility rate is high and the mortality rate is also high. There is a confrontation between the individual survival rate and the fertility rate. The fertility rate must be kept high because the death rate is high, so more children are needed to cope with the possible loss. Then because of the high fertility rate, high mortality rate, and poor parenting. The cost of raising children is low and its public services are expensive. (b) When the income level is above the \"very low level\" Due to some development efforts, the mortality rate drops. However, the decline in infertility has been delayed. This delay is due to the family realizing that they are taking their children late. Utilities are declining, but not low, so there is no incentive to lower the fertility rate. (c) When income levels continue to rise production and security services will drop significantly, direct and indirect costs will increase, thus reducing the number of children that parents want. (d) When per capita income is very high the birth rate falls, the gap between mortality and fertility gradually narrows and the country begins to enter a stage of self-sustained growth. When the country goes through the second phase of demographic transition, a critical minimum effort becomes necessary. The critical minimum effort will shorten the transition period or reduce the birth lag period. The relationship between per capita income level and population growth rate Leibenstein pointed out that for every per capita income level higher than the minimum living standard, the national income growth rate is always greater than the population growth rate. In this type of progressive economy, the minimum critical effort theory will not apply. Increasing income can lead to population growth, but it can only reach the maximum. Reaching the level of income for subsistence, neither the population nor the national income has increased. Beyond this level, the population will grow faster than income until it reaches a critical minimum income. Only by reaching or exceeding the critical minimum can we reach the level of per capita income and make the national growth rate equal to or greater than the induced population growth rate. However, in developed countries, the growth rate of 118 CU IDOL SELF LEARNING MATERIAL (SLM)
per capita income is higher than that of the population, so the critical minimum theory is not applicable. 6. Investment in physical and human capital Leibenstein, investment of physical capital and human capital, which can reinvest investor- sufficient profits, should be done in a way that should be done. He affirms that for the tempo with a specific change, it is possible to produce the growth of income growth per person in the economy. If the per capita income falls below the critical minimum level, it can pose at the minimum level required by large investments from the outside of the economy. 7. As the rate of production of incremental capital is reduced, the keys of higher productivity for the rejection of the development of the hypothesis that the hypothesis increases in leibentein in the development process. It argues that workers fall and give the next argument: i) are education, training, and investment in public health measures, the quality of work increases, and the rate of production also increase. (ii) The increase in national income and investment supports the expansion of labour division, and when all departments are developed in a complementary manner, the foreign economy is a broad scale that allows companies to use larger internal economies. It happens. (iii) In the development of society, new resources were discovered and the use of ancient resources was found in a new way. ICOR will go down. 6.2.2 Critical Appraisal Leibenstein assumes that population increases as income increases, above the subsistence level. Beyond a certain level of income, the population will decrease. This means that the increase in income is directly related to the growth of the population. But, in underdeveloped countries, population growth is affected not only by per capita income, but also by people's social attitudes, customs, and traditions. 2. According to Myint, the functional relationship between per capita income and income growth rate is not as simple as Leibenstein hypothesized. It is very complicated and has two stages. In the first stage, the level of per capita income affects the savings and investment rates, which in turn depend on the income distribution pattern and the effectiveness of 119 CU IDOL SELF LEARNING MATERIAL (SLM)
financial institutions in mobilizing savings. In the second stage, the relationship between investment and the products produced depends on the country’s economic and social system. This relationship can be improved through innovation. When the country has newer technology, skilled labour, and necessary infrastructure, major innovations are possible. However, these are not available in the initial stages of development, and the critical minimum will encounter difficulties. 3. Leibenstein was criticized for ignoring the role of the state in solving population problems. No government can wait until per capita income surpasses the critical minimum for slowing population growth. The government should formulate policies to control population growth, especially in underdeveloped countries (for example, in India, we have a national population policy to control population growth). 4. This theory also ignores the role of external forces. In less developed countries, external forces play an important role in the early stages of development. The theory does not clearly explain the role of external forces such as foreign capital, foreign trade, and international economic relations. These forces have a vital influence on development, and these factors play an important role in the development process. Despite previous criticisms, Leibenstein’s theory of minimum effort is an outstanding effort to break the vicious circle of poverty in underdeveloped countries. The road to continuous growth is not smooth and smooth, it is quite complicated. Therefore, to overcome difficulties and achieve sustained growth, essentially only a small amount of effort is required. This is the ultimate goal of the development strategy. 6.3 THEORY OF BIG PUSH The big push theory was proposed by Professor Paul N. Rosenstein Rodan in 1943. According to this theory, to overcome the obstacles to development, a \"big push\" or a big comprehensive plan in the form of high minimum investment is required. In a developing country, and put it on the path of growth. Rosenstein Rodan believes that small, isolated efforts will not have a lasting impact on economic growth. The idea behind this theory is that vigorous promotion or comprehensive large-scale investment plans can contribute to economic development. In other words, if the success of the project is required, then a certain minimum of resources must be invested in the development project. 120 CU IDOL SELF LEARNING MATERIAL (SLM)
Because the plane needs a certain ground speed to take off. Similarly, a certain number of key resources is allocated for development activities. The theory believes that through distribution \"little by little\", no economy can advance on the path of economic development, but it considers that a certain amount of investment is necessary for economic development. Therefore, if so many interdependent industries are started, there will be economies of scale. This external economy obtained through a certain amount of investment will help economic development. Rodan's Thesis: • The model theory emphasizes that, from the current backward state, underdeveloped countries need a lot of investment to embark on the path of development and economic progress. • As needed by developing countries, the theory emphasizes that investment “little by little” will have no impact on the growth process. The injection of a small amount of investment will cause a waste of resources. What is needed is a \"big push\" investment to obtain \"economies of scale\" and get rid of the \"low-level equilibrium trap.\" • \"Development plans have a minimum level of investment\" Starting a country to achieve self- sustaining growth is like taking off an airplane. There is a critical ground speed for this ship to fly. \" Professor Rodin distinguishes three types of indivisibility and externality They are: (i) Production function the indivisibility of capital, that is, the inequality of capital, especially in the creation of social capital. (ii) The indivisibility of the production function. Demand, that is, the complementarity of demand. (iii) The indivisibility of savings is a knot in the supply of savings. Let us study each one separately to emphasize their importance in providing self-generated stimulation to the development process. The indivisibility of the production function: 121 CU IDOL SELF LEARNING MATERIAL (SLM)
Rodin believes that to break the rigidity of the industrial sector, “heavy investment in social capital (SOC), that is, investment in all basic industries (such as energy, transportation, or communications) must be made directly” Before Productive Investment Activity\" (DPIA). He believes that \"indirect social capital\" is the most important indivisibility in the production function. Heavy investment in COS will bring \"increasing returns\" (i.e., economies of scale), which can be achieved on the supply side. Realize the \"external economy\". The indivisibility of inputs or factors leads to increasing returns. The most important form of this indivisibility is social spending capital, such as electricity, transport, and communications. The basic characteristics of indirect social capital are: • Irreversible in time: The creation of indirect social capital must precede other direct productive industries, so it is irreversible or indivisible in time. • Has minimal durability: infrastructure usually lasts a long time. Indirect capital with little durability is technically unviable or inefficient. • The indivisibility of long pregnancy: Compared with investment in other direct production channels, in any sense, investment in general capital stock means that it takes a long time to achieve results. • The smallest and irreducible combination of industries with different types of public services. The indivisibility of these social capital supplies is the main obstacle to economic development, and eliminating them requires a large amount of initial investment Indivisibility of Demand: Capital investment in less developed countries is restricted because these countries only offer small markets for producers. The small size of the market creates uncertainty, which discourages potential investors. On the contrary, if a large number of complementary industries are established at the same time, there will be demand for each other's products, 122 CU IDOL SELF LEARNING MATERIAL (SLM)
providing investors with the necessary incentives. In other words, the indivisibility of demand requires massive investments in multiple industries at the same time. Refers to the complementarity of needs due to the diversity of human needs. The fact of the indivisibility of complementary needs requires that countries establish interrelated industries at the same time to initiate and accelerate the development process. The indivisibility of demand creates interdependence in investment decisions. Therefore, if each investment project is carried out independently, it is likely to fail in most cases. This is because personal investment projects generally have \"high risks because there is uncertainty as to whether the product will find the market.\" This can be illustrated by the following well- known examples given by Rosenstein Rodan (Rosenstein Rodan) for a closed economy. First, suppose that 100 workers posing as unemployed in an underdeveloped country were retired and worked in a shoe factory. The wages of newly hired workers will provide them with additional income. Now, if they spend all their newly acquired purchasing power on shoes, they can ensure that there is a suitable market for the footwear industry. As a result, the industry will succeed and survive. But the fact is that human beings with various desires cannot survive by consuming shoes. Therefore, they will not spend all their income on buying shoes. Therefore, the footwear industry's market will remain as limited as ever. Therefore, investment motivation will be negatively affected. Therefore, the shoe factory investment project may end in a disastrous defeat. Now let us take a slightly different assumption and see how to create a pleasant investment atmosphere. Suppose that the shoe factory not only employs 100 workers but also has 10,000 workers working in 100 different factories that produce various consumer goods. These new factories provide workers with more job opportunities and purchasing power. Both the total purchasing power and the total market size have increased. This is because \"the new manufacturer will become a customer of other manufacturers.\" To some extent, what has happened is that due to the complementary nature of demand, the risk of market restriction is greatly reduced. The result is increased motivation for investment. \"Therefore, as total employment and purchasing power increase in the smallest 123 CU IDOL SELF LEARNING MATERIAL (SLM)
indivisible steps, each factory will have enough market to achieve full load production and the lowest unit cost.\" Thus, we find that the indivisibility of demand requires at the same time, a \"bundle\" of large amounts of salaried goods is produced, and newly employed workers can spend their income on these goods. This alone can ensure that each manufacturer's products have a sufficient market. As far as investment is concerned, the meaning is \"Unless the necessary complementary investment is guaranteed to occur, any individual investment project may be considered too risky to carry out.\" As Professor Higgins said, this will cause problems in the decision-making process. Indivisibility. Large-scale investment plans based on complementary needs can result in substantial increases in national income. However, each investment project carried out separately may have no results at all. The essence of the whole analysis is that interdependent industries require a higher minimum investment to overcome the indivisibility of demand and decision-making. According to the big push theory, this is the only reliable way to overcome the small market size and low investment momentum in developing economies. Indivisibility in the Supply of Savings: A large amount of investment requires a large amount of savings, which is difficult to achieve in underdeveloped economies with low-income levels. Due to a small amount of additional investment, a small increase in income may be consumed. Therefore, what is needed is a large amount of investment that can generate a large amount of additional income, a large part of which can be in the form of savings. If there is not enough savings supply, it is impossible to carry out a high minimum investment plan. However, due to the extremely low price of savings supply and high-income elasticity, it is impossible to have such a high amount of savings in underdeveloped countries. Low savings are mainly due to low income. Therefore, this constitutes the third indivisibility. \"Getting out of the vicious circle,\" Rosenstein Rodin said, \"is the first to increase income and provide mechanisms to ensure that at every second stage, the marginal savings rate is much higher than the average savings rate,\" Smith suggested. Frugality is a virtue and waste is a 124 CU IDOL SELF LEARNING MATERIAL (SLM)
sin. We must adapt to revenue growth. “But in the final analysis, the initial substantial increase in revenue must be provided by a substantial increase in the initial investment. The existence of the three previous indivisibilities clearly shows that the solution to all these problems lies in the high minimum investment. Therefore, the high minimum investment in the form of investment, the lowest inseparable step can be pushed, and the economic obstacles to the development of underdeveloped countries can overcome themselves. Finally, ResensteinRodan believes that the role of international trade visas is to vigorously promote a self-sustainable development strategy. In this sense, he believes that international trade cannot replace the \"big push\". The provision of some required wage goods through imports, at best, can only help narrow the scope of the areas that need to be \"vigorously promoted\". Historical experience provided in the 19th century confirmed Rosenstein Rodin's conclusion that international trade itself cannot entirely avoid the need for a \"big push.\" Once the initial application of the \"big push\" development process begins, your tracking process will tend to follow three sets of balanced growth relationships at the same time. 6.3.1 Criticisms of the Theory Rosenstein Rodan's theory is an improvement on the traditional theory of static equilibrium. 1. Great boost of underdeveloped national power: Poor countries in underdeveloped countries have scarce resources. Therefore, it is difficult to vigorously promote or invest on a large scale in all fields of industries. A big boost is desirable, but will not work in less developed countries. 2. Ignore investment in agriculture: This theory emphasizes the importance of high levels of investment in all types of industries except agriculture and other major industries. However, underdeveloped countries should vigorously promote the construction of irrigation facilities, means of transport, improved seeds, the supply of inputs and tools, and agricultural tools in the agricultural sector. 3. Ignore exports and import substitutes: 125 CU IDOL SELF LEARNING MATERIAL (SLM)
This theory calls for vigorous promotion of large-scale indirect equity investments to achieve a broad external economy. But Wiener pointed out that underdeveloped economies have achieved a larger foreign economy through international trade. 4. The big impulse generates inflationary pressure: The big impulse of indirect social capital can lead to economic inflationary pressure because the indirect social capital has a high rate of production of capital and a long incubation period. Inflationary pressure can negatively affect the development process of less developed countries. 5. Administrative and institutional issues: This theory emphasizes the role of the state or government in making large-scale investments. However, the administrative and institutional mechanisms of the underdeveloped economies are weak and insufficient. 6. The big push is not a historical fact: According to the professor. Hagen, historically, the existence of the push is not a sign of growth anywhere. Many things have grown by, but not all things have grown at the same time. Despite these criticisms, it can be concluded that Rodin’s great theory has pointed out the way to an underdeveloped country. 6.4 SUMMARY Harvey Leibenstein suggested an important minimum effort to solve vicious circle problems in poverty in uncovered countries. This theory affirms that the development variables (i.e., income, employment, savings, investment, etc.) move in reverse direction and there is an inertial environment that invests development processes. Minimum efforts are required to achieve stable aging growth to raise your income per capita. According to Leibenstein, the entire economy experiences the effects of two \"shock\" and \"stimulating\" powers 126 CU IDOL SELF LEARNING MATERIAL (SLM)
6.5 KEYWORD Stimulants: Refer to those forces which help in raising the level of income, output, employment, investment, etc. Shocks: Refer to those forces which tend to reduce output income, employment and investment, etc. Social Overhead Capital: Also known as infrastructure, the supporting structure for production units engaged in production of goods and services Indivisibilities: Refer to the external economies of scale. Social preferences: Preferences that place a value on what happens to other people, even if it results in lower payoffs for the individual 6.6 LEARNING ACTIVITY 1. Distinguish three types of indivisibility and externality ___________________________________________________________________________ ___________________________________________________________________________ 2. State determinants of the need for a ‘Minimum Effort’ ___________________________________________________________________________ ___________________________________________________________________________ 6.7 UNIT END QUESTIONS A. Descriptive Questions Short Questions 1. State the big push theory of growth. 2. Indivisibility in the Supply of Savings 3. The big push is not a historical fact. Comment 4. Explain determinants of the need for a ‘Minimum Effort’ 5. Explain Leibenstein’s Critical Minimum Effect Thesis Long Questions 1. Explain criticisms of the big-push theory 127 CU IDOL SELF LEARNING MATERIAL (SLM)
2. Explain suggestions to Leibenstein’s Critical Minimum Effect Thesis 3. Explain criticism of Leibenstein’s Critical Minimum Effect Thesis 4. Explain Cox’s & Kings and its contribution to tourism industry. 5. Explain the role of a large comprehensive program or big-push to lunch a country into a self-sustaining growth path B. Multiple Choice Questions 1. In the context of which region was the 'big push' strategy of development formulated a. South Asia b. Eastern Europe c. South East Asia d. East Africa 2. The justification of the 'big-push' strategy, which involves concentrated efforts in the form of investments on a large scale, is based on a. Skill formulation b. Complimentarily of demand c. All of the above d. Indivisibilities of demand 3. Under the 'big-push' strategy of development, large investments are to be directed towards a. Agriculture b. Transport c. Power d. Industry 4. The basic logic behind the 'big-push' strategy of development is related to 128 a. An optimum combination b. Internal economies c. Both (a) and (b) d. External economies CU IDOL SELF LEARNING MATERIAL (SLM)
5. In free economy the decision about investment, saving and consumption are decided by a. Price mechanism b. Central bank c. Planning Commission d. Finance budget 6. “Underdeveloped countries are the slums of the world Economy.” This statement is by a. A.N. Caimcross b. W. A. Lewis c. H. Leibenstein d. D. Ricardo 7. The user cost of capital is a. The real rate of interest plus the rate of depreciation b. The real rate of interest only c. The nominal rate of interest plus the rate of depreciation d. The nominal rate of interest only Answers 1-b, 2-c, 3-d. 4-d, 5-a, 6- a, 7-a 6.8 REFERENCES References book Mishra, S.K and V.K Puri (2012). Economics of Development and Planning. Mumbai: Himalaya Publishing House. Thirwall, A.P, (2011) economics of development Palgrave Macmillan, ninth edition. Website https://planningtank.com/planning-theory/critical-minimum-effort- theory#:~:text=The%20critical%20minimum%20effort%20theory,income%20per%20c apita%20equilibrium%20state. 129 CU IDOL SELF LEARNING MATERIAL (SLM)
UNIT – 7: STRATEGIES OF ECONOMIC DEVELOPMENT PART II STRUCTURE 7.0 Learning Objectives 7.1 Introduction 7.2 The Strategy of Balanced Growth 7.3 The Strategy of Unbalanced Growth 7.4 Balanced Versus Unbalanced Growth 7.5 Export Promotion And Import Substitution Strategy 7.5.1 Import Substitution Strategy 7.5.2 Development Through Import Substitution Versus Exports: 7.5.3 Export Promotion Policies 7.5.4 Comparison of The Two Strategies 7.6 Summary 7.7 Keywords 7.8 Learning Activity 7.9 Unit End Questions 7.10 References 7.0 LEARNING OBJECTIVES After studying this unit, you will be able to: Explain the meaning of Balanced Growth Strategy State the meaning of Unbalanced Growth Strategy State the need and importance of import substitution 7.1 INTRODUCTION In order to escape the vicious circle of poverty, underdeveloped countries need large-scale investment. The main issue to be determined in the development planning of developing economies is to establish a target system that can be persuaded by technology. This type of exercise is called planning strategy. Each development strategy contains three components. 130 CU IDOL SELF LEARNING MATERIAL (SLM)
(i) Resource mobilization, (ii) Learning to allocate and mobilize resources, and (iii) Policy framework to ensure effective resource development in priority sectors. Two important growth strategies can be identified as (i) balanced growth strategy and (iii) unbalanced growth strategy. Economists such as H.W. Dinge and A.O. Hirschman believe that rapid economic growth is due to the concentration of investment in certain strategic industries, rather than the equitable distribution of investment among various industries. After a comparative study of balanced and unbalanced growth strategies, a logical question arises: Which of these two strategies provides a greater stimulus to economic growth? The impartial and fair opinion is that there is no need to debate the dispute. It is based strictly on empirical evidence and political motivation. Paul Streeten believes that the choice between balanced and unbalanced growth can be reformulated. But Ashok Mathur believes that “balanced and unbalanced growth do not necessarily conflict with each other, and the best development strategy must incorporate some elements of balance and imbalance.” Both theories are based on the big push theory, which advocates investment through investment. Break the vicious circle of poverty. Balanced growth aims to develop all sectors at the same time, but unbalanced growth suggests investing only in the main sectors of the economy. The underdeveloped countries have insufficient human, material and financial resources to simultaneously invest in a series of complementary industries. Investments in selected industries have created new investment opportunities. The goal is to maintain vitality, not eliminate imbalance by maintaining tension and imbalance. The goal of balanced growth is harmony, coherence, and balance, while unbalanced growth means disharmony, inconsistency, and imbalance. Large amounts of capital are required to achieve balanced growth. 131 CU IDOL SELF LEARNING MATERIAL (SLM)
The theories of unbalanced growth and balanced growth have two common problems, namely the role of the state and the role of supply constraints and supply inelasticity. Private companies can only make investment decisions in underdeveloped countries. Therefore, the prerequisite for balanced growth is planning. In the unbalanced growth strategy, the state played a pioneering role in encouraging SOC investment, which created an imbalance. 7.2 THE STRATEGY OF BALANCED GROWTH Western economists like Ragnar Nurkse, Arthur Lewis, Allyn Young, Rosenstein Rodan, etc., advocate a balanced growth strategy for underdeveloped countries. Balanced growth means the growth of various equity stocks. It refers to the overall growth and balance of full employment, high-level investment, and production capacity. It aims to invest in depressed sectors. When the growth rates of consumption, investment, and income are equal, there will be balanced growth. This can be expressed as: DC/C = DI/I = DY/Y According to R.F Harrod, balanced growth requires equality between the growth rate of income (Gy) the growth rate of output (Gw) and growth rate of natural resources (Gn). This can be expressed as Gy = Gw = Gn Ms. Joan Robinson's concept of \"golden age\" also implies balanced growth. The characteristic of the golden age is that the growth rate of capital (ΔK / K) and the growth rate of the labour force (ΔN / N) are equal. According to Professor Nurkse, balanced growth theory is the true summary of the vicious cycle of poverty. On the supply side, due to the low level of income, the savings capacity is small. Low-income levels reflect low productivity, which in turn is due to a lack of capital. Insufficient capital is the result of a low capacity to save. At this point, the vicious cycle is complete. On the demand side, because people have low purchasing power, this is due to their low real income, which in turn is due to low productivity, so investment incentives may be below. Low productivity may be due to the small amount of capital used in production, which in turn may be due to small incentives for investment. Once again, the vicious cycle is complete. The best way to break this vicious cycle of poverty is to apply capital to a wide range of activities, thereby increasing the level of overall economic efficiency and expanding the scale of the market. Balanced growth theory requires a balance between the different sectors of the economy, that is, a balance between agriculture and industry. The needs of the two sectors must be interdependent, and the expansion of manufacturing must contribute to the 132 CU IDOL SELF LEARNING MATERIAL (SLM)
development of agriculture and vice versa. Planners should not focus on developing the resources of a particular economic sector at the expense of another sector. When formulating a priority model, planners must consider local conditions, such as the availability of resources, the level of technological development, institutional factors, the level of development that has been achieved, and other similar factors. This doctrine also requires a balance between human capital investment and physical capital investment. These capabilities must be continuously improved simultaneously to increase the level of national production, which is the centrifugal force of economic development. Economic development includes capital formation and skill formation. There should also be a balance between the domestic sector and the foreign sector. Underdeveloped countries must adjust their foreign trade policies according to their own development needs. They should adopt restrictive business policies to protect themselves from fluctuations in the global brand. The governments of underdeveloped countries must constantly and seriously strive to earn as much foreign exchange as possible by promoting exports and reducing imports. Imports of luxury goods should be restricted. The money in these accounts should be used for national investments. However, several basic conditions for balanced growth are (i) State intervention (ii) Formulation and implementation of the plan (iii) Coordination between the different government departments (iv) Cooperation between the people and the government. The various advantages of balanced growth are: (i) balanced regional development, (ii) broad market reach, (iii) division of labour, (iv) external economy, (v) creation of indirect social capital, (vi) innovation and research. And (vii) Modern technological development. 7.3 THE STRATEGY OF UNBALANCED GROWTH Professor Albert Hirschman proposed the theory of unbalanced growth of the \"economic development strategy\" of his appearance. He was supported by H. singer, C. P Kindleberger, Paul Streeten, W. Lastow. According to Hirschman, imbalances and tension should be done economically to achieve the promotion of economic development. The best way to create imbalances and tension is to assign the main priorities to the sector at the beginning of development problems. Professor Alok Ghosh explains the concept of unbalanced growth due to stress for revenue in a greater proportion of investment and consumption of the planning period. This definition explains the concept of unbalanced growth in terms of investment, income, and consumption. 133 CU IDOL SELF LEARNING MATERIAL (SLM)
In other words, these three growth rates are not uniform. Professor Rostow explained the concept of unbalanced growth from the point of view of takeoff conditions. The take-off refers to the time interval that economic growth is auto started or automatic, and for that purpose, the following conditions are essential. (A) The productive investment rate should be collected from 5% or more of the national income of 10% or more. (b) It is necessary to carry out a productive investment for the development of the economy. According to Hirschman, a series of investments in two types of type (1) Investments of convergence series and two types of investment in (2) The investment of the integration series is carried out with direct productive activity (DPA), and the investment of the divergent series is carried out in social air capital (SOO). According to Hirschman, SOC refers to \"productive activities of Lord, Secondary and Tertiary that do not work\". The expansion of basic services when investing in SOC is an important condition for promoting and stimulating private investment in DPA. Prerequisites for the DPA investment require some SOC investments. This investment matrix (SOC to DPA) is called \"investment pressured\" or \"development through excessive SOC\". Another strategy of doctrine to imbalance is the lack of SOC. This can also increase production expenses and price levels. The increase in price levels can cause uncertainty and a disadvantaged climate for new investment in DPA. In this way, the development processes can be hampered. This pressure and tension will occur in the development process. (DPA to SOC) The investment sequence is called \"Investment of Pressure Creation\" or \"Development of SocScaase\". The doctrine of unbalanced growth is the creation of economic creation, the select, the economic surplus, the formation of sugar, the short-term strategy, the practical policy, the use of a better use of resources, the expansion of social capital Social and rapid industrialization produces such advantages. 7.4 BALANCED VERSUS UNBALANCED GROWTH After discussing these two strategies, it is worthwhile to conduct a comparative study on balanced and unbalanced growth. The main differences are as follows: 1. Balanced growth 134 CU IDOL SELF LEARNING MATERIAL (SLM)
refers to the simultaneous development of various sectors of the economy, and unbalanced growth refers to the development of only the leading and growth sectors. 2. Balanced growth refers to the harmony, consistency, and balance of the growth rate of various sectors, while unbalanced growth refers to the uncoordinated, inconsistent, and unbalanced growth rate of development parameters. 3. Achieving balanced growth requires a large amount of capital investment and all departments develop simultaneously. Implementing unbalanced growth requires relatively little funding, as only the leading sectors develop first. 4. Balanced growth is a long-term strategy and the development of different industries is possible in the long term. Due to the pressure and pressure in the early stage of development, the goal of balanced growth is difficult to achieve in a short period. However, unbalanced growth is a relatively short-term strategy, because the development of leading industries is possible in a short period. 5. The theory of balanced growth assumes that scarcity bottlenecks are quite common in the economy, so it is recommended to adopt a frontal attack policy to minimize and eliminate bottlenecks. On the other hand, unbalanced growth means that bottlenecks in the economy are not widespread. 6. The theory of balanced growth assumes that the supply of production factors is elastic, which is a necessary condition for the simultaneous expansion of several sectors. The unbalanced growth theory assumes that the supply of factors of production is inelastic in some sectors and elastic in other sectors, which proves that it is reasonable to invest in sectors with elastic supply conditions. 7. Another difference between the balanced growth theory and the unbalanced growth theory is that the former assumes that all sectors generate an external economy, while the latter assumes that some sectors generate more external economies than others. Of course, there are some similarities between these two strategies. The details are as follows: First, these two strategies consider that there is a private company system based on market mechanisms, and its operation is based on market mechanisms. At the same time, they also hint at the operation 135 CU IDOL SELF LEARNING MATERIAL (SLM)
of national plans. Second, they both ignore the effects of supply constraints and inelastic supply. Third, both theories assume interdependence, but to different degrees. The growth is uneven, and the development of one sector depends on the development of other sectors. On the other hand, under unbalanced growth, the economy will gradually move along the path of economic development through tension, imbalance, and imbalance, and finally, achieve balanced growth. 7.5 EXPORT PROMOTION AND IMPORT SUBSTITUTION STRATEGY Less developed countries tend to adopt two alternative strategies in the process of seeking industrialization, namely the import substitution strategy and the export promotion strategy. The import substitution strategy, also known as the entry strategy, advocates the production of goods in the host country through various methods such as subsidies, tariffs, and import quotas. In contrast, an export promotion strategy is also called an export-oriented strategy, which focuses on promoting the domestic production of goods and services, especially in industries with potential comparative advantages, where the country participates in international trade. This article will evaluate the implementation of these two strategies in Brazil and Japan, and will also propose the most appropriate method to promote the industrialization of Nigeria. Most developing countries in Latin America, including Brazil, are committed to implementing import substitution strategies to promote industrialization. The strategy consists of establishing high trade barriers to foreign goods to prevent their imports and promote domestic production. Brazil has implemented a wide range of control measures, including high tariffs and import quotas. The Brazilian government has focused on improving industrialization by implementing protectionist policies in industries that are considered basic, such as chemical products, heavy machinery, cement, cellulose, automobiles, aluminum, and steel. However, this leads to insufficient demand because domestically produced goods are expensive. The high cost of goods has also caused a decrease in the consumption of goods and services. Due to the small domestic market and low demand, this ensures that the industry does not take advantage of economies of scale. All these factors lead to reduced profits, high costs, and low production efficiency. Therefore, the implementation of the import substitution policy in Brazil has not been successful. 136 CU IDOL SELF LEARNING MATERIAL (SLM)
At the same time, East Asian countries, including Japan, implemented an export-oriented strategy, commonly known as an export promotion strategy. Unlike import substitution strategies, export promotion strategies promote work within the global economic system. The government usually targets sectors with potential comparative advantages. The Japanese government has been implementing an export promotion strategy for many years. The government realized that to achieve industrialization, it needed to generate more exports to pay for imports. By importing raw materials, Japan has to add value to them and export them in large quantities to make up for the cost of imports. Therefore, Japan focuses on key manufacturing industries such as steel, shipbuilding, chemicals, merchant ships, electrical equipment, electronics, and nuclear power. However, facing fierce competition from China and South Korea in terms of labour cost and production efficiency, Japan is now focusing on improving technology and robotics to increase production. In terms of the extent to which Japan has adopted a forward-looking strategy to promote exports, it still adopts protectionist tendencies in some of its sectors (such as the agricultural sector) to avoid foreign competition. On the other hand, Nigeria is not yet an industrialized country. Nigeria is mainly an exporter of commodities and raw materials. More than 70% of government revenue and 90% of export revenue come from crude oil. The country also has a large number of well-educated and technically capable citizens. Considering all these factors, the government should focus on implementing an export promotion strategy to promote the industrialization of Nigeria. Because Nigeria has a comparative advantage in the oil industry, it should consider developing industry-related businesses and exporting finished products instead of crude oil. 7.5.1 Import Substitution Strategy Many LDCs ignore the export-led primary growth strategy and instead support the import substitution (IS) development strategy. These policies aim to promote rapid industrialization and development by establishing high barriers to foreign products to encourage domestic production. The policy package is called Import Substitution (IS) and includes a wide range of controls, restrictions, and prohibitions, such as import quotas and high import tariffs. Trade restrictions are intended to \"protect\" domestic industries so that they can gain a comparative advantage and replace previously imported products with domestic products. IS policy is based primarily on the belief that by actively shifting economic activities from 137 CU IDOL SELF LEARNING MATERIAL (SLM)
traditional agriculture and resource-based economic sectors to manufacturing, economic growth can be accelerated. Tariffs, quotas, and extensive total import bans that are part of IS policy are not a form of infant industry protection. The infant industry argument is that after a learning period, sectors and industries that can reasonably be expected to gain a comparative advantage should be protected. But the broad protection under the IS policy generally protects all industries indiscriminately, regardless of whether they generate technical externalities or have the opportunity to achieve competitive efficiency. Due to the sharp fall in the prices of commodities and raw materials exported by many least developed countries, the IS policy is promoted. Prebisch and Singer convincingly believe that the low-income elasticity of demand for primary products means that, in the long run, the terms of trade of exporters of primary products will deteriorate. In summary, the IS development approach applies the strategic case for protection to one or more target industries in less developed countries. In other words, the government determines the most suitable sectors for local industrialization, establishes trade barriers to the products produced by these sectors to incentivize local investment, and then lowers the barriers over time as industrialization proceeds. If the government focuses on the right industry, even if protection declines, the industry will continue to prosper. However, in practice, trade barriers are rarely eliminated. Finally, countries that follow IS strategies tend to have high trade barriers that have grown over time. 7.5.2 Development through Import Substitution Versus Exports: In the 1950s, 1960s, and 1970s, most developing countries deliberately tried industrialization instead of continuing to specialize in the production of basic products (food, raw materials, and minerals) for export in accordance with traditional trade theory. After the decision to industrialize, developing countries had to choose between industrialization through import substitution and export-oriented industrialization. Both policies have their pros and cons. The 138 CU IDOL SELF LEARNING MATERIAL (SLM)
Import Substitution Industrialization (ISI) strategy has three main advantages: 1. Markets for industrial products already exist, as evidenced by commodity imports. Therefore, the risk is reduced by establishing an industry that replaces imports. 2. It is easier for LDCs to protect their domestic markets from foreign competition than to force developed countries to lower their trade barriers to exports of manufactured goods. 3. Foreign companies are induced to establish so-called tariff factories to overcome tariff barriers in least developed countries. These advantages are contrary to the following disadvantages: 1. The domestic industry can grow as it is used to protection from foreign competition, and there are no incentives to increase efficiency. 2. Import substitution can lead to industrial inefficiency, because many LDCs have small domestic markets and cannot take advantage of economies of scale. 3. After simpler manufactured imported products were replaced by domestic production, as capital-intensive and technologically advanced imported products had to be replaced by domestic production, information systems became more difficult and expensive (in greater protection and inefficiency). 4. IS policies often restrict the development of industries that provide inputs to protected industries that produce consumer goods. The concept of effective protection rate shows that tariffs tend to increase with the processing stage. 5. Countries that implement institutional strengthening strategies often do not impose high tariffs on capital goods. Therefore, imported capital goods are widely used for domestic production. With the support of other national policies (such as minimum wage laws that tend to increase labour costs), national companies use relatively capital-intensive production technologies. This means that employment in the newly industrialized sector will not grow at the expected rate. 6. Finally, since the entire development strategy depends on the choice of government officials, many resources are used for rent-seeking activities. In any case, the resources used 139 CU IDOL SELF LEARNING MATERIAL (SLM)
in these activities could have been earmarked for productive ventures, so that in addition to the usual unnecessary losses of protection, it also constitutes an additional economic waste. 7.5.3 Exportpromotion Policies In contrast to alternative import policies (ES), some LDCs adopt an appearance development strategy for their appearance. These policies include the Government Orientation of the sectors with a relatively potential advantage. Therefore, if the country is fully granted to workers who have specialized work, the Government will promote the development of the consultation industry, waiting for the export of these products. This type of strategy includes government policies, such as maintaining a relatively open market, so internal prices sustain the price of the world so that the price of the world is competitive in the global market. Includes government policies to impose only government interference in salaries. and salary markets. The rent reflects the real shortage. In addition, successful exporters often enjoy external interests in the form of special preferences for port facilities, communication networks and loans, and tax rates. The Tradition Strategy focused on exports is called exported growth. Under this strategy, companies will incorporate the export stimulus in various ways, such as interest rates of subsidies frequently greater access to credit. Advantageous Argument: Exported growth, companies are manufactured according to their long-term comparative advantage. This is not the current (static) comparative advantage based on existing resources and knowledge. Dynamic comparative advantage based on acquired skills and technologies, and the importance of learning to improve skills and productivity with repetitive performance and production experience. With exports, the demand for products produced by LDC is not limited to the narrow scale of national markets. The market is the whole world. Exported growth supporters also believe that competitive pressure generated by the export market is a significant stimulus of efficiency and modernization. The only way to be able to succeed in the intense international competition is to create what is the quality you want, and what you want to do as low as possible. 140 CU IDOL SELF LEARNING MATERIAL (SLM)
Finally, the exporting growth strategy promotes the relocation of advanced technology. Producers exported to developed countries not only come into contact with the efficient producer of these countries but learn to adapt their standards and manufacturing technologies. Now they quickly realize the reasons of strategic importance to achieve success in the production effects and quantities in the world market There are two serious disadvantages of exporting growth strategies: 1. WFP can be very difficult to configure, and for the competition of a more established and efficient industry in developing countries, the export industry is above. 2. Developed countries often provide high-level effective protection to create simple laboratory structural categories that already have or can obtain a comparative domain. 7.5.4 Comparison of the Two Strategies 1. Job creation and income distribution: Overall, countries that adopt forward-looking strategies perform better than those that adopt internal strategies. In addition, empirical evidence suggests that being outward rather than inward can lead to fairer income distribution. The expansion of labour-intensive exports has created employment opportunities, and import substitution policies often result in capital-intensive production processes replacing labour. 2. Foreign exchange reserves: Another advantage of an export-oriented strategy is that foreign exchange reserves are obtained forever. On the other hand, under the introspection strategy, the importation of raw materials, capital equipment, and spare parts for domestic production is required to replace imported final products, so the foreign exchange is temporarily lost. The result may be to increase, rather than reduce, dependence on imports. Conclusion 141 CU IDOL SELF LEARNING MATERIAL (SLM)
There is clear evidence that least developed countries that have increased exports of manufacturers have successfully increased their export earnings. There is also ample evidence that producers in these areas have responded well to economic incentives. The East Asian countries have demonstrated the feasibility of trade policies to promote industrialization by relying on foreign markets (rather than domestic markets) and relying on dynamic comparative advantages beyond dependence on commodities. The experience of East Asia clearly shows that the early export pessimism based on IS thinking maybe more an indicator of an inward-looking trade and payment system than an outward-looking approach based on dynamic comparative advantages. The experience of East Asia shows that the export-oriented least developed countries will not permanently lock themselves in the primary product specialization model. Therefore, the conclusion is that a clear understanding of comparative advantage and the importance of promoting the existence of correct relative prices of products and factors is essential to exploit the potential role of international trade in promoting the development of countries of origin. industrialization. 7.6 SUMMARY Development strategy contains three components. (i) Resource mobilization, (ii) Learning to allocate and mobilize resources, and (iii) Policy framework to ensure effective resource development in priority sectors. Economists such as H.W. Dinge and A.O. Hirschman believe that rapid economic growth is due to the concentration of investment in certain strategic industries, rather than the equitable distribution of investment among various industries. Both theories are based on the big push theory, which advocates investment through investment. Break the vicious circle of poverty. Balanced growth aims to develop all sectors at the same time, but unbalanced growth suggests investing only in the main sectors of the economy. Import Substitution Industrialization (ISI) strategy has three main advantages: 1. Markets for industrial products already exist, as evidenced by commodity imports. Therefore, the risk is reduced by establishing an industry that replaces imports. 142 CU IDOL SELF LEARNING MATERIAL (SLM)
2. It is easier for LDCs to protect their domestic markets from foreign competition than to force developed countries to lower their trade barriers to exports of manufactured goods. 3. Foreign companies are induced to establish so-called tariff factories to overcome tariff barriers in least developed countries. 7.7 KEYWORD SOO: Social Overhead Capital DPA: Directly Productive Activities Interest rate: The price you have to pay to borrow money Social costs:Social cost = private cost + external cost Growth theory: any of several theories developed since the 19th century and related to economic growth related to factors such as increases in population or progress in technology 7.8 LEARNING ACTIVITY 1. What are export promotion policies? ___________________________________________________________________________ ___________________________________________________________________________ 2. State the strategy of balanced growth ___________________________________________________________________________ ___________________________________________________________________________ 7.9 UNIT END QUESTIONS A. Descriptive Questions 143 Short Questions 1. Discuss Export promotion strategies 2. What do you mean by development through import substitution? 3. Critically analyse the comparison of balanced and unbalanced strategies 4. Define the following terms a) Disinvestment b) Import Substitution 5. Discuss Export promotion strategies CU IDOL SELF LEARNING MATERIAL (SLM)
Long Questions 1. What do you mean by import substitution Now-a-days what are the problems of import substitution in India? Suggest measures to overcome them. 2. Discuss various measures that can be taken by government for promotion of exports. 3. Discuss the comparison of two strategies 4. Distinguish between balanced and unbalanced growth 5. Explain Balanced growth B. Multiple Choice Questions 1. Balanced growth implies a. Simultaneous development of a variety of activities, which support one another b. Uniform rate of growth of output over time c. Different sectors growing at their natural rates of growth d. Equal allocation of resources to different sectors 2. The growth process that is sustainable and yields broad-based benefits and ensures equality of opportunity for all is termed a. 7Inclusive growth b. Balanced growth c. Sustained growth d. Faster growth 3. Which of the following about strategy of balanced growth is right? a. Simultaneous investment in all sectors b. All sectors are independent c. All sector can develop d. All sector has nominal growth 4. Which of the following statements is consistent with Hirschman’s theory of unbalanced growth? a. To initiate the industrialization process a country requires a \"big push.\" b. A country should focus on industry, because agriculture is not a dynamic sector. 144 CU IDOL SELF LEARNING MATERIAL (SLM)
c. When certain industries are developed first, linkage effects will induce the development of new industries d. All of these 5. The stages of group development are: a. Initiation, evolution, maturation, and decline b. introduction, high productivity, decline c. initiating, storming, norming, performing, adjourning d. Forming, storming, norming, performing, adjourning. Answers 1-a, 2-a, 3- a, 4- d, 5-a 7.10 REFERENCES References book Thirlwall, A. P., Growth and Development, Palgrave Macmillan. Soni, R.N., Agricultural Economics, Vishal Publishing Co. Higgins, B., Economic Development Norton and Co. publisher. Website https://en.wikipedia.org/wiki/Ragnar_Nurkse%27s_balanced_growth_theory https://www.economicshelp.org/blog/glossary/balanced- growth/#:~:text=Definition%20of%20balanced%20growth%3A%20Balanced,as%2 0exports%20and%20retail%20spending. 145 CU IDOL SELF LEARNING MATERIAL (SLM)
UNIT - 8: THEORY OF PLANNING IN DEVELOPING COUNTRIES STRUCTURE 8.0 Learning Objectives 8.1 Introduction 8.2 Meaning and Definition of Planning 8.3 Need for Planning 8.4 Objectives of Planning 8.5 Planning in Developing Countries: Approaches 8.6 Strategy of Planning 8.7 Difficulties in Development Planning 8.8 Price Mechanism and Planning 8.9 Summary 8.10 Keywords 8.11 Learning Activity 8.12 Unit End Questions 8.13 References 8.0 LEARNING OBJECTIVES After studying this unit, you will be able to: The study of this unit will enable us to Outline the concept of Planning State the Need of Planning Analyze the importance and meaning of planning Explain the problems of centralized planning. 8.1 INTRODUCTION Economic development is closely related to planning. Economic planning, the process by which the central government makes or influences key economic decisions. In modern times, especially in underdeveloped and developing countries, planning becomes crazy. The 146 CU IDOL SELF LEARNING MATERIAL (SLM)
planning concept received great support after the end of World War II. At that time, developed but turbulent economies had to recover, while underdeveloped economies were driven by the ambition of rapid economic development. In the late 1960s, the economic affairs of most countries in the world were carried out within the framework of national economic plans. But in the 1980s, the theory and practice of economic planning experienced a crisis. In developed market economies, economic growth rates have slowed from the very high levels reached in the 1960s and 1970s, and the unemployment rate has risen sharply. Also, public confidence has diminished in the government's ability to influence economic performance. As a result, the popularity of the national economic plan declined, and the room for the free play of market forces has expanded. In developing countries, previous forms of economic planning have produced disappointing results, characterized by heavy national bureaucracies and the growth of inefficient public enterprises. Although the role of the state is still dominant, they increasingly rely on market forces to improve economic performance. In some countries, some people accept the idea of the plan unkindly. Perhaps because the plan became more active, it was related to the socialist economy. The hatred of socialism is also more actively transferred to the plan. But this irrational opposition to planning has almost disappeared. Even in capitalist countries where the economy is managed and guided by market incentives, plans are more or less implemented in one or another sector of the economy. Approximately 20% of the US economy can be considered planned, because to this extent, current resources are controlled and removed by the state. Although there is a difference between a planned economy and an unplanned economy. The planned economy has been generally accepted, and planning departments are expanding in almost all places. For underdeveloped countries eager to accelerate development, planning is a necessary condition for progress. 8.2 MEANING AND DEFINITIONS OF PLANNING Planning is preparation for action. Planning is a conscious effort to achieve desired goals. It is a method of rational use of resources to achieve specific goals. A planned economy means an economic system in which the central government, the government, controlling and regulating production, distribution, prices, etc., decides in advance the actions, goals, and strategies development strategy. 147 CU IDOL SELF LEARNING MATERIAL (SLM)
The term planning has been broadly defined and, in most cases, this definition comes from the same point of view. Dimock defines planning as “the use of rational design rather than randomness, making decisions before an action is taken rather than improving after the action has begun. Urick defines planning as, \"Planning is an intellectual process, a mental inclination, to do things in an orderly manner, to think before acting, and to act on facts and not conjecture. It is the antithesis of the speculative bias.\" Sackler Hudson has defined it as \"the process of building the basis for future course of action\" Otokiti (1999), defines economic planning as the intentional control of the economy, by a central authority through various tools and subsystems within the system itself, aiming of achieving specific goals and objectives within a specific time frame. On the other hand, Todaro and Smith (2011), defined economic planning as a deliberate and conscious effort by the state economies to make decisions about how to distribute factors of production to people, thereby determining how much of the total goods and services will be produced in one or more subsequent periods. Jhingan (2011), defines economic planning as the intentional control and direction of the economy by a central authority for the purpose of achieving specific goals and objectives within a specific time frame. Body. So planning is \"thinking ahead\" or thinking before doing. It is an intellectual process that identifies a consciously performed course of action. In short, planning is the conscious process of choosing and developing the best course of action to achieve a definite goal. Therefore, planning is the implementation of foresight and a network of actions for defined goals. Countries like the USA, UK, India, Malaysia, and Singapore have carefully taken the formulation and implementation of their economic plans seriously, positioning them in the position they currently occupy in the commission of countries around the world. However, this is not the case for the least developed countries. This has contributed to the visible degree of economic backwardness in their economies. 8.3 NEED FOR PLANNING Most developing countries were under colonial rule before 1950 and were heavily exploited by colonial powers. For example, India, which was once quite prosperous, became underdeveloped and poor during British rule. Its handicrafts cannot compete with cheap imported industrial products, and as a result, handicraftsmen and workers are unemployed. In order to earn a living, they also work in agriculture. As a result, too many people are engaged 148 CU IDOL SELF LEARNING MATERIAL (SLM)
in agriculture, more than necessary, causing massive unemployment in disguise. In order to get rid of colonial rule, they adopted economic planning as a means of economic development. That is, without relying on market mechanisms to achieve optimal allocation of resources and achieve economic growth and development, the country must adopt adequate economic planning to play an important role in the following aspects: The following argument shows that there is an urgent need for planning in less developed and developing countries: 1. To increase the rate of Economic Development in an economy: One of the main objectives of the plan for underdeveloped countries is to increase the speed of economic development. In Dr.Gadgil's words, \"Economic development planning means external guidance or supervision of economic activities by the planning authority, in most cases the same as the national government.\" This means planning for capital growth by increasing levels of income, savings, and investment. Speed training. Only the central planning authority can control banks and other credit institutions, and when these institutions are affiliated with private companies, they tend to cluster in urban areas. The vast rural areas were completely ignored and thrown to the wolves, the native moneylenders. The planned economy can revolutionize the economy by providing financial institutions and mobilizing savings and investment in rural areas. Planning alone can eliminate the imbalance in foreign trade, which is usually detrimental to the underdeveloped countries, which are exporters of primary products and importers of manufactured products. 2. Remove the poverty and inequalities: The vicious economic cycle of poverty caused by low income, low savings, and high propensity to consume will further reduce investment and low capital formation rates. Low productivity, low income, and poverty must be eradicated. It can only be achieved through planning. Carry out. The plan is like an injection in the arm that allows the patient to overcome the disease. Planning alone can create more job opportunities and eliminate widespread unemployment and disguised unemployment. This is a very common feature of underdeveloped countries. It is the supreme medicine to increase national income and per capita income, reduce income and wealth inequality, increase employment opportunities, and achieve rapid economic development in various regions. It is often said that the pendulum swings too far in the direction of the plan to go in the opposite direction. 149 CU IDOL SELF LEARNING MATERIAL (SLM)
3. For efficient utilization of resources: The most important function of the economic plan is to ensure the best use of certain domestic resources. Only by distributing and using the available resources in the most effective way can the greatest social benefits be guaranteed? The low or unused rate of resources will adversely affect the employment level and productivity of the economy. The government must make some arrangements to achieve a balance between supply and demand. In a market economy, there are unnecessary expenses in the form of the cost of sales. Few manufacturers sometimes establish cartels to control the market. All of this can be solved by the government through an effective plan. 4. Price Stability: The purpose of the economic plan is to reduce price instability caused by trade fluctuations. During a period of increased demand, price increases are unavoidable due to a shortage of supply. In underdeveloped countries, due to low production capacity, low savings and investments, and traditional environments, prices have started to rise sharply, which has a profound impact on developing societies. To eliminate the adverse effects of price instability and corporate fluctuations, the government has played a vital role in creating favourable economic conditions. This can only be achieved through smart financial planning. 5. Self-Sufficient: The country's self-sufficiency in industrial raw materials such as grains and steel has always been the objective of the plan. Furthermore, growth must be self-sustaining, thus increasing the saving rate and the investment rate. The goal should be to eliminate dependence on foreign aid by increasing export trade and developing domestic resources. 6. Comprehensive Development: Comprehensive economic development is another objective that must be considered. It should seek to achieve the development of all economic activities such as agriculture, industry, transportation, and electricity at the same time. Similarly, other underdeveloped rural areas should also be included in adequate development plans to reduce the migration of the rural population in the economy. 7. Development of Agriculture and Industrial Sector: 150 CU IDOL SELF LEARNING MATERIAL (SLM)
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