Unit I.

The Meaning of Economics and automatic price adjustments; decisions made on

Development the basis of marginal, private-profit, and utility
calculations; and equilibrium outcomes in all
Economics and Development Studies product and resource markets. It assumes

The study of economic development is one of economic “rationality” and a purely

the newest, most exciting, and most challenging materialistic, individualistic, self-interested

branches of the broader disciplines of economics orientation toward economic decision making.

and political economy. Although one could claim Political economy goes beyond traditional
that Adam Smith was the first “development economics to study, among other things, the
economist” and that his Wealth of Nations, social and institutional processes through which
published in 1776, was the first treatise on certain groups of economic and political elites
economic development, the systematic study of influence the allocation of scarce productive
the problems and processes of economic resources now and in the future, either for their
development in Africa, Asia, and Latin America own benefit exclusively or for that of the larger
has emerged only over the past five decades or population as well. Political economy is
so. Although development economics often therefore concerned with the relationship
draws on relevant principles and concepts from between politics and economics, with a special
other branches of economics in either a standard emphasis on the role of power in economic
or modified form, for the most part it is a field of decision making. Thus, it begins with the
study that is rapidly evolving its own distinctive observation that actual policies are quite
analytical and methodological identity. different from optimal policies. It is due to the
fact that the former are subjected to political
constraints (conflict of interest and the need to
The Nature of Development Economics
make collective choices).
Traditional economics is concerned primarily
Development economics has an even greater
with the efficient, least-cost allocation of scarce
scope. In addition to being concerned with the
productive resources and with the optimal
efficient allocation of existing scarce (or idle)
growth of these resources over time so as to
productive resources and with their sustained
produce an ever-expanding range of goods and
growth over time, it must also deal with the
services. Traditional neoclassical economics
economic, social, political, and institutional
deals with an advanced capitalist world of
mechanisms, both public and private, necessary
perfect markets; consumer sovereignty;

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Ma. Eliza Grace B. Buaron, CTT
to bring about rapid (at least by historical The Important Role of Values in Development
standards) and large-scale improvements in Economics
levels of living for the peoples of Africa, Asia,
Economics is a social science. It is concerned with
Latin America, and the formerly socialist
human beings and the social systems by which
transition economies. must be concerned with
they organize their activities to satisfy basic
the economic, cultural, and political
material needs (e.g., food, shelter, and clothing)
requirements for effecting rapid structural and
and nonmaterial wants (e.g., education,
institutional transformations of entire societies
knowledge, spiritual fulfilment). It is necessary to
in a manner that will most efficiently bring the
recognize from the outset that ethical or
fruits of economic progress to the broadest
normative value premises about what is or is not
segments of their populations.
desirable are central features of the economic
Because of the heterogeneity of the developing discipline in general and of development
world and the complexity of the development economics.
process, development economics must be
The very concepts of economic development
eclectic, attempting to combine relevant
and modernization represent implicit as well as
concepts and theories from traditional economic
explicit value premises about desirable goals for
analysis with new models and broader
achieving what Mahatma Gandhi once called the
multidisciplinary approaches derived from
“realization of the human potential.” Concepts
studying the historical and contemporary
or goals such as economic and social equality,
development experience of Africa, Asia, and
the elimination of poverty, universal education,
Latin America. Development economics is a field
rising levels of living, national independence,
on the crest of a breaking wave, with new
modernization of institutions, rule of law and
theories and new data constantly emerging.
due process, access to opportunity, political and
These theories and statistics sometimes confirm
economic participation, grassroots democracy,
and sometimes challenge traditional ways of
self-reliance, and personal fulfilment all derive
viewing the world. The ultimate purpose of
from subjective value judgments about what is
development economics, however, remains
good and desirable and what is not. So too, for
unchanged: to help us understand developing
that matter, do other values—for example, the
economies in order to help improve the material
sanctity of private property, however acquired,
lives of the majority of the global population.
and the right of individuals to accumulate
unlimited personal wealth; the preservation of

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traditional hierarchical social institutions and traditional economics. They must be analyzed
rigid, in egalitarian class structures; the male within the context of the overall social system of
head of household as the final authority; and the a country and, indeed, within an international,
supposed “natural right” of some to lead while global context as well.
others follow.
Social System- the interdependent relationships
Thus, the validity of economic analysis and the between economic and noneconomic factors.
correctness of economic prescriptions should The latter include attitudes toward life, work,
always be evaluated in light of the underlying and authority; public and private bureaucratic,
assumptions or value premises. Once these legal, and administrative structures; patterns of
subjective values have been agreed on by a kinship and religion; cultural traditions; systems
nation or, more specifically, by those who are of land tenure; the authority and integrity of
responsible for national decision making, specific government agencies; the degree of popular
development goals (e.g., greater income participation in development decisions and
equality) and corresponding public policies (e.g., activities; and the flexibility or rigidity of
taxing higher incomes at higher rates) based on economic and social classes. Clearly, these
“objective” theoretical and quantitative analyses factors vary widely from one region of the world
can be pursued. However, where serious value to another and from one culture and social
conflicts and disagreements exist among setting to another.
decision makers, the possibility of a consensus
At the international level, we must also consider
about desirable goals or appropriate policies is
the organization and rules of conduct of the
considerably diminished. In either case, it is
global economy—how they were formulated,
essential, especially in the field of development
who controls them, and who benefits most from
economics that one’s value premises always be
them. This is especially true today with the
made clear.
spread of market economies and the rapid
globalization of trade, finance, corporate
boundaries, technology, intellectual property,
Economies as Social Systems: The Need to Go
and labor migration.
Beyond Simple Economics

Economics and economic systems, especially in

the developing world, must be viewed in a
broader perspective than that postulated by

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Ma. Eliza Grace B. Buaron, CTT
Traditional Economic Measures wrong with this narrow definition of
development. An increasing number of
Development has traditionally meant achieving
economists and policymakers clamored for more
sustained rates of growth of income per capita
direct attacks on widespread absolute poverty,
to enable a nation to expand its output at a rate
increasingly inequitable income distributions,
faster than the growth rate of its population.
and rising unemployment. In short, during the
Levels and rates of growth of “real” per capita
1970s, economic development came to be
gross national income (GNI) (monetary growth of
redefined in terms of the reduction or
GNI per capita minus the rate of inflation) are
elimination of poverty, inequality, and
then used to measure the overall economic well-
unemployment within the context of a growing
being of a population—how much of real goods
economy. “Redistribution from growth” became
and services is available to the average citizen for
a common slogan.
consumption and investment.
Dudley Seers posed the basic question about the
Economic development in the past has also been
meaning of development succinctly when he
typically seen in terms of the planned alteration
asserted: The questions to ask about a country’s
of the structure of production and employment
development are therefore: What has been
so that agriculture’s share of both declines and
happening to poverty? What has been
that of the manufacturing and service industries
happening to unemployment? What has been
increases. Development strategies have
happening to inequality? If all three of these
therefore usually focused on rapid
have declined from high levels, then beyond
industrialization, often at the expense of
doubt this has been a period of development for
agriculture and rural development.
the country concerned. If one or two of these
central problems have been growing worse,

The New Economic View of Development especially if all three have, it would be strange to
call the result “development” even if per capita
The experience of the first decades of post–
income doubled.
World War II and postcolonial development in
the 1950s, 1960s, and early 1970s, when many Development must therefore be conceived of as

developing nations did reach their economic a multidimensional process involving major

growth targets but the levels of living of the changes in social structures, popular attitudes,

masses of people remained for the most part and national institutions, as well as the

unchanged, signaled that something was very acceleration of economic growth, the reduction

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Ma. Eliza Grace B. Buaron, CTT
of inequality, and the eradication of poverty. does make of commodities. For example, a book
Development, in its essence, must represent the is of little value to an illiterate person (except
whole gamut of change by which an entire social perhaps as cooking fuel or as a status symbol).
system, tuned to the diverse basic needs and Or as Sen noted, a person with a parasitic disease
evolving aspirations of individuals and social will be less able to extract nourishment from a
groups within that system, moves away from a given quantity of food than someone without
condition of life widely perceived as parasites.
unsatisfactory toward a situation or condition of
life regarded as materially and spiritually better.
Three Core Values of Development

Is it possible, then, to define or broadly

Amartya Sen’s “Capability” Approach
conceptualize what we mean when we talk
The view that income and wealth are not ends in about development as the sustained elevation of
themselves but instruments for other purposes an entire society and social system toward a
goes back at least as far as Aristotle. Amartya “better” or “more humane” life?
Sen, the 1998 Nobel laureate in economics,
What constitutes the good life is a question as
argues that the “capability to function” is what
old as philosophy, one that must be periodically
really matters for status as a poor or nonpoor
reevaluated and answered afresh in the
person. As Sen puts it, “the expansion of
changing environment of world society. The
commodity productions...are valued, ultimately,
appropriate answer for developing nations today
not for their own sake, but as means to human
is not necessarily the same as it would have been
welfare and freedom.”
in previous decades. But at least three basic
In effect, Sen argues that poverty cannot be components or core values serve as a conceptual
properly measured by income or even by utility basis and practical guideline for understanding
as conventionally understood; what matters the inner meaning of development. These core
fundamentally is not the things a person has—or values—sustenance, self-esteem, and
the feelings these provide—but what a person is, freedom—represent common goals sought by all
or can be, and does, or can do. What matters for individuals and societies. They relate to
well-being is not just the characteristics of fundamental human needs that always find their
commodities consumed, as in the utility expression in almost all societies and cultures.
approach, but what use the consumer can and

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Ma. Eliza Grace B. Buaron, CTT
1. Sustenance: The Ability to Meet Basic Needs. recognition. The nature and form of this self-
All people have certain basic needs without esteem may vary from society to society and
which life would be impossible. These life- from culture to culture. However, with the
sustaining basic human needs include food, proliferation of the “modernizing values” of
shelter, health, and protection. When any of developed nations, many societies in developing
these is absent or in critically short supply, a countries that have had a profound sense of
condition of “absolute underdevelopment” their own worth suffer from serious cultural
exists. A basic function of all economic activity, confusion when they come in contact with
therefore, is to provide as many people as economically and technologically advanced
possible with the means of overcoming the societies. This is because national prosperity has
helplessness and misery arising from a lack of become an almost universal measure of worth.
food, shelter, health, and protection. To this Due to the significance attached to material
extent, we may claim that economic values in developed nations, worthiness and
development is a necessary condition for the esteem are nowadays increasingly conferred
improvement in the quality of life that is only on countries that possess economic wealth
development. Without sustained and and technological power—those that have
continuous economic progress at the individual “developed.” As Denis Goulet put it,
as well as the societal level, the realization of the “Development is legitimized as a goal because it
human potential would not be possible. One is an important, perhaps even an indispensable,
clearly has to “have enough in order to be more.” way of gaining esteem.”
Rising per capita incomes, the elimination of
3. Freedom from Servitude: To Be Able to
absolute poverty, greater employment
Choose. A third and final universal value that we
opportunities, and lessening income inequalities
suggest should constitute the meaning of
therefore constitute the necessary but not the
development is the concept of human freedom.
sufficient conditions for development.
Freedom here is to be understood in the sense
2. Self-Esteem: To Be a Person. A second of emancipation from alienating material
universal component of the good life is self- conditions of life and from social servitude to
esteem—a sense of worth and self-respect, of nature, other people, misery, oppressive
not being used as a tool by others for their own institutions, and dogmatic beliefs, especially that
ends. All peoples and societies seek some basic poverty is predestination. Freedom involves an
form of self-esteem, although they may call it expanded range of choices for societies and their
authenticity, identity, dignity, respect, honor, or members together with a minimization of

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Ma. Eliza Grace B. Buaron, CTT
external constraints in the pursuit of some social 1. To increase the availability and widen
goal we call development. Amartya Sen writes of the distribution of basic life-sustaining goods
“development as freedom.” W. Arthur Lewis such as food, shelter, health, and protection.
stressed the relationship between economic
2. To raise levels of living, including, in
growth and freedom from servitude when he
addition to higher incomes, the provision of
concluded that “the advantage of economic
more jobs, better education, and greater
growth is not that wealth increases happiness,
attention to cultural and human values, all of
but that it increases the range of human choice.”
which will serve not only to enhance material
Wealth can enable people to gain greater control
wellbeing but also to generate greater individual
over nature and the physical environment (e.g.,
and national self-esteem.
through the production of food, clothing, and
shelter) than they would have if they remained 3. To expand the range of economic and

poor. It also gives them the freedom to choose social choices available to individuals and

greater leisure, to have more goods and services, nations by freeing them from servitude and

or to deny the importance of these material dependence, not only in relation to other people

wants and choose to live a life of spiritual and nation-states, but also to the forces of

contemplation. The concept of human freedom ignorance and human misery.

also encompasses various components of

political freedom, including personal security,
The Central Role of Women
the rule of law, freedom of expression, political
participation, and equality of opportunity. Considering the information presented so far, it
should come as no surprise that development
scholars generally view women as playing the
The Three Objectives of Development central role in the development drama. Globally,

We may conclude that development is both a women tend to be poorer than men. They are

physical reality and a state of mind in which also more deprived in health and education and

society has, through some combination of social, in freedoms in all its forms. Moreover, women

economic, and institutional processes, secured have primary responsibility for child rearing, and

the means for obtaining a better life. Whatever the resources that they can bring to this task will

the specific components of this better life, determine whether the cycle of transmission of

development in all societies must have at least poverty from generation to generation will be

the following three objectives: broken. Children need better health and

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Ma. Eliza Grace B. Buaron, CTT
education, and studies from around the
developing world confirm that mothers tend to
spend a significantly higher fraction of income
under their control for the benefit of their
children than fathers do. Women also transmit
values to the next generation. To make the
biggest impact on development, then, a society
must empower and invest in its women.

The Future of the Millennium Development

Goals

In September 2000, the 189 member countries committing themselves to making substantial
of the United Nations at that time adopted eight progress toward the eradication of poverty and
Millennium Development Goals (MDGs), achieving other human development goals by

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Ma. Eliza Grace B. Buaron, CTT
2015. The MDGs are the strongest statement yet the interrelatedness of development objectives
of the international commitment to ending was implicit in the MDGs’ formulation, goals are
global poverty. They acknowledge the presented and treated in reports as stand-alone
multidimensional nature of development and objectives; in reality, the goals are not
poverty alleviation; an end to poverty requires substitutes for each other but complements,
more than just increasing incomes of the poor. such as the close relationship between health
and education. Further, the setting of 2015 as an
The MDGs have provided a unified focus in the
end date for the targets could discourage rather
development community unlike anything that
than encourage further development assistance
preceded them. The goals are then assigned
if it were not met. Moreover, when the MDGs
specific targets deemed achievable by 2015
measure poverty as the fraction of the
based on the pace of past international
population below the $1-a-day line, this is
development achievements.
arbitrary and fails to account for the intensity of
Appropriately, the first MDG addresses the poverty—that a given amount of extra income to
problem of extreme poverty and hunger. The a family with a per capita income of, say, 70 cents
two targets for this goal are more modest: to a day makes a bigger impact on poverty than to
reduce by half the proportion of people living on a family earning 90 cents per day. Other critics
less than $1 a day and to reduce by half the have complained that $1 a day is too low a
proportion of people who suffer from hunger. poverty line and about the lack of goals on
“Halving poverty” has come to serve as a reducing rich-country agricultural subsidies,
touchstone for the MDGs as a whole. To achieve improving legal and human rights of the poor,
this target requires that progress be made on the slowing global warming (which is projected to
other goals as well. harm Africa and South Asia the most), expanding

However, the MDGs have also come in for some gender equality, and leveraging the contribution

criticism. For example, some observers believe of the private sector. While the reasonableness

that the MDG targets were not ambitious of some of these criticisms may be questioned, it

enough, going little beyond projecting past rates should be acknowledged that the MDGs do have

of improvement 15 years into the future. some inherent limitations.

Moreover, the goals were not prioritized; for With the imminent expiration of the MDGs, the
example, reducing hunger may leverage the UN coordinated global efforts to launch its
achievement of many of the other health and successor, Sustainable Development Goals
education targets. At the same time, although (SDGs), with the May 2013 agenda-setting

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Ma. Eliza Grace B. Buaron, CTT
report of the High-Level Panel of Eminent civil society and indigenous and local
Persons on Development Agenda.31 This highly communities, multilateral institutions, business,
diverse panel of political leaders from every part academia, and philanthropy.
of the world agreed upon a bold approach that is
The High-Level Panel also agreed on well-
expected to substantially influence the eventual
recognized and illustrative universal goals and
shape of the post-2015 agenda, the SDGs. The
national targets for the SDGs, including an
panel repeatedly stressed that it is “a universal
outright end by 2030 of poverty, hunger, child
agenda” for all countries, developed as well as
marriage, and preventable under-5 deaths, and
developing and without exceptions, “to be
specific targets on stunting, social protection
driven by five big, transformative shifts.” These
coverage, and maternal mortality. The debate
universal shifts are:
will be lively throughout 2014 and 2015.
1. Leave no one behind—to move “from
reducing to ending extreme poverty, in all its
forms;” in particular, to “design goals that focus Concepts for Review

on reaching excluded groups.” Absolute Poverty Attitudes Capabilities

Developing Countries Development
2. Put sustainable development at the
Development economics Freedom
core, “to integrate the social, economic, and
Functionings
environmental dimensions of sustainability.”
Globalization
3. Transform economies for jobs and
Gross domestic product Gross national income
inclusive growth, while moving to sustainable (GNI) Income per capita Institutions
patterns of work and life. Less developed countries Millennium
Development Goals
4. Build peace and effective, open, and
(MDGs)
accountable institutions for all, which
More developed countries (MDCs) Political
“encourage the rule of law, property rights, economy
freedom of speech and the media, open political Sector
choice, access to justice, and accountable Self-esteem Social system
government and public institutions.”
Subsistence economy Sustenance Traditional
economics Values
5. Forge a new global partnership so that
each priority should involve governments and
also others, including people living in poverty,

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Ma. Eliza Grace B. Buaron, CTT
References
Mankiw, N., 2012. Principles of
Macroeconomics. 6th ed. Mason, OH: South-
Western Cengage Learning.
Todaro, M. and Smith, S., 2015. Economic
Development. 12th ed. New Jersey: Pearson
Education, Inc.

What is Political Economy? (n.d.). Retrieved

August 20, 2020, from
http://assets.press.princeton.edu/chapters/s68
19.pdf

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