|
| The application of development theories and strategies for Pakistan |
 PRINTABLE VERSION |
The Economics of Development refers to the problems of the economic development of underdeveloped countries. Following the UN Human Development Report 1990, the goal of development is “to create an enabling environment for people to enjoy long, healthy and creative lives”. Besides improvements in material well-being or economic development, the goal is an improvement in human development – an expression for the many dimensions of well-being that can not be summarised with income alone. At the same time, development is a process of transformation, from traditional ways of doing things and “accepting the world as is” towards more modern ways and active participation in change (Stiglitz, 1998). Economists from all camps – from Marxist to neo-liberal – have contributed to the theoretical and empirical literature in development economics. Accordingly, the predominant view of the core problems and of the best strategies to achieve development has swung substantially over the past 50 years, in the light of experience and in response to changes in the international environment.
In this article first of all we will go through some theories of development and analyse their application to Pakistan, and then we will see what the strategy for the economic development of Pakistan should be.
Adam Smith is regarded as the foremost classical economist of this age. His monumental work, “An Enquiry into the Nature and causes of the Wealth of Nations,” published in 1776, was primarily concerned with the problem of economic development. Though he did not expound any systematic growth theory, yet a coherent theory has been constructed by later day economists. Indeed, even today, this book remains a key text book in most economic courses and is referred to in many debates involving the subjects.
Adam Smith believed in the doctrine of natural law in economic affairs. He regarded every person, as the best judge of his self interest, who should be left to purpose it to his own advantage. In furthering his own self interest he would also further the common good. In pursuance of this, each individual was led by an “invisible hand” which guided market mechanism. The invisible hand the automatic equilibrating mechanism of the perfectly competitive market, tended to maximize national wealth.
Division of labour is the starting point of Smith’s theory of economic growth. Division of labour increases with the extending of markets. For this purpose, expansion of commerce and international trade is especially beneficial. According to Smith, farmers, producers and businessmen are the agents of the economic progress. It was free trade enterprise and competition that led farmers, producers and businessmen to expand the market which in turn made economic development which is largely the ability of the people to save more and invest more in the country.
Smith’s theory of economic development has limited validity for under-developed countries like Pakistan. In Pakistan, the size of the market is small. As a result, the capacity to save and inducement to invest are low. The size of the market is determined by the volume of production. This in turn depends on the level of income, which is very low.
The political, social and institutional assumptions underlying Smith’s theory are not applicable. Laissez-faire has lost its significance in underdeveloped countries. Monopoly of power has tended to strengthen the vicious circles of poverty. Therefore, development is possible through government intervention.
Classical Economists believe in Laissez-faire economy and the invisible hand for market mechanism. They regard capital accumulation as the key to progress and profit induced investment. According to them, the end result of capitalist development is stagnation. This stagnation results from the natural tendency of profits to fall and the consequent choking of capital accumulation.
This theory is not applicable to the LCDs like Pakistan. It neglects the impact of technology on development. It gives the wrong notion of stationary state. The Laissez-faire policy is impracticable because without government intervention, many projects for development cannot be completed in Pakistan. This theory has a negative view of capital accumulation and it ignores the role of the middle class in national development.
According to Karl Marx, capitalism is the root of all problems. As he says, “capital is dead labour that, vampire like, only lives by sucking living labour and lives the more, the more labour it sucks.” When the capitalist is replacing the workers by machines, he is killing the workers by machines; he is killing the goose that laid the golden eggs. As capital accumulation increases, competition increases and profit tends to decline. In order to counteract this tendency of decline rate of profit, the capitalist increases the degrees of exploitation of the nation by reducing wages, lengthening the working day and by speed ups, etc. The ratio of labour to total out-put falls still further. The rate of profit declines all the more. Production is no longer profitable. Marx suggests the role of government for economic development. According to him, socialism is the remedy these all these problems.
|
Tags
You must be logged in to add tags.
|
Writer Profile
aneel SALMAN
aneel SALMAN Lecturer, Dept of Economics Forman Christian University, Pakistan. Currently a Fulbright Scholar, pursuing PhD in Economics at Rensselaer Polytechnic Institute (RPI) Troy, NY USA 12180-3590 Email: aneelsalman@yahoo.com
|
Comments
You must be a TakingITGlobal member to post a comment. Sign up for free or login.
|
|
