ASSINMENT 1

ASSIGNMENT 1 DEVELOPMENT THEORY 8th JUNE 2013 SUBMITED BY: M VENUMADHAV CENTER FOR ECONOMIC AND SOCIAL STUDIES HYD-500 016 DECLARATION I declare that this ASSIGNMENT 1 entitled DEVELOPMENT THEORY is the result of my own work and that it had not, either wholly or in part, been submitted for any other degree. Due acknowledgements have been made whenever anything has been borrowed from other sources. Venumadhav .M (M.Phill) Roll no: 13 Area of spln: Pol sci & Public Administration Date: 25-07-2013 Contents Classical growth theory (4-9) Discuss the Neo-Marxist and Structuralist paradigms of economic development in a comparative perspective. (10-11) “A country is poor because it is poor”. Examine the concept of ‘vicious circle of poverty (12-14) Discuss the situations of Market failure and Government failure. (15-16) What is the ‘structural adjustment policy? Write about its success and failure. (17-18) What is sustainable development? How the idea incorporated in to India and Rural development. (19-24)  Q1.Classical growth theory Ans: INTRODUCTION Classical economics is widely regarded as the first modern school of economic thought. Its major developers include Adam Smith, Jean-Baptist Say, David Ricardo, Thomas Malthus and John Stuart Mill. Adam Smith's The Wealth of Nations in 1776 is usually considered to mark the beginning of classical economics. The school was active into the mid 19th century and was followed by neoclassical economics in Britain beginning around 1870, or, in Marx's definition by "vulgar political economy" from the 1830s. The definition of classical economics is debated, particularly the period 1830–70 and the connection to neoclassical economics. The term "classical economics" was coined by Karl Marx to refer to Ricardian economics – the economics of David Ricardo and James Mill and their predecessors – but usage was subsequently extended to include the followers of Ricardo Classical economists claimed that free markets regulate themselves, when free of any intervention. Adam Smith referred to a so-called invisible hand, which will move markets towards their natural equilibrium, without requiring any outside intervention. As opposed to Keynesian economics, classical economics assumes flexible prices both in the case of goods and wages. Another main assumption is based on Say's Law: supply creates its own demand - that is, aggregate production will generate an income enough to purchase all the output produced; this implicitly assumes, in contrast to Keynes, that there will be net saving or spending of cash or financial instruments. Another postulate of classical economics is the equality of savings and investment, assuming that flexible interest rates will always maintain equilibrium. HISTORY OF CLASSICAL GROWTH THEORY The classical economists produced their "magnificent dynamics” during a period in which capitalism was emerging from feudalism and in which the industrial revolution was leading to vast changes in society. These changes raised the question of how a society could be organized around a system in which every individual sought his or her own (monetary) gain. Classical political economy is popularly associated with the idea that free markets can regulate themselves. Classical economists and their immediate predecessors reoriented economics away from an analysis of the ruler's personal interests to broader national interests. Adam Smith, and also physiocrat Francois Quesnay, for example, identified the wealth of a nation with the yearly national income, instead of the king's treasury. Smith saw this income as produced by labor, land, and capital. With property rights to land and capital held by individuals, the national income is divided up between laborers, landlords, and capitalists in the form of wages, rent, and interest or profits. Classical economics is generally agreed (but see section Debates on the definition of classical economics below) to have developed into neoclassical economics – as the name suggests –or to at least be most closely represented in the modern age by neoclassical economics, and many of its ideas remain fundamental in economics. Other ideas, however, have either disappeared from neoclassical discourse or been replaced by Keynesian economics in the Keynesian revolution and neoclassical synthesis. Some classical ideas are represented in various schools of heterodox economics, notably Marxian economics – Marx being a contemporary of the classical economists and their immediate successors – and Austrian economics, which split from neoclassical economics in the late 19th century. Analyzing the growth in the wealth of nations and advocating policies to promote such growth was a major focus of classical economists. John Hicks & Samuel Hollander, Nicholas Kaldor, Luigi L. Pasinetti, and Paul A. Samuelson have presented formal models as part of their respective interpretations of classical political economy. Classical economists developed a theory of value, or price, to investigate economic dynamics. William Petty introduced a fundamental distinction between market price and natural price to facilitate the portrayal of regularities in prices. Market prices are jostled by many transient influences that are difficult to theorize about at any abstract level. Natural prices, according to Petty, Smith, and Ricardo, for example, capture systematic and persistent forces operating at a point in time. Market prices always tend toward natural prices in a process that Smith described as somewhat similar to gravitational attraction. The theory of what determined natural prices varied within the Classical school. Petty tried to develop a par between land and labor and had what might be called a land-and-labor theory of value. Smith confined the labor theory of value to a mythical pre-capitalist past. Others may interpret Smith to have believed in value as derived from labor. He stated that natural prices were the sum of natural rates of wages, profits (including interest on capital and wages of superintendence) and rent. Ricardo also had what might be described as a cost of production theory of value. He criticized Smith for describing rent as price-determining, instead of price-determined, and saw the labor theory of value as a good approximation. Some historians of economic thought, in particular, Sraffian economists see the classical theory of prices as determined from three givens: 1. The level of outputs at the level of Smith's "effectual demand", 2 Technology and 3.Wages. From these givens, one can rigorously derive a theory of value. But neither Ricardo nor Marx, the most rigorous investigators of the theory of value during the Classical period, developed this theory fully. Those who reconstruct the theory of value in this manner see the determinants of natural prices as being explained by the Classical economists from within the theory of economics, albeit at a lower level of abstraction. For example, the theory of wages was closely connected to the theory of population. The Classical economists took the theory of the determinants of the level and growth of population as part of Political Economy. Since then, the theory of population has been seen as part of Demography. In contrast to the Classical theory, the determinants of the neoclassical theory value 1. Tastes 2. Technologies 3.Endowments are seen as exogenous to neoclassical economics. Classical economics tended to stress the benefits of trade. Its theory of value was largely displaced by marginalist schools of thought which sees "use value" as deriving from the marginal utility that consumers finds in a good, and "exchange value" (i.e. natural price) as determined by the marginal opportunity- or disutility-cost of the inputs that make up the product. Ironically, considering the attachment of many classical economists to the free market, the largest school of economic thought that still adheres to classical form is the Marxian school. British classical economists in the 19th century had a well-developed controversy between the Banking and the Currency school. This parallels recent debates between proponents of the theory of endogenous money, such as Nicholas Caldor, and monetarists, such as Milton Friedman. Monetarists and members of the currency school argued that banks can and should control the supply of money. According to their theories, inflation is caused by banks issuing an excessive supply of money. According to proponents of the theory of endogenous money, the supply of money automatically adjusts to the demand, and banks can only control the terms (e.g., the rate of interest) on which loans are made. The theory of value is currently a contested subject. One issue is whether classical economics is a forerunner of neoclassical economics or a school of thought that had a distinct theory of value, distribution, and growth. Sraffians, who emphasize the discontinuity thesis, see classical economics as extending from Petty's work in the 17th century to the break-up of the Ricardian system around 1830. The period between 1830 and the 1870s would then be dominated by "vulgar political economy", as Karl Marx characterized it. Sraffians argue that: the wages fund theory; Senior's abstinence theory of interest, which puts the return to capital on the same level as returns to land and labor; the explanation of equilibrium prices by well-behaved supply and demand functions; and Say's law, are not necessary or essential elements of the classical theory of value and distribution. Perhaps Schumpeter's view that John Stuart Mill put forth a half-way house between classical and neoclassical economics is consistent with this view. Sraffians generally see Marx as having rediscovered and restated the logic of classical economics, albeit for his own purposes. Others, such as Schumpeter, think of Marx as a follower of Ricardo. Even Samuel Hollander has recently explained that there is a textual basis in the classical economists for Marx's reading, although he does argue that it is an extremely narrow set of texts. Another position is that neoclassical economics is essentially continuous with classical economics. To scholars promoting this view, there is no hard and fast line between classical and neoclassical economics. There may be shifts of emphasis, such as between the long run and the short run and between supply and demand and the neoclassical concepts are to be found confused or in embryo in classical economics. To these economists, there is only one theory of value and distribution. Alfred Marshall is a well-known promoter of this view. Samuel Hollander is probably its best current proponent. Still another position sees two threads simultaneously being developed in classical economics. In this view, neoclassical economics is a development of certain exoteric (popular) views in Adam Smith. Ricardo was a sport, developing certain esoteric (known by only the select) views in Adam Smith. This view can be found in W. Stanley Jevons, who referred to Ricardo as something like "that able, but wrong-headed man" who put economics on the "wrong track". One can also find this view in Maurice Dobb's Theories of Value and Distribution since Adam Smith: Ideology and Economic Theory (1973), as well as in Karl Marx's Theories of Surplus Value. The above does not exhaust the possibilities. John Maynard Keynes thought of classical economics as starting with Ricardo and being ended by the publication of Keynes' own General Theory of Employment Interest and Money. The defining criterion of classical economics, on this view, is Say's law which is disputed by Keynesian economics. CLASSICAL THINKERS Adam Smith When Adam smith published the “Wealth of Nations” in 1776, agricultural and industrial revolutions were both already under way in Britain, and the book is written in a tone of optimism concerning the prospect for long-run growth. At the time Smith was writing he also observed that producers in parts of Europe had been, and were, experiencing an extension of both domestic and foreign markets. Two factors, improvements in law and order along actual and potential trade routes, and the expansion of low-cost water borne transport, were resulting in greater exchange over longer distances. For Smith, the premium mobile of expanding national output and labor productivity is this same extension of the market. It is this which both makes growth possible and simultaneously provides the necessary inducement not only to expand production, but to do so in a manner which increases labor productivity. Extension of the market provides opportunities for an increase in the division of labor and, observes Smith, the division of labor-or specialization-raises labor productivity for three reasons: Workers become more efficient in the performance of particular tasks. Job specialization reduces time spent switching tasks. Job specialization also increases the scope for designing improved tools and machines to raise labor productivity. However, while market expansion provides the opportunity and inducement for growth in output and productivity, the latter will only occur if firms respond to new opportunities by committing increased resources to production. A Twentieth century reinterpretation of Smith At the time Smith wrote the “Wealth of Nations” the industrial revolution was in its infancy. it is therefore to his credit that he already recognized that industrializing nations manufacturing and not agriculture would be the main source of growth. By the beginning of the 20th century both the structure of production in Western Europe and North America, and the production technologies used, had changed dramatically. It was from this very different perspective that Young, in 1911, published an article that drew its inspiration directly from Smith, but which reinterpreted Smith’s analysis in the light of the accumulated evidence of the sub sequent 140 years. Classical growth theory continued: the problems imposed by agriculture Not all the classical economists, however, were as sanguine as Smith or Young concerning the prospects for prolonged economic growth and associated rise in real wages. In the first half the nineteenth century first Malthus and then Ricardo-tow economists whose economic theory in other respects diverged gave reasons for supposing that the agricultural sector could impose a break on rising real wages and, in the case of Ricardo, on overall economic expansion as well. Malthus In An Essay on the principle of population, written in 1798, Malthus shows himself to be more concerned with what could be expected to happen over time to mass welfare in an economy than with economic growth per se. Malthus analysis is based on a mixture and factual assertion, the essence of which may be summarized as follows. Economic growth generates increased demand for labor and hence rising wages, rising wages lead in turn to an increase in population and hence labor supply: with an increase in living standards parents choose to have more children and, in addition, a higher proportion of children survive infancy. These points were commonly made by the classical economists. The distinctive feature of Malthus’ thesis is the next step in his analysis. Ricardo Ricardo, like all classical economists, observed that economic growth is financed out of the profits accruing from productive activity. If growth is to continue, it follows that the share of profit in national income must remain positive. For Smith this was not a problem, because although he thought that during periods of economic expansion wages would tend to rise and the return on capital to fall, he also thought that with the expansion of production the absolute volume of profits accruing to manufacturers would expand, thereby providing the means to finance further growth. Only at some indefinite point in the future would the net profit rate fall to zero. Ricardo, however, foresaw that during a phase of economic growth profits might quite quickly be eroded to such an extent that growth itself would be brought to a halt. Ricardo’s argument, which begins on the same lines as Malthus’, was as follows Economic growth leads to an increase in demand for labor which in turn leads to a rise in wages and consequently, an increase in population. Both the letter generates an increase in demand for food. All this is already familiar. Ricardo, however, then introduces his own analysis of the consequences of rising food demand. Mill Ricardo’s principles were published in three editions between 1817 and 1821. The Corn Laws were finally replaced in 1846. Two years later J.S. Mill published his “Principles of Political Economy”, perhaps the last great text of the mainstream classical political economists. After two revisions, the third edition appeared in 1852. Mill’s analysis of economic growth was not particularly original. To a large extent he articulated what by then were the generally received theories of the classical school, increasing the theoretical innovations of Ricardo’s pessimism. In this respect the wheel seems to have turned full circle, for this optimism is a belief in the boundless prospects for improvements in technology, the opportunities for capital expert. What still preoccupied Mill, however, was a fear, somewhat in the Malthusian tradition, that among the ‘laboring classes” increases in real wages would continue to be quickly eroded by population increases among the changes that he wanted to see were increased voluntary restraints on population growth amongst working people, which, unlike Malthus, he was confident could be achieved, combined with a more equitable of the fruits of economic growth COMMENTS ON CLASSICAL GROWTH THEORY Classical growth theory was not a completely monolithic whole. There were disagreements and contradictions within it. There is no such thing as a single classical growth paradigm. Rather, we have a body of increasingly tightly articulated theory, reflecting a range of different perspectives and preoccupations within which there are, as Deane has observed, a number of recurring key factors and relationships. The former include capital accumulation, institutional factors, trade, technology, population growth and natural resources. The first four factors recur in one or more paradigms of economic development and underdevelopment, although, as we shall see, the interpretation of their significance varies. Thus, for example, expansion of international trade according to existing comparative advantage is sometimes seen as a stimulus, and sometimes as a constraint to economic development, while unquestioning adoption of modern technology has also been shown to be problematic. Reference -Book reference “Economic Ideas of six great Economists” volume 1 edited by Debendra K.das “Economic Theories of Development” by Diana Hunt -Web reference en.wikipedia.org Q2. Discuss the Neo-Marxist and Structuralist paradigms of economic development in a comparative perspective. Ans: Introduction:- ` Structuralism is basically a method of enquiry which challenges the assumptions of empiricism and positivism. This method is found in literary criticism, linguistics, aesthetics and social sciences, both Marxist and non-Marxist. The principal characteristic of structuralism is that it takes as its object of investigation a ‘system’, that is, the reciprocal relations among parts of a whole, rather than the study of the different parts in isolation. In a more specific sense this concept is used by those theories that hold that there are a set of social and economic structures that are unobservable but which generate observable social and economic phenomena. The Neo-Marxist paradigm derives from an attempt to develop and adopt traditional Marxist theory to the analysis of underdeveloped economies. Comparative perspectives of Neo-Marxist and Structuralist Paradigms Neo-Marxist Structuralist The Neo-Marxist approach to development economics is connected with dependency and world systems theories. Here the "exploitation" which defines it as a Marxist approach is an external exploitation rather than the normal "internal" exploitation of orthodox/classical Marxism. Economic underdevelopment is a process whose dominant feature is the persistent outflow of economic surplus generated in the periphery to the advanced capitalist economies. The surplus is defined as the difference between both actual or potential output and either actual or essential consumption. Economically underdeveloped countries are, as a result, characterized by low average per capita incomes and by slow-rates of accumulation. Economic development consists, by implementation, in national reinvestment of the surplus and consequent expansion of national output, the letter being equitably distributed. The industrial development which has occurred consists predominantly of a limited range of industrial monopolies owned by nationals and/or foreign capitalists. Full economic development can only occur after radical political change. This perspective was developed first to throw light on the causes of underdevelopment and development in Latin America. The main tents of the classical structuralist analysis of underdevelopment. An underdeveloped economy is characterized not only by a low per capita income but by certain important structural features. The letter refer primarily to : The sectoral composition of output, employment and capital stock ; Economic institutions, including agrarian systems. The joint effect of the forgoing on elasticities of supply and demand. Key structural features of underdeveloped economies are : The juxtaposition of a traditional largely agriculture sector using a technology with low levels of productivity and modern sector using much more advanced technology. The modern sector is usually established by foreign capital engaged capital engaged in primarily production for expert. Economic development consists not only of rising per capita incomes but also in structural transformation Main policy instruments are tariffs and quotas, foreign exchange rationing, low formal sector interest rates and tax concessions to industrial investors. Foreign investment is welcomed as a potential purveyor of finance and technology. Underdeveloped countries cannot be expected to replicate the development paths of the now industrially advanced countries due to the nature of their position in the international economy. Conclusion However, the structuralist paradigm said the advancement of industrial development, but the Neo-Marxist paradigm has been the attention it has drawn to the significance of the class distribution of control over the ‘surplus ‘in peripheral economies, and likewise, to the class distribution of political power. Reference -Book reference “Economic Theories of Development” by Diana Hunt -Web reference en.wikipedia.org 3. Q. “A country is poor because it is poor”. Examine the concept of ‘vicious circle of poverty. Introduction Poverty is a great curse. It is the biggest hurdle in the way of economic development. Ranger Nurkse in ''Problems of Capital Formation in Underdeveloped Countries'' describes 'vicious circle of poverty as the basic cause of under-development of poor countries. According to him, a country is poor because it is poor. Being poor, a country has little ability or incentive to save. The low of saving leads to low level of investment and to deficiency of capital. The low of investment leads to low level of productivity. When the productivity per worker is low, the real income will obviously be low and so there poverty and vicious circle is complete. On the side of demand when people have low real income the demand for goods is bound to be small. In the small size of market, there is no incentive of invest in real or human capital. When the rate of investment is low, the productivity of the factors of production is bound to be low. Low productivity leads to low per capital income which is rapidly absorbed by the rising population growth. The country, therefore, remained poor. The vicious circle of underdevelopment Lower per capita incomes make it extremely difficult for poor nations to save and invest, a condition that perpetuates low productivity and low incomes. Furthermore, rapid population growth may quickly absorb increases in per capita real income and thereby may negate the possibility of breaking out of the underdevelopment circle. The vicious circle of poverty is one of the most widely known theories based on the notion that a lack of capital is the key factor preventing growth and development. As the name implies, it is a theory explaining economic stagnation at very low levels of per capita output. At the time it was formulated, in the early 1950s, the model seemed to be an accurate description of conditions in many countries. Since then, however, most developing countries have achieved higher per capita GNPs and improvements in other socioeconomic indicators, and there is nothing in the vicious circle model to indicate why this growth and development have occurred. The model is presented in Figure given below which shows that there are actually two circles, one reflecting supply conditions and the other the forces of Demand. Supply Demand How to break this vicious circle of poverty? Remaining poor is certainly no crime. The accepting of poverty and allowing it to continue is certainly a crime. Briefly, the vicious circle of poverty can be broken in developing countries including Pakistan by adopting following measures. (1) Increase in savings. The vicious of circle of poverty can be broken by making serious efforts in increasing the volume of real savings both at the level of in development the govt. The govt. can also mobilize foreign savings for capital formation country. (2) Higher per capital growth rate. The per capital growth rate should be higher than the rate of growth of population. This objective be achieved by increasing the level of employment in the country and reducing the rate of population growth. If the rate of increase in real per capital income is the same as the rate of growth of population, the real income per person will remain unchanged. (3) Efficient use of natural resources. The less developed countries (LDC) are not making the efficient use of the natural resources available to them. At present the multinational companies (MNCs) of the advanced countries are exploiting these resources more for their own economic benefits. The economic advantages of the natural resources must pass on to the benefits of the poor masses of the LDCs. (4) Employment of human resources. Many of the less developing countries including Pakistan are faced with serious unemployment problem. The quality of labor force is also poor. The low level of literacy, malnutrition, absence of proper medical care etc are all barriers to economic development Effective measures have to be taken for sufficient investment in human capital to break the poverty barrier of the LDCs. (5) Increasing the stock of capital goods. The LDCs can come out of the vicious circle pf poverty if the wealthy class is motivated to make their savings available for investment in productive activates rather than using their wealth on the purchase of urban real estates, precious metals etc. (6) Technological advance. The people in less developed countries (LDCs) can break the poverty barrier by adopting and applying advance technologies which are appropriate to the resources available to them. (7) Role of the advanced nations. The advanced nations help the less developed countries in breaking the poverty barrier by: (i) Expanding volume of trade with them. (ii) Increasing the flow of private and public capital in basic infrastructure. (Iii) Provision of direct aid in basic social sectors such as education, health etc. (iv) Provision of soft loans for development. (v) Writing off loans. (8) Role for the government. The government in the less developed country is in the key position to deal effectively with social institutional obstacles to growth and breaking out the vicious circle of poverty. It can greatly root out political corruption and bribery. It can provide incentives to save and invest. It can increase agricultural production by introducing effective land reforms in the country. Conclusion Another major cause of economic backwardness is the vicious circle of poverty. Due to backwardness there is not optimum use of resources and due to this reason goods are not produced on the principle of specialization and division of labor and hence production remains low. Low level of production is due to imperfect markets. Therefore, the level of income of the people is low and hence, level of savings is low. Low level of savings is responsible for low level of investment as a result capital formation rate remains low and problem of shortage of capital arises in these countries and therefore, shortage of capital is the major cause of their underdevelopment. Reference -Book reference Theories of development -Web reference en.wikipedia.org 4 Q. Discuss the situations of Market failure and Government failure. Introduction The state is an organization for monopolizing legitimate coercive power. Using this coercive force, the state coordinates people's activities according to rules and regulations it stipulates. As a part of these rules, the state enforces conscription of resources, such as taxation and military draft, irrespective of an individual's will, while taking responsibility for providing such public goods as national defense, courts, police, and roads, which cannot be supplied by the market. Despite their diametrically opposite roles in resource allocations, the market and the state are inseparably interdependent. The first condition for a -market to function is a clear assignment of property rights on goods and services. Market failure If the market can achieve a socially desirable allocation of resources, there should be no need for government to coercively intervene in economic activities. However, the market is not able to achieve optimality in all economic activities. Divergence of market equilibrium from the point of Marshallian net utility maximization or Pareto optimality is called market failure. Government activities are needed to correct this failure. Market failure emerges in the supply of public goods. The market can achieve efficient resource allocations only to 'private goods' for which private property rights are established, so that only those who are assigned rights are entitled to use the goods—others are obliged to pay for the use of them. Market failure can occur in the case of pure private goods also. For the market mechanism to achieve social optimality the condition of 'perfect competition' must be satisfied—all the participants in market transactions must have perfect information on the prices and the qualities of commodities and no one can have monopolistic power to influence market prices. Government failure The supply of public goods is determined through a political process; there is no guarantee at all that their supply will be socially optimal. The danger of oversupply of public good should not be overlooked. The supply of public good entails costs which are ultimately financed through taxation. If a government activity to correct a market failure entails higher budgetary cost than social gain from the corrective measure, it represents an oversupply of public goods. The problem is that government is an organization inherently prone to oversupply those public goods of relatively low social demand at the expense of those public goods vitally needed for economic development. Political leaders or politicians are to maximize their likelihood of staying in office. Towards this goal, budget allocations among various public goods are based not so much on considerations of their contribution to social economic welfare, but on calculations on the strength of enhancing political support. The government failure is not limited to misuse of budget, but arises from undue regulations to bias resource allocations. There are many regulations that made positive contributions to such purposes as pollution control and safety when they were instituted, but later had socially negative effects. Conclusion However, both the market and the state are indispensable for allocating resources. The major task in choosing an economic system is to find the proper combination of market and state by clearly recognizing possible failures of these two organizations. For developing countries it is especially important to recognize that the types and magnitudes of both market and government failures are different for different cultural heritages as well as for different stages of development. Reference -Book reference ”Development economics” by Hayami -Web reference en.wikipedia.org 5Q.what is the ‘structural adjustment policy? Write about its success and failure. Ans: Introduction The models of economic development that dominated nearly three decades following World War II emphasized the need to correct market failure in the development process by means of government planning and command for the promotion of target industries. The defects of this developmentalist strategy became increasingly clear from the early 1970s with the failures of the import-substitution industrialization policy as well as the malfunctioning of centrally planned economies. These empirical tests led to the restoration of the market mechanism to a central role in development policy. A new paradigm emerged which dictated that governments should limit their activities to sound macroeconomic management and the supply of public goods, while other economic functions should be left to the private sector to pursue under free market competition. The Structural Adjustment Policy (SAP) The World Bank and the International Monetary Fund (IMF) led this paradigm change. In the early and mid-1980s, after the collapse of the second oil boom in 1981, the World Bank and IMF, respectively, began to stipulate basic policy reforms by the governments of developing economies as a condition for granting them credits to overcome economic crises arising from sharply decreasing world market prices for primary commodities and increasing interest rates. This approach is called 'structural adjustment policy' (SAP). SAP is based on the perception in the 1980s that the crisis of developing economies was not a temporary phenomenon resulting from the slump in primary commodity markets but was the result of accumulated government failures produced inevitably by their economic systems. To correct these failures, it was believed, government regulations must be reduced, including removal of trade restrictions which had constrained market mechanisms and distorted resource allocation. Government must shoulder the cost of public goods but must keep within the limits of available revenue so that decent stability is maintained in the purchasing power of domestic currency. The aim of the World Bank and IMF in stipulating conditions for receipt of financial assistance (a process known as 'conditionality') was to encourage developing economies towards such policy reform. Success of the Structural Adjustment Policy (SAP) SAP did make some significant contributions, especially in the following two contexts: (l) helping Latin American countries, such as Argentina and Mexico, to escape from the so-called 'Debt Crisis' of the 1980s that was characterized by hyper-inflation and accumulated external debt; and, (2) Helping several South-east Asian nations, including Indonesia and Thailand, to become part of the 'East Asian Economic Miracle'. -etc… Failure of Structural Adjustment Policy (SAP) By the beginning of the 1990s the doctrine of neoclassical market liberalism had become an established paradigm in the international development assistance community. Known popularly as 'the Washington consensus', it advocated the free market as the controlling mechanism for economic activities, except for the supply of public goods including sound macroeconomic management. Supremacy of this doctrine, however, was short lived. Its adequacy as a guiding principle of development policies began to be seriously questioned already in the 1990s. The criticism stemmed from several observations: (l) that Latin American economies were not able to sustain economic growth after their recovery from the Debt Crisis; (2) that East Asian economies were plunged into crisis in the late 1990s due to a major disruption in regional financial markets; and, (3) That SAP had failed to achieve economic growth and reduced poverty in low-income economies, especially in Africa. Conclusion SAP is most closely associated with the IMF and the World Bank, especially with their use of conditionality in programmed loans designed to rescue Latin American economies from the Debt Crisis of the 1980s. SAP also deled with the following crises, they are Recurrent crises in Latin America Chile: setting a stage for Latin American reforms Mexico: the Tequila Crisis Argentina: the collapse of a paragon The cycles of crisis Financial crisis in East Asia Structure of the capital account crisis and so on….. Reference -Book reference ”Development economics” by Hayami -Web reference en.wikipedia.org 6Q.What is sustainable development? How the idea incorporated in to India and Rural development. Introduction CONCEPT OF SUSTAINABILITY The concept of sustainability explores the relationship among economic development, environment quality, and social equality. This concept has been evolving since 1972, when the international community first explored the connection between equality of life and environmental quality on the UN conference on the Human Environment in “Stockholm”. However, it was not until 1987 that the term “Sustainable development” was defined as “Development that can meet the needs of the present generation without compromising the ability of future generations their own needs”.-World commission on Environment and Development, 1987. This definition established the need for integrated decision making that is capable of balancing people’s economic and social needs with the regenerative capacity of the natural environment. “Sustainable Development” is a dynamic process of change in which the exploitation of resources, the direction of investments, the orientation of technical development and institutional change are mode consistent with future as well as present needs. -according to the Brudtland Commission rest on political will of the governments as critical economic, environmental, and social decisions have to be made Three components Sustainable Development is comprised of three components: Economic, Environmental and social, these three are frequently referred to as triple bottom line, and are used to gauge the success of particular development project. It is critical that each component is given equal attain in order to ensure a Sustainable outcome. This is examined individually. Operational criteria for Sustainable Development Considering many definitions and concepts of development, three seems to be three operational criteria. These criteria should evaluate each objective of the triple bottom line with the following three caveats. fg.1 PROJECT A – Large scale irrigation project with high economic returns rich formers benefit, but causes shistosoniusis among local people, who are not direct beneficiaries: poor formers may become landless labor PROJECT B - Save the spotted deer or rhinoceros PROJECT C – Subsidized hospital project in a sparsely populated urban area. PROJECT D - Rural water supply project, with benefits the poor and women in particular, improvers quantity and quality of available water and at low cost Early use of the term “Sustainable Development” Concern about sustainability can be traced back to Malthus (1766-1834) and William Stanley Jevons (1835-82) and other 18th and 19th century thinkers who worried about resource scarcity, especially in the face of population rise (Malthus) and energy (coal) shortages (Jevons). This issue was raised in the 1950s. it was not until the 1960s and 70s, however, that a significant the intensification of anxiety about the environment. The term “Sustainable Development” comes into the public arena in 1980 when the International Union for the Conservations of Natural and Natural Resource presented the World Conservation Strategy (IUCN1980). It aimed at achieving sustainable development through the conservation of living resources. The Brundtland formulation It was not until 1987, when the word the World Commission on Environment and Development (WCED) published its report, Our Common Future that the links between social, economic and ecological dimensions of the development were explicitly addressed (WCED 1987). The WCED was chaired by Gro Harlem Brundtland, the then Norwegian Prime Minister, and Our Common Future is sometimes known as Brundtland Report. The Brundtland Report makes four key links in the economy- society – environment chain. The Brundtland development paradigm Reviving growth Population and human resources Food security Loss of species and genetic resources Energy Industry Human settlement and land use Brundtland model provides a set of guidelines, it is not detailed enough to determine actual policies. These have to be worked out in practice, through, for example, international negotiations. Summary: the Brundtland approach to sustainable development It links environmental degradation with economic, social and political factors. It presents sustainable development as a model of social change. It adopts a global focus. It constructs a three-pillar approach: reconciliation of the social, economic and ecological dimensions of change. It takes a positive attitude towards development: environmental protection and economic development can be mutually compatible goals and may even support each other. It has achieved authoritative status in international environmental and development discourse and international environmental governance structures and legal frameworks. Sustainability in Indian planning and Rural Development People-centered development, or sustainable human development, has gained increasing acceptance over the last ten years. It emphasizes that development should be broad based and bottom up; redistributive and just; and empowering and environmentally sustainable, seeking to meet the needs of the present generation without compromising the ability of future generations to meet their own needs (WCED 1987). In 1992, Agenda 21 (UNCED) outlined programmes that go beyond ecological sustainability to include other dimensions of sustainable development, such as equity, economic growth, and popular participation. Indeed, sustainable human development and Agenda 21 are converging. Agriculture & Rural Development’ has been the key mantra for a sustained and long-term economic growth in India. The same is in the sharper focus today with the Government taking keen interest to ensure a comprehensive and visible uplift of this sector through effective implementation of various old and new schemes. The Government runs its large-scale rural development schemes mainly through the Ministry of Rural Development, National Bank for Agriculture and Rural Development (NABARD), and Khadi and Village Industries Commission (KVIC). Besides, some autonomous bodies like District Rural Development Agency (DRDA), National Institute of Rural Development (NIRD), National Rural Roads Development Agency (NRRDA) and Council for Advancement of People’s Action and Rural Technology (CAPART) are also working in tandem with the Government for a better ‘Rural India’. Given Below is an overview of the various schemes of NABARD and KVIC related to the rural development: NABARD NABARD was set up with a mission to promote sustainable and equitable agriculture and rural development through effective credit support, related services, institution building and other innovative initiatives. Primarily its objectives are to serve as an apex financing agency; take measures towards institution building for improving absorptive capacity of the credit delivery system, including monitoring, formulation of rehabilitation schemes, restructuring of credit institutions, training of personnel, etc.; co-ordinate the rural financing activities of all institutions engaged in developmental work at the field level and liaise with Government of India, state governments, Reserve Bank of India (RBI) and other national level institutions concerned with policy formulation; and Undertake monitoring and evaluation of projects refinanced by it. During 2009-10, the adverse impact of the global economic downturn became manifest worldwide, particularly affecting the lives of poor and vulnerable as never before. The sharp increase in the food and energy prices, lesser purchasing power due to dwindling employment opportunities, withdrawal or scaling down of governmental efforts from social sectors etc. have all combined to have a devastating impact on the poor and the marginalized in most countries of the world. Thanks to the strong fundamentals, Indian economy not only withstood this downward spiral but continued its impressive surge of the previous year even during 2009 - 10. The new Roads built under PMGSY have knit the country’s villages together as never before. doctrine of 'inclusive economic growth' along with renewed focus on the social sector particularly on rural development in the last six years not only insulated our vast rural populace from the onslaught of global economic downslide but also in actuality put our rural economy in an unprecedented course of ascendancy. The developmental and welfare initiatives undertaken by the government in the rural areas in the last five years was further strengthened during 2009-10. This brought about a perceptible change in the lives of the people in the villages. A 'convergence approach' has been adopted for optimization of resources, initiatives and results. The government also worked diligently towards translating visions into policies and programmes. During the year, while on the one hand based, on the experience and performances, initiatives have been taken to modify and include new elements in some of the existing schemes and programmes like the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA), Indira Awaas Yojana (IAY), National Social Association Programme (NSAP) Integrated Watershed Management Programme(IWMP), National Rural Drinking Water Mission (NRDWM) etc. to make them more effective, blueprints have been drawn up for new schemes like National Rural Livelihood Mission(NRLM) to bring about a paradigm shift in the approach to poverty alleviation and resultant self reliance in the rural areas. An all-party meeting in progress to take political feedback on MGNREGA. To sustain the growth tempo propelled by the Bharat Nirman initiative, a decision was taken during the year, to continue with the initiative with higher objectives and targets. During 2009-10, development and welfare activities in our rural areas were continued with unmatched vigour and zeal and taken to new heights with better employment opportunities through guaranteed public works programme like MGNREGA for larger number of people, enhanced livelihood opportunities through SGSY, Watershed Development, stronger social safety-nets provided under NSAP, combined with better infrastructure under the flagship programmes like improved rural connectivity, rural housing provision of safe drinking water, sanitation etc. As the nodal Ministry responsible for most of the development and welfare activities in the rural areas, where more than seventy percent of our over billion-strong population live, Ministry of Rural Development plays a crucial role in the overall development strategy of the country. The mission and objectives of the Ministry is to correct the developmental imbalances and to accord due priority to development in rural areas by bringing in sustainable and holistic development through a multi-pronged strategy, aiming in the process, to reach out to most disadvantaged sections of the society. The thrust of these programmes are on all round economic and social transformation in rural areas. The Ministry of Rural Development consists of three Departments, Department of Rural Providing basic amenities, such as drinking water, continue to be a top priority. Uplift through promotion of self employment. For the development to be in consonance with the people's wishes and aspirations, emphasis is put on participation of people, as also social mobilization of rural poor through Self-Help Groups and Panchayati Raj Institutions. Creating rural infrastructure for better economic opportunities and growth. Connectivity is provided to all unconnected habitations through Pradhan Mantri Gram Sadak Yojana (PMGSY) and village infrastructure is also created through works undertaken under wage employment schemes. Department of Drinking Water Supply and Department of Land Resources. Broadly, the aims of the Ministry of Rural Development are: Bridging the rural-urban divide. To ensure rapid development, budgetary support for implementing the various rural development schemes has increased manyfold over the years. Guaranteeing wage employment and ensuring food security. This is sought to be achieved through the National Rural Employment Guarantee Act. Making rural people the arbiter of their own destiny and to provide for their economic The Indira Awaas Yojana, providing housing to the poor, and being showcased at the R’Day parade. Providing for dignified living .The Ministry provides shelter, water and clean environment through rural housing, Drinking water and sanitation schemes. Restoring lost or depleted productivity of the land. This is done through watershed development programmes and initiating effective land reform measures for providing land to the landless rural poor. Environmental sustainability of economic growth The Planning Commission notes in its Approach Paper to the 12th Five-year Plan that “economic development will be sustainable only if it is pursued in a manner which protects the environment. With acceleration of economic growth, these pressures are expected to intensify, and we therefore, need to pay greater attention to the management of water, forests and land27. The State of India’s Environment Report India 2009 supports this by observing that “Land degradation is taking place through natural and man-made processes, resulting in the loss of invaluable nutrients and lower food grain production. Loss of biodiversity is of great concern since many plant and animal species are being threatened. The issue of availability of water, which is going to be one of the critical problems in the coming decades, needs to be addressed on priority basis”.28 The 2005 Millennium Ecosystem Assessment estimated that 15 out of 24 of major global ecosystem services have already been degraded. If current environmental challenges intensify, the global Human Development Index in 2050 is likely to be 8 percent lower than in the base case and 12 percent lower for south Asia and sub Saharan Africa.29 The risks include impact on production in the agriculture and allied sectors, stress induced by rising water scarcity and deteriorating resource quality. Rural development schemes can contribute significantly to conserving water resources, soil quality and biodiversity. The Report of the Working Group on Sustainable Groundwater Management submitted to the Planning Commission for the 12th Plan quoting the Report of the Expert Group on Groundwater Management and Ownership of the Planning Commission (2007), states that, “in 2004, 28% of India’s blocks were showing alarmingly high levels of groundwater use. A recent assessment by NASA showed that during 2002 to 2008, India lost about 109 km3 of water leading to a decline in water table to the extent of 0.33 meters per annum.” With 80 percent of drinking water for rural India and 60 percent of irrigation water sourced from groundwater aquifers, this depletion is alarming. Rural development schemes such as MGNREGS, IWDP and the source sustainability component of NRDWP can help arrest and even reverse the decline in groundwater levels in critical regions. This is particularly useful for hard-rock regions where groundwater depletion is at its most acute. Soil is a primary resource for generation of most renewable natural raw materials for production systems. But a study conducted by the Central Soil Water Conservation Research and Training Institute (CSWCRTI) in Dehradun estimates that India loses about one millimeter of top soil every year due to soil erosion.30 This amounts to an annual loss of 16.4 tons/ha or a total loss of 5,334 million tons annually. Soil contains enormous quantities of carbon in the form of organic matter. Soil carbon provides nutrients for plant growth. There is an estimated gap of about 10 million tons of nutrients (NPK), to -begin with, between the absorption of nutrients by crops and their addition through fertilizers.31 Soil erosion depletes soil fertility and adds to global warming. Soil conservation works are a large part of MGNREGS and IWDP activities. Soil fertility enhancement is a key objective of the MKSP and sustainable agriculture components of NRLM. Together, these schemes can contribute substantially to addressing the issue of land degradation. Biodiversity is essential for the sustenance of all living systems, i.e., it is essential for nature itself. India’s phenomenal biodiversity is a store house of biological resources on which several hundred million people depend on for health care, scarcity food, supplementary nutrition, fodder, bio-pesticides, fuel, housing and other uses.32 with only 2.4 percent of the world’s land mass, India is home to over eight percent of its biological diversity. Its diversity of ecosystems (forests, wetlands, grasslands, marine areas and deserts) is among the worlds highest and harbors over 47,000 plants and 90,000 animals in the wilds. Crop diversities include over 50,000 varieties of rice over 1,000 of mango, over 5,000 of sorghum and over 500 of pepper. Livestock diversity is also similarly high. But in the last two centuries, India has lost over half of its forests, 40 percent of its mangroves and a large part of its wetlands. MGNREGS, IWDP and NRLM activities can play a major role in conserving India’s Biodiversity which is so essential for providing the country with ecological and livelihood security. Conclusion However, The Ministry of Rural Development places special emphasis on monitoring and evaluation of its programmes being implemented in rural areas all over the country. Effective monitoring of the programmes is considered very important for efficient delivery at the grass root level particularly in view of the substantial step-up in the allocation of funds for rural development programmes since the Eighth Five Year Plan onwards. In order to ensure this, the Ministry has evolved a comprehensive multilevel and multi-tool system of Monitoring and Presentation of the Saxena Committee report on identification of BPL households. Evaluation for the implementation of its programmes. Appropriate objectively verifiable performance indicators have been developed for each of the specific programmes, both by the Ministry of Rural Development and the State Government for effective monitoring at the District, Block, Gram Panchayat and Village levels so that alarm signals can be captured well in advance for mid-course corrections. The implementation of various Rural Development schemes especially the wage employment, self-employment and rural infrastructure/amenities schemes to a great extent, has resulted in reduction of poverty in rural areas. The Government has instituted an in-built monitoring mechanism in the guidelines of each scheme so as to ensure that the objectives of the schemes are achieved by their implementation. References: -Book reference Sustainable development by Susan Baker Annual Report 2009-10 Ministry of Rural Development India -Web reference en.wikipedia.org DEVELOPMENT THEORY ASSIGNMENT 1, 8th JUNE 2013 20