ECONOMICS, INSTITUTIONS, AND

DEVELOPMENT: A GLOBAL
PERSPECTIVE
 How the other half live
 As people throughout the world awake-each morning to face a
new day, they do so under very different circumstances. Some live
in comfortable homes with many rooms. They have more than
enough to eat, are well clothed and healthy, and have a
reasonable degree of financial security. Others, and these
constitute more than three-fourths of the earth's 5.5 billion
people, are much less fortunate. They may have little or no
shelter and an inadequate food supply. Their health is poor, they
cannot read or write, they are unemployed, and their prospects
for a better life are bleak or uncertain at best. An examination
of these global differences in living standards is revealing.
Economic and Development Studies

 The Nature of Development Economics

 Traditional Economics is concerned primarily with the efficient, least-
cost allocation of scarce productive resources and with the optimal
growth of these resources over time so as to produce an ever-
expanding range of goods and services. By traditional economics we
simply mean the classical and neoclassical economics taught in mostly
American and British introductory textbooks.
 Political Economy is concerned with the relationship between politics
and economics, with a special emphasis on the role of power in
economic decision making.
 Development economics has an even greater scope. In addition to
being concerned with the efficient allocation of existing scarce (or
idle) productive resources and with their sustained growth over time, it
must also deal with the economic, social, political, and institutional
mechanisms, both public and private, necessary to bring about rapid (at
least by historical .standards) and large-scale improvements in levels of
living for the masses of poverty-stricken, malnourished, and illiterate
peoples of Africa, Asia, and Latin America
Economic and Development Studies
 Why Study Development Economics? Some Critical
Questions
 The Important Role of Values in Development Economics.
 Economics is a social science. It is concerned with human
beings and the social systems by which they organize their
activities' to satisfy basic material needs (e.g., food, shelter,
clothing) and nonmaterial wants (e.g., education,
knowledge, spiritual fulfillment). Because they are social
scientists, economists face the somewhat unusual situation in
which the objects of their studies—human beings in the
ordinary business of life—and their own activities are rooted
in the same social context.
Economics as Social Systems: The Need to
Go Beyond Simple Economics
 Economics and economic systems, especially in the Third
World, must be viewed in a broader perspective than that
postulated by traditional economics. They must be analyzed
within the context of the overall social system of a country
and, indeed, within an international, global context as well.
 By social system, we mean the interdependent relationships
between so-called economic and non- economic factors.
 The latter include attitudes toward life, work, and authority;
public and private bureaucratic and administrative
structures; patterns of kinship and religion; cultural
traditions; systems of land tenure; the authority and integrity
of government agencies; the degree of popular
participation in development decisions and activities; and
the flexibility or rigidity of economic and social classes.
 What Do We Mean by Development?
 the term development may mean different things to different
people, it is important at the outset that we have some working
definition or core perspective on its meaning. Without such a
perspective and some agreedon measurement criteria, we
would be unable to determine which country was actually
developing and which was not.
 Traditional Economics Measures
 The New Economics View of Development
 Sen’s “Capabilities” Approach
 Development and Happiness
Three Core Values of Development

 Sustenance: The Ability to Meet Basic Needs

 All people have certain basic needs without which life would
be impossible. These life-sustaining basic human needs include
food, shelter, health, and protection.i When any of these is
absent or in critically short supply, a condition of "absolute
underdevelopment" exists. A basic function of all economic
activity, therefore, is to provide as many people as possible
with the means of overcoming the helplessness and misery
arising from a lack of food, shelter, health, and protection.
 Self Esteem: To be a Person
 A second universal component of the good life is self-esteem—
a sense of worth and self-respect, of not being used as a tool
by others for their own ends. All peoples and societies seek
some basic form of self-esteem, although they may call it
authenticity, identity, dignity, respect, honor, or recognition.
Three Core Values of Development
 Freedom from Servitude: To be Able to Choose
A third and final universal value that we suggest should
constitute the meaning of development is the concept of
human freedom. Freedom here is to be under- stood in
the sense of emancipation from alienating material
conditions of life and from social servitude to nature,
ignorance, other people, misery, institutions, and
dogmatic beliefs. Freedom involves an expanded range
of choices for societies and their members together with
a minimization of external constraints in the pursuit of
some social goal we call development.
 The Three Objectives of Development
 To increase availability and widen the distribution of
basic life-sustaining
 To raise level of living

 To expand the range of economics and social choice

Millennium Development Goals and Targets for
2015
1. Eradicate extreme poverty and hunger
2. Achieve universal primary education
3. Promote gender equality and empower women
4. Reduce child mortality
5. Improve maternal health
6. Combat HIV/AIDS, malaria, and other diseases
7. Ensure environmental sustainability
8. Develop a global partnership for development
 Terima kasih
 What Do We Mean by Development?

 the term development may mean different things to different

people, it is important at the outset that we have some working
definition or core perspective on its meaning. Without such a
perspective and some agreed on measurement criteria, we
would be unable to determine which country was actually
developing and which was not.
 Traditional Economics Measures

 Development has traditionally meant the capacity of a national

economy, whose initial economic has been more or less static for a
long time, to generate and sustain annual increase in its gross
national income (GNI) at rates of 5% to 7% or more.
 A common alternative economic index of development has been the
use of rates of growth of income per capita to take into account the
ability of a nation to expand its output at a rate faster thanthe growth
rate of its population.
 Economic development in the past has also been typically seen in
terms of the planned alteration of the structure of production and
employment so that agriculture's share of both declines and that of
the manufacturing and service industries increases.
 Next Question (HOMEWORK), What is differences between GNI,
GNP, and GDP ? Can you explain the differences???
Traditional Economics Measures

 Development strategies have therefore usually

focused on rapid industrialization, often at the
expense of agriculture and rural development.
 Finally, these principal economic measures of
development have often been supplemented by
casual reference to noneconomic social indicators:
gains in literacy, schooling, health conditions and
services, and provision of housing
 The New Economics View of
Development
 The experience of the 1950s and 1960s, when many Third World nations did
realize their economic growth targets but the levels of living of the masses of
people remained for the most part unchanged, signaled that something was
very wrong with this narrow definition of development.
 An increasing number of economists and policymakers now clamored for the
"dethronement of GNP" and the elevation of direct attacks on widespread
absolute poverty, increasingly inequitable income distributions, and rising
unemployment.
 In short, during the 1970s, economic development came to be redefined in
terms of the reduction or elimination of poverty, inequality, and unemployment
within the context of a growing economy.
 "Redistribution from growth" became a common slogan.
 In a 1987 book, Edgar Owens advanced a similar argument: Development has
been treated by economists as if it were nothing more than an exercise in
applied economics, unrelated to political ideas, forms of government, and the
role of people in society.
 Sen’s “Capabilities” Approach

 Amartya Sen, The 1998 Nobel laureate in economics,

argued that “Capability to Function” is what really matters
for status as a poor or non poor person.
 Economic growth can not be sensibly treated as an end in it
self. Development has to be more concerned with enhancing
the lives we lead and the freedom of we enjoy.
 Sen argued that poverty can be properly measured by
income or by utility as conventionally understood.
 to make any sense of the concept of human well being in
general and poverty in particular, we need to think beyond
the availability of commodities and consider their use: to to
address what Sen calls Functionings.
Sen’s “Capabilities” Approach

 The Concept of “Functionings“ reflects the various things

a person may value doing or being. The valued
functionings may vary elementary ones, such as being
adequately nourished and being free from avoidable
disease, to very complex activities or personal states.
 Then, Sen define Capabilities as “the freedom that a
person has in term of the choice of functionings, given
his personal features (conversion of characteristics into
functionings) and his command over commodities.
 Development and Happiness

 Happiness is part of human well being and greater

happiness may in itself expand and individual’s
capability function.
 Sen Argued, “utility in the sense of happiness may well
be included in the list of some important functionings
relevant to a person’s well being.”
 In happiness: Lesson from a New Science, Richard
Layard identifies seven factors that surveys show effect
average national happiness: family relationships,
financial situation, work, community and friends, health,
person freedom, and personal values.
Three Core Values of Development

 Sustenance: The Ability to Meet Basic Needs

 All people have certain basic needs without which life would be
impossible. These life-sustaining basic human needs include food,
shelter, health, and protection.i When any of these is absent or in
critically short supply, a condition of "absolute underdevelopment"
exists. A basic function of all economic activity, therefore, is to
provide as many people as possible with the means of overcoming
the helplessness and misery arising from a lack of food, shelter,
health, and protection.
 Self Esteem: To be a Person
 A second universal component of the good life is self-esteem—a
sense of worth and self-respect, of not being used as a tool by
others for their own ends. All peoples and societies seek some basic
form of self-esteem, although they may call it authenticity, identity,
dignity, respect, honor, or recognition.
Three Core Values of Development
 Freedom from Servitude: To be Able to Choose
A third and final universal value that we suggest should
constitute the meaning of development is the concept of
human freedom. Freedom here is to be under- stood in
the sense of emancipation from alienating material
conditions of life and from social servitude to nature,
ignorance, other people, misery, institutions, and
dogmatic beliefs. Freedom involves an expanded range
of choices for societies and their members together with
a minimization of external constraints in the pursuit of
some social goal we call development.
 The Three Objectives of Development
 To increase availability and widen the distribution of
basic life-sustaining
 To raise level of living

 To expand the range of economics and social choice

Millennium Development Goals and Targets for
2015
1. Eradicate extreme poverty and hunger
2. Achieve universal primary education
3. Promote gender equality and empower women
4. Reduce child mortality
5. Improve maternal health
6. Combat HIV/AIDS, malaria, and other diseases
7. Ensure environmental sustainability
8. Develop a global partnership for development
 Terima kasih