KCA UNIVERSITY

SCHOOL OF BUSINESS AND PUBLIC

MANAGEMENT

CUU 101: DEVELOPMENT STUDIES AND

ETHICS

PREPARED BY:

MWATHI RUTH MWATHI

2017
 LECTURE 1:
THE CONCEPT OF DEVELOPMENT AND UNDER DEVELOPMENT
In least developing countries, there is little money income because most food, clothing, shelter,
and worldly goods are made and consumed by the people themselves; theirs is a subsistence
economy1. There are few passable roads, few schools, and no hospitals, electric wires, or water
supplies. With the exception of population growth and problems of the increasingly fragile
environment, life here seems to be almost eternal and un- changing—but not for much longer. A
new road is being built. No doubt it will bring with it the means for prolonging life through
improved medical care. But it will also bring more information about the world outside, along with
the gadgets of modern civilization. The development process has been set in motion.

Meaning of Development?
Development is the process of improving the quality of all human lives and capabilities by raising
people’s levels of living, self-esteem, and freedom.
Development has traditionally meant achieving sustained rates of growth of income per capita to
enable a nation to expand its output at a rate faster than the 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. Development strategies have therefore usually
focused on rapid industrialization, often at the expense of agriculture and rural development. With
few exceptions, such as in development policy circles in the 1970s, development was until recently
nearly always seen as an economic phenomenon in which rapid gains in overall and per capita
GNI growth would either “trickle down” to the masses in the form of jobs and other economic
opportunities or create the necessary conditions for the wider distribution of the economic and
social benefits of growth. Problems of poverty, discrimination, unemployment, and income
distribution were of secondary importance to “get- ting the growth job done.” Indeed, the emphasis
is often on increased output, measured by gross domestic product (GDP).

1
Subsistence economy: An economy in which production is mainly for personal consumption
and the standard of living yields little more than basic necessities of life—food, shelter, and
clothing.
However, 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.
Development must therefore be conceived of as a multidimensional process involving major
changes in social structures, popular attitudes, and national institutions, as well as the acceleration
of economic growth, the reduction of inequality, and the eradication of poverty. Development, in
its essence, must represent the whole gamut of change by which an entire social system, tuned to
the diverse basic needs and evolving aspirations of individuals and social groups within that
system, moves away from a condition of life widely perceived as unsatisfactory toward a situation
or condition of life regarded as materially and spiritually better.

Traditional Economics
It is concerned primarily with the efficient least-cost allocation with scarce productive resources
and with the optimal growth of these resources over a period of time so as to produce an ever
expanding range of goods and services.

Political Economics
Goes beyond traditional economics to study among other things the social and institutional
processes through which certain groups of economic and political elites. Influence the allocation
of scarce productive resources now and in the future either exclusively for their own benefit or for
that of the larger population as well. Political economic is therefore concerned with the relationship
between politics and economics with a special emphasis with the role of power in economic
decision making.

Development Economics
Has an even greater scope in addition to being concerned with efficient allocation of existing scarce
or idle productive resources and with their sustained growth over time. Must also deal with
economic social, political and institutional mechanisms both public and private necessary to bring
about rapid and large scale improvements in the standards of living for the masses of poverty
stricken, malnourishment and illiterate people of Africa, Asia and South America.

Objectives of Development
 1. To increase the availability and widen the distribution of basic life-sustaining goods such as
food, shelter, health, and protection
2. To raise levels of living, including, in addition to higher incomes, the provision of more jobs,
better education, and greater attention to cultural and human values, all of which will serve not
only to enhance material well- being but also to generate greater individual and national self-
esteem
3. To expand the range of economic and social choices available to individuals and nations by
freeing them from servitude and dependence not only in relation to other people and nation-states
but also to the forces of ignorance and human misery.

The Millennium Development Goals

This is a set of eight goals adopted by the United Nations in 2000: to eradicate extreme poverty and hunger;
achieve universal primary education; promote gender equality and empower women; reduce child
mortality; improve maternal health; combat HIV/AIDS, malaria, and other diseases; ensure environmental
sustainability; and develop a global partner- ship for development. The goals are assigned specific tar- gets
to be achieved by 2015.
GOALS
1. Eradicate extreme poverty and hunger• Reduce by half the proportion of people living on less than $1 a
day
• Reduce by half the proportion of people who suffer from hunger
2. Achieve universal primary education • Ensure that all boys and girls complete a full course of primary
schooling
3. Promote gender equality and empower • Eliminate gender disparity in primary and secondary education,
women preferably by 2005, and at all levels by 2015
4. Reduce child mortality • Reduce by two-thirds the mortality rate among children under 5
5. Improve maternal health • Reduce by three-quarters the maternal mortality ratio
6. Combat HIV/AIDS, malaria, and other • Halt and begin to reverse the spread of HIV/AIDS • Halt and
diseases begin to reverse the incidence of malaria and other major diseases
• Integrate the principles of sustainable development into country
policies and programs; reverse loss of environmental resources
• Reduce by half the proportion of people without sustainable
7. Ensure environmental sustainability access to safe drinking water
• Achieve significant improvement in lives of at least 100 million
slum dwellers by 2020
• Develop further an open, rule-based, predictable,
nondiscriminatory trading and financial system; includes a
commitment to good governance, development, and poverty
reduction—both nation- ally and internationally • Address the
 special needs of the least developed countries; includes tariff and
quota free access for least developed countries’ exports; enhanced
program of debt relief for heavily indebted poor countries (HIPCs)
8. Develop a global partnership for and cancellation of official bilateral debt; and more generous
development official development assistance (ODA) for countries committed to
poverty reduction
• Address the special needs of landlocked countries and small
island developing states
• Deal comprehensively with the debt problems of developing
countries through national and international measures in order to
make debt sustainable in the long term
• In cooperation with developing countries, develop and implement
strategies for decent and productive work for youth • In
cooperation with pharmaceutical companies, provide access to
affordable essential drugs in developing countries
• In cooperation with the private sector, make available the benefits
of new technologies, especially information and communications
Source: From “Millennium Development Goals” (accessed via www.undp.org). Reprinted with
permission from the United Nations Development Programme.

MEASUREMENT OF DEVELOPMENT
Development is measured by use of elements such as gross national product (GNP), GDP per
capita, welfare and socio-economic indicators. Each of these measures is discussed below.
Gross National Product (GNP)
Economic development can be measured in terms of real GNP over a long period of time. GNP is
the total domestic and foreign output claimed by residents of a country, consisting of gross
domestic product (GDP) plus factor incomes earned by foreign residents, minus income earned in
the domestic economy by nonresidents. (Todaro & Smith, 2012)
This measure has many flaws:
i. Does not consider population growth
ii. It ignores costs to society occasioned by environmental degradation, urbanization and
industrialization
iii. It ignores the distribution of income
iv. There are many conceptual problems in the measurement of GNP itself.

GNP cannot therefore be said to be a perfect indicator of economic development.

GDP Per Capita
Economist use GDP per Capita to compare a given country’s wealth. This is the total value of all
goods and services produced within a country divided by the total population. I.e. studying the rate
of increase in real GDP per capita over a long time.
It is usually measured in US dollars and calculated per head so that it shows effectively what the
average person earns.
This makes comparisons between different countries easier.
GDP per Capita is probably the most widely used indicator because most countries produce GDP
figures, and there are internationally recognized methods of calculation.
This indicator implies that economic development occurs only when increase in real GDP is higher
than the growth rate of the population.
Advantages
i. GDP per capita is a useful figure for comparing countries.
ii. It is a good indicator of the state of the economy
iii. It includes all economic activities and it can be broken down into sectors
iv. It is easy to calculate from official government figures
v. It measures economic growth effectively, although the connection with economic
development is complex.

Disadvantages
i. GDP per capita hides inequalities as it does not show the distribution of income or wealth
ii. It can be manipulated by governments that want to appear poor to collect more aid.
iii. It does not take into account subsistence production or informal economies which have a
significant impact on living standards in less developed countries.
iv. By comparing all the figures to dollars, misalignment exchange rates can distort values.
v. Does not consider population growth, it ignores costs to society occasioned by
environmental degradation, urbanization and industrialization, it ignores the distribution of
income, there are many conceptual problems in the measurement of GNP itself.
vi. The GNP/GDP per capita is not a true indicator of development due to complexity in
definition of development since qualitative attributes are not catered for by GDP per capita.
E.g. std of living, political participation, education, efficient institutions and all social
aspects which are difficult to measure.
Welfare
Economic development is also measured in terms of economic welfare. Economists define
economic development as substantial, improvement in material wellbeing, which we may consider
to be reflected in an increasing flow of goods and services. Limitations of the welfare Indicator:-
i. Difficulty in the determination of the weights to be attached to consumption, because
consumption of goods and services depends on the tastes and preferences of individual. It
is wrong to use same weight in improving welfare index.
ii. There is difficulty in the valuation of output. Output may be valued at the market prices
while welfare is measured by an increase in real national income. For there to be an
improvement in welfare, the increase in output should not have social costs, such as
deterioration of the working conditions of the labor force.

Welfare therefore, can only stand as a measure of development if it is accompanied by the value
judgments regarding income distribution, composition of output, tastes, real costs and other
particular changes associated with the overall increase in the real sense

Socio-Economic Indicators of Growth and Development

Due to dissatisfaction with GDP/GNP per capita as measures of economic development, certain
economists have tried to measure it in terms of social indicators. This measure emphasize on the
quality of the development process. The social indicators used include health, (life expectancy2,
mortality rate, and the crude birth rate), food and nutrition (the rate of under- nourishment3),
education and training (male and female adult literacy), employment, conditions of work,
consumption of the basic necessities and social security, etc. Social indicators are normally
referred to as basic needs of development. The direct provision of basic needs such as health,
education, food, water, sanitation and housing affects poverty in a shorter period and with fewer

2
Life expectancy is the average number of years newborn children would live if subjected to the mortality risks prevailing for
their cohort at the time of their birth.

3
Undernourishment means consuming too little food to maintain normal levels of activity; it is what is often called the
problem of hunger.
monetary resources than GDP/GNP per capita strategy which aims at increasing productivity and
incomes of the poor automatically over the long run.

Limitations of Socio-Economic Indicators as a Measure of Development

i. It is difficult to construct a common index of development relating to the said social
indicators. A number of reasons explain this situation.
ii. There is no agreement among economists as to the number and type of items to be included
in such an index. For example while Hagen uses 11-18 items, Morris uses only three to
construct what he calls Physical Quality of Life Index (life expectancy at birth, infant
mortality and literacy rate).
iii. There is a problem of assigning weights to the various items. This creates room for
subjectivity, which in turn undermines the strength of the index.
iv. Social indicators only reflect current welfare, nothing about the future
v. Like the welfare index, social indicator involve a lot of value judgment
vi. Most of the indicators are actually the inputs and not outputs. E.g. education, health etc.

UNDERDEVELOPMENT

Concept and Meaning

World Development Report categorizes economies on the basis of income in three categories viz.
high income, middle income and low income economies. Usually, high income countries are
known as developed / advanced economies while low income countries are known as
underdeveloped economies. Developed or advanced economies are also characterised by high
standard of living, universal and quality education, better health care facilities and high life
expectancy. However, all high income economies may not be developed economies. Some of the
middle and low income economies are developing faster than high income economies. Further, the
underdeveloped economies showing high potential of growth in terms of their natural, physical
and human resources are often referred to as developing economies. Economists also use the terms,
first world, second world and third world for the developed, socialist industrialist countries and
underdeveloped economies respectively
Criterion for Classifying Economies as Developed and Underdeveloped
Economies cannot be classified as developed and underdeveloped economies based on their
natural resources, population and sectoral dependency. However, there is a set of common
characteristics of underdeveloped economies such as low per capita income, low levels of living,
high rate of population growth, illiteracy, technical backwardness, capital deficiency, dependence
on backward agriculture, high level of unemployment, unfavourable institutions and so on. It is on
the basis of these characteristics that we draw a line of distinction between developed and
underdeveloped economies.

Meaning and Definition of Underdevelopment

Underdevelopment is low level of development characterized by low real per capita income, wide-
spread poverty, lower level of literacy, low life expectancy and underutilisation of resources etc.
The state in underdeveloped economy fails to provide acceptable levels of living to a large fraction
of its population, thus resulting into misery and material deprivations. We need to note here that
underdevelopment is a relative concept but it sustains absolute poverty.
Underdevelopment is a Relative Concept
The concept of underdevelopment is a relative one because it is the comparison of quality of life
between the economies that differentiates them in underdeveloped and developed.
Underdevelopment Sustains Absolute Poverty
Although, concept of underdevelopment is a relative concept but it sustains absolute poverty.
Absolute poverty refers to the state of poverty wherein the people fail to fulfil even their basic
needs in terms of food, clothing and shelter. In fact, they are a class of people who are always
striving to survive. Thus, underdevelopment and absolute poverty go together or
underdevelopment sustains absolute poverty.

Characteristics of Underdeveloped Economies

It is difficult to find an underdeveloped economy representing all the representative characteristics
of underdevelopment. While most of them are poor in nature, they have diverse physical and
human resources, socio-political conditions and culture. Some of the common characteristics
displayed by most of the underdeveloped countries in the world are as follows:
Low Per Capita Income
Almost all underdeveloped countries of the world show low per capita income in comparison to
developed countries of the world.
Slow Growth Rate of Per Capita Income
Low per capita income and slow growth rate of per capita income are characteristics of these
countries.
Economic Inequalities
High inequality of income and wealth is another common feature of underdeveloped countries. In
these countries, large percentage of national income is shared by a small segment of the society
while a large segment of the society gets barely enough to survive. Economic inequality exists
even in developed countries but it is not as much as found in underdeveloped countries.
Low Levels of Living
Level of living in the underdeveloped countries is low because of low per capita income. Low
level of living of the people of underdeveloped countries is also reflected in Human Development
Index prepared by the United Nation Development Programme (UNDP). HDI of developed
countries is very high whereas for underdeveloped countries it is very low.
Low Rate of Capital Formation
Rate of capital formation is very low in underdeveloped economies due to low income levels and
high incidence of poverty.
Backward Techniques of Production
Underdeveloped economies use outdated technology for production. Lack of capital leads to less
spending on research and development.
High Growth Rate of Population and Dependency Burden
These countries are characterised by high growth rate of population and high dependency burden.
Low Productivity of Labour
Underdeveloped economies are characterised by low labour productivity due to low level of skill
set.
Underutilisation of Natural Resources
Natural resources are underutilised in underdeveloped economies. Their capability to exploit them
is very low.
Large Scale Unemployment
Large scale unemployment is another characteristic feature of underdeveloped countries.
Dominance of Agriculture
Large section of people in underdeveloped economies depends on primary sector for employment.
But the primary sector is not well-developed in those countries.
High Incidence of Poverty
Low per capita income results in high incidence of poverty in underdeveloped economies.
Infrastructural Backwardness
Economic infrastructure and social infrastructure are almost at their bottom level in
underdeveloped countries.
Low Volume of Foreign Trade
Underdeveloped countries export primary products like, agricultural goods, minerals, petroleum
oil, etc., and import finished products, especially consumer goods. Terms of trade are grossly
unfavourable to underdeveloped countries.

Difference between Developed and Underdeveloped Economies

The differentiating points between a developed and underdeveloped economy are summarised in
the following table:

Basis of Developed Economy Underdeveloped Economy

Difference
Per Capita Per capita income is high. Per capita income is low.
Income
Standard of Standard of living is high. Standard of living is low.
Living
Economic Distribution of income is less skewed Distribution of income is highly
Inequality (unequal). skewed.
Capital Rate of capital formation is high Rate of capital formation is low. It is
Formation between 10 percent and 20 percent
barring a few exceptions.
Dependence on agriculture is very low. Dependence on agriculture is very high.
Agriculture Yet, agriculture is developed and Yet, agriculture is backward and
advanced. undeveloped.
Terms of trade are generally favourable. Terms of trade are generally
Foreign Trade Finished products are exported and unfavourable. Agricultural products or
and International agricultural products or raw materials are raw materials are exported and finished
Stability imported. High degree of international products are imported. High degree of
stability. international vulnerability.
Growth Rate of Growth rate of population is generally Growth rate of population is generally
Population low. Overall size of population is small. high. Overall size of population is very
large.
High rate of human capital formation. Low rate of human capital formation.
Good health of the people. 90 percent of Most of the people are unhealthy and
Human Capital people are literate. Trained and skilled unskilled. Skilled labour is a low
labour constitutes a high percentage of percentage of the total labour force.
the total labour force. High productivity Low productivity is the obvious
is the obvious consequence. consequence.
Less unemployment. It is by and large Large-scale unemployment. Disguised
Unemployment frictional and structural in nature. unemployment is widely prevalent. It is
Accordingly, it is cyclical, not chronic. chronic in nature.
Production Production technique is developed and Production technique is backward.
Technique advanced. More possibilities of research Little possibilities of research and
and innovations. innovations.
Capital markets are developed, Capital markets are underdeveloped or
Capital Markets conducive to savings, and therefore undeveloped, hindering productive use
industrial expansion. of savings and therefore industrial
expansion.
Cultural Cultural environment is materialistic. Cultural environment is largely
Environment Dignity of labour is high. Outlook is spiritualistic. Dignity of labour is low.
progressive. Outlook is traditional and backward.