ECONOMIC PLANNING AND STRATEGY

ECONOMIC PLANNING
ECONOMIC STRATEGY
ECONOMIC GROWTH AND DEVELOPMENT

ECONOMIC GROWTH
 An increase in the capacity of an economy to produce goods and services,
compared from one period of time to another.
 Occurs whenever people take resources and rearrange them in ways that
make them more valuable

ASPECTS OF ECONOMIC GROWTH

 Standard of living
 Government Spending
 Domestic Problems
 Global Role Models

ECONOMIC DEVELOPMENT
 A process that influences growth and restructuring of an economy to
enhance the economic well-being of a community
 Long-term, multidimensional, rational process involving the reorganization
and reorientation of entire economic and social system.

ECONOMIC PLANNING
 A branch of planning in which a nation decides in advance what to be
done for the purpose of stability and development of economy.

COMMON CHARACTERISTICS OF DEVELOPMENT PLANNING

 Low levels of living
 Low levels of productivity
 High rates of population growth and dependency burden
 High and rising levels of unemployment and underemployment
 Significant dependence on agricultural production and primary products.
 Dominance, dependence and vulnerability in international relations.

MEASURES OF DEVELOPMENT

 The most popular indicators of economics development are per capita

Gross National Product (GNP) or per capita Gross Domestic
Product (GDP)

OTHER INDICATORS OF DEVELOPMENT

PHYSICAL QUALITY OF DEVELOPMENT (PQL)
 An attempt to measure the quality of life or well-being of a country. The
value is the average of the statistics basic literacy rate. Infant morality, and
life expectancy all equally weighted on a 0 to 100 scale.

HUMAN DEVELOPMENT INDEX (HDI)

 Combines the normalized measure of life expectancy, literacy, educational
attainment and GDP per capita for countries.

CAPABILITY POVERTY MEASURE (CPM)

 Considers three objectives of development to be nourished and healthy to
be capable of safe and healthy reproduction

ECONOMIC FREEDOM INDEX

 Uses ten criteria trade: taxation, government intervention, monetary policy,
foreign investment banking, wage and price property rights, regulation and
black market activities.

THEORIES ON ECONOMIC GROWTH

JEAN BAPTISTE SAY

 Supply creates it’s own demand

ADAM SMITH
 An inquiry into the nature and causes of the wealth of Nation
 Believe in the Natural dictates natural liberty

NATURAL LIBERTY
 Is a system where anybody can do not what she/he wants to be or
anybody can pursue what he wants to pursue within the bound set by
society or the natural legal system.
 The system of natural liberty is associated with the invisible hand.
 The system of natural liberty promotes self-liberty.

ADAM SMITH

Self-Interest promotes exchange

A. More exchange means more goods
1. Market will expand
2. Income will increase
 Increase in income will increase demand thereby will expand further the
market.

a. Division of labor will happen

b. Specialization will happen
c. It will increase productivity
d. It will result into economic growth (more income, more income output)
e. More income, more goods
f. The process will go on and on again.

B. Increase in income means increase in savings

1. Increase in savings will lead to capital accumulation
2. Capital accumulation will expand the market and economic growth.

POLICY INSIGHTS FROM THE IDEAS OF ADAM SMITH

 There is a need to increase income by increasing labor productivity and
capitalization in the production process.
 There is a need to increase savings by encouraging the activities of
manufacturers and merchants.

THOMAS MALTHUS
 The power of population is indefinitely greater than the power in the earth
to produce subsistence for man.

MALTHUSIAN ANALYSIS
 Economic growth will result in a situation where the demand for labor is
greater than the supply of labor.
 Wages will go up
 Standards of living will go up
 Number of marriages will increase
 Population will increase

MALTHUSIAN ANALYSIS

SOLUTION
1. Population Explosion
2. Food shortage
3. Collective or mass misery

SOLUTIONS
1) Positive and preventive check
2) Technical innovation in agriculture
3) More equitable distribution of income

DAVID RICARDO
 Principles of political economy and taxation
 Wishes to explain how economic growth will stop

RICARDIAN PRINCIPLE

Ld > Ls
 Wage increase
 Standard of living will increase
 Number of marriage will increase
 Population will increase
 Food demand will increase
 Population pressure in land
 Motivate farmers to use good land (intramarginal land)
 Use up all good land
 Use of bad land (marginal land)

EFFECTS OF THE USE OF MARGINAL LAND

Price of food will increase relative to industrial and manufacturing products

 Price of food is determined by the marginal cost of producing
 Marginal cost of producing food in bad or marginal land is high
 The price of food must therefore be high
 If the marginal cost is high, then the price of food must be high
 Workers in the industrial will demand higher wages
 Profit of capitalists will decrease
 Profit squeeze (profit=0)
 Economic growth will stop

KARL MARX

Law of Capital Accumulation

 The desire of capabilities to accumulate more and more capital

Law of increasing centralization and concentration of capital

 As capitalism grows and advances, the competition among firms will
increase

Law of the falling tendency of the rate of profit

 As capitalism grows and advances, the rate of profit of the capitalist will
fall and will cause the capitalist system to breakdown

Law of Increasing Pauperization

 Capitalism will meet a violent end

JOSEPH SCHUMPETER
 Popularized the term creative destruction
 Economic growth = investment
 Investment = Capital accumulation innovation
 Economic growth = Capital accumulation/ innovation

 Innovation
 Doing things differently in order to improve productivity
 Make use of the old, but do things differently

 Major source of Innovation

 Entrepreneur

SCHUMPETERIAN ANALYSIS
 Economic growth depends on investment
 Innovation is a form of investment
 Economic growth depends on innovation
 Since the major source of innovation is the entrepreneur, economic growth
therefore, depends on entrepreneurship

WHAT DETERMINES THE SUPPLY OF ENTREPRENEUR?

Entrepreneurs depend on the social climate

Social Climate
 Social, political, socio-psychological atmosphere within which an
entrepreneur must operate.

Elements of Social Climate

 Social Values
 Class Structure
 Attitude of society towards business success.

PROCESS OF ECONOMIC DEVELOPMENT

 Innovation in the production method

 Innovation on products
 Innovation in markets
 Innovation in industrial organization.

JOHN MAYNARD KEYNES

 General Theory of Employment, Interest and Money

 Father of Macroeconomics

KEYNESIAN ANALYSIS

 A central idea is that when the amount of money being saved exceeds the
amount being invested, them unemployment will rise
 This is in part a result of people not spending too high a proportion of what
employers pay out, making it difficult, on aggregate, for employers to
make a profit.
 In a state of unemployment and unused production capacity, one can only
enhance employment and total income by first increasing expenditures for
either consumption or investment
 Without government intervention to increase expenditure, an economy can
remain trapped in a low employment equilibria.
 Activist economic policy by government to stimulate demand in times of
high unemployment