Development Theories

• Explain the consequences of development, and

cost of development or conditions that bring about
development

STUDY OF
ANALYZE THE
SOCIETY
VARIOUS FACETS
AND
OF DEVELOPMENT
SOCIAL
REALITIES
Robinson Crusoe’s Economic Concept

Crude • Surrounding environment

Economic met the material needs of
Concept man
• Sleep, drink, eat
• USE WHAT IS AVAILABLE
Barter Concept

Pre- Exchange goods one

monetarist has for goods he
period as would like to have
mankind
needs grow
Mercantilism

Trade goods on • Favor nation state – intervention in

the basis of economic activities
monetary value
• Monopoly – government grant patents
that restricts competition
• International trade regulation – against
free trade
• Manufacturer’s protection – no similar
products from other nations
Physiocracy

AGRICULTURE Source of wealth and not to be

taxed

SURPLUS Output of land productivity

ROLE OF STATE Preserve property and limited

state intervention to free
market economy

Belief in the natural order and advocacy of free trade

Richard Cantillon (1680 – 1734)

Premise • Agriculture produced pure rent

through cultivation, nurturing and
through ownership
• Classes – landlords,
entrepreneurs, laborers
 Francois Queensay (1694-1774)

SURPLUS Landlords receiving/earning from

CONCEPT surplus, who should pay single tax

SINGLE TAX To be imposed on the agricultural sector

FREE TRADE VIA Result in cheaper prices in agricultural

COMPETITION products

Agriculture produced surplus value, the rest of society consumed agri-production

Adam Smith (1723 – 1790)
The more the individuals were left free to pursue their own interests, the more the
invinsible hand of the market would promote collective welfare

Human Conduct Actuated by self-love, be free, sense of

prosperity, habit of labor, exchange

Division of Labor Tasks broken down to increase

productive output of manufacturing

National Product From output of agriculture and

manufacturing, excluding service output

Government Defense against foreign aggression,

justice, maintenance of public works

Classical Theory – role of markets in the economy

Adam Smith (1723 – 1790)
The more the individuals were left free to pursue their own interests, the more the
invinsible hand of the market would promote collective welfare

Natural & Market Prices of goods dictated by market

Prices forces

Wealth Working class (wages), landowners (rent

Distribution from land), capitalists (profits lion share)

Wage Rate Income based on social class – workers’

wage for sufficient living needs only

Anti-Mercantilism Believed on free markets, little gov’t.

intervention and open int’l. trade

Classical Theory – role of markets in the economy

Thomas Robert Malthus (1766 – 1834)
Become prominent when UK government decided to give assistance to poor
families with living costs

Increasing Global Human race would have more people

Population than it could actually feed

Malthusian High available labor lead to low real

Population Trap wages and ultimately, increased poverty

Population Ignored at that time due to strong

Checks Christian beliefs

Government Role Help the poor by offering jobs in public

service organizations
Jean Baptiste Say (1767 – 1832)
Assumed that there would never be any over-production since as goods were
being produced, income was generated and other goods were bought

Exchange Goods
for Other Goods
One good will generate
demand for another good
David Ricardo (1772 – 1823)
Economy was like a giant agricultural firm wherein level of crop yield will affect the
entire economy

Agriculture Agricultural yield affect profit and

rent received by landowners

Labor Gradual pace of mechanization since it’s

injurious to the interests of laborers

Economic Growth Changes in the rate profit for agriculture

as an economic growth indicator

Wealth As profits declined, possibility of

Distribution workers’ revolts – institute measures
David Ricardo (1772 – 1823)
Economy was like a giant agricultural firm wherein level of crop yield will affect the
entire economy

Government Role Favor free market and slow introduction

of machinery

Foreign Exchange Gold as basis of international trade –

more stable than nation’s own currency

Taxation Reduced taxes lead to economic growth

Comparative As nations around the world traded with one another,

they would become specialists. As nations mass-
Advantage produced certain goods, they would be able to
supply them at cheaper costs and become market
leader. In turn, competitor nations would find their
own specialists products.
Karl Marx (1818 – 1823)
Wrote radical views on capitalism and dire consequences for the working class as
well as advocated more revolutionist approach

Economic Reduce the gap between the rich and

Concept poor, and not capital accumulation

Population Natural for mankind to expand, but

capitalism closed gap between rich/poor

Labor Not given a fair wage to become owners

of the means of production

Technology Although harmful to working class,

needed to increase productive output

Increased polarization would lead to rebellion and fall of capitalism

Karl Marx (1818 – 1823)
Wrote radical views on capitalism and dire consequences for the working class as
well as advocated more revolutionist approach

Prices of Goods Based on labor and material costs only

Capitalism Lead to economic depression resulting to

workers’ overthrow of capitalism

Taxation Reduced taxes lead to economic growth

Increased polarization would lead to rebellion and fall of capitalism

Imperialism

Imperialist • Transfer of Western internal

Expansion contradictions to world economy and to
the developing countries
• Lack of investment opportunities in
advanced countries
• Safeguard flow of raw materials for
industrial development
Max Weber

Protestant Ethics • Diligent work in one’s professional

calling and religiously motivated sobriety
in consumption promoted high savings
and capital accumulation
• Rise of capitalism and economy
Joseph Schumpeter

Production • Capitalism characterized by creative

Techniques destruction
• Emphasize importance of technological
progress
• Old replaced by new ones
Evolutionary Theories
Societies grow from simple to highly complex social organization and
accompanied by social cultural changes

Emile Durkheim’s • Mechanical Solidarity – repressive,

Theory of Social severe and punitive criminal law serves
Change as deterrent to violations of norms
• Organic Solidarity – based on
differences and growing interdependence
for goods and services

Growth of society – family to state

Evolutionary Theories

Robert Redfield’s • Folk society – small, isolated,

Folk-Urban subsistence economy, simple tool,
Continuum sacred society
• Urban modern society – large, high
literacy, heterogeneity, individualism,
commercialism, materialism

Societal evolution – folk society (solidarity) to urban society (individualism)

Structural Functionalism

Talcott Parson’s • Stability results when the society tries

Ideas to develop routine ways of dealing with
the less than perfect fit among its parts
and the resultant conflicts and tensions
• Functional imperative of adaptation or
meeting the situational needs or
requirements facing the system

Society – system of parts and functions

Structural Functionalism

Robert Morton’s • Functions are observed consequences

View which make for the adaptation or
adjustment of a given system
• Dysfunctions are observed
consequences which lessen the
adaptation or adjustment of a system

Functions and dysfunctions – system adaptation and adjustment

Ecological Theories

Amos Hawley’s • Ecological processes have implications

Theory of Human for development
Ecology
• Adaptive efforts of individuals result in
a community of inter-organic
relationships which underlies the
process of adjustment of man to his
external environment
• Adaptations in social life as a result of
expansion/contraction of community’s
size and complexity

Development – changes in the pattern of relationships

Ecological Theories

Odum’s Theory of • Premise – mankind is part of the

Human Ecology complex biogeochemical cycles and has
the power to alter these cycles
• Sensitive balance between production
for economic recovery and the
conditions of the environment and
resources with the population and its
requirements

Harmony in nature – man and environment

Conflict Theories

Karl Marx’s • Class struggle and conflict will end in a

Dialectic Scheme revolutionary reconstruction of society at
large, or in the common destruction of
the contending classes
• Class conflict and class exploitation as
the fundamental driving force in the
development of society

Without conflict, there is no progress

 Conflict Theories

Lenin’s Ideas • Division between the capitalist and the

worker becomes intense as the export of
capital isolates the renters from
production, and the whole country
develops a parasite that lives by the
exploitation of the labor in several
overseas countries
• Imperialism features – monopolistic
control of production & capital; merger of
bank & industrial capital; export of
capital for the oligarchy; international
capitalist monopolies formation

Once the exploitation of capital has reached large proportions, stagnation sets in
Conflict Theories

Modern Conflict • Focus on the integrative nature of

Theory conflict and assume that it is a force that
enhances order and stability in society
• Cause of conflict:
1. Inequalities in wealth, power and
prestige
2. Clash of interest or struggle between
groups
Economic Theories

Gunnar Myrdal • Extreme social inequalities an obstacle to economic

development in poor countries
• Causes of underdevelopment:
1. Internal Factors – resources, climate, population,
institutions, attitudes, regime legitimacy
2. External Factors – trade, aid, foreign borrowings
and foreign investments
• Domestic reforms as precondition to development:
1. Increase labor efficiency and productivity
2. Changes in attitudes and institutions
3. Promote effective competition and opportunity
4. Enhance levels of living
5. Policies for economic growth and development

Economic progress - Development (upward movement of social system)

Economic Theories

Walt W. Rostow’s • In the development process, some countries take

the lead, others lag behind
Stages of
Economic Growth • Traditional society – fatalistic patterns of thought,
limited productivity level, agriculture-based
• Precondition for take-off – people can improve
conditions by their own efforts; investments in
infrastructure for industrialization
• Take-off – increased level of investment towards the
industrial sector
• Drive to maturity – new production techniques
spread from the leading sectors to the rest of the
economy
• Mass consumption society – shift of attention from
production problems to consumption problems and
welfare

Technology and Capital Investment – Economic Growth and Development

 Economic Theories

Harrod-Domar • The more an economy is able to save

Theory of and invest out of a given GNP, the
Economic Growth greater the growth of that GNP
• Obstacle to development is the low level
of new capital formation in poor
countries
• Savings – save a certain proprotion of
national income to replace worn-out
capital goods (buildings, equipment,
materials)
• Investment – new investments
representing net additions to the capital
stock are necessary

Increasing National Savings and Investment – tricks of economic growth and dev’t.
Kuznet’s Theory

Pre-condition for • Emphasize importance of

Industrialization industrialization in development
• Characteristic of modern economic
growth – changes in the structure of
production

Change structure of production

Alexander Gershenkron

Significance in • Stress the importance of

late
industrialization overcoming traditional
obstacles to industrialization
such as the absence of
disciplined, stable supply of
labor

Government, banks, financial institutions support

Structural Change Model

Lewis Two-Sector • Structural transformation of a primary subsistence

economy
Model
• Emphasis on the process of labor transfer and the
growth of output and employment in the modern
sector
• Speed of output expansion is determined by the
rate of industrial investment and capital
accumulation in the modern sector
• Criticisms:
1. Profits reinvested in labor-saving capital
equipment
2. Capital flight – deposits abroad
3. Unemployment in urban areas and little surplus
labor in rural locations
4. Tendency of wages to rise over time
5. Negated by institutional factors – CBA, CNA

Labor transfer from agricultural sector to industrial sector

Theories of Underdevelopment

Theories of • Only the rich countries profit

Unequal from international trade since
Exchange
developing countries comparative
advantage is in primary products
• Terms of trade between import
and export prices of developing
countries show a decline over time

Terms of trade – export and import

 Theories of Underdevelopment

Dependency • Prosperity in rich countries is based on

exploitation of developing countries
Theory
• Poverty in developing countries is the result
of exploitation
• Characteristics of dependent development:
1. Export primary products
2. Import industrial products
3. Economy depends on imported technology
4. Multinational firms dominate modern
sector
5. Dependence not limited to economic but
also cultural, psychological, political relations
of dependence with advanced countries

Global extension of the capitalist system led to underdevelopment of Third World

 International Dependence Model

Neo-Colonial • Underdevelopment attributed to unequal

Dependence international system of rich country-poor
Model country relationships (power relationships)
• Revolutionary struggles or major
restructuring of the world capitalist system
required to free Third World nations from
direct and indirect economic control of their
First World and domestic oppressors
• International special interest groups –
multinational corporations, national bilateral
aid agencies, multilateral organizations (WB,
IMF)
• Comprador groups – landlords,
entrepreneurs, military rulers, merchants,
salaried public officials, union leaders

Wealthy capitalist countries influence int’l special interest and comprador groups
 International Dependence Model

False • Underdevelopment due to

Paradigm faulty and inappropriate advice
Model from international expert
advisers
• Use of alien concepts but
inapplicable theoretical models
by developed country-trained
locals

International advisers and foreign-trained locals – incorrect development model

International Dependence Model

Dualistic • Represents the existence of increasing

Development divergences between rich/poor nations
Model and rich/poor people
• Elements of dualism:
1. Some superior and others inferior
coexist in a given space
2. Co-existence is chronic and not
merely transitional
3. Degrees of superiority/inferiority not
diminishing, but with tendency to
increase
4. Superior does little or nothing to pull
up the inferior

Superior (affluence) – Divergence – Inferior (poverty)

Neoclassical Counter-revolution Model

Concept • Underdevelopment results from poor

resource allocation due to incorrect
pricing policies and too much state
interventions by Third World governments
• Counter-revolution focus for developing
nations – free markets, dismantling of
public ownership, statist planning,
government regulation of economy
• Underdevelopment due to heavy hand of
the state, corruption, inefficiency, lack of
economic incentives

Underdevelopment an internally-induced phenomenon

Neoclassical Counter-revolution Model

Public Choice • Politicians use government

Approach resources
• Bureaucrats extract bribes
• Citizens obtain benefits
• State confiscate property
• Vested interests have resulted to
misallocation of resources and
reduction in individual freedom

Minimal government is the best government

Neoclassical Counter-revolution Model

Market-Friendly • Market failures of investment

Approach coordination, incomplete information,
skill creation and learning as well as
economies of scale
• Government’s role:
1. Physical/social infrastructures
2. Health care facilities
3. Educational institutions
4. Climate for private enterprise

Market-friendly interventions by government

New Growth Theory

Accumulation of • Technological change is associated

Human Capital with investment in capital goods and
education through a process of learning
by doing
• Countries with a headstart in
accumulation of human capital and
knowledge will tend to forge ahead
• Countries which are backward will tend
to stagnate further

Human capital accumulation