While development is generally regarded as a good thing, the word has different meanings to different people in different contexts. In many ways, development is a plastic word like sustainability, globalization, or freedom that is often more about rhetoric than reality. But there are tangible, measurable characteristics that are associated with development, and this tutorial will cover some of those.
Perhaps the most common meaning of development is economic development, which is the strength of a nation's economy. Crudely put, this is how much stuff a country has.>
An economy is the process or system by which goods and services are produced, sold, and bought in a country or region.
Economics is the study of how societies use scarce resources to produce valuable commodities and distribute them among different people (Samuelson and Nordhaus 2001, 4).
A commodity is an economic good that is bought and sold. Commodities can be simple raw materials like bushels of corn or bales of cotton, manufactured products like couches or smart phones, up to complex financial or legal services.
The economies of countries or regions are commonly divided into economic sectors:
- The Primary Sector: Mining and agriculture (extractive industries)
- The Secondary Sector: Manufacturing
- The Tertiary Sector: Services - selling, assistance, expertise, tourism
- The Quaternary Sector: Knowledge businesses - information technology, research, education (some authors consider this just a part of the tertiary sector)
All countries have economic activity in all sectors, although different countries have different dominant sectors. For example, 53% of the Central African Republic's GDP is in the primary sector (agriculture and diamonds), while 80% of the United States' GDP is in the tertiary sector (services).
Value-added is the economic value added to a commodity during a stage in its production. Different sectors add value to the products of earlier sectors. For example:
- A primary sector farmer raises cotton
- A group of secondary sector companies turn that raw cotton into thread, cloth and t-shirts
- Tertiary sector wholesalers and retailers handle the process of getting those t-shirts into the hands of the public
- Quaternary sector actors arrange financing for the farmers and factories, and educate the workers that perform tasks in the primary through tertiary sectors
Higher economic sectors tend to yield higher profits, have more prestige, are less physical sectors in which to work, and have fewer direct negative environmental externalities. Therefore, countries and communities often actively work to transition to or develop tertiary and quaternary sector businesses - for example, moving from low-profit (and often offshored) industries like textiles to high-profit activities like software development and medical services.
The Resource Curse
Although you might expect that the wealth and opportunity associated with the discovery and extraction of oil and other natural resources would promote development and improved standards of living, such resource exploitation commonly results in poor economic performance, high levels of inequality, and despotic governments.
This phenomena is known as the Resource Curse or the Paradox of Plenty.
Burgess (2015, 6) points out a report from McKinsey observing that 69 percent of people in extreme poverty live in countries where oil, gas, and minerals play a dominant role in the economy and that average incomes in those countries are overwhelmingly below the global average. Typical examples include Nigeria (68% in extreme poverty), Angola (43%), Zambia (75%) and Congo (88%). By comparison only 33% of Indians and 0.7% of Mexicans live in extremen poverty.
The resource curse is not a universal phenomenon, with countries like Norway (natural gas), Chile (copper), Malaysia (oil and gas) and Botswana (diamonds) have avoided the worst effects of the resource curse. And there are countries like Kenya that have experienced corruption and violence despite the absence of significant resources.
However, the curse is common enough that the process is worth describing:
- As money pours into a resource-rich country, the resource industry begins to dominate the economy
- The inflation of the currency caused by all that new wealth makes local industries uncompetitive on global markets, forcing them out of business and further reinforcing dependence on the extractive industry
- Extractive technologies like oil drilling often require few unskilled local workers, so money paid for drilling and mining does not propagate through the local economy and has a limited multiplier effect
- Governments make vast economic rent for doing nothing more than giving licences to foreign companies to drill or dig. This concentrates wealth in the hands of public officials and large landowners who have little economic incentive to reinvest in their (often poor) countries
- Because governments get their money from foreign companies rather than taxes on their own population, they have little incentive to address the needs of the broader population outside the circle of elites that controls the resources
- Disputes break out within and between countries, necessitating extensive expenditures on security and the military, diverting resources from investments in infrastructure and innovation that would pay future dividends in a better-eductated, more-productive and more-prosperous population
Measuring Economic Development
The strength of an economy is measured by the volume of buying and selling in an economy. Two common metrics are used: GDP and GNI.
Gross domestic product (GDP) is the value of the output of all goods and services produced in a year (Rubenstein 2013, 200). Calculation of GDP can be a bit complicated in order to deal with the problem of double counting, so that only the sale of final goods (such as t-shirts) are considered and redundant sales of intermediate goods (such as sales of cotton cloth to t-shirt makers) are not.
Gross national income (GNI) is GDP plus money that enters or leaves a country. Both GDP and GNI are used by economists to measure the strength of an economy, but GNI helps compensate for the economic effect of profits and income that flow out of or into a country from globalized businesses. A country like Ireland has many global businesses that take money out of the country, so its GNI is lower than its GDP. Japan, on the other hand, has significant financial inflows from workers based abroad, so its GNI is higher than its GDP.
Since we are often primarily concerned with how much stuff people have (rather than nations), GDP or GNI are often divided by the population of a country to give GDP per capita or GNI per capita. For example, in 2014 the very poor Sub-Saharan African country of Burundi had a GDP/capita of $286, while the wealthy United States had a GDP/capita of $54,630.
Because different countries use different currencies, and because the relative value of those currencies fluctuate due to political or economic forces, it is helpful to find some way of converting between currencies that attempts to make some kind of compensation for these distortions. Purchasing power parity (PPP) is an adjustment that takes into account the differences between countries in the overall cost of goods.
When comparing economic development across countries, such comparisons can be more accurate when using PPP, such as with GDP PPP or GDP per capita PPP.
GDP and GNI per capita assume an equal distribution of economic value among all citizens of a country, although this is never the case. All countries have inequality where some people have large amounts of economic power and many people have much smaller amounts of economic power.
One measure of economic inequality is the Gini index, named after the early-20th century Italian statistician, Corrado Gini. The Gini Index for a country is a value from zero to one, with zero meaning perfect equality (everybody has the same amount of stuff), and one meaning perfect inequality (one person has everything). For example, in 2013 South Africa had a very unequal Gini index of 62.5 while the Netherlands had a much more equal Gini index of 24.8. The USA in 2007 was in the middle at 45.0.
Wealth is generally a regarded as a good proxy for quality of life, although the definition of quality is highly subjective and open to debate.
The concept of human development attempts to make a broader evaluation of the quality of life beyond raw economics. The United Nations' first Human Development Report in 1990 defined human development as:
... a process of enlarging people's choices. The most critical of these wide-ranging choices are to live a long and healthy life, to be educated and to have access to resources needed for a decent standard of living. Additional choices include political freedom, guaranteed human rights and personal self-respect.
Because the idea of quality of life or well-being is so complex and subjective, many scholars and organizations have taken different approaches to conceptualizing and measuring quality of life.
One often-cited concept is that of the Indian economist and philosopher Amartya Sen. His concept of capabilities is employed extensively in the context of human development as a broader, deeper alternative to narrow economic metrics that do not fully capture the experiences of the citizens of a country. His capability approach has two fundamental parts:
- The freedom to achieve well-being is of primary moral importance
- Freedom to achieve well-being is to be understood in terms of people's capabilities, that is, their real opportunities to do and be what they have reason to value
Measuring Human Development
An index is a number (as a ratio) derived from a series of observations and used as an indicator or measure. Indices are often combined from other indicators or indices, span a specific range, and are used for measuring a characteristic and comparing different people or places. An example is the aforementioned Gini index, which is based on GDP and has a range of zero to one.
One commonly-used index created by the United Nations is the human development index (HDI). HDI ranges from a scale of zero (worst) to one (best) and is calculated using three different factors:
- Standard of Living (GNI per Capita PPP)
- Access to Knowledge (Mean and Expected Years of Schooling)
- Health and Longevity (Life Expectancy Index)
In 1972, the King of Bhutan proposed a metric called Gross National Happiness. The concept implies that sustainable development should take a holistic approach towards notions of progress and give equal importance to non-economic aspects of wellbeing. The concept of GNH has often been explained by its four pillars:
- Good governance
- Sustainable socio-economic development
- Cultural preservation
- Environmental conservation
The Sustainable Development Solutions Network (originally commissioned in 2012 by UN Secretary-General Ban Ki-moon) produces an annual World Happiness Report that builds upon the concept of Gross National Happiness as an alternative to purely economic metrics like GDP per capita.
The 2016 report is based on data from the Gallup World Poll and ranks 156 countries by their happiness level. You can view the country rankings and index values in Chapter 2, Figure 2.2.
Higher values of the Happiness Index are better, with #1 Denmark having a Happiness Index of 7.526 and war-torn #156 Syria with a Happiness Index of 3.069.
The Process of Development
There are a number of different theories that are used to explain how development has happened in the past, and how it might proceed in the future. While this is far from a complete list, these classical and contemporary theories offer a good contrast into different perspectives on development.
Rostow's Stages of Growth
One classical theory is the stages of growth model developed by American economist Walt W. Rostow in 1960. Rostow asserts that development in a country moves forward from traditional to modern in five stages:
- Traditional Society: Most people work in agriculture and a large percentage of national wealth is devoted to activities like religion and the military
- Preconditions for Takeoff: An elite of well-educated leaders invest in technology and infrastructure, which increases productivity
- Takeoff: Rapid growth is generated by a small group of economic activities, such as textiles or food products
- Drive to Maturity: Modern technology diffuses from the takeoff industries across the country's activities
- Mass Consumption: The economy shifts from heavy industry like steel and energy to to consumer goods like refrigerators and cars
Rostow's theory falls under the broader idea of modernization theory, which takes a teleological view of human history as society always moving forward and upward.
A counter view to Rostow is dependency theory, which was based on work by the Argentinian economist Raul Prebisch and also emerged in the 1960s. The dominant view of dependency theorists is that there is a dominant world capitalist system that relies on a division of labor between the rich core countries and poor periphery countries. Over time, the core countries will exploit their dominance over an increasingly marginalised periphery.
The periphery exists as a source of raw materials and cheap labor for the core.
Far from progress for everyone being the expectation as in modernization theory, dependency theory asserts that low levels of development in peripheral countries are inherent to global capitalism.
World-systems theory (WST) was initially proposed by the sociologist Immanuel Wallerstein in 1974, and builds on the core-periphery distinction of dependency theory, with a more-detailed conception of how the core exploits the periphery under globalized capitalism.
World-systems theory proposes that capitalism began to emerge as the globally-dominant economic system in the 16th century.
One important characteristic of this economic system was the emergence of an international division of labor among three groups of countries that each had a different role in the world capitalist system. That division of labor determined the nature of international relations between countries, the types of labor conditions in different countries, and the political conditions in different countries.
- Core Countries:
- Strong central governments with large military forces
- High-skill, capital-intensive production
- Control of international commerce
- Accumulates capital surplus from trade
- Semi-Periphery Countries:
- Strong central governments
- Diversified economies
- Serves as a political buffer protecting the core from the hostility of the periphery
- Limited benefit from international trade
- Periphery Countries:
- Weak central governments, often controlled by core countries
- Economies dependent on low-skill manufacturing and export of raw materials to the core
- Coercive labor practices
- Capital surplus appropriated by core through unequal trade relationships
In the first centuries of world-system development:
- Core: Northwest Europe
- Semi-Periphery: Mediterranean Europe
- Periphery: Eastern Europe, Asia, Western Hemisphere
At the end of the 20th century:
- Core: Wealthy industrialized countries
- Semi-Periphery: Long-independent non-western states
- Periphery: Recently-independent colonies, primarily in Africa and Asia
Neoliberalism is the currently-dominant ideology that emphasizes the value of market-based capitalism. In contrast to the theories given above that primarily attempt to explain past and current development patterns, neoliberalism also contains an ideological component that asserts what the ideal system of economic development should be.
Neoliberalism is often characterized in terms of its belief in sustained economic growth as the means to achieve human progress, its confidence in free markets as the most-efficient allocation of resources, its emphasis on minimal state intervention in economic and social affairs, and its commitment to the freedom of trade and capital.
Neoliberalism has its roots in the classical liberalism of 18th century economist Adam Smith, best remembered for his observation that free markets work as if governed by an invisible hand. Note that, confusingly, neoliberalism is most closely associated in the contemporary United States with conservative political positions, as opposed to liberal political positions that often seek an increased role for government.
While many of the same processes identified by modernization and dependency theories still occur, market forces are seen as the fundamental force in determining the economic development of a country or region. Accordingly, market-based economies are seen as vastly superior to centrally-planned economies for improving quality of life in a country.
In contrast to the focus of the stages of growth and dependency models on the nation-state, transnational corporations (also called multinational corporations), that are answerable primarily to market forces in a globalized economy have more power to shape development than national governments.
The term neoliberalism is often used negatively in the social sciences as a critique of the negative effects of capitalism, such as instability, harsh treatment of workers, and environmental degradation.
Neoliberal development policy is often summed up by the term Washington Consensus, which was coined by British economist John Williamson to refer to to refer to the lowest common denominator of policy advice being addressed by the Washington-based institutions to Latin American countries as of 1989.:
- Fiscal discipline
- A redirection of public expenditure priorities toward fields offering both high economic returns and the potential to improve income distribution, such as primary health care, primary education, and infrastructure
- Tax reform (to lower marginal rates and broaden the tax base)
- Interest rate liberalization
- A competitive exchange rate
- Trade liberalization
- Liberalization of inflows of foreign direct investment
- Deregulation (to abolish barriers to entry and exit)
- Secure property rights
Classifying Countries by Level of Development
Development is a continuum. At one extreme are poor, unstable countries like Somalia, and at the other extreme wealthy, democratic countries like Sweden. All countries fall somewhere in that continuum, but analysts often seek to divide countries into binary categories. Such division is fraught with challenges, and fuzzy terminology.
Developed vs Developing: This framing is based on a modernist assumption that all countries will eventually become like the modern West. Therefore, a country is either developed or on its way to being developed. Dependency theorists would disagree.
Developed vs Underdeveloped: This makes an implicit devaluation of countries with lower levels of development that could be considered offensive and degrading to those countries.
Industrialized vs Non-Industrialized: This framing equates development with industrial production of goods, as opposed to traditional and craft production. One problem is that significant amounts of industrial production occur in countries with low levels of development. Additionally, many developed countries have entered a post-industrial phase, where industrial production (the secondary economic sectors) has been offshored to cheap labor countries and non-industrial tertiary economic activities now dominate.
OECD vs Non-OECD: The Organisation for Economic Co-operation and Development was founded in 1960 with a mission to to promote policies that will improve the economic and social well-being of people around the world. The 35 OECD countries are highly-developed, so membership in this organization is taken as a proxy development. However, the small size of the organization and the current geographic limit of the membership to primarily North America and Europe makes this term problematic.
First, Second and Third World: This is a framing from the 20th century Cold War, that grouped nations into the first world (USA and its allies), the second world (USSR and its allies) and the third world (countries not clearly aligned with either the USA or USSR). These third-world countries were generally poor, making third-world a synonym for poverty and violence. With the end of the Cold War, this designation has become an anachronism.
Western vs Non-Western: Countries that have social, economic and intellectual roots in Europe tend to have higher levels of wealth and development. However, this clearly represents a Eurocentric perspective that is a legacy of imperialism, and that ignores both differential development in Western areas like the Americas and increasing levels of development in the non-Western world.
Global North vs Global South: This term arose in a 1969 article by Carl Oglesby to reflect the imperial and neoimperial domination of countries in the southern hemisphere by countries in the northern hemisphere. This term is often considered more respectful than terms like third world or underdeveloped. However, it is more metaphorical than geographically-precise as some highly-developed countries (like Australia) are south of the equator, while comparatively poor countries like Montenegro are as far north as Global North countries like Germany.
Core vs Periphery: This framing is borrowed from dependency theory, and may not be accepted by people who do not accept dependency theory as an accurate model of contemporary relationships between countries.
Less-developed Countries (LDC) vs More-developed Countries (MDC): This is probably the safest framing, since it accepts a continuum in levels of development and is based on comparatively rigorous empirical data. A less-developed country is one with a per capita income far below that of Developed nations - the latter usually including most nations of North America and Western Europe (Samuelson and Nordhaus 2001, 768) The question is where to draw the boundary between less and more.