Showing posts with label robert solow. Show all posts
Showing posts with label robert solow. Show all posts

Saturday 23 May 2020

LINEAR AND NON-LINEAR PARADIGMS OF DEVELOPMENT




QUESTION: BRIEFLY DISCUSS THE LINEAR AND NON-LINEAR PARADIGMS TO DEVELOPMENT. WHICH PARADIGM DO YOU THINK IS MORE APPLICABLE IN UNDERSTANDING DEVELOPMENT TODAY?


ABSTRACT

The linear-stages economic development paradigm and the non-linear paradigm are the two main realms of economic thought. The linear paradigm is the argument that all nations have to go through five stages in the development process. The non-linear paradigm promotes development thinking that does not espouse any specific successive steps. The main non-linear models include structural-change theories and international-dependence views. Each of the paradigms provides a valuable aspect in the study of development economics and in solving economic problems.


INTRODUCTION

Development, according to Nobel laureate Amartya Sen (2000:3),
… is the process of expanding the real freedoms that people enjoy. … Development requires the removal of major sources of unfreedom: poverty as well as tyranny, poor economic opportunities as well as a systematic social deprivation, neglect of public facilities as well as intolerance or over-activity of repressive state.
The two paradigms on development are the linear-stages-of-growth and the non-linear (Todaro and Smith 2012: 110).
    

The thinking of the 1950’s and 1960’s was that nations had to pass through a set of successive steps to development, and that all the developed nations of the time had passed through the stages. The argument was that development only required the right combination of savings, investment and aid.
American economic historian Walt W. Rostow (1960) listed five stages as follows:
1.      Traditional society, characterized by subsistence and agricultural production, little or no trade, and limited, low-level capital stock with accompanying low productivity.
2.      Pre-conditions for take-off. Use of machines in agriculture increases and so does trade. Savings and investment are higher but still generally low as a portion of national income.
3.      Take-off. There is greater manufacturing and the relative size of agriculture shrinks even though it is still big and employs a huge part of the population.
4.      Drive to maturity. There is greater diversity in manufacturing. Innovation levels rise and are a source of real per capita income growth as opposed to higher input of factors.
5.      Age of mass production. Output and consumer expenditure rise. The economy has an expanding middle class which keeps the economy growing. Tertiary activity increases.


The Harrod-Domar model proposes that a portion of national income should be set aside as savings for investment (Harrod 1939). Growth, it is argued, is proportionate to the level of savings and investment. The linear-stages-of-growth paradigm is premised on four golden principles: (i) Ordermeaning known causes lead to known outcomes any time, anywhere; (ii) Deductionism, meaning the whole can be deduced if the constituent parts are known and understood; (iii) Predictability, meaning by adding relevant ingredients to the model, the future causes of events can be worked out IF the whole is known, and (iv) Determinism, meaning that previously existing conditions are the causes of future happenings. There is a linear and orderly manner of happenings. 

Criticism of the growth model

The basic criticism if that while savings is necessary, it is not a sufficient condition.



1.      Structural Change Models
These growth models emphasise structure.

The Lewis Theory of Development

W. Arthur Lewis (1954), Nobel Prize recipient, theorised a two-sector transformation model that showed labour transfer from the surplus-labour, low-income agricultural sector to the better-paying industrial sector. It dominated development thought in the 1960’s and early 1970’s (Todaro and Smith 2012: 115).
One frailty of the Lewis model is in the assumption that capitalists will reinvest all their profits in more capital; and that the rate of labour transfer will be proportionate to the rate of capital formation. The problem is that cost-sensitive capitalists might invest in labour-saving capital, so that not so many people are absorbed into the industrial sector.

Structural change and patterns of development   

It is a comprehensive look at a cross-section of structural elements including resource use, international and domestic trade and socio-economic issues like urbanisation and changes in consumer demand. Proponents of this model, like Hollis B. Chenery (1960), argue that development can be hampered by both domestic and international factors. One criticism of the structural change and patterns of development model is that emphasis is placed on structure and patterns rather than on what is supposed to be done. That is, the cart is placed before the horse.
       
      2.      The International Dependence Revolution

It is a predominantly later-1970’s argument, that underdeveloped nations have institutional rigidities and are caught up in a dependence and dominance model with advanced economies.  

Neo-colonial dependence model

This dependence model feeds into Marxist thinking that the rich and poor worlds are bound in an economic relationship that makes rich nations richer and poor countries worse off.

The False Paradigm Model

It states that solutions offered to developing nations are devised by foreign experts who do not know the practical realities of the under-developed societies, such as influence of social class.

The Dualistic Development Model

The model openly recognises that there is a rich world and a poor world internationally and locally, with possibly increasing differences.
One weakness of dependence theories is that even though they offer good insights into reasons for under-development, they do not explain ways to start and sustain development.

3.      The Neo-classical Counter-revolution

In the 1980’s and 1990’s, thinking on development based on the magic of the market place and the invisible hand of capitalistic practice emergedThis model, according to Todaro and Smith (2012: 127) has three variants called free market analysis, Public choice and market-friendly approaches. Robert Solow (1956) provided a defining contribution to the neo-classical growth model by adding labour and technology to the  Harrod-Domar model.

CONCLUSION: WHICH IS MORE APPLICABLE IN UNDERSTANDING DEVELOPMENT TODAY?  

In the view of this writer, neither of the two paradigms can be said to be the better one. They each have positives and negatives in understanding development and devising policy. There should be, in other words, complementarity in their application to understanding development theory.


BIBLIOGRAPHY

Chenery, Hollis, B. (1960) Patterns of Industrial Growth. American Economic Review, Vol. 50, No. 3 (September 1960), pp. 624-54.

Harrod, Roy, F. (1939) Essay in Dynamic Theory. The Economic Journal, Vol. 49, No. 193 (Mar., 1939), pp. 14-33. New Jersey: Blackwell Publishing. Available online at: http://piketty.pse.ens.fr/files/Harrod1939.pdf. Retrieved May 14, 2020.

Lawrence, E. and Sargent, Thomas (2014) Harrod 1939. Available online at: http://www.tomsargent.com/research/Harrod_tom_6.pdf. Retrieved May 17, 2020.

Lewis, W., Arthur (1954) Economic Development with Unlimited Supplies of Labour. Manchester: Wiley. Available online at: https://onlinelibrary.wiley.com/doi/abs/10.1111/j.1467-9957.1954.tb00021.x. Retrieved April 30, 2020.

Rostow, W. Walt (1960) The Stages of Economic Growth: A Non-Communist Manifesto. Cambridge University Press.

Sen, Amartya (2000) Development as Freedom. New York: Alfred A. Knopf.

Solow, M. Robert (1956) A Contribution to the Theory of Economic Growth. The Quarterly Journal of Economics, Vol. 70, No. 1. (Feb., 1956), pp. 65-94. Available online at: https://www.econ.nyu.edu/user/debraj/Courses/Readings/Solow.pdf. Retrieved May 11, 2020.

Todaro, Michael, P., and Smith, Stephen, C. (2012) Economic Development 11th Ed. Boston: Addison-Wesley.