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II.
The Evolution of Development Policy
The search for policies to bring about both growth and development has been the
focus of economic discovery since the very beginning of the science. While economic
growth relates to the expansion of an economy based on its current structure, economic
development implies “a process of structural transformations” leading to an overall higher
growth trajectory ([7], p.1183). Lewis, in an essay outlining the importance of
development economics, points to at least fourteen formal development models, including
two-sector and unbalanced growth, technology-based and surplus labor models which have
been used since the 1950’s to account for economic stagnation and the abysmal
development trends of many less developed countries ([8], p.3). Harris and Todaro, in
their two-sector model of economic growth show that labor is induced to move from the
rural (agriculture) sector to the urban (industrial) sector based on the higher “expected
earnings’ in the modern sector ([9], p.126). Wages in the modern sector are usually higher,
not necessarily only because of higher productivity (i.e. in the usual case where wage is
equal to the marginal product of labor) but also because of the imposition of social policies
such as a minimum wage ([9], p.129). While governments may attempt to control the
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growing unemployment problems in the cities caused by the excessive migration by either
increasing employment in the public sector ([9], p.132). or by imposing direct restrictions
on the movement of labor to the urban sector ([9], p.135), economic development through
industrialization can only be sustained by concurrent investments and productivity
improvements in the agricultural sector ([10], pp.386-400). Continuous investments in the
agricultural sector during the development process are also important so as to achieve a
more “balanced” development ([11], pp.566-93).
Other studies have tried to distill patterns of economic growth. Rostow, for
example, outlined the “stages of economic growth” ([12], pp.4-5). In this model, nations,
beginning from a “traditional society” stage, pass through at least three additional stages of
development: the pre take-off stage; the take-off stage; and then to maturity. The
development process occurs as technology, transportation and trade deepen and improve
and as societies evolve to become more tolerant of change ([12], pp.4-5). These changes
gave rise to tensions which emerge because of the “institutional and ideological
adjustments” which were necessary to facilitate economic development ([13], p.247 and
p.253). There are societal conflicts as industrialists and the skills they possess gain more
influence and importance over the agricultural sector and as workers migrate from rural to
urban areas during the transition from the traditional to the mature economy ([13], pp.251-
254). In the take off stage, the economy could be characterized as resilient such that,
…the corps of entrepreneurs and technicians must be enlarged, and the
sources of capital must be institutionalized in such a ways as to permit the
economy to suffer structural shocks; to redispose its investment resources;
and to resume growth. ([12], p.7)
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Finally, in mature economies, there is a process of innovation and displacement (a la
Schumpeter) within the industrial sector leading to a dynamic growth process ([12], p.8).
A final set of studies have tried to determine the variables which affect growth and
development. Lewis, for example, identified capital formation through national savings,
foreign investment or foreign aid; policies which encourage entrepreneurship and skill
development; the increase in international trade; and the introduction of market distortions
through social policy as important factors which affect economic development ([14], pp.1-
16). Indeed, these factors are consistent with the set of policies which came to be known
as the “Washington Consensus” in the late 1980’s. However, the Washington Consensus
also includes measures to address fiscal discipline and a range of liberalization measures
for capital flows, trade policy and interest rates ([15], pp.251-264).
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