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Economic of Development

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Economic of Development Appendix A Economic of Development As a noun, development means betterment, a progression of sort, and as such it is inherently part of evolution of the human community. Development is a direct result of social activities, which once they formed become permanent. This permanency of human activities makes the broad distinction between animal and human societ- ies. It is clearly illustrated by the process by which the natural world transforms the animal, while man transforms the natural world. As Lester Ward observed, “the organic world is passive. It is acted upon by the environment and adapted to it.”1 Man, however, as a being, is active and assumes the initiative for molding the nature to his owns need. This is owned not to strong muscle, keener vision, sharp teeth and claws, but rather to man’s drive for a betterment of a community in which he belongs. Therefore, development is an innate part of who we are. And yet, once it is conceived with economics prefix, it turns into an open-ended notion that is vulner- able to various interpretations and conceptualizations. From the orthodox economic view, the central theme of economic development “is rapid capital accumulation (including knowledge and skills with capital),” as noted by Arthur Lewis.2 The instruction to achieve this feat is to use the traditional rural/agriculture sector to fuel the modern industrial one, which requires moving “the rural underemployed,” who, because of their large numbers, can be removed from the countryside without reduc- ing agricultural output (in the economist’s jargon, this can be done because the marginal productivity of labor in agriculture is negligible or zero). This “surplus labor” would be hired at near-subsistence wages by the new industries set up with additional savings and foreign capital. What happened to rural people did not mat- ter. From an economic perspective, these people simply did not count, as Lewis states, “We [orthodox economists] are interested not in the people in general, but only say in the 10 % of them with the largest incomes, who in countries with surplus 1 Ward LF (1907) Pure Sociology: A Treatise on the Origins and Spontaneous Development of Society. MacMillan, pp. 17. 2 Lewis WA (1958) Economic Development with Unlimited Supply of Labor. In: Agarwala AN, Singh SP (eds) The Economics of Underdevelopment. Oxford University Press, p. 416. © Springer International Publishing Switzerland 2016 289 A. Pirzadeh, Iran Revisited, Arts, Research, Innovation and Society, DOI 10.1007/978-3-319-30485-4 290 Appendix A labor receive up to 40 % of the national income … The remaining 90 % of the people never manage to save a significant fraction of their income. The important question is why does the top 10 % save more? … The explanation is … likely to be that saving increases relatively to national income because the incomes of the savers increase relatively to the national income. The central fact of economic development is that the distribution of incomes is altered in favor of the saving class.”3 In a more tamed economic view, a basic function of all economic activity is “to provide as many people as possible with the means of overcoming the helplessness and misery arising from a lack of food, shelter, health, and protection. To this extent, we may claim that economic development is a necessary condition for the improve- ment in the quality of life that is development. Without sustained and continuous economic progress at the individual as well as the societal level, the realization of the human potential would not be possible.”4 This sentiment was also reflected in Denis Goulet’s novel ideas about economic development. Following Erich Fromm’s dis- tinction between having and being, Goulet argues that the possession of certain material goods is indispensable to human well-being because one clearly has to “have enough in order to be more.”5 Goulet also rejects the idea of “materialism that makes material things and consumerism the be-all and end-all of life. Goulet endorses John Kenneth Gailbraith’s call for a new theory of consumption that does not invert material means into the end of human existence, but provides a basis for deciding on how much and what kind of consumption is conducive to human well-being.”6 Recently, economic development has broadened its perspective to cover a more comprehensive view of development and in doing so it finally underlined the need for overall change that included socioeconomic factors and cultural elements. In this context, some merging consensus indicates that a country venture in ­development would inevitably leads to elimination of ceremonialism in the country.7 According to one of the leading proponents of an American school of institutional economics, Clarence Ayres, economic development is the consequence of the successful over- coming ceremonial behaviors and structure, which assign privileges to some classes, 3 Ibid., pp. 416–17. 4 Todaro MP, Smith SC (2012) Economic Development, 11th edition. Addison-Wesley, p. 21. 5 Goulet D (1985) The Cruel Choice: A New Concept in the Theory of Development. University Press of America, p. 128. 6 Goulet D (2006) Development Ethics at Work: Exploration 1960–2002. Routledge, p. xxii. 7 Ceremonialism imposes a curb on human creativity; in its essence, it is any past-binding behavior that tends to thwart the forward progress that technology imparts. There are five ways in which ceremonialism intrudes on any society, according to Ayres: (1) the nature of social stratification or class structures; (2) via social mores or conventions of what is acceptable behavior; (3) ideology which justifies the existing social stratification and mores and which further attempts to emphasize the negative consequences of changing either the social strata or the mores; (4) a social system of indoctrination which emotionally conditions individuals to accept the dominant ideology, mores, and class and social stratification; and (5) social patterns of ceremonial behavior designed to rein- force the first four factors. (See Cypher JM, Dietz JL (2009) The Process of Economic Development. Routledge, p. 181). For a mathematical treatment of the subject see Wood JC (ed) (1993) Thorstein Veblen: Critical Assessments. Psychology Press. Appendix A 291 while they condition the population to resist social and economic change. Successful development, in the Ayresian view, thus requires a revamping of those institutions, and the behavioral patterns that accompany them, which continue to be detrimental to the creation of an indigenous technological capacity.8 Moreover, and on a broader institutionalism’s view, economic development is seen not as simply a matter of amassing economic resources in the form of physical and human capital but a mat- ter of “institution building” so as to reduce information imperfections, maximize economic incentives, and reduce transaction costs. Included in this institution build- ing are the laws and political and social rules and conventions that are the basis for successful market production and exchange. Most relevant consideration, in the context of the present study, is “culture” or the way of doing things in society, which forms in North’s analysis one of the “informal” constraints on human interaction.9 8 Clarence A (1995) Economic Development: An Institutionalist Perspective. In Dietz JL (ed) Latin America’s Economic Development. Lynne Rienner Publishers, pp. 89–97. 9 North DC (1990) Institutions, Institutional Change and Economic Performance. Cambridge University Press; and North DC (1991) Institutions. Journal of Economic Perspectives 5:97–112. Appendix B Rent-Seeking Versus Rent Creation Frequently, many experts erroneously perceive one of the main adverse effects of an endemic inflation as economic rents. The flaw of such characterizations can be easily traced back to misunderstanding the notions of rent-seeking and rent creation. Economic rent is, to put it simply, receipt in excess of opportunity cost. It is, as Biplab Dasgupta observed, “a genuine social surplus, over and above what would have attracted that particular factor in any case, and plays a dynamic role in the economy … [E]conomic rent creates added value in the economy, rather than diverting the value that already exist.”10 In this light, rent-seeking in a sense of seeking quasi- or temporary rent is noth- ing more than the normal profit-seeking incentive that motivates economic behavior in a market system. In fact, as James M. Buchanan argues, such behavior is healthy for a market-based economy: it allocates resources to their most highly valued uses, and cre- ates new products and values. Economic rent, therefore, should be seen as positive.11 The general view of rent-seeking, however, is negative because it is often con- sidered inefficient and wasteful (rather than socially undesirable or even harmful) and because individuals divert resources from other productive activities they could have been engaged in. This is due to the fact that rent-seeking arises where output is given (fixed), and hence resources can be exploited for personal gain, as in case of monopoly rents. As Robert D. Tollison states, “Output cannot be augmented by definition, so expenditure to capture monopoly or contrived rents do not yield any additional products for the economy.”12 Rent-seeking, in this respect, uses resources 10 Dasgupta B (1998) Structural Adjustment, Global Trade and the New Political Economy of Development. Zed Books, pp. 26–7. 11 Buchanan JM (1980) Rent Seeking and Profit seeking. In: Buchanan JM, Tollison M, Tullock RD (eds) (1980) Towards a Theory of Rent Seeking Society. Texas A and M University Press. Chapter 1, pp. 3–15. 12 Tollison, RD (2004) Is the Theory of Rent-Seeking Here to Stay? In: Heckelman JC (ed) Reading in Public Choice Economics. University of Michigan Press, p. 26. Tollison elaborates on this point, “Perhaps the most useful way to think about rent-seeking is in terms of using real resources to capture a pure transfer.
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