Daily Times

The caretaker government is facing economic challenges on the international and domestic fronts. It will miss the targets of the budget and current account deficits by a wide margin during the outgoing fiscal year 2018. To lay the basis for an examination of those aspects of budgeting that are most important for economic development, it seems desirable to set forth, in terms of generalisations, relationships that have historically characterised the developmental process.

First, industrialisation is the key to economic development and, in fact, is virtually synonymous with it. Development requires an increase in the amount of accumulated capital per head of population, in industries, the distributive trades, and in government. In a number of countries, economic development must begin by strengthening and improving the agricultural sector without, initially, an increased capital accumulation. This may even take the form of strengthening subsistence

Agriculture is the nonmarket sector of the economy. But at some point, growth requires capital, and this will inevitably mean industrialization in the sense of increased fabrication, with a concomitant shift of economic activity and the labour force away from agriculture and into other activities.

In most countries this is what economic development has come to mean and commands widespread support — industrialisation to strengthen the non-agricultural sector of the economy. It is only through industrialisation that an underdeveloped country producing raw materials can gain economic independence in relation to the more advanced countries on which it depends for markets. It is only through industrialisation that an economy can become both specialised and diversified for progress.

Secondly, economic development can be operationally defined in terms of (a) an increase in real output per capita, including the output of the nonmarket sector, and (b) consequent increase in real income per capita.

In every society, there is resistance to change. Where these are in command of the power structure of a society, there will be no evident impetus to economic development until new persons and organisations are in a position to challenge the existing order

The emphasis on both output and income is necessary in establishing a usable criterion for judging the rate of development. Progress in the economy as a whole can generally be gauged solely on the basis of output per capita.

The consequences of almost all policies, public and private, can be examined and appraised in relation to the output criterion. However, economic development has come to mean more than this.

Historically, as western European countries and the United States have developed, larger numbers of the population has enjoyed increases in income.

On the other hand, the distribution of income is typically more concentrated in an underdeveloped economy. This emphasis on the distribution of the “fruits of development” distinguishes modern programs from the programs of colonial development.

Total output, and even output per capita, may well increase in the colonies, but the income counterpart may be exported, with no resulting improvement in the distribution of income through the whole population.

Economic development should be judged not only by the increases in output but by the extent to which there is an increased participation in economic activity and in the income derived from it. The pressure from an increased population need not prevent development, instead, it may intensify the need for development; it may slow the rate of development; it does not necessarily preclude it.

The histories of Belgium, Netherlands, and Japan, among others, suggest that high ratios of population to the land area do not in themselves stifle economic growth. There is little historical evidence to confirm the view that the Malthusian spectre condemns countries to poverty until birth rates are reduced.

In fact, the experience of developed, industrialised countries would suggest quite the contrary. As industrialization and urbanisation proceed, and as the proportion of families engaged in agriculture declines, birth rates also decline, until at some point the rate of population growth declines. It is reasonable to expect that a successful development program will in itself, over time, contribute to a solution of the population problem.

The kind of development that is wanted today by the peoples of Latin America, Asia, and Africa is not the kind that occurred in the 18th and 19th centuries, when mines, railroads, and ports, and sometimes schools and hospitals, were built in the colonies.

What is now demanded is a widespread popular participation in the process of development. This means that for many countries a new system of economic values must be internalised, with new patterns of behaviour and expectation. Development must command the efforts and the moral support of increasing numbers of persons.

Unless the habits of consumption and saving, the institutions and legal framework for accumulation, lending and investing can be adapted to the building and maintenance of capital, foreign aid can bring only transitory benefits.

A permanent basis for higher living standards must be created within the society; indeed, this is the very meaning of economic development. Unless the chief nurture of growth is indigenous, the society is constantly exposed to retrogression.

Economic development with widespread participation by large numbers of persons cannot be imported. There are, of course, many ways and means by which outsiders can help, particularly in the transmission of skills and techniques from their own cultures and economies.

Moreover, economic growth must be viewed as a learning process. New skills are acquired and old skills abandoned, with a resulting increase in the specialisation and interdependence of the total system.

Capital formation itself, the physical accompaniment of growth, may be conceived at a broad level as an increase in learning. The skills implicit in an increase in the volume of physical capital per head of population are technical, financial, managerial, and organisational.

Economic growth not only increases the specialisation and complexity of an economy; it also increases certain kinds of internal mobility. This mobility is geographic and social.

This will be accompanied by social mobility the upgrading of persons in the hierarchy of skills and prestige, or the new creation of such hierarchies. Old occupations acquire new status, challenging the established power positions, which have hitherto inhibited and resisted the growth process.

In every society, there are persons and interest groups resistant to change. Where these are in command of the power structure of a society, there will be no evident impetus to economic development until new persons and organizations are in a position to challenge the existing order.

It may safely be assumed that the elimination of poverty, ignorance, and disease is a worthwhile objective, for which it is necessary to pay a price. The present examination of budgeting and development will necessarily emphasise the economics of development, although in full recognition that this involves an incomplete separation of elements from the whole.

Most of modern economic theory presupposes a specific organisational character for society. This is an outgrowth of attempts to describe and understand the behaviour of advanced industrial market structures. Much less attention has been devoted to pre-capitalist organization and to the factors that accompanied the transition from one kind of economic order to another.

Insights that may be provided by economists must be supplemented by the studies of political scientists, sociologists, geographers, and anthropologists. These skills are particularly needed in the study of the organizational character of society and its relation to economic growth the interaction between resources and organization, the ways in which groups are organized for the conduct of economic activity, the leadership patterns that develop within groups.

The writer is a former Director, National Institute of Public Administration (NIPA), Government of Pakistan, a political analyst, a public policy expert and an author. His book Post 9/11 Pakistan was published in the United States

Published in Daily Times, June 19^th 2018.