By Aftab Ahmad Khan
During the last six decades development has occupied the centre of the stage in reflection and action concerning man’s present and future; prodigious industry has been invested in it. Every generation in the past set goals for itself and registered at least partial success in attaining them; but the contemporary predicament of man and its awesome proportions have sharpened the debate in respect of both the finalities and instrumentalities of development. For over six decades the subject has been debated and examined from every possible angle. What appeared to be fail proof panaceas were accepted and tried. When their promise did not materialize there was some inevitable shift in paradigms and new strategies were experimented with.
While the development efforts of the last 60 years may not have covered itself with glory, it cannot be doubted that in overall terms these have been reasonably successful. The developing world has achieved commendable economic progress since the 1950s. In many countries incomes have increased sharply, savings and investment rates have risen and trade has expanded so rapidly that some countries have moved out of the aid category. Whereas Britain took nearly 60 years to double per capita income in the 18th century, China recently achieved this result in 10 years. Developing countries are now not only important markets for the developed countries, but are also growing competitors in a wide range of manufactures.
The developing countries have in recent decades, become more and more differentiated as some (notably in East Asia) forged ahead with rapid industrialization, competitive agriculture and explosive export growth, whereas others (notably in Africa and in zones of prolonged regional conflict) have actually lost ground in the last three decades.
In the light of critical appraisal of successes and failures on the development front there have been several attempts at reforming policies and changing strategies in many countries in recent years. The principal message which emerges is about the role of the state. This role is crucial but it must be kept within the limits of the scarcest resource in the developing countries that is the supply of competent and honest administrative talent.
In the name of planning, a regulatory framework and mechanisms for allocating resources were created to control private decisions. In exercising such controls, quantitative restrictions rather than price based measures mediated through the market were most often used. A chaotic incentive structure and unleashing of rapacious rent seeking were the outcomes.
The few countries that deviated from the inward approach of the dominant paradigm in their development strategy since the early 1960s such as South Korea, Taiwan, Singapore, Hong Kong (now a part of China) and later followers such as Malaysia and Thailand have performed much better in all aspects of development than many who did not. It is now quite clear that the incentive system matters and competition, domestic and international, is the most effective way of ensuring efficient resource allocation.
The next important lesson is about the desirability of maintaining a stable macro-economic framework for development. There must be effective tax collection based on the principle of ability to pay. The temptation of recourse to inflationary financing of public expenditures must be avoided; virtually every facet of economic and financial history around the world tells us that rising rates of inflation are simply incompatible with economic stability and prosperity. A particularly pernicious aspect of inflation is the discrimination against public services, which are its most unrelieved victims apart from those living on pensions and other fixed provisions for personal economic security. Social imbalance is the natural offspring of inflation. In the words of Prof. J.K. Galbraith: “In a free market in an age of endemic inflation, it is unquestionably rewarding in purely pecuniary terms to be a speculator or prostitute rather than a teacher, preacher or policeman.”
The next significant lesson is that state interventions in the economy, where necessary, should be market friendly in that these work with, rather than against the market and above all, care should be taken to ensure that such interventions do not become entitlements of certain groups that cannot be withdrawn once the need for interventions disappears. Interventions should be transparent, rule based rather than discretionary, price based rather than through quantitative restrictions.
Another important lesson is that a system of checks and balances is needed to prevent the misuse of economic and political power. Vigorous competition in free markets is the key to prevent concentration and abuse of economic power. A democratic dispensation, which protects individual liberties and human rights, is essential for the prevention of the abuse of political power.
Again, development experience of post World War-II era clearly points up that the development of human resources through high investment in education, health and nutrition is essential not only for enhancing productivity of capital and physical resources, but also for the stability, strength and vitality of the political system.
The next significant lesson is that development must encompass the eradication of poverty. Poverty has now become the hot favourite issue of social scientists and considerable research inputs are being made into the investigation of this theme. These endeavours have shown some useful Insights, but much of the tangled skein of poverty remains unravelled. This is not a subject only of endless academic research; it also calls for action. On the economic front, the problem is now beyond charity and state welfarism. The productivity of the poor has to be raised and a more equitable distribution of incomes brought about. This will have socially wholesome and economically beneficial results. Productivity and development will pick up if poverty is eradicated.
Unfortunately in a large number of low income countries there is a conspiracy to politicize poverty not always in the interest of the poor. There is a lot of noise but no effective action. There has been an unholy alliance between the large power interests and the relatively privileged from among the poor. This has worked for a time but it has already lost much of its power to fool people. If the level of conflict in society is to be minimized, promises alone will not do; they must be matched by performance. In any case, failures to tackle poverty on the economic front are likely to generate lethal psychological trends, which may unsettle the social order. Another significant lesson is that while the state should foster private sector provision and competition, it has to play an effective role in managing economic policy, anticipating and adjusting to economic shocks and in general designing and implementing economic reforms. Equally important are a suitable regulatory framework and a stable legal system.
Another significant development insight is that there has to be a careful identification of priorities. Most poor countries are resource constrained and some things are more important than others. It is the planner’s first task to identify these. It is also essential to concentrate resources on priority tasks and not to diffuse these by spreading thinly over a broad spectrum of activities.
The next important lesson is the devastating impact of international/ national conflicts between or within countries of the Third World on the progress of development. Millions have been impoverished in the developing world on account of national, ethnic or religions conflicts. Peace and tolerance must be a primary goal for the people of the Third World; conflicts must be resolved through negotiations, mediation and if necessary through international arbitration.
Finally, it must be emphasized that the industrialized as well as the developing countries have a vital role in ensuring that the global trading system is free of protectionist barriers of all kinds and there is a free movement of capital, technology and hopefully of labour. There should also be a substantial writing off of the external debt of less developed countries. Beyond this, there should be a large increase in development assistance provided by international financial agencies and directly from rich industrialized countries.
The adjustment programmes of the IMF and the WB must have a human face and should not result in the disruption of the momentum of development in the countries which are constrained to seek their assistance, quite often because of the inequities of the existing international economic order.