Economic growth is central to development | Academic Papers Help
Economic growth is central to development to a significant degree
Economic growth is considered to occur when the real level of national output in a country increases. In simple terms it is an increase in national wealth that occurs over a specific period of time. Development, though, is referred to as the social condition present in a country whereby the populations authentic needs are met through use of natural systems that are both rational as well as sustainable. Development is characterized by changes such as an increase in the living standards of people, improved self-esteem needs in the communities and increased freedom that is a reflection of minimal or zero oppression (Todaro and Stephen, 2006). The link between economic growth and develop is strong as growth plays role as a step leading to the achievement of development. It is undisputable that growth hold prime significance to development and that it acts as a precondition to development but at no point can growth be conceptualized as development. The extent to which economic growth becomes central to development is average, meaning that growth makes half the contribution in facilitating development.
In order to better understand the issue of economic growth and development it is necessary to evaluate different economic theories. The neoliberal theory would concur that economic growth is central to development to a very high degree as neo-liberalism operates under the assumption that increased economic growth benefits everyone in the society eventually (Prasad, 2006). In the economic context, neo-liberalism is an ideology and a policy system that promotes free trade, privatization, abolition of government intervention in markets and economic issues, and increased participation and ownership of the private sector in businesses (Storey, 2003). In particular, proponents of neo-liberalism wish to observe the market as a free platform that has no control, no intervention from the government, absence of restrictions, limited barriers to commerce, and generally conduction of free trade. At this point there is concern over the appropriateness of such a market that is not regulated and that may present potential of exploitation of those who are vulnerable. The basic idea that underpins the assumption of self-regulation in the economic market is that the society does not need to be controlled because within it is the capacity to conduct internal self-management that will create a balance and avoid chaos. This liberalism and privatization would only give power to large corporations and wealthy individuals in the society because they would own most business enterprises in the society and have the ability to regulate prices as they desire (Prasad, 2006). In most cases, they would only seek to achieve selfish individual or organizational interests at the expense of the welfare of others in the country. It is this and similar perspectives on propositions made in neo-liberalism that has fueled the need for adoption of alternative forms of economy (Perelman, 2000). In addition to the threats posed to the poor if free and open markets were adopted, there is also the issue of reducing expenditure on public social services such as education. The objective in this move is to reduce the role of government in the socio-economic matters in the country. However, in the process, there are negative impacts on the population such as a resultant decreased safety-net for poor people. When expenditure on healthcare, education and other social services is cut, the poor will find it hard to pay for high costs of health care and not many people will gain access to descent education therefore little development will be realized.
A form of economy that would acknowledge the real extent to which the economy is central to development is market socialism. For development to occur, the economic, social, political and technological dimensions in a country are all taken into consideration. Economic growth would facilitate initiatives in political, technological and social development but it is not the core factor influence in such development. Development seeks to address inadequacies in the society that include powerlessness and unaccountability of institutions (Ali and Keng, 2001). As such, the neoliberal economic perspective fails in promoting such development as it proposes policies that expose the vulnerable (mostly the poor) to selfish pursuits of the wealthy and limits government intervention whereas such intervention would enhance accountability of institutions. Simply increasing the income levels of people in the society and improving living standards doesnt address wider issues that encompass a wide range of contexts. It is this argument that illustrates the presence of additional factors that facilitate development and not solely economic growth. A country that is considered developed has to satisfy some conditions such as the ability to provide citizens with fair distribution of basic resources together with social amenities (La, 2011). It should be noted that the country is expected to strive to provide such resources in the fairest manner possible. The Gross National Product (GDP) is a measure that primarily indicates economic growth. It represents the total value that is added in goods and services produced in one year. It is hence apparent that economic growth is measured basically in terms of goods and services that have been provided in a specific period (USDN, 2012). However, development does not relate to economic wellbeing or performance alone and instead spans a broader scope that is influenced by additional factors such as education, politics, cultural conditions and other social variables. Development and growth may hence be interrelated but they are entirely different phenomena and the role of economic growth in development is not central.
An evaluation of the role of economic growth in development indicates the reason behind increased debate over the adoption of alternative forms of economy to neo-liberalism. The market socialism is a good alternative that enhances development as opposed to neo-liberalism which prioritizes economic success while disregarding other functions in a country. Cameron & Palan, (2004) acknowledge that the economy and the state are two pillars in a nation and the role of each is highly significant. The market economy is responsible for production of goods and services and the state is responsible for establishing a distributive framework that i8t will also enforce. A sense of order is hence established and the welfare of different parties is represented. As much as proponents of neo-liberalism argue against the intervention of the government in economic matters, it should be noted that the economic matters will always influence the society and environment variously therefore economic endeavors cannot be separated from the society and other contexts. The government can formulate measures that will guarantee the environment gets protected but in a free and open market where no government intervention is allowed, the impacts of economic activities on the environment would remain unaddressed. Business firms hence are categorized as worker cooperatives according market socialism. The state (or government), on the other hand, is made up of agencies that are responsible for provision or supply of public amenities like transport and conservation of the environment. Additionally, the state provides a platform where the opinions and suggestions of citizens are equally represented and utilized to adopt new policies, initiatives and national strategies.
This is an indication of the presence of additional factors that influence development apart from economic growth. In the market socialist perspective, the state and its role are equally important as is economic growth. A state that utilizes market socialism recognizes five main functions that monitor and address the various interests present. The state is protective in that it safeguards the people and the resources in the nation as well as the benefits that may be realized from violation or wrongful use by other people. The state is distributive in that it allocates and reallocates resources to comply with distributive justice and enhance accessibility, equality and transparency (La, 2011). The state practices economic management by regulating the economy in order to achieve efficiency. Additionally, it controls aggregate demand aiming to facilitate full employment of capital stocks and human resources. In managing economic matters, it ensures that specific industries remain competitive and that investment is appropriately directed resulting in productive use of new capital. Consumers may be falsely informed regarding products and services if the state did not intervene hence the state disseminates information to enhance the ability of consumers to make appropriate choices. The fourth function is making public goods available and the final function is self-production. Self-production is achieved when the state puts effort into developing a strong sense of citizenship that it similarly formulates measures to maintain. Additionally, it ensures that mechanisms for political participation are in place and working effectively. From the evaluation of the role of the state in promoting national wellbeing and economic growth it is evident that development is achieved by more than just economic growth (La, 2011).
The gap between the rich and the poor is increasingly becoming larger in developing nations and to some degree in some first world nations. A scenario that can illustrate the link between economic growth and both social and economic development is an example of a typical agrarian economy. In this context, the more that industrialists acquire more revenue and take up more land to set up manufacturing and processing facilities, the people who depend on farming as a source of livelihood become greatly affected. This hence illustrates that economic growth may occur but only be beneficial to a handful of rich individuals and groups who would take up most of the wealth created. This example additionally indicates the need for government intervention in order to ensure that fair distribution is achieved and exploitation by big players is not done on the poor and vulnerable. The bottom-line, though, is that economic growth does not automatically translate to development. In the example that has been provided, increasing the wealth of those who are already rich while the poor continue to plunge into abject poverty does not reflect development (La, 2011). As was earlier discussed, development encompasses other areas apart from economic areas that include social, political and environmental spheres. Improving the economic welfare of a selected group of people while other spheres are left out does not constitute development. In fact, when the wealthy and powerful have the capability to exploit the poor and vulnerable, then the little that such vulnerable groups have could be taken away from them leaving them impoverished and contributing to underdevelopment rather than development. Economic growth is hence not as important as establishing how benefits of economic growth can be distributed evenly.
The form of economy in place influences the extent to which economic growth influences growth. A neo-liberalist perspective recommends that the government concentrates less on social services like health care and education. This would mean that a majority of investments made are done on more promising ventures than social services. It is such a perspective that limits the level of development in a community even with economic growth showing a positive trend (Busharizi, 2012). It is unlikely to make an investment in social services based on the fact that such an investment would require a longer repayment period and the risk is high. An example to illustrate this assertion is in the development of a borehole in a rural region or in the provision of free education programs. In such ventures, it would not be easy to discern the potential returns that an investor would receive. However, a factor that is disregarded in the process is that such social services enhance the ability of individuals to gain better position on the social pyramid and become more productive individuals. A good alternative would be market socialism which recommends government intervention in economic matters and thus ensures a particular level of control is employed to represent the welfare of all citizens equally.
A good economy to evaluate would be Malaysia. Malaysia is an economy that is growing at an impressive rate. The rate of economic growth is similarly reflected in the developmental initiatives and achievements that have occurred in the last decade. The form of economy in the country is presently market socialist and as such, the successful combination of economic growth and development may be attributed to the market socialism practiced in the country. As the economy grows rapidly, the Malaysian government has established initiatives to strengthen accessibility and quality of education. A major indicator of development in Malaysia is use of primary sources that may include surveys and censuses (Jomo & Wong, 2008). Data from administrative records also forms part of development indicators. Both primary and secondary data gained relates to economic, social and environmental indicators. This is an illustration that Malaysia manifests the concept of development as a separate phenomenon from growth and that growth is not the most important factor that contributes to development. Economic growth plays a big role because various initiatives such as formulation and execution of new social services programs results in expenditure by the government and such funds are readily available when economic growth is achieved.
In 2006, the Malaysian government chose to prioritize human resource development with the primary aim of creating manpower that is characterized by high skills, training and extensive knowledge. The outcome of such an initiative would be a knowledge-based economy. In fact, at this moment it seems that development has more to offer economic growth than economic growth has to offer development. The interrelationship of growth and development is visible and based on a theoretic analysis conducted on forms of economy and the case of Malaysia, it can be inferred that growth does play central role to development to a significant level (Jomo & Wong, 2008). It should not, however, be misconceived that growth is the core factor that determines the achievement of development or otherwise. Other factors have equally been cited as highly influential factors to development especially government intervention in economic matters. Additionally, the role of economic growth to development does not extend to some scopes such as environmental sustainability. Even with high economic growth, caution to impact of different activities on the environment may be disregarded. The same is likely to happen in a nation that practices the neo-liberal form of economy because in such an economy, free market is promoted and the notion that the society is capable of self-management is upheld. In such an economy, economic growth may be achieved but since limited or zero government intervention would be allowed, the welfare and interests of the vulnerable would be disregarded. Further, in a neo-liberal economy, there is the recommendation for reduced spending on social services and since environmental conservation is not an activity that would provide discernible short-term returns, it is not a priority in a neo-liberal economy.
Regarding environmental sustainability, the extent to which growth is central to development can be slightly indicated. Economic growth is associated with the value of goods and services produced in a specific period of time, usually a year. The concept is primarily concerned with the products, services and the value of the amount produced but the impacts of such activities on the environment are not a priority (Perelman, 2000). In an economy that disregards the environmental, political or social impacts of such economic activities, economic growth may be achieved but development would be missing. Factories and manufacturing plants would be manufactured in wetlands, forests would be destroyed to create land for such industrial development, the air would be polluted by industrial waste and industrial waste water would be drained without any consideration on what impact it would have on the environment. Environmental degradation would transpire and the underdevelopment would be initiated regarding environmental and social interests. Firms may justify the economic growth and even point to increased employment opportunities as social development but a key developmental element is sustainability. Short-term development that creates long-term risks is not in any way recommended. While creating jobs there is need for consideration to be made on the long-term effects of such an initiative. This therefore supports the assertion that growth is only one among many factors that lead to or contribute to development.
In conclusion, economic growth is central to development to a significant degree. However, there are other factors that are equally important in contributing to development. Additionally, the role of economy in contributing to development differs based on the form of economy in place. In a neo-liberal economy, the economic growth would have very little impact on development but in a market socialist economy the degree of influence would be significantly high. This stems from different characteristics of the tow forms of economy including the need for government intervention and priority on investments on social services. The case of Malaysia illustrates the better influence of Market socialism regarding economic growth and its contribution to development. As a result of government intervention in economic matters and high priority on funding social services, the country has managed to improve in economic growth and in the process improve development.
References
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