Economics

Managerial Economics

Article Summary

Name: Sirisha B.V.S

Roll no.:10306

Section: B

Title: Reinventing Development Economics

Source: Harvard Business Review, Nov 2004

SUMMARY

Economic development is a process of transfer of labour from underemployment and low-productivity employment in the traditional sector of a developing economy to relatively high-productivity employment in its modern sector. Generation of such a process of labour transfer requires economic growth. Instrumental to economic growth is accumulation of capital, which results from the expansion of an entrepreneurial class.

Capital here means not just physical capital but also human capital. And the expansion of an entrepreneurial class means not just the growth of private entrepreneurs but also the emergence of the state as an entrepreneur but economic growth is not synonymous with development. When confined to the modern sector, economic growth delivers “de-development” rather than development. For, this growth has to be impossibly high to generate a process of labour transfer rapid enough to reduce the labour force growth in the traditional sector to zero. And in the absence of investment in the traditional sector, any growth of the labour force there means a decline in output per worker and hence also a decline in the real wage per worker in the modern sector.

Moreover, the fact that food is produced only in the traditional sector means that employment growth in the modern sector cannot even be sustained while the traditional sector records zero growth. The growth process that can deliver development has to have the following characteristics. First, growth must occur simultaneously in both the modern and the traditional sectors. Second, growth of the modern sector has to be higher than that of the traditional sector. Third, growth of the modern sector has to be associated with a fairly stable level of output per worker. Fourth, growth of the traditional sector should at least...