Chapter 3 Determinants Of Economic Development

DETERMINANTS OF ECONOMIC DEVELOPMENT Chapter 3

DETERMINANTS OF ECONOMIC DEVELOPMENT ECONOMIC DEVELOPMENT:  Not determined by economic factors alone.  There are non-economic factors that affect economic development and have greater influence an economic ones.

DETERMINANTS OF ECONOMIC DEVELOPMENT Economic Factors: 1. CAPITAL

 Refers to finished goods which are being used to produce other goods. These are the machines, buildings, tools, equipment, etc.

DETERMINANTS OF ECONOMIC DEVELOPMENT Economic Factors: 1. CAPITAL

 Types of Capital: a) Physical capital (materials) b) Financial capital (money) c) Human capital (people)

DETERMINANTS OF ECONOMIC DEVELOPMENT Economic Factors: 1. CAPITAL

 Machines • Accelerate the production and distribution of goods. • Work is done in lesser time and effort.

DETERMINANTS OF ECONOMIC DEVELOPMENT Economic Factors: 1. CAPITAL

 Machines • Reduces unit cost. • During ancient times people relied on men and animals for production and construction. For example, temples and pyramids were built by thousands of workers, mostly slaves.

DETERMINANTS OF ECONOMIC DEVELOPMENT Economic Factors: 1. CAPITAL  Machines • There are still many parts of the world which are using primitive methods of production. • Rich countries like USA, Japan, and Western Europe have been using modern machines.

DETERMINANTS OF ECONOMIC DEVELOPMENT The Convenience of Machines

DETERMINANTS OF ECONOMIC DEVELOPMENT The Convenience of Machines

DETERMINANTS OF ECONOMIC DEVELOPMENT The Convenience of Machines

DETERMINANTS OF ECONOMIC DEVELOPMENT Economic Factors:

1. CAPITAL  Machines

• On the other hand, less developed countries do not have enough funds for vital projects for economic development.

DETERMINANTS OF ECONOMIC DEVELOPMENT Economic Factors: 1. CAPITAL

 Machines • In Latin America, most of the imposing buildings and impressive machines are owned and managed by foreign corporations.

DETERMINANTS OF ECONOMIC DEVELOPMENT Economic Factors:

2. TECHNOLOGY  Generally refers to better techniques or methods of production.  However, it can be applied in other fields like public administration, education, or social work.

DETERMINANTS OF ECONOMIC DEVELOPMENT Economic Factors: 2. TECHNOLOGY a) Social Technology is concerned with the improvement of attitudes and values of people. b) Public Administration Technology deals with the improvement of social goods in order to maximize e satisfaction of social wants.

DETERMINANTS OF ECONOMIC DEVELOPMENT Economic Factors: 2. TECHNOLOGY  RESEARCH has contributed much to the development of technology.  INVENTION is the discovery of a new technique.

 INNOVATION is the practical application of an invention to production for the market.

DETERMINANTS OF ECONOMIC DEVELOPMENT Economic Factors: 2. TECHNOLOGY

 However, not all innovation are for the markets.  Example 1: POLITICAL INNOVATIONS are intended for improving conditions in the government.

DETERMINANTS OF ECONOMIC DEVELOPMENT Economic Factors: 2. TECHNOLOGY

 Example 2: SOCIAL INNOVATIONS are intended for improving conditions in the society.

DETERMINANTS OF ECONOMIC DEVELOPMENT Economic Factors: 2. TECHNOLOGY  Some Principles of Technology. a. Research and requires big funds.

development

b. Better ways of doing things or producing goods are discovered.

DETERMINANTS OF ECONOMIC DEVELOPMENT Economic Factors: 2. TECHNOLOGY  Some Principles of Technology. c. Rich countries can afford to undertake necessary and expensive research and development projects.

d. Such are given high priority because their future economy greatly depends on them.

DETERMINANTS OF ECONOMIC DEVELOPMENT Economic Factors: 2. TECHNOLOGY  Some Principles of Technology. e. Both the government and the business sector are actively engaged in research and development. f. On the other hand, the less developed countries merely copy or imitate Western technology because it’s cheaper.

DETERMINANTS OF ECONOMIC DEVELOPMENT Technology for the Less-Developed Countries: 1. Actually. There is nothing wrong with the importation of technology. It saves both money and time. 2. However, such technology should be suitable to local conditions (localization).

DETERMINANTS OF ECONOMIC DEVELOPMENT Technology for the Less-Developed Countries:

3. The economic, social, cultural, political, and managerial aspects have to be taken into consideration in the application of a foreign technology.

DETERMINANTS OF ECONOMIC DEVELOPMENT Technology for the Less-Developed Countries:  Many years ago, JAPAN was a notorious imitator of Western technology.  After eliminating its feudal economy, Japan completely copied the agricultural technology of the USA and England and applied this in its farms.

DETERMINANTS OF ECONOMIC DEVELOPMENT Technology for the Less-Developed Countries:  The result was a dismal failure because individual farm units are small and the imported machineries were inappropriate.

DETERMINANTS OF ECONOMIC DEVELOPMENT Technology for the Less-Developed Countries:  A poor country bought a giant machine from Russia used in constructing a huge dam, while the machine was in the process of excavation, thousands of unemployed people watch in misery.

DETERMINANTS OF ECONOMIC DEVELOPMENT

Technology for the Less-Developed Countries: 4. A poor country with a very large population of unemployed should be given first priority to laborintensive technology.

DETERMINANTS OF ECONOMIC DEVELOPMENT Technology for the Less-Developed Countries:

 Industrial countries use machines (capital intensive) because labor is scarce and therefore expensive so it’s more economical to use machines than employ workers.

DETERMINANTS OF ECONOMIC DEVELOPMENT

Technology for the Less-Developed Countries:  Poor countries have an oversupply of unemployed and underemployed so should use labor-intensive technology.

DETERMINANTS OF ECONOMIC DEVELOPMENT Technology for the Less-Developed Countries:

 Poor countries have an oversupply of unemployed and underemployed so should use labor-intensive technology.

DETERMINANTS OF ECONOMIC DEVELOPMENT Technology for the Less-Developed Countries:  Gunnar Myrdal said that “Western technology has been adopted in Southeast Asia without proper consideration of the local climate and soil conditions which resulted to adverse effect on production.”

DETERMINANTS OF ECONOMIC DEVELOPMENT Technology for the Less-Developed Countries:  Cesar Virata said that “a Cadillac technology is expensive and imported.” He suggested that a local technology be developed which is more suitable and less expensive.

DETERMINANTS OF ECONOMIC DEVELOPMENT

Technology for the Less-Developed Countries:  Schumacher suggested an intermediate technology for the less developed countries characterized by merging of primitive and modern technologies.

DETERMINANTS OF ECONOMIC DEVELOPMENT Technology for the Less-Developed Countries:  Schumacher suggested an intermediate technology for the less developed countries characterized by merging of primitive and modern technologies.

DETERMINANTS OF ECONOMIC DEVELOPMENT Technology for the Less-Developed Countries: 4. Intermediate technology is more efficient than a primitive technology and less expensive than a modern technology. Such technology is labor-intensive.

DETERMINANTS OF ECONOMIC DEVELOPMENT Economic Factors: 3. MARKET

 The growth of markets reflects an expanding economic development.  For as long as the various sectors of the economy are equitably benefited, economic growth is real and enduring.

DETERMINANTS OF ECONOMIC DEVELOPMENT Economic Factors:

3. MARKET  A flourishing market which enriches only the foreigners and the very few local elite only aggravates the problems emanating from the maldistribution of wealth and income.

DETERMINANTS OF ECONOMIC DEVELOPMENT Economic Factors: 3. MARKET

 Transportation, communication, and electricity greatly help in the growth of markets.  A market becomes bigger and when people buy more goods. This stimulates investments and production.

DETERMINANTS OF ECONOMIC DEVELOPMENT Economic Factors:

3. MARKET  Obviously, it’s unfair for any government agency to tell farmers to improve their production methods if there are no profitable markets for their products.

DETERMINANTS OF ECONOMIC DEVELOPMENT Economic Factors: 3. SOCIAL STRUCTURE

 A society which has a more equitable distribution of wealth and income, and economic freedoms, provides a more fertile environment for economic development.

DETERMINANTS OF ECONOMIC DEVELOPMENT Economic Factors: 3. SOCIAL STRUCTURE  On the other hand, a society whose wealth and income belong to very few families does not encourage economic development. Since the fruits of development do not go to the people, they have no enthusiasm to participate in any government development program.

DETERMINANTS OF ECONOMIC DEVELOPMENT Economic Factors: 3. SOCIAL STRUCTURE

 Example: the CASTE System in India, wherein there was a class hierarchy among the people. The poorest people are considered untouchables. They have no way to achieve economic development.

DETERMINANTS OF ECONOMIC DEVELOPMENT Economic Factors: 4. FAMILY SYSTEM

 Western family members like the USA are more individualistic and self-reliant. Adult children are financially independent from their parents and are free to pursue their economic inclinations anywhere.

DETERMINANTS OF ECONOMIC DEVELOPMENT Economic Factors: 4. FAMILY SYSTEM

 Considering the security of the parents, their family obligations are minimized. Unlike in the lessdeveloped countries, especially among Asians, the children have to take personal care of their poor old parents.

DETERMINANTS OF ECONOMIC DEVELOPMENT Economic Factors: 4. FAMILY SYSTEM

 An extended-family system, (common in the Philippines) is good in the sense that there is UNITY, and the welfare of the old and young members are protected by the stronger adult members.

DETERMINANTS OF ECONOMIC DEVELOPMENT Economic Factors: 4. FAMILY SYSTEM

 However, the non-favorable dominant features not favorable to economic development are: a.Some married children live with their parents losing their selfreliance.

DETERMINANTS OF ECONOMIC DEVELOPMENT Economic Factors: 4. FAMILY SYSTEM b. Hampers labor mobility and choice of better economic opportunities.  Grandparents or parents do not like their children to work in far places, especially if they are women.  However, there exceptions in the case of ILOCANOS and VISAYANS – they are courageous and adventurous willing to work in any part of the world.

DETERMINANTS OF ECONOMIC DEVELOPMENT Economic Factors: 4. FAMILY SYSTEM c. The family obligations of the older children to their parents and younger brothers and sisters have been a part of culture.  In HDC, the governments take care of the aged and the jobless. So children of poor families are relieved of the burden of supporting their close relatives.

DETERMINANTS OF ECONOMIC DEVELOPMENT Economic Factors: 5. CULTURAL VALUES

 Some cultural values have negative effects and retard the growth of the economy. For example in the Philippines, BAHALA NA, MAÑANA HABIT, NINGAS COGON, and other similar values are not conducive to economic development.

DETERMINANTS OF ECONOMIC DEVELOPMENT Economic Factors: 5. CULTURAL VALUES

 According to MYRDAL – “industrialization requires, efficiency, mobility, discipline, and punctuality.  He observed that many Asians do not have these.

DETERMINANTS OF ECONOMIC DEVELOPMENT Economic Factors: 5. CULTURAL VALUES  For example, FILIPINO TIME – if the time of meeting is 8:00 AM, it means 9:00 AM or even 9:30 AM.

DETERMINANTS OF ECONOMIC DEVELOPMENT Economic Factors: 5. CULTURAL VALUES

 Another characteristic of the ASIAN is to say “yes” when they really do not mean it.  The idea is to please or not to embarrass the other person who makes the request (opposite of palabra de honor).

DETERMINANTS OF ECONOMIC DEVELOPMENT Economic Factors: 5. CULTURAL VALUES

 For instance, you ask them to attend a meeting, and they say “yes”. But they do not attend and they have good excuses.

DETERMINANTS OF ECONOMIC DEVELOPMENT Economic Factors: 5. CULTURAL VALUES  Western culture are efficient, punctual, and responsible.  Can be observed in the Philippines among AMERICAN offices.  In contrast, FILIPINO offices, especially those in the government are not as efficient. Many offices are doing very little between 8:00 Am and 9:00 AM. In fact, even during office hours, some employees are selling all sorts of consumer goods.

DETERMINANTS OF ECONOMIC DEVELOPMENT The Desire to Imitate:

 Many peoples in the LDC admire the consumption habits of the Americans and Europeans.  Take extreme pride in eating their foods, wearing their clothes, and using their appliances and tools.

DETERMINANTS OF ECONOMIC DEVELOPMENT The Desire to Imitate:

 This is COLONIAL MENTALITY, pure and simple..  They love the products of their former colonial masters.

DETERMINANTS OF ECONOMIC DEVELOPMENT The Desire to Imitate:

 Examples of colonial mentality:  Local elite in the Caribbean islands display their European goods in order to enhance their social status.

DETERMINANTS OF ECONOMIC DEVELOPMENT The Desire to Imitate:

 Examples of colonial mentality:  Their houses were built Western architectural style.

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 They wear Western clothes, use Cadillac cars and even the unschooled display their parker pens.

DETERMINANTS OF ECONOMIC DEVELOPMENT The Desire to Imitate:

 Examples of colonial mentality:  A few Filipinos imitate the diction of the Americans, and other American mannerisms.  Imported goods are attractive to the Filipinos.

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DETERMINANTS OF ECONOMIC DEVELOPMENT The Desire to Imitate:

 Examples of colonial mentality:  Argentinians fervently emulate the Europeans. Based on Newsweek article, Argentinians are a bunch of Italians who speak Spanish but they wish they were British and act like they were French.

DETERMINANTS OF ECONOMIC DEVELOPMENT The Desire to Imitate:

 Examples of colonial mentality:  Buenos Aires is proud of the fivestar hotel, Coleridge, Harrods Department Sore, and a temporary reproduction of Big Ben.

DETERMINANTS OF ECONOMIC DEVELOPMENT The Desire to Imitate:

 Examples of colonial mentality:  Argentine elite study in English language schools and play polo.

 The laborers of Argentina patronize soccer teams with English names like River Plate and Newell's Old Boys.

DETERMINANTS OF ECONOMIC DEVELOPMENT The Desire to Imitate:  Such misplaced cultural values do not encourage at all the production of local goods.  Do not help the development of local industries.  People do not take pride and appreciation in their own products and industries.

DETERMINANTS OF ECONOMIC DEVELOPMENT The Desire to Imitate:  Japan, despite its adoption of Western technology has never lost its own culture and tradition.  The Japanese love their own country, its products and its institutions.

DETERMINANTS OF ECONOMIC DEVELOPMENT The Desire to Imitate:  Cultural lags form barriers to real and meaningful economic development.  However, in spite of their physical development, some societies practice cannibalism, and considers as their gods the big rivers, violent volcanoes, the moon and the sun.

DETERMINANTS OF ECONOMIC DEVELOPMENT

Economic Factors: 6. POLITICAL CONDITIONS  Political stability and fair economic policies stimulate economic development.

 Attracts both local and foreign investments.

DETERMINANTS OF ECONOMIC DEVELOPMENT Economic Factors: 6. POLITICAL CONDITIONS  The major role of the government is to provide a high standard of living for its people.  Attained thru higher levels of investments which generate employment and production.  Equitable distribution of wealth and income.

DETERMINANTS OF ECONOMIC DEVELOPMENT Economic Factors: 6. POLITICAL CONDITIONS

 Can only operate efficiently under a regime of good and honest public administration.

DETERMINANTS OF ECONOMIC DEVELOPMENT Economic Factors: 6. POLITICAL CONDITIONS  But if governments keep on changing very often, economic programs are likely to suffer.  Not a few countries in Africa and Latin America have very unstable government.  Coup d'état has become a common spectacle.

DETERMINANTS OF ECONOMIC DEVELOPMENT Economic Factors: 6. POLITICAL CONDITIONS  Singapore is a tiny state.  In terms of natural resources it is very poor, and yet very affluent and progressive compared with most Asian countries.  Principal keys to its economic growth is foreign investment and tourism.  Successful because of political stability and honest public administration.

DETERMINANTS OF ECONOMIC DEVELOPMENT Economic Factors: 6. CORRUPTION IN ADMINISTRATION

PUBLIC

 Number one obstacle to economic development in Southeast Asia.  Precious resources like money are not appropriately utilized for development.

DETERMINANTS OF ECONOMIC DEVELOPMENT  Economic Factors:

6. CORRUPTION ADMINISTRATION

IN

PUBLIC

 Government corruption is present in any society but very rampant in LDC like those in Asia.  Most corrupt government offices:  Public works department

 Collection of taxes  Customs duties  Export and import licenses

DETERMINANTS OF ECONOMIC DEVELOPMENT  Economic Factors: 6. CORRUPTION IN PUBLIC ADMINISTRATION  Bribery has been a common practice in dealing with government offices:  To expedite applications or approval.  Use of middleman between businessmen and government officials.  Policemen and government clerks accept bribes in full view of the public.

DETERMINANTS OF ECONOMIC DEVELOPMENT  Economic Factors: 6. CORRUPTION IN ADMINISTRATION

PUBLIC

 Various reforms have been made but the task of cleaning the government is a long difficult process considering our Oriental values and depressed economic conditions.

DETERMINANTS OF ECONOMIC DEVELOPMENT Economic Factors: 7. RELIGION

 During the Biblical times, materialism and the pursuit of wealth were despised and discouraged.  Similar attitudes shown by Greek philosophers and Scholastics led by Aquinas.

DETERMINANTS OF ECONOMIC DEVELOPMENT Economic Factors:

7. RELIGION  During the Biblical times, materialism and the pursuit of wealth were despised and discouraged.  Similar attitudes shown by Greek philosophers and Scholastics led by Aquinas.

DETERMINANTS OF ECONOMIC DEVELOPMENT Economic Factors:

7. RELIGION  The Bible contains many statements against wealth and materialism:  The poor are blessed for they shall inherit the kingdom of heaven.  It is harder for a rich man to enter the gate of heaven than for a camel to pass through the eye of a needle.

DETERMINANTS OF ECONOMIC DEVELOPMENT Economic Factors:

7. RELIGION  Such religious concepts and teachings against materialism are not favorable to economic development.  When people shy away from the pursuit of wealth, economic development tends to be slow.

DETERMINANTS OF ECONOMIC DEVELOPMENT Economic Factors: 7. RELIGION

 Max Weber, author of the Protestant Ethics and the Spirit of Capitalism:  Claimed that Protestant countries are more progressive.  Dominant values include thrift, industry, and entrepreneurial spirit.

DETERMINANTS OF ECONOMIC DEVELOPMENT Economic Factors: 7. RELIGION

 Former colonies of Spain are Catholics.  Inherited their religion from their former colonial master.  Most are LDCs.

 Philippine religious values are similar to Latin America.

DETERMINANTS OF ECONOMIC DEVELOPMENT Economic Factors: 7. RELIGION  There are Catholic practices which are not consistent with the principles of economic development.  Expensive celebrations during barrio and town fiestas in honor of a patron saint.  Expensive style of religious celebrations such as marriages, baptisms, etc.

DETERMINANTS OF ECONOMIC DEVELOPMENT Economic Factors: 7. RELIGION  Religion is only one of the factors of economic development.  Weber’s claim that capitalist was responsible for the growth of capitalism was not exactly correct.  Countries like Spain, Japan, Israel, Singapore, and Taiwan (not Protestants) have shown great strides.

DETERMINANTS OF ECONOMIC DEVELOPMENT Economic Factors: 8. POPULATION

 Both an advantage disadvantage.  Advantage if people productive and creative.

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 Disadvantage if population growth is higher than the rate of production.

DETERMINANTS OF ECONOMIC DEVELOPMENT Overpopulation

DETERMINANTS OF ECONOMIC DEVELOPMENT World Population Map

DETERMINANTS OF ECONOMIC DEVELOPMENT Economic Factors: 8. POPULATION  Effects of Overpopulation. 1. 2. 3. 4. 5. 6.

depletion of natural resources. degradation of the environment. conflicts and wars rise of unemployment higher cost of living poverty and hunger

DETERMINANTS OF ECONOMIC DEVELOPMENT Economic Factors: 9. GEOGRAPHY  Refers to climate, soil, natural resources, topography, and structure of the land.  Have considerable influence on economic development.  Countries endowed with abundant natural resources have greater potentials.

DETERMINANTS OF ECONOMIC DEVELOPMENT Economic Map of the World

DETERMINANTS OF ECONOMIC DEVELOPMENT Economic Factors: 9. GEOGRAPHY

 There are some countries with barren land but are rich in oil resources such as countries in the Middle East.  Construction projects in the regions are funded by earning from oil exports.

DETERMINANTS OF ECONOMIC DEVELOPMENT Economic Factors:

9. GEOGRAPHY  In case of Africa:  Only 7% of the land is arable and only 50% of such land is used for food production.

 The land is further compounded by floods and droughts.

DETERMINANTS OF ECONOMIC DEVELOPMENT Economic Factors: 9. GEOGRAPHY

 There are countries with poor natural resources but were able to achieve remarkable economic growth.  JAPAN – only 16% of arable land but cannot be farmed during winter. But through capital and technology, it has achieved phenomenal economic growth.

DETERMINANTS OF ECONOMIC DEVELOPMENT Japan

DETERMINANTS OF ECONOMIC DEVELOPMENT Economic Factors: 9. GEOGRAPHY  Israel – formerly a barren land. It had a pastoral economy. Today Israel has a developed economy through modern agricultural technology.  It is now an exporter of farm crops, aside from industrial goods.

DETERMINANTS OF ECONOMIC DEVELOPMENT Israel

DETERMINANTS OF ECONOMIC DEVELOPMENT Economic Factors: 9. GEOGRAPHY

 Transportation and communication are likewise affected by geographical structure.  Presence of excellent harbors favor both local and international trade.  Great rivers accelerate economic development.

DETERMINANTS OF ECONOMIC DEVELOPMENT Economic Factors: 9. GEOGRAPHY  In fact, the first civilizations emerged in great river valleys – Tigris, Euphrates, and the Nile.

DETERMINANTS OF ECONOMIC DEVELOPMENT Economic Factors: 9. GEOGRAPHY  Mountainous countries pose obstacles to both transportation and communication systems.  Philippines – has more than 7,000 islands which do not provide a good network of transportation and communication.

DETERMINANTS OF ECONOMIC DEVELOPMENT Economic Factors: 9. GEOGRAPHY

 Geographical disadvantage can be eliminated or reduced through proper use of technology and capital.