Where do we find the Protestant ethic in bustling Hong Kong?
How can we explain that a country like Japan with a rigid social
structure and powerful lobbies has become
one of the world's most productive economies?
The failure of these early theories to fully explain economic development
has spawned more modern views.
Here's just a sampling of the debate over what the best strategy is for a country to
break out of the vicious cycle of poverty
and begin to mobilize the factors of economic development.
Let's begin with the issue of relying upon an industrial or agricultural economy.
One of the most important choices the leaders of
a developing country can make is whether to pursue a
strategy of rapid industrialization to achieve growth as
opposed to simply expanding and improving their agricultural base.
In the past, such a choice was typically resolved in favor of industrialization as
developing countries sought to mimic the successes of the industrialized nations.
Today however, the lesson of decades of
attempt to accelerate industrialization at the expense of
agriculture has led many analysts to rethink the role of farming.
Here's the problem.
Industrialization is captial intensive.
It attracts workers into crowded cities and
it often produces high levels of unemployment.
On the other hand, raising productivity on farms typically requires
far less capital while providing productive employment for surplus labor.
Indeed, if Bangladesh
could increase the productivity of its farming by just 20%.
That advance would do more to release resources for the production of comforts.
Then we're trying to construct a domestic steel industry to displace imports.
The second major issue in development strategy is whether a
country is better off relying upon a state-run versus market-oriented economy.
The important elements of
a market oriented policy include, an outward orientation and trade policy.
Low tariffs and few quantitative trade restrictions, the
promotion of small business and the fostering of competition.
Moreover, markets work best in a stable macroeconomic environment.
One, in which taxes are predictable and inflation is low.
However, the problem
here is that the cultures of many developing
countries are hostile to the operation of markets.
Often competition among firms or profit seeking behavior is
contrary to traditional practices, religious beliefs or vested interest.
Yet decades of experience suggest that extensive reliance on markets provides
the most effective way of managing economy and promotoing rapid economic growth.
Still a third issue, development strategy has to do
with the openness of an economy to international trade.
For example, should a developing country pursue a strategy
of import substitution by replacing most imports with domestic production?
