Course: Economic Development of Pakistan-I (4659) Semester: Autumn, 2021

Level: M.Sc.

Assignment No.1

Q.l Explain in detail the concept of Economic Development and Economic planning with reference to Pakistan. Give arguments.

Ans

Economic development

In the economic study of the public sector, economic and social development is the process by which the economic well-being and quality of life of a nation, region, local community, or an individual are improved according to targeted goals and objectives.

The term has been used frequently in the 20th and 21st centuries, but the concept has existed in the West for far longer. “Modernization“, “Westernization“, and especially “industrialization” are other terms often used while discussing economic development. Historically, economic development policies focused on industrialization and infrastructure, but since the 1960s, it has increasingly focused on poverty reduction.^[1]

Whereas economic development is a policy intervention aiming to improve the well-being of people, economic growth is a phenomenon of market productivity and increases in GDP; economist Amartya Sen describes economic growth as but “one aspect of the process of economic development”. Economists primarily focus on the growth aspect and the economy at large, whereas researchers of community economic development concern themselves with socioeconomic development as well.

The precise definition of economic development has been contested: while economists in the 20th century viewed development primarily in terms of economic growth, sociologists instead emphasized broader processes of change and modernization.^[2] Development and urban studies scholar Karl Seidman summarizes economic development as “a process of creating and utilizing physical, human, financial, and social assets to generate improved and broadly shared economic well-being and quality of life for a community or region”.^[3] Daphne Greenwood and Richard Holt distinguish economic development from economic growth on the basis that economic development is a “broadly based and sustainable increase in the overall standard of living for individuals within a community”, and measures of growth such as per capita income do not necessarily correlate with improvements in quality of life.^[4] Economic development is a wider concept and has qualitative dimensions. Economic development implies economic growth plus progressive changes in certain important variables which determine well-being of the people,e.g: health, education. The University of Iowa‘s Center for International Finance and Development states that:

‘Economic development’ is a term that practitioners, economists, politicians, and others have used frequently in the 20th century. The concept, however, has been in existence in the West for centuries. Modernization, Westernisation, and especially Industrialisation are other terms people have used while discussing economic development. Economic development has a direct relationship with the environment.

Though the concept’s origin is uncertain, some scholars argue that development is closely bound up with the evolution of capitalism and the demise of feudalism.^[5] Others link it to the postcolonial state.^[6]

Mansell and Wehn also state that economic development has been understood by non-practitioners since the World War II to involve economic growth, namely the increases in per capita income, and (if currently absent) the attainment of a standard of living equivalent to that of industrialized countries.^[7][8] Economic development can also be considered as a static theory that documents the state of an economy at a certain time. According to Schumpeter and Backhaus (2003), the changes in this equilibrium state to document in economic theory can only be caused by intervening factors coming from the outside.

Economic planning

Economic planning is a resource allocation mechanism based on a computational procedure for solving a constrained maximization problem with an iterative process for obtaining its solution. Planning is a mechanism for the allocation of resources between and within organizations contrasted with the market mechanism. As an allocation mechanism for socialism, economic planning replaces factor markets with a procedure for direct allocations of resources within an interconnected group of socially owned organizations which together comprise the productive apparatus of the economy.^[1][2]

There are various forms of economic planning that vary based on their specific procedures and approach. The level of centralization or decentralization in decision-making depends on the specific type of planning mechanism employed. In addition, one can distinguish between centralized planning and decentralized planning.^[3] An economy primarily based on planning is referred to as a planned economy. In a centrally planned economy, the allocation of resources is determined by a comprehensive plan of production which specifies output requirements.^[4] Planning can also take the form of indicative planning within a market-based economy, where the state employs market instruments to induce independent firms to achieve development goals.^[5]

A distinction can be made between physical planning (as in pure socialism) and financial planning (as practiced by governments and private firms in capitalism). Physical planning involves economic planning and coordination conducted in terms of disaggregated physical units whereas financial planning involves plans formulated in terms of financial units.^[

Different forms of economic planning have been featured in various models of socialism. These range from decentralized-planning systems which are based on collective decision-making and disaggregated information to centralized systems of planning conducted by technical experts who use aggregated information to formulate plans of production. In a fully developed socialist economy, engineers and technical specialists, overseen or appointed in a democratic manner, would coordinate the economy in terms of physical units without any need or use for financial-based calculation. The economy of the Soviet Union never reached this stage of development, so planned its economy in financial terms throughout the duration of its existence.^[7] Nonetheless, a number of alternative metrics were developed for assessing the performance of non-financial economies in terms of physical output (i.e. net material product versus gross domestic product).

In general, the various models of socialist economic planning such as a socialist mode of production exist as theoretical constructs that have not been implemented fully by any economy, partially because they depend on vast changes on a global scale. In the context of mainstream economics and the field of comparative economic systems, socialist planning usually refers to the Soviet-style command economy, regardless of whether or not this economic system actually constituted a type of socialism or state capitalism or a third, non-socialist and non-capitalist type of system.

In some models of socialism, economic planning completely substitutes the market mechanism, supposedly rendering monetary relations and the price system obsolete. In other models, planning is utilized as a complement to markets.

Q.2 During 1960’s, the agricultural sector faced the problem of low productivity. The main causes were the inadequate supply or vital agricultural inputs. Discuss all other factors responsible for low productivity.

Ans

Excessive Dependence: The real problem of low productivity is that too many people are dependent on agriculture sector. The experience of agriculture exhibits that agricultural productivity is in inverse proportion to the number of people engaged in it. In fact, excessive dependence leads to small size, uneconomic and fragmented holdings.

The following points highlight the fourteen major factors responsible for low productivity in agriculture in India.

They are: 1. Small Size of Holdings 2. Vicious Circle of Poverty 3. Indebtedness 4. Inadequate Irrigation Facilities 5. Lack of Adequate Finance 6. Lack of marketing Facilities 7. No Scientific Methods of Cultivation 8. Lack of Productive Investment and Others.

Cause # 1. Small Size of Holdings:

The agricultural productivity is low due to small size of holdings. Indeed small size of the farm fails to provide profitable employment to the farmers.

In our country average size of holdings is 1.8 hectares while in developed countries like U.S.A. it is 122 hectares.

Apart from this, subdivision and fragmentation of holdings is another obstacle in the way of low agricultural productivity. In these small sizes of holdings the scientific cultivation with latest techniques is almost impossible.

Cause # 2. Vicious Circle of Poverty:

To a greater extent, the vicious circle of poverty is also responsible for the poor performance of agriculture.

The vicious circle of poverty takes the following form of agricultural sector:

The crucial deficiencies in Indian agriculture relate to land, capital and management, etc. which in turn hampers the agricultural productivity.

Cause # 3. Indebtedness:

Another reason for low agricultural productivity is the indebtedness of the farmers. To perform the social ceremonies a farmer has to borrow from money-lender at a very high rate of interest. Unproductive borrowings does not add to his income and he always remains under debt. Consequently, the farmer fails to avail incentives to improve the agricultural production.

Cause # 4. Inadequate Irrigation Facilities:

Indian farmer is almost dependent on climatic conditions for irrigation. Monsoons are irregular. Only a few farmer avail the facilities of irrigation from various sources such as canals, tube wells, etc. Moreover these facilities are found in some areas and where these are available, they are not fully utilized. The result is that the produce is of bad quality and results in low productivity.

Cause # 5. Lack of Adequate Finance:

Availability of finance is the basis of every industry. The supply of finance is inadequate in case of Indian agriculture. Money is required for short period as well as for long period in order to improve the agricultural production.

According to All India Rural Credit Survey Committee in 1950-51 more than 90 per cent of the total agricultural credit was advanced by the moneylenders. The co­operative societies, accounted for about 3 per cent respectively.

Cause # 6. Lack of Marketing Facilities:

The defective marketing system also poses difficulties to the farmers. The farmers do not get a due reward from the sale of his produce. The middleman takes away portion of their profits. Unless farmers are guaranteed fair and remunerative prices there is little inducement for agricultural output to increase.

Indian marketing has no facilities of god-owns and warehousing where the cultivators may keep their produce for a better price. Moreover, they lack transportation facilities. This results in low price of the produce.

Cause # 7. No Scientific Methods of Cultivation:

The ignorance and conservation of Indian farmer also results in the poor performance of agriculture. They do not know the importance of modern technology. Still, seeds are sown by wooden ploughs. Poor quality of seeds yields poor quantity of crops.

According to Dr. Burns, “The average out turn of paddy could be increased by 38 per cent viz., 5 per cent by using improved seeds, 28 per cent by manuring and remaining 5 per cent by protection from pests.”

Cause # 8. Lack of Productive Investment:

Investment in jewellery, trade and money lending seems to be more attractive. Therefore, there is less investment in land improvement. In the absence of productive investment in agriculture, there is little scope for expanding production.

Cause # 9. Agricultural Research:

A large quantity of amount of money is spent on agricultural research, still the fruits do not reach to the poor cultivators. There is a lack of co-ordination between laboratory and farm.

Cause # 10. Excessive Dependence:

The real problem of low productivity is that too many people are dependent on agriculture sector. The experience of agriculture exhibits that agricultural productivity is in inverse proportion to the number of people engaged in it. In fact, excessive dependence leads to small size, uneconomic and fragmented holdings. This inevitably results in low productivity.

Cause # 11. Poor Livestock:

The quality of livestock is very inferior and they are thin and feeble. On account of their poor quality, they are needed in more quantity which adds unnecessary burden on the poor cultivators. Malnutrition is another cause for the degeneration of cattle in our country. As a result, they suffer from one disease or the other.

Cause # 12. Natural Calamities:

Another reason of low productivity of Indian agriculture is that crops worth crores of rupees are destroyed every year due to floods and other natural calamities. The soil erosion has been regarded as creeping death of the farm.

Cause # 13. Social Factors:

In our country, poor performance of agriculture is also found due to the operation of various socio economic factors. Illiteracy, ignorance, superstition and conservative outlook stands in the way of the adoption of modern technology. As such, farmers are against the use of bone manure and chemical fertilizer. Besides, they are prejudiced against killing of monkeys and rats at the farm.

Cause # 14. Land Policy and Legislation:

The piece-meal character of land reform policy and its legislation is greatly, responsible for the backwardness of agriculture. Excessive reliance on the administrative machinery have adversely affected agricultural development, unnecessary delay in implementation and uncertainty about the rights on land has tended to diminish land productivity.

Q.3 What are the major differences and similarities among development theories? Also explain their contribution and limitations for the process of development.

Ans

Numerous researchers have studied the cognitive development of children for more than a century. Many researchers and theorists have focused on the measure of the Intelligence Quotient (IQ) as a means of assessing cognitive ability. Developmental theorists Howard Gardner and Robert Sternberg questioned the exclusivity of IQ as the only meaningful measure of intelligence. Gardner and Sternberg proposed other theories of intelligence, which focused on abilities that prove useful outside of academic settings. While Gardner’s and Sternberg’s theories differ in many ways, they both focus on abilities that involve common sense, social competencies and self-awareness.Gardner’s Theory of Multiple Intelligence

Gardner’s theory of multiple intelligences questioned the assumption that analytical ability, which is a focus of traditional IQ testing, equates to greater intelligence. Instead, Gardner suggested that people have at least 8 different types of intelligences. Variation in the strengths of each of these types exists between individuals. Students may best learn material if it is taught in a modality that complements their preferred type of intelligence. In addition to a different view of the previously singular perspective on intelligence, Gardner’s theory also provided a direct way to apply his findings to the classroom.

Gardner’s focus on the usefulness of his theory to the applied setting of the classroom is not surprising. Unlike Sternberg and most other developmental theorists, Gardner is a neuropsychologist and educational researcher. He focuses on the interaction between brain developmental, learning, and traditional approaches to education. Gardner believes that most traditional approaches to teaching only reach the three conventional types of intelligences. Conventional intelligences include linguistic, logical-mathematical, and spatial. According to Gardner, only these three conventional types of intelligence are measured by IQ testing. The other five types of intelligences include: musical, bodily-kinesthetic, interpersonal, intrapersonal, and naturalist. Although strengths in these areas can propel an individual to career and personal success, they are less valuable in academic settings and poorly measured by traditional cognitive assessments.

Gardner’s approach to cognitive assessment differs greatly than what is typically employed with psychological testing. Rather than a paper and pencil or verbal assessment, Gardner observes the product of the intelligence. He watches children’s ability to maneuver in space, listens to them recall a story, observes their musical ability, and times how quickly they put together a puzzle. Gardner believes that the types of intelligence cannot be arranged in a hierarchy.

Individuals may be equally strong or weak in all, but most show variation in their abilities among the different types of intelligences. Instead of a focus on comparing individuals to each other, Gardner views cognitive assessment as an opportunity to improve self-awareness and create the most effective approach to helping a child reach his or her full potential through education.Like Gardner, Sternberg’s theory expanded on the traditional conceptualization of intelligence. Sternberg’s theory does not support differing forms of intelligence but rather posits that there are three specific elements or aspects of intelligence. These elements include: componential, experiential, and contextual. The componential aspect of intelligence related to one’s ability to analyze a situation, process information, and solve problems. The experiential aspect of intelligence is seen in people who are exceptionally insightful and creative. It is measured by how a person approaches a new situation and an individual’s originality in their approach to problem solving. Finally, the contextual element relates to practical knowledge or common sense. It is measured through observing how a person deals with their environment and how well they make decisions. Sternberg believed that everyone has all three elements of intelligence but many individuals are stronger or weaker in some aspects of intelligence.

Sternberg criticized traditional IQ tests because they focus almost exclusively on only one element of intelligence, componential ability. This ability is most frequently tapped through academic assignments and it is an accurate predictor of academic success. Still, argues Sternberg, it does not accurately summarize one’s true ability to navigate the cognitive tasks of the environment. Other challenges beyond academia exist. Knowledge needed to succeed in the outside world, but not formally taught in school, was called tacit knowledge by Sternberg’s theory. Tacit knowledge is typically described as common sense. It is poorly measured by traditional IQ assessments.

To more accurately measure intelligence in a manner informed by his theory, Sternberg developed the Sternberg Triarchic Abilities Test (STAT). The assessment measures analytic ability, creative capacity, and practical knowledge. The STAT has strong validity in predicting critical thinking, problem solving, and creativity. It is comprised of multiple choice and essay questions and involves three domains: verbal, quantitative, and figural.

Similarities in the Theories

Gardner’s and Sternberg’s theories expanded the definition of intelligence to consider realms of cognitive abilities not captured by traditional assessments and often not taught in Western classrooms. Gardner’s and Sternberg’s theories were born from what they viewed as missing elements from previous definitions of intelligence. Each theorist considered aspects of practical intelligence and creativity as important predictors of life success. Each theorist also considered unique ways to measure intelligence with a focus on a broadened view of capturing one’s true abilities.

Differences in the Theories

Gardner’s theory of multiple intelligences contrasts to Sternberg’s because Gardner believes that the 8 types of intelligences he defined were different enough to be classified as their own types of intelligences. Sternberg argues that one capacity for intelligence exists, but it is made up of three distinct elements. Although some overlap exists, especially regarding creativity, Gardner’s types of intelligences and Sternberg’s aspects also differ. Gardner recognizes aspects of intelligence like kinesthetic, musical, and naturalist. Sternberg focuses primarily on elements of cognitive development that can be measured through somewhat traditional means (i.e. multiple choice and essay format).

Applications of Gardner’s and Sternberg’s Theories to the Learning Environment

Gardner’s and Sternberg’s research offers a number of valuable insights for educators. First, educators must recognize the importance and potential in the existence and further development of abilities not always captured by academic tests. Creativity, musical talent, and exceptional social skills should not be viewed as extracurricular skills, but rather facets of intelligence that can be utilized to bolster other less developed cognitive abilities. To adopt this approach, educators must adopt an individualized approach to assessment because children’s strengths and weaknesses among different types of intelligences/elements vary so greatly.

The theories of Gardner and Sternberg also allow for the use of creative lesson planning strategies to tap into strengths that are less prioritized in the classroom. Teachers can design activities that encourage creative problem solving, body movement, and exploring nature. In addition to maximizing the potential of all of their students, teachers can foster the development of skills that may be more useful in the outside world than some traditionally high valued academic abilities. As predicted by Gardner and Sternberg, facilitating the development of all types of intelligences or aspects of intelligence will likely result in improved academic skills, better problem solving, and more effective social skills.

Q.4 “Economic development is the process whereby a country’s real per capita income or GNP increased over sustained a period, through continuing increase in per capita productivity”. Explain.

Ans

According to this concept, economic development is a process whereby real per capita income of a country increases over a long period of time. This shows that economic development is also related to poverty alleviation. It also considers the changes in population growth.

In the economic study of the public sector, economic and social development is the process by which the economic well-being and quality of life of a nation, region, local community, or an individual are improved according to targeted goals and objectives.

The term has been used frequently in the 20th and 21st centuries, but the concept has existed in the West for far longer. “Modernization“, “Westernization“, and especially “industrialization” are other terms often used while discussing economic development. Historically, economic development policies focused on industrialization and infrastructure, but since the 1960s, it has increasingly focused on poverty reduction.^[1]

Whereas economic development is a policy intervention aiming to improve the well-being of people, economic growth is a phenomenon of market productivity and increases in GDP; economist Amartya Sen describes economic growth as but “one aspect of the process of economic development”. Economists primarily focus on the growth aspect and the economy at large, whereas researchers of community economic development concern themselves with socioeconomic development as well.

Per capita income (PCI) or total income measures the average income earned per person in a given area (city, region, country, etc.) in a specified year. It is calculated by dividing the area’s total income by its total population.

Per capita income is national income divided by population size. Per capita income is often used to measure a sector’s average income and compare the wealth of different populations. Per capita income is also often used to measure a country’s standard of living. It is usually expressed in terms of a commonly used international currency such as the euro or United States dollar, and is useful because it is widely known, is easily calculable from readily available gross domestic product (GDP) and population estimates, and produces a useful statistic for comparison of wealth between sovereign territories. This helps to ascertain a country’s development status. It is one of the three measures for calculating the Human Development Index of a country. Per capita income is also called average income.

Gross National Product

Gross national product is the market value of all the products and services produced in one year by labour and property supplied by the citizens of a country. Unlike Gross Domestic Product, which defines production based on the geographical location of production, GNP allocates production based on location of ownership. GNP does not distinguish between qualitative improvements in the state of the technical arts, and quantitative increases in goods, and considers both to be forms of “economic growth”. When a country’s capital or labour resources are employed outside its borders, or when a foreign firm is operating in its territory, GDP and GNP can produce different measures of total output. In 2009 for instance, the United States estimated its GDP at $14.119 trillion, and its GNP at $14.265 trillion.

Q.5 Critically evaluate the fourth and sixth five years plan with reference to their programme priorities and strategies.

Ans

Fourth Five Year plan was the first plan launched by Indira Gandhi government amid pressure of drought, devaluation and inflationary recession. The country was fighting with population explosion, increased unemployment, poverty and a shackling economy. In addition, the situation in East Pakistan (now independent Bangladesh) was becoming dire as the Indo-Pakistani War of 1971 and Bangladesh Liberation War took place. Funds earmarked for the industrial development had to be used for the war effort. The result was that this plan period was also no better than the third five year plan.

Notable Points

• India fought yet another war with Pakistan and helped in creation of Bangladesh. Needed to tackle the problem of Bangladeshi refugees after the 1971 war.
• Nationalization of 14 major Indian Banks was a key even during this war. This boosted the confidence of the people in banking system and started greater mobilization of private savings into banking system.
• At the end of this plan, India also performed the Smiling Buddha underground nuclear test in 1974. This test was partially in response to the US deployment of the Seventh Fleet in the Bay of Bengal to warn India against attacking West Pakistan and widening the war. The international community took several harsh measures against India, which affected the domestic economy.
• The Oil Crisis of 1973 skyrocketed the oil and fertilizer prices leading to a very high inflation.

Critical Assessment of Fourth Five Year Plan

The Fourth plan when it was introduced after a gap of three years, was an ambitious plan with an aim of 5.5% growth as the previous plans had a growth target / achievement of maximum 3.5%. But the Indo-Pakistan war, liberation of Bangladesh and problem of Bangladesh refugees , successive failures of monsoon, Asian Oil Crisis of 1973 marred the objectives of this plan. The international economic turmoil due to Oil crisis upset the calculations for Fourth Plan. So only 3.4% growth could be achieved.

Sixth Five Year Plan (1983-88)

Before the end of Fifth Five Year Plan preparation for Sixth Five Year Plan was made.  NEC approved the Plan well in time and implemented according to its schedule.

Size of the Plan:

The plan aimed at a financial outlay of Rs. 495 billion which was more than double the amount of Fifth Five Year Plan.  Rs. 295 billion were decided to spend in the public sector and Rs. 200 billion were decided to spend in private sector.  As regard to the proposed resources to finance the Plan two points were important:

(a)   The share of net external resources in the gross investment would fall from 24% to 16% in the Sixth Five Year Plan.

(b)  The compensating efforts in the domestic front were expected in the private sector, almost quadrupling the total private savings with little change in the size of the public savings.

Objectives:

(a)   To make production sector of the economy powerful and stable.

(b)  To accelerate the rate of economic development so that the standard of living of the people may be raised.

(c)   To increase the agriculture production by using more fertilizers, better seeds and modern technology.

(d)  To make the country self-sufficient in oil.

(e)   To develop steel based engineering goods, modernisation of textiles, expansion of agro-based industries, etc.

(f)     To provide maximum social services to increase the rate of literacy and to provide drinking water facilities, draining water facilities, etc.

(g)  To create harmony among different sectors of the economy.

Targets:

(a)   To increase GDP by 6.5% p.a.

(b)  To increase family income by Rs. 900 p.a.

(c)   To increase agriculture production by 5% p.a.

(d)  To increase industrial production by 9% p.a.

(e)   To provide jobs to 4 million people during the Plan period.

(f)     To provide facilities of electricity to 88% of the village population.

(g)  To increase exports from $ 2.43 billion to $ 4.91 billion by the end of the Plan.

(h)  To construct 15000 km new roads from villages to cities.

(i)     To lower dependence on foreign aid from 20 to 19% by the end of the Plan.

(j)     To increase the efficiency of private sector, certain effective measures would be taken so that private sector may play its role effectively in the development of the economy.

(k)   To enable 3 million acres of land for cultivation which had been destroyed by water logging and salinity.

It was decided to allocate 18.1% of the total expenditure to agriculture and water sector, 20% to power, 18.1% to transportation, 15.6% to industry 12.2% to minerals and 11.5% to social institutions.  See the table below:

Sector-wise Division of Expenditure

(Rupees in billions)

Strategy:

(a)   High Growth Momentum: High rates of growth of GDP and other related macro economic variables are to be maintained:

(i)           Emphasis on increased efficiency in agriculture, particularly self sufficiency in oil seeds, expanding the exports of rice, cotton and fruits, etc.

(ii)         Balanced development of service industries, especially public services for basic human needs.

(iii)       Balanced development of service industries, especially of private services for government servants and private people.

(b)  Rural Transformation: Increased opportunities for small farmers and provision of infrastructure.

(c)   Employment and Income Policies: Creation of about 4 million new jobs for emphasis on small scale production in agriculture and industry, rural works programme, vocational training with combination, income policy which related wages to productivity, indicated salaries from fixed income growth.

(d)  Decentralisation: To increase share of provincial governments in development programme of public sector and also encouraging to local bodies to participate in investment plans.

(e)   Backward Regions: Recognition of the tribal and Balochistan as economically backward regions and provision of special funds for specific development programmes in these regions.

(f)     Self Reliance: Continuing import substitution and export promotion policies and reducing dependence on foreign aid.

Performance of the Plan (Failure and Achievements):

During the Plan period, GDP was expected to increase by 6.5% p.a. It was based on the performance of agriculture and manufacturing sectors.  Because these sectors could not play their role effectively so the plan seemed helpless in achieving the targets and objectives.

Further aggregate growth rate of GNP and GDP were related to expected increase in the rate of savings and investment during the Plan period.  The savings were expected to increase from 13% to 25% in Plan period and investment rate from 6.5% to 7.5% p.a.  But unfortunately these targets could not be achieved in the Sixth Five Year Plan.

Rate of net borrowing and net real foreign saving was expected to decline (because of the decline in foreign remittances).  It was decided to increase domestic savings because the Plan did not present any argument or evidence how the saving rate would increase and how much to be saved by the private sector.  Basic problem with the plea was shortfall in remittances.  Minor crops grew by only 3.6% p.a. as against a growth rate of 7% p.a. envisaged in the Plan.

The Sixth Five Year Plan was a mixed success.  It was described as a qualified success by Planning and Development Division.  It fulfilled most of the targets, though there were some failures.  On the whole, it was a good plan.