The Barriers to Economic Growth and Development

What are the fundamental policy interventions to achieve development?

To start, employment generation and markets for labor, social security, credit, and insurance ensure social mobility if supported by quality education, skill development, accessible healthcare, and affordable housing. 

If you have followed my work, one such argument that appears in one manner or the other, time and again, is the series of solutions to all development problems. 

It (Sustainable Development) implies political prioritization of the growth of gross domestic product to be replaced by an economic vision that seeks to transform global and local economies. (Read: A Doughnut Way to Think, 2020)

Policy intervention focused on improving the state of women within their community would assure better child nutrition. Additionally, issues like micronutrient intake of child-bearing mothers, proper breastfeeding and weaning practices, clean and safe drinking water, sanitation, full immunization, and the quality and accessibility of health services are required. (Read: The South Asian Nutrition Paradox, 2020)

On the brighter side, new businesses do generate employment opportunities and boost the economic growth and productivity of the country. It helps to visualize ideas that once felt far-reaching. (Read: Creative Destruction and Entrepreneurship, 2020)

A long-run solution to this would involve employment generation — for both the skilled and the unskilled — ushering income security and an increase in savings. It must further accompany the establishment of formal credit markets, insurance, and affordable healthcare, education, and appropriate skill development to escape this rattrap of poverty. (Read: Poverty Trap – The Rattrap of Poverty, 2020)

These are invariably the same – yet different – not because my creativity lacks finesse, but because these are the broad inevitable themes that require immediate attention. In this piece, I attempt to address those issues once and for all. 

The process of development, in tandem with the growth of the economy, aims to ensure the eradication of poverty and maintain a dignified standard of living. There lies a ton of theory and evidence around how countries achieved development in the past. The challenge we face lies in recreating these growth strategies within different geography, demography, and political economy.

Although this is true for intricate details on how a state implemented a specific policy and suitably targeted its beneficiaries, there is a list of common goals which each country must realize. Setting a benchmark, the United Nations Sustainable Development Goals provide poor and middle-income nations with a blueprint for the long-run. The governments, civil societies, and non-profits across the world are striving to achieve these goals. 

The question which then arises – which I intend to address here – is that if the solution is known, why not just implement it? Most of them are guided by political interests, or rather lack thereof. 

First, for the lack of a better term – political unwillingness – is one such cause. Instability within the governments, risk-averse politicians, and the constant power tussle between the ruling and opposition party, in the case of democratic regimes, are some of the reasons. Markets alone have failed to achieve development, and the governments should act as catalysts and not dampeners in this process. 

In one of his keynote speeches at the Annual World Bank Conference on Development Economics (1996), Joseph Stiglitz asserts that the government has six roles in spurring development. These are promoting education, promoting technology, supporting the financial sector, investing in infrastructure, preventing environmental degradation, creating and maintaining a social safety net. Moreover, governments in developing or transition economies have an added role in supporting markets as market failures loom large in such economies. 

Second is corruption. Lack of monitoring, weak state machinery, and underdevelopment institutions in various developing economies lead to such a problem. (Huntington, 1968) Government officials and local officials collecting bribes lead to inefficiency in allocation. These bribes are, in this case, compared to a form of taxation on the people. 

If you would, a slightly unconventional microeconomic analysis of corruption as a form of taxation, provided in this paper by Shleifer and Vishny (1993), is strikingly apt. 

Third would be focusing on the wrong objectives. For how political systems work when leaders are elected, focus shifts on achieving short-term targets to secure political mandates instead of long-term plans. Soviet Planning did practice long term five-year plans, later adopted by many countries, but its fall as a communist regime acted as a backlash. The current state chooses its policies carefully to support the capitalists, with whom they prevail in a power-sharing binary. It is the capitalists that influence policies to cater to their motives for profit maximization. 

The aim should be adhering to long-run targets that influence the short-run decision making, irrespective of the party in power – for Rome wasn’t build in a day. Development should transcend growth. A part of the blame goes to our conventional economics texts and that the people making economic decisions are a product of that. However, with time, the issue of development has risen and addressed. From finance for the rich to the finance for the poor and underdeveloped, concern for inequality has increased. Strong political will challenging the vested interests is required to tackle inequities in the developing world. 

Finally, there is a lag between policy formulation, its implementation, and the outcomes. Even though the world economy has integrated post-globalization and international cooperation has been a feature of it, the distribution and pooling of resources in practice come at costs. As simple as extending technological developments with underdeveloped countries would help in the process of development. Similarly, aligning public and private interests by engaging in public-private-partnerships (PPPs) serve the purpose of development.