Development

How it worksand

Hasn’t Worked

Defining Economic Development as a Process

A. Development is --

 – investment of a surplus – that results in increasing knowledge and

productivity – that results in growing surpluses available

for future investment

How surplus based development should work

Production requires two factors: Labor & Capital

It is Combined through Technology

Production Goal is – Surplus beyond current consumption

This Surplus becomes additional future investment

Increasing Investment leads to

– More Capital – translated into more tools of production

– Better Labor Skills -- through education – Productivity gains through above plus newly

invented technology– Even more surplus in the future

Where does the original Surplus come from???

Original surplus is the “water that primes the pump”

India Mark Deep Well Hand Pump II /III

Where does the original Surplus come from???

Internal generation theory– Prof. Morris Morris argued ..."all societies

have roughly equal savings rates"...• Simply all have equal proportions of surplus (say

15% of output)

• However, More technologically advanced societies have larger Gross Surpluses

• Problem the rich get ever richer faster

Obtaining Surplus

External Procurement theory– Option 1 traditional 19th century theory: Sell

resources

Caution: "growth" based on ever increasing extraction of finite resources eventually collapses

Reality of 20th 21st century: recent terms of trade have worked against most resource sales

– occasionally Oil has not faced this issue

Obtaining Surplus

External Procurement theory– Option 2 “Foreign Aid”, Borrowing, FDI…

theory: Borrow, Invest, Trade, and Repay

Caution: 1. Markets are not necessarily “free” and open

2. Competition is stiff under current global demographics

3. Bankruptcy has not been an option

4. Do the money lenders really want borrowers to succeed?

Rostow’s Theory http://images.google.com/imgres?imgurl=http://www.geographyalltheway.com/ib_geography/ib_development/imagesetc/ib_rostow_model.png&imgrefurl=http://www.geographyalltheway.com/ib_geography/ib_development/ib_development_models.htm&usg=__OP24DB0gDJUvjMTWArXVd5eaS_w=&h=486&w=685&sz=42&hl=en&start=2&um=1&tbnid=22Ay1SXld_26rM:&tbnh=99&tbnw=139&prev=/images%3Fq%3Drostow%2Bstages%2Bof%2Bdevelopment%26hl%3Den%26rls%3Dcom.microsoft:en-US%26sa%3DN%26um%3D1

Geography all the way . com

Paul Krugman an introductionhttp://www.comedycentral.com/colbertreport/video_search.jhtml?searchterm=paul+krugman

From the Colbert Report

Catch-up Vs. Sustainable Growth

Catch-up is copying someone else (Resource Mobilization)

True Long Term Productivity and Knowledge growth equals Sustainable Development (proportionately less raw materials used for more output) – With Catch-up, development is copying someone else’s

past success

– Knowledge based development is leading the world to new higher, more efficient uses of limited resources

Catch-up also called resource mobilization (see Paul Krugman)

Catch-up Vs. Sustainable Growth

Buying/Stealing another country’s knowledge is Catch-up– Paul Krugman calls this

Resource Mobilization

Creating new technologies is leadership and more sustainable– Krugman calls this Real

Growth

Paul Krugman at UC Berkley

What if it isn’t sustainable???

Examples of Collapse: Antebellum American South: Cotton production based on "strip mining of land" and lead to Civil War (a resource control war)

Southern Cotton Plantation Agriculture was moving West

Map of slave/cotton expansion in antebellum

south(click here):  http://www.uoregon.edu/~atlas/america/maps.html

The interactive mapsite shows the migration of the cotton production between 1760 and 1860

Post Bellum Production

Despite near total collapse of Cotton exports during the Civil War

By 1870 cotton production equals 1860 level

By 1880 it exceeds the earlier level by over 50%,

By 1900 it is nearly 3 times 1860 production. 

Then why was the south so "poor" compared to the north for a century after the Civil War?

Foreign Competition

The answer lies in Egypt, India, and other tropical countries that captured the production market during the war

After the war a continuing glut of cotton meant the price of the commodity never recovered

Basically the South had no other economic base until the Post WWII era brought industrial expansion from the North

Yet Cotton Production continued its migration Westward

Current Production Pattern of Cotton in US

Note the importance of California and Arizona in today’s production

Another Example

Mayan Collapse:  According to many anthropological studies, Mayan Urban Civilization "strip mined" its surrounding agricultural resources for ever increasing consumer goods until some researchers argue that it collapsed for lack of more virgin land

The Soviet Example

Soviet style development required ever increasing resource demand (especially energy) to maintain itself.

Resource waste like this lead to collapse.

This and next pictures & text from: Soviet Pollution by Gerd Ludwig http://zonezero.com/EXPOSICIONES/fotografos/ludwig/lud02.html

Pictures of Environmental Destrucation in Azerbaijan.

Layers of oil and chemicals cover water in the oil fields near Baku, Azerbaijan. Streams in the area are considered biologically dead. Runoff from the oil fields is responsible.

From: Soviet Pollution by Gerd Ludwig http://zonezero.com/EXPOSICIONES/fotografos/ludwig/lud02.html

Now Impoverished

Once the source of almost half of the world’s oil, Azerbaijan is now desperately poor.

Black smoke billows from oil fires burning on the outskirts of Baku. The sight is so common that a shepherd tending his sheep in nearby Bibicheybet takes little notice.

Will the future be brighter for Azerbaijan???

Proposed Oil Transport Lines

How about China’s FutureResource Mobilization or Sustainable?