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Economic Development: Competing Theories Essay

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Updated: May 14th, 2020


Reflectively, the focal point of analysis functions on the transformation of an economy of a nation. In most cases, structural transformation is often as a result of policy adoption by a country to address development needs. The policies are in the form of direct or indirect government intervention through the creation of tariffs and local industry protection, among others. For instance, the introduction of tariffs on imported goods or services may cushion the local industries from unfair competition and give them opportunities to gain from the stimulated internal market. Although several approaches may be adopted in exercising structural transformation, the underlying rationale of any activity is to create economic units that are self-sustaining in growth over a specific period (Contreras 2).


As discussed in the class, this is one of the most controversial theories of economic development. This theory is as a result of modifications of the Marxist philosophy. The theory is based on the study of behaviour of economic units. It argues that the surplus-value currently owned by the developed economic units was extracted from developing economic units. For instance, a developed economic unit may acquire raw materials from a developing economic unit at a very low price and resell the finished product at an exorbitant price after small value addition. The continued interaction between the two economic units will result in misery and chronic poverty in the developing economic units (Contreras 4). Finally, Neo-Marxists believe that it was nearly impossible for the developing economic units to experience industrialization since the developing countries were stuck in the imbalanced economic relationship with the developed countries (Contreras 4).


This theory functions on the pillars of production factors dependency and product value. The notable contributors to the development of the model include David Ricardo and Adam Smith. Basically, the theory supports the need for market liberalization; protecting the free markets from inefficiencies that might be brought by government interventions. Free trade as a result of the balances from the ‘invisible hand’ will ensure that ultimate benefits are distributed at the society level as opposed to the individual level. The notable implication of the theory may be seen in the structural adjustment programs such as privatisation, fiscal austerity, and trade liberalization. According to this model, regulating and minimizing government intervention in the local economic units will eventually phase out inefficiencies associated with market function interference (Contreras 5).

Focus of development

The concept of development has attracted different reaction since “it can be understood as a process likely to happen with economic growth or it could be understood as a dynamic socio-economic process for empowering poor and excluded people” (Cassidy 28). Though development is a continuous process, it is characterized by the motivation to positively improve the lives of those wallowing in poverty (Dreze and Sen 13). The focus of development should inspire change and betterment of the target groups. Hence, unlimited access to improved infrastructure is the basis of development that contributes to competitiveness, efficiency, growth, and increased capabilities of the target group. In the process, social exclusion and inequality are reduced.

Millennium Development Goal (MDG) refers to the eight goals that were internationally officiated during the United Nations’ Millennium Summit in the year 2008. These goals included eradication of extreme poverty, the achievement of primary education that is universal, promotion of equality of gender and women empowerment, child mortality rates reduction, improvement of maternal health, fighting AIDS and other dominant diseases, environmental sustainability, and global partnership development (Cassidy 19). Reflectively, development should be a tool for empowering people by tackling the macro components of improved living standards, better income, and security. Reflectively, development as an empowering tool deals with the micro issues affecting the poor and giving them dignity through improving their standards of living such as better food, freedom, affordable Medicare, and dignified shelter (Cassidy 21).

Since human beings are sentient beings, they have a moral right to be respected and dignified by the government whenever economic policies are being implemented. Regardless of rationality or irrationality, human beings have the right to choice and freedom to influence the major decisions that the government of the day proposes. Thus, good actions of the government as part of the development are those that cause a great ratio of good results to bad results on the public scale (Dreze and Sen 14). Thus, a government should adopt a system of development characterized by balancing government policies with social welfare as the determinants factors. At macro and micro levels, the continuous rise in economic and social balance should ensure steady portfolio in the form of input-outputs. To overcome these challenges, development should be characterized by strategies that ensure that structures of economic and social development models in the health sector, education, infrastructure, and social amenities are sustainable (Dreze and Sen 19).

Major controversies in international trade policies

Most international trade policies focus on the rights of capital but very silent on the rights of labour. The policies have standards that ensure that capital investment in a country is protected through regulations. However, the standards do not address the concerns that might be raised by inadequacies in labour management. For instance, the established labour standards in the developed countries have been watered down by trade policies between the US and China. Companies in the US are relocating to China to exploit the nearly free labour. The movement of production unit into Asia and Africa is likely to drive labour standards downwards over a long period. For instance, indentured labour, child labour, and minimum wage standards are compromised by such policy (Cassidy 23).

The international trade policies have also raised concerns on the standards that countries should observe in terms of environmental conservation and sustainability. Since most policies do not have frameworks for ensuring that countries observe strict environmental laws, companies from the developed world would find it attractive to relocate their production to developing countries, where environmental laws are not observed. In the end, countries with strong environmental laws will have to lower standards to stop companies from relocating to developing countries (Cassidy 31).

Lastly, intellectual property law and government subsidies have created controversy among countries and businesses. Most of the developed countries offer tax breaks, subsidies, bailout, and credit access to firms operating in their economy. Reduced cost of production as a result of the subsidies makes firms in the developing world uncompetitive. The patent rule has also been unfavourable on developing countries since patent rule creates monopolistic power. Honouring such patent rules would mean payment of royalties which are often exorbitant. For instance, most pharmaceutical companies in the US get royalties from Europe. However, India and Brazil have refused to honour the patent rule (Cassidy 28).

Works Cited

Cassidy, John. How Markets Fail: The Logic of Economic Calamities, New York: Penguin Books Limited, 2009. Print.

Contreras, Ricardo. . 2014. Web.

Dreze, Jean, and A. Sen. Development and Participation. London, UK: Oxford University Press, 2008. Print.

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