Social development of our country

Factors affecting economic and social development
This section considers the economic and social
development of the non-industrial world from two
perspectives.
First, we review what is known about development,
both social and economic. The perspective that we
take upon this is closely similar to the view that
we advance elsewhere about the fundamentals
behind economic growth anywhere: that this is a
manifestation of the working of a complex series of
interlocking systems, of which the economic
component is an essential part. There is, however,
a long way to go in the development of these
systems. In purely economic terms, the poorest
80% of the world's populations created around
2.6% of the tradable wealth in 1960. By 1980, this
had fallen to 1.1%, and appears to be around 0.9%
of all value added at the turn of the century. Today,
around 1.2 billion people inhabit the wealthy
nations, but around the same number live on less
than US$1 per day. About the same number lack
access to safe water and twice as many live
without adequate sanitation. Achieving anything
resembling catch-up is, evidently, some way off.
Success stories such as Singapore and Hong Kong
stem from a rich history of complex institutions,
human resource and the pursuit of the best.
However, the key limits to creating a more
complex framework within which to generate
wealth seems limited more by internal institutional
issues than by factors such as capital or human
resource.
Second , we consider the relationship between
development and sustainability. We do this in the
light of the growth in population, which will rise
from something over 6 billion in 2000 to, perhaps,
8 bn by 2020. The relations between the poor and
the rich will be closer-coupled than ever before in
history. The relationship will remain lopsided
insofar as wealth, power and access to knowledge
will also be asymmetrical. Each will, however, want
things of the other and both will have the capacity
to do the other harm.
Disparities and similarities.
There are various ways of segmenting the situation
in which people finds themselves: by income and
by attitude, by age and by nationality. We discuss
some of these approaches elsewhere . However,
how we think about divisions often define our
approaches to solutions. Economic differences
around the world are typically thought about in
national terms: that country A is richer than
country B. We collect statistics which re-enforce
this view. However, it may well be that the nation
is the wrong focus, and that we need to think in a
more subtle way in order to see what is going on.
In the period up to the industrial revolution - and,
indeed, probably to the middle of the C19th -
social class was the key discriminator. A Chinese
mandarin and British country squire may each
have enjoyed a standard of living which was closer
to the other than it resembled that of their nation's
peasantry. Since around 1840, however, national
wealth has become sharply more differentiated, and
the most effective segmentation has been that of
political boundaries: the mean and statistical way
points by which wealth was distributed amongst -
say - Americans became increasingly distinctive
when compared to most of the rest of the world.
Whether co-incidentally or not, this event
coincided with the growth of national identity and
nationalism. Per capita incomes are thought to
have differed between nations by, at most, a factor
of three in 1820. This had risen to 35:1 in 1950,
44:1 in 1970 and 72:1 in 1992. The disparity is
around 100:1 in 2000.
A century ago, 'development' was seen as
something extraordinary, and poverty the norm.
Today, the wealthy world spends around a third of
its income on internal poverty relief, and there is a
growing tendency to view poverty as something to
be eliminated. Great progress has indeed been
made: in the twenty years since 1980, the
proportion of stunted children in the poor world fell
from 47% to 37%, according to the UNDP, whilst
those with access to safe water rose from 13% to
71%. Life expectancy in the poor nations has risen
by 10 years and adult literacy has also risen, from
about half to three quarters of the population.
School enrolment has risen by similar proportions.
On the negative side, people are still treated as
property in many parts of the world and there may
be more de facto slaves alive than ever before in
history. Around 100 million children live on the
streets and about the same number, in settled
accommodation, have no access to schooling.
There are about quarter of a billion child labourers
at work, often under extreme conditions. Some 1.2
million girls are used in prostitution and 300,000
children are currently fighting as soldiers. Six
million have been injured in armed conflicts during
the 1990s.
Sub-Saharan Africa has grown less rapidly than its
population since 1950, and its citizens are thus
individually poorer than they were half a century
ago. Forest have been felled, mines exhausted and
the natural wealth lessened in this period. Asia, by
contrast, was of a similar wealth to Africa in 1950.
Its economic wealth per capita has increased
substantially. Studying this, the World Bank was
able to show a pervasive influence of institutions
and social organisation in what had happened.
Africa had failed to organise itself to grow its
capabilities and to extend its options. Asia had, in
part, succeeded in doing this. The next section
reviews what this may have entailed
The development process.
Elsewhere, we have reviewed the fundamentals of
economic growth, noting that this is one easily-
measured facet of something much more complex:
the growth of the general capabilities and
complexity of a society. The economic element
depends markedly on the functionality of all of the
other facets.
Development appears to occur when a number of
necessary components are put in place, and the
equivalent checks have been removed. To grow, a
plant needs air, light, water, the correct
temperature, mineral nutrients and the like. Any
one of these can be a limiting factor and restrict
the plant's growth. When the supply of any one of
these is limiting, then adding what is needed or
otherwise adjusting the system to correct the limit
will produce a burst of growth. Injections of
capital, the creation of security or a change in
political balances may correct something which
was limiting in the social fabric of a nation, and a
burst of activity will follow. Much of the early
literature on development extrapolated from
individual events of this sort to general - usually
economic - prescriptions. We now know that his is
an inadequate approach. Nations which are limited
in one particular manner - as was, perhaps, China
during the cultural revolution and its aftermath -
may show rapid and multifaceted growth once this
constraint has been removed. Nations in which
very few of the required features are in place will,
by contrast, prove refractory to almost all
interventions. Nothing happens because too many
links in the necessary systems have yet to be put
in place.
What, in broad terms, are these features? They fall
into three major categories: the maintenance of
stability, constructive economic change and overall
social cohesion. We examine these in detail in a
moment. Each of these elements consists of many
contributory parts. Most of these form cross-links
between these categories. Taken together,
however, these factors create a system which
gives rise to the phenomenon of development. In
essence, a complex system - the society - is able
to become more even complex only when all of
the parts that are necessary to is adaptability are
firmly in place. When they are not, then local
systems of governance and the scope of individual
aspirations are limited to relatively simple and
established horizons.
Malfunction or weakness within the individual parts
of the overall developing system naturally put a
brake on development. Removing one of these
limitations may create a spurt of activity. Such
responses have led to many false dawns, in which
the key to development is seen to be anything
from rural credit to female emancipation. Each of
these has a role to play, but it is a role within the
evolving complex system, not a magic bullet that
will kill all ills. In addition, however, there are
specific pathologies - such as the pervasive
influence of corruption - which create their own,
self-contained systems, and these actively oppose
constructive change. We discuss corruption later.
External events may help development or they
may hinder it. The terms of trade which are
currenlt expereinced by the exporters of primary
products - that is, by most of the poor or agrarian
nations - are worse than they have been for fifty
years. The developed countries have often
established tariffs against manufactured goods,
making it harder for the poor nations to add value
to primary products, such as leather, cotton or
metals. In addition, many industrial nations
subsidise their domestic agriculture, often to the
extent of over-producing food which is then placed
on world markets or shipped as aid. As a
consequence, world food prices are depressed, to
the detriment of the world's peasant farmers. In
addition, where food aid is made available over
protracted periods, local producers may be driven
out of business. Nevertheless, both the world's
spectacular development successes and its failures
have been conducted against against this
backdrop, so it cannot be entirely or even primarily
responsible for either of these.
Let us return to the factors which drive
development. Statistical analysis shows that
stability is the most influential of these three
components. The term 'stability' can be used in
two senses. A nation (or firm, or social group) can
be unchanging and predictable if it is paralysed by
an oppressive force or an intractable problem. By
contrast, a structure may be stable because it
reacts flexibly to change: its surface
manifestations change, but the core is retained and
continues to inform its actions. This second kind
of stability creates the conditions for economic
development . It affords a framework within which
individual agents can operate in confidence,
knowing that the society will continue to function
within well-understood guidelines, despite its
continual re-adjustment to meet changing
conditions.
Stability and predictability.
Political institutions that generate dynamic stability
Separation of powers: checks and balances, all
under the law
Successful management for overall economic
stability.
Infrastructure provision, including human skills
Military security and a stable civil operating
environment
Competition and renewal.
The 'right' pace of change, balancing erosion with
renewal
Appropriate human resources supply, including
labour markets
Consumer purchasing power, confidence and
saving
Social cohesion and paths to self-betterment.
Cohesion: tolerance across vertical and horizontal
divides
Access to political representation and dispute
resolution
Policing and security of property, tenure and
person.
Access to and equality before the law
Access to education and information
Access to work, security in work, transitions
between work
Management of the extremes of inequality
This is a protracted list and it is beyond the scope
of this site to explore it in detail. The World Bank
development reports, UNDP reports on Human
Development and related publications offer detailed
insight.
The key insight to be gained is how complex a
process in involved, and how many things need to
be 'got right'. The balance between these
component parts need to change as development
proceeds, and very fast economic growth may, for
example, through balances which used to work out
of alignment. For example, the informal networks
that characterised decision-taking in the public
sector in many Asian countries cease to work once
the society becomes more complex and more
coupled to the outside world. Internally, they cease
to work because the now-educated majority are
not prepared to be 'managed' by an oligarchy. As
the society couples to the outside world, too, the
checks and balances amongst the oligarchs
weaken. They find capital and partners overseas,
and collectively undertake actions - such as
borrowing, or capacity extension - which prove
disastrous. Previous systems - of quite
discussions in clubs, in possessing a shared
intuition of who was doing what - no longer
function.
New institutions need new systems of governance.
Studies of banking crises in developing countries
show that these consume the equivalent of
decades of economic growth. Their affects may
last for decades, as is presently the case in Japan.
The Asian collapse of 1998 - and the Japanese
crisis of 1987 - stemmed from inadequate controls
and from poorly formed views amongst the actors
as to what reasonable. "Development" is, for the
wealthy as much as for the poor nations, a matter
of increasing the social, economic and political
complexity of their societies so as to be able to
cope with increased volumes and options in each
of these areas.
Figure 1: Long-run paths to development.
The figure shows a well-respected index that the
United Nations has established for social
development: the human development index, or
HDI. This has been estimated for the currently-
industrial and currently-poor nations for the years
1870, 1930 and 1995. This is plotted against the
relevant income per capita for these years. The
resulting arc shows that all nations go through
much the same stages of human development as
they grow richer.
Figure 2: Increasing levels of transparency of
governance with income.
The change in governance which is necessary with
increasing social complexity is suggested by
Figure 2. This plots a reasonably objective
measure of probity in public and commercial life
against income per capita. A very similar
relationship is found with measures of risk, as
assessed by capital markets. Low income
countries are volatile and risk, have weakly
enforced standards and, very often, have poor
levels of enforcement of property rights and
commercial agreements. Attempting to estimate
the impact of this, the World Bank found that
nations which had strong laws of contract and
strong enforcement of these tended to re-invest
about 30% of national income. Nations which
scored poorly on one of these measures re-
invested around a fifth of national income, whilst
nations which scored well on neither of these
measures invested at less than replacement rates.
That is, they ran themselves down as a wealth-
generating engine, for lack of confidence in their
own systems of management. Foreign direct
investment followed closely similar patterns. Over
four-fifths of the net inward investment went to
only eight countries of the 150-plus developing
nations. These had shown themselves to be 'safe
pairs of hands'.
Figure 3: Low income countries deliver 'difficult'
work forces.
It is a mistake, too, to imagine that labour relations
are somehow more natural in poor nations than in
wealthy ones, or to contrast a 'lazy' workforce in
the wealthy world with tireless hands elsewhere.
Figure 3 contrasts entrepreneurial views of the
Asians Tigers, Japan and Chine in 1995, before the
economic collapse of the region. The habits of
work (and of handling work forces) have to be
learned.
We can take from this two thoughts. First, that
development is a complex process whereby
systems are built to handle increasingly complex
societies; and the capacity to build depends on the
coherence and integrity of what has been done so
far. Second, how societies are integrated into the
world community depends on how well they have
established these structures and how well the 'sell'
themselves. Increasingly, however, even where
there is economic predictability, for example,
factors such as excessive repression, child
exploitation or local environmental damage may
damage external relations. Firms will not wish to
build relationships where NGOs and others may
point to local malfeasance. In general, however,
societies which tolerate extreme exploitation are
unlikely to prove prospects for long-term growth,
or useful short-term partners in anything but a
one-off relationship.
Corruption is a significant problem for all nations,
but it can hugely undermine societies where
complex systems of governance and scrutiny have
yet to be put in place. It strikes at four levels.
Funds are stolen and taken overseas, often at
levels which are comparable with net
investment. Executive power is abused to raise
loans, where default either precipitates a
banking crisis or leads to unsustainable
overseas debt.
Decisions are taken on poor grounds: bridges
are built where they are not needed. Such 'pork'
projects are almost never given maintenance
funding. Nepotism is commonplace: relations
are promoted to jobs which they are unable to
perform satisfactorily. Ethnic groups come to
dominate key ministries and other areas, such
as the military, which they then exploit for
sectarian purposes.
The population lose trust in civil society: law is
for the wealthy, the state is a predator, the
police and minor bureaucrats sell permissions
to operate and come into the average life in
order to extract a fee.
Tax evasion impoverishes the state, and
regulatory evasion cripples its capacity to direct
and operate. Figure 3 shows the scale of this in
the very poor nations.
Figure 4: Poor nations may recovery only 20% of
the tax due to the state.
The separation of powers has proven to be a major
component in the success of the complex nations.
Oligarchic interests cannot capture the reins of
power so easily. The various organisations are set
into effective competition with each other, forming
alliances with the citizens as a whole, offering
critique and accessing distinctive views of the
world.
Figure 5: Autocracy on the wane?
This necessary pursuit of pluralism is reflected in
the political complexion of the nations of the world.
Despite an extraordinary increase in the number of
political units, the trend away from autocracy has
been pronounced since the fall of the Soviet Union
and, not independently, since the drive by the
international agencies to bring pluralism to the
nations which they serve.
Global trade, access to capital and information and
the rapid expansion of the basis of educated
people will all have a positive effect on economic
and social growth. Many nations will begin to play
a constructive role in the international community.
Most will, however, need substantial injections of
capital and managerial talent, intellectual property
and other assistance if they are do so rapidly. The
growth in expectations, bred by the popular media
and the impact of population growth, will demand
that this progress is rapid.
Figure 6: An unprecedented expansion in the
skilled population.
The very rapid expansion in human talent that will
become available is shown in Figure 6. By 2020,
here will be more graduates than there were
people living in 1900. Despite this, it is idle to
suppose that the poor nations will suddenly
become rich. It is relatively easy to import the
means to add value. It is less easy to train people
to play an active role in this potential. Figure 7,
below, shows the focus of complex added value on
the traditional economies, and the logarithmic
expansion of scientific production with wealth. The
upper figure shows that the nations which create
the top 80% of world product - the one billion or
so in the wealthy world - create virtually all of the
science that is published. The lower panel shows
that only the complex economies undertake
complex manufacture. The complexity of which is
inherent in various standard UN statistical
categories is estimated from the number of
processes which need to contribute to the finished
good: few, in making hand tools, many in making
aircraft. This index is compared to the
development stage of the nations for which this
activity is of importance in manufacturing industry.
Figure 7: Complex industry and science have been
the perquisite of the rich nations.
The figures confirm the impression that complex
things are chiefly undertaken in complex
economies. It is, however, even harder to create
the complex framework within which these
economies operate. In particular, it is difficult to
manage the transformation of an oligarchic society
to one with ever-increasing levels of inclusion.
Where there are few educated people and limited
sources of wealth, then natural processes imply
that oligarchy is almost inevitable. Measures of
inequality tend therefore to peak as agricultural
consolidation reaches its peak, and then fall with
increasing wealth, urbanisation and mobility. Such
trends are often resisted by clans and classes
which have acquired a privileged position. Change
to a more complex society involves ceding
political power to the majority. This is not of itself
an easy process. However, many nations start from
poorly designed political or administrative
institutions, often adopted from a central planning
model that was prevalent during the wave of de-
colonisation. Such models lend themselves to
corruption and tend to distance between the state
and the governed.
Discussion on the growth prospects of the
industrial nations showed the long-run stability of
economic performance. Work by Putnam et al on
Italian city states (and more recently, on US
counties) has shown extraordinary long-run
correlation between institutions and subsequent
performance.
Figure 8: Measures of civic involvement - courts,
drainage provision - in Italian city states affect
economic performance many decades later.
The implications of this are threefold.
First, the performance of the developing world is
largely contained in the structures which have
already been put in place, and foreseeable
changes which may occur within these.
Modernisation of institutions is a gradual
process, and this will set the limits to what can
be achieved.
Second, the pace of achievement - and the
shocks and irregularities imposed by weak
institutions - may well prove frustrating to the
citizens of these countries. There may be civil
disturbance as a result of this, but without
understanding of what change is needed, the
likelihood of its being achieved by accident is
low.
Third, those wishing to improve the lot of these
nations have a complex task ahead of them.
Intervention always touches that which matters
most if it is to be successful. But some form of
intervention - in macro-economic management,
for example - are more 'sanitary' than the
political reforms which are, in many instances,
needed. Appetite to engage in this seemingly
bottomless ocean of problems may be limited.
We have made some estimates in the potential
change in per capita income over the period to
2020. The result of doing this is shown in Figure 9.
The nations are divided into a number of
homogenous groups. Individual nations are
projected forward, based on their economic
performance and population growth during the past
20 years. The three cases shown have these rates
adjusted progressively to the best in their group's
historical performance, the worst or a median
position. The aim is to give a sense of the
dispersal that it is reasonable to anticpate, not a
forecast.
Figure 9: Prospects for 2020.
The figure shows nations stacked from the poorest
(left) to the richest (right) in 1997. The line shows
how income per capita stood in 1997. The three
cases are as explained above. The population of
the wealthy world is contracting and so incomes
rise rapidly, despite modest growth. The field
opens for the middle income nations, but the four
billion or so people living in the poor world see
scant improvement on a per capita basis, much as
Africa has stagnated during the previous half
century. One billion get richer, two billion undergo
unstable fast change that is highly policy-
dependent and about four billion see life getting
progressively less tenable.
Stability and sustainability.
We have reviewed the impacts of instability and
poor international security elsewhere . We have
also discussed environmental issues elsewhere . In
brief, close-coupling of the world means that what
occurs in one part of the globe - a biotechnological
accident, and economic miscalculation - can
impact widely and rapidly. It may well be that that
the prospects that have been outlined in the
previous section prove difficult for those not
previously connected to the poor world.
Figure 10 poor nations tend to be less sustainable
than rich ones.
It is a fallacy to imagine that poor nations operate
innately sustainable economies. World Bank
estimates, shown in Figure 10 suggest otherwise.
Plant run at very low levels of efficiency.
Machinery and vehicles are often obtained second
or third-hand from Western sources (or form the
former Soviet bloc) and the efficiency of these
reflects their age. Primary activities, such as
agriculture and mining, are often conducted in
damaging ways. Traditional slash and burn
agriculture, for example, leads to erosion, soil
impoverishment and the destruction of the
resource. Most of the Mediterranean was covered
in lush forest after the last period of glaciation. The
craggy, limestone-dominated appearance which we
have learned to expect is human in origin, as are
the downlands and moors of Northern Europe
By 2020, in the order of two billion people will
have shifted from the use of theoretically-
renewable sources of energy, such as wood and
dung, to traded energy such as oil, electricity and
coal. They will do this from preference, because
the sources of wood have been destroyed or
because they have moved to cities, where there is
scant alternatives. A person living on the edge of
survival uses around half a tonne of oil equivalent
per annum in order to cook, light their nights and
get about, as well as embodied in the plastics and
metals that they use. Two billion people therefore
use nearly 20 million barrels of oil equivalent per
day. The capital implications of the required plant
are devastating. The foreign exchange needs to
pay for imported fuel will be huge (energy prices
may well be higher than they are today.) These
are, however, only proxies for the housing, water
and sewerage, transport, health, education and
other needs that must be afforded by some of the
poorest people on the planet.
Energy demand is the product of economic activity
and the effectiveness with which value is added
with respect to energy - the so called 'energy
intensity'. The industrial world has cut its intensity
for a long period, and its demand for energy has
remained static. Much the same can be said for its
use of other primary goods: metals, for example,
are efficiently recycled in most economies. The
absolute volume of economic activity will more
than double in the industrialising nations over the
period, and these nations have yet to make
corresponding efficiency gains. Indeed, they
celebrate their new wealth with air conditioners and
vehicles, increasing their demand. Figure 8 shows
the trajectory of a number of countries in the
1960-92 period, during which time both tier
income and their car populations normally
increased. All follow broadly the same 'salmon
leap', with some undershooting (Korea, since
corrected) and some overshooting (Argentina, due
to the peculiarly isolationist policies of successive
government.
Figure 11 vehicle populations tend to expand in a
common manner with increasing wealth.
Sustainability demands efficiency. Efficiency -
particularly in the economic context which we have
discussed - demands immense investment, far
more than either aid or domestic saving can
provide. Thus sustainability requires the opening of
developing economies to global drivers to best
practice, inward investment and rapid economic
change. Unfortunately, as we have seen, such
processes are predicated absolutely upon credible
domestic institutions, political and economic
predictability and minimal corruption. These may
be slow to arrive unless actively encouraged by
those able to deliver the impetus and the oversight
that is needed.