Approaches to Economic Development
Given the goals and policy of development, those who lead in the development
effort must adopt a particular approach, which is the practical way to get results. This
involves translating the approved policy and strategy of development to a line of
action around which programs and projects could be established. Approaches should
complement each other in their application.
1. Countryside Development
- a popular approach to the problem of inadequate employment and income for
the rural population.
- the process of transforming the rural areas into productive centers by providing
the essential support in agriculture, trade and industry.
In line with this approach the following actions are taken:
Construction of farm-to-market roads;
Introduction of production technologies in small scale industries and farming;
Liberalization of credit through the rural banks;
Linking the countryside to the power grid for electrification;
Opening of non-formal education for occupational skills;
Improvement of the peace and order situation;
Enhancement of the primary health care for the rural population;
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Formation of production and credit cooperatives;
Establishment of irrigation systems; and
Agrarian reform for wider distribution of land ownership.
- This approach has the advantage of retaining the population in the rural areas
instead of flowing into the already crowded urban centers where employment cannot
is readily available.
1.1 Agrarian Reform
- Land Reform which is the abolition of tenancy and the conversion of
sharecroppers to leaseholders and later on to be owner-tillers is an approach
to development that is more strongly directed to equitable distribution of
wealth than to generating economic growth.
- Giving farmers the chance to own the land they till has been considered not
enough to enable them to raise their income, thus the provision of such
support as farm credit, access to the market for farm products, agricultural
extension services, distribution of certified seeds, subsidized prices of cheap
fertilizers, crop insurance, formation of farm cooperatives, and construction of
irrigation systems.
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1.2 Cottage Industries
- It generate income and employment in the rural areas. It is small enterprises
based on indigenous raw materials, recycled materials or their combination
with some imported product components.
- Cottage industries are handicraft, woodcraft, embroidery, metal craft,
leather craft, or food processing establishments operated with little capital
and a few workers.
- This is done to give people in the countryside the opportunity to earn cash
while waiting for the harvest and planting seasons and to give them a
subsidiary source of income to augment the low income from agriculture.
1.3 Import Substitution
- The productive capacity of a country that has suffered trade deficits is
usually oriented to the development of a capacity to duplicate imported goods.
This is called import substitution, which may be designed to conserve the foreign
exchange holdings of the economy.
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- Import substitution is a hindrance to the free flow of goods between
countries and may lead to the existence of industries that are comparatively
inefficient.
- The main advantage is being able to generate jobs for the citizens who
might be jobless if importation of many kinds of goods continues.
2. Cooperative Approach
- The formation of member-managed groups called cooperatives for
production; marketing, credit, equipment ownership, and supply of consumer
goods can be used to pool resources and to generate growth and development
through the acceleration of investment and economic activities.
- The increase of purchasing power of the members of a consumer
cooperative improves the economic status of the low-income groups just as
farmers marketing cooperative enhances the income of the members through
better prices received for their products.
- The success of cooperatives depends upon a strong communal bond that
exists among the members who should be concerned for group's welfare.
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3. Pump-priming Approach
- The injection of massive government funds into the economy purposely to spur
economic activity, to increase employment and income, to build infrastructure and to
induce private sector investment.
- The use of pump priming as an approach should be premised on the condition
that there is idle liquidity in the hands of prospective investors.
- In other words, the action are to awaken resources that have stagnated after
over production had caused inventories it piles up.
- When goods could no longer be absorbed by the domestic market and there is
no way to export the excess production, the consequence is closure of business,
unemployment, loss of income by the poor and middle class and a standstill situation
of the economy.
3.1 Foreign Investment Attraction
- The developing countries have given much attention to the creation of a
favorable climate for the entry of foreign investments.
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- It has been considered that foreign investors who would take advantage of
cheap labor, available raw materials, and lower tax burden in the developing
country could remedy the lack of domestic capital.
- In the process, the foreign investors will provide the benefits of development
in terms of employment, income, and a better quality of life for the people.
- The effort to attract foreign investments has caused some countries to
extend extra-ordinary concessions to foreign investors.
4. Appropriate Technology Approach
- Developing countries have since 1975 been introduced to the concept of
appropriate technology, which is the use of machines and equipment of low
capacity, low cost and suited to small-scale production.
- The Philippines is one of the countries that turned to appropriate technology
because of inadequate resource to acquire new machinery technology and
because the country has no machinery production industry. Cars, trucks, and
tractors in the Philippines are actually only assembled in the country by the
foreign companies that sell them.
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- The use of small thresher’s aid water pumps and the construction of biogas
tanks for electricity and fuel are appropriate technology applications that have
improved the farm enterprise not only in output and income but also in the
formation of a machine culture in the farm sector.
5. Non-Formal Education
- Non-formal education is a misnomer. It is really a type of training provided on
short-term basis to transfer productive technology in the urban and rural areas to
enable the participants to engage in a trade.
- As an approach to economic development, the non-formal education program
induces people to use their skill for self-employment. It has been the way to
improve income for many urban and rural poor and has therefore done much to
mitigate poverty.
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6. Non-Government Organizations
- Non-government organizations have done much in job creation, transfer of
technology and utilization of idle land.
- The non-government organizations have been a way for aid to reach the urban
and rural poor directly through people-oriented livelihood projects.
- They are expected to provide facilitative services such as seed dispersal,
operation of irrigation systems, demonstration of technology, manpower training,
and promotion of backyard industries, utilization of idle land or drug rehabilitation.
7. Preferential Credit
- A country that wants to support the growth of an industry may give preferential
status to certain projects that contribute to development. If a felt need for instance
exist in the large scale production of organic fertilizer to replace chemical fertilizer,
the government may grant lower interest rates on such projects through the Land
Bank of the Philippines or the BSP.
- Preferential credit for low cost housing is for social amelioration as it will widen
the opportunities for home ownership but its development effect is less than in
processing and manufacturing.
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- The industry with preferential credit status must have high employment effect,
must utilize a large volume of domestic raw materials, must develop an export
potential, must assist in the upgrading of productive technology, or must help
safeguard the environment.
8. Tax Relief Approach
- Selective tax relief to some industries is an approach that may enable
government to influence the quantum of investment towards the desirable area.
- That relief might be of different levels of exemption and duration of enjoyment.
This approach is really to let private business grow at a faster rate than they
would if taxes were to be paid in full.
- The response to tax relief however is mixed.
Tax exempt status given to an investment area gives the impression that this is
for attracting investment due to its low profitability.
Tax exemption is a real advantage that should be taken as an opportunity.
To the government, tax relief is in anticipation of the collection of more taxes
from a fully-grown industry in the future.
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9. Vocational-Technical Education
- This is considered as an approach to provide the worker component of industry.
The pursuit of economic development requires adequate manpower to do the
technical work, which do not call for professional qualifications.
- To meet these requirements, the expansion of enrolment in schools should be in
the vocational-technical areas rather than in the degree oriented courses.
- There should be enough graduates who will do the work instead of an excess of
graduates to perform managerial and professional work.
10. Alternative Energy Sources
- Energy is a basic requirement of growth and development. Industrialization is
stunted when the supply of energy is inadequate and irregular. The traditional and
most widely used fuel for generating electric power has been coal and crude oil.
- Countries with limited coal and crude resources that are also low in purchasing
power have turned to alternative sources of energy.
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- Some of the common are: hydroelectric power, dendro-plant, and geothermal
power generation.
- Growth can not take place when there are constant power interruptions that
upset production schedules, power generation should be a primary concern for
the developing country.
Labor and Consumer Protection
- One approach to development is to preserve and enhance the gains and
benefits of laborers and consumers. The income of labor must be protected from
failing below the living wage level.
- A high wage rate causes the cost production to rise, this induces an increase in
the prices of goods and generates inflation.
- The reaction of labor to inflation is to demand higher wages through collective
bargaining or a higher minimum wage, which will in turn worsen inflation.
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Deregulation
- There is advocacy that developing countries that have installed so many
regulations on business and industry should dismantle them to allow the market
forces to operate freely.
- Some of the objects of clamor for deregulation is wages, energy rates, airfares,
shipping fares, fuel prices, rent and land transport fares.
- Labor unions, consumer groups, and the public might oppose deregulation but
they will ultimately accept the larger number of employed manpower, improved
products, and less government intervention in business as benefits from
deregulation.
Fertility Curtailment Incentives
- Rapid population growth is a deterrent to the growth of a developing country
because the households are not able to save as the number of dependent
increase.
- Family size and dependency limitation to a desirable level is attainable when the
people accept some fertility control measures.
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Summary:
Economic growth is the expansion of the economy in production, trade,
investment, income, and infrastructure.
Approaches to economic development involve translating the approved policy
and strategy of development to a line of action around which programs and projects
could be established.
Some of the approaches to economic development are countryside development,
agrarian reform, cottage industries, import substitution, cooperative approach,
pump-priming approach, foreign investment attraction, appropriate technology,
non-formal education, non-government organizations, preferential credit, tax relief,
vocational-technical education, alternative energy sources, labor and consumer
protection, deregulation, fertility curtailment incentive.
However, the greatest obstacle to economic development is man himself. We can
make varied approaches but that's not enough man should be the first to be
improved-his attitudes and values. The development of people is the only real and
enduring kind of development. It is the principal key to the progress of the poor
nations.
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