Competitive Exams: Economic Development & Systems

Economic development is the development of economic wealth of countries or regions for the well-being of their inhabitants. Public policy generally aims at continuous and sustained economic growth and expansion of national economies so that developing countries become developed countries. The economic development process supposes that legal and institutional adjustments are made to give incentives for innovation and for investments so as to develop an efficient production and distribution system for goods and service.

Economic System of Simple Societies

Herbert Spencer has defined simple society as one which forms a simple working whole unsubjected to any other and of which the parts cooperate for certain public ends. Simple societies have low division of labour. The occupational differentiation being limited primarily to birth, sex and age. These societies have no specialized economic organization.

The productive skills are simple and productivity is low therefore these societies cannot sustain large population size. Most of the adult members are engaged in food gathering activities.

There is little or no surplus so the social inequalities are not significant and economic interaction takes place within egalitarian frame-work.

The production system is simple but exchange of goods and services assume a complex form. The forms of exchange are reciprocal and redistributive type.

Some of the simple societies inhabiting regions having abundant food and other resources indulge in conspicuous consumption.

The members lack high degree of achievement motivation as there is neither any intense preoccupation on generation and accumulation of economic surplus. Infact most economic activities emphasize on giving rather than storing or accumulation. Private ownership of means of production is non-existent.

There is no clear separation between domestic economy and community economy as they overlap to varying degrees. The economic system is dominated by sacred consisting of magic-religious ideas.

The innovation is rare and change is slow. The customary practices and norms regulate production and exchange of goods and services.

Some Forms of Simple Economic Exchange

  • Barter system: It is direct form of exchange whether in return for services or goods.
  • Silent trade: It was an exchange system where the exchanging parties do not know each other personally.
  • Jajmani system: It is system of economic and social relationship existing between various castes in villages. The patron is known as jajman and the service castes are known as kamin. It is still prevalent in villages.
  • Ceremonial exchange: It is a type of social system in which goods are given to relatives and friends on various social occasions. The main idea is to establish cordial relations between the various social groups.
  • Potlatch: This term means gift. It is meant as a public distribution of goods made to establish certain claims of the giver and the recipients. It is based on the principle of reciprocity. Through this system the host declares his status to others.
  • Multicentric economy: It is an economy using several media of exchange.
  • Kula: According to Malinowski it is a ceremonial exchange participated by the inhabitants of a closed circle of Trobriand Island. It has no practical or commercial value. The system of exchange is regulated in a kind of ring with two directional movements. In clockwise direction, the red shell necklaces called Soulava circulate and in anticlockwise circulation the white arm shells known as Mwali circulate among the members of the Kula. Objects given and taken in Kula are never subjected any bargaining.
  • Economic System of Complex Societies

The complex societies have high degree of division of labor and consequently structural differentiation. Thus economic activity constitutes a specialized activity taking place in special institution framework and distinguishable from other types of social activity e. g. Factories, banks and markets are some of the distinct economic activities.

High division of labor implies advanced skills which help in high productivity. The economic organization can easily sustain a large population.

Complex societies due to their high productivity generate huge surplus. They can support conspicuous consumption. Market exchange is the pivotal form of exchange and money is the universal medium of exchange.

The members of the complex societies have high achievement motivation and the economic behavior is characterized by an intense preoccupation with generation and accumulation of surplus.

There exist a clear distinction between domestic economy and community economy. The domestic units are the units of consumption and supply the manpower to the community economy. The production of goods and services takes place in the larger units which form part of the community economy.

These societies are characterized by the high level of scientific and technological advancements. Economic activity is perceived in secular terms and is based on practical rationality.

High degree of specialization, rapidity of change, predominance of practical and excessive mechanization of production leads to a state of anomie in society and alienate the worker from the product of his labour.

Market Economy

Market or Free economy is characterized by a system in which the allocation of resources is determined by supply and demand in the market. Both the production and distribution is determined by the market forces to ensure competition and efficiency. It has an effect on the traditional families as a result of monetisation and market economy the different members of the family contribute to the family income and increased the avenues for social mobility. Their is rapid growth of industries in which the employee-employer relations are based on contractual relations.

Work has become the commodity which is exchanged for wages. Expansion of markets has increased the volume of trade and commerce facilitating the integration of the country. Growth of economy leads to occupational diversification and increasing specialization of occupations which in turn has created a demand for educational institutions to provide specialized training.

Due to industrialization and expansion of market economy in urban areas leads to consumption oriented life-style. Market economy governed by supply and demand is inherently unstable. This leads to anomie which is characteristic of urban life. Inflation also poses constant threat to instability in the urban markets.

Planned Economy

A planned economy is an economic system in which decisions about the production, allocation and consumption of goods and services is planned ahead of time, in either a centralized or decentralized fashion. Since most known planned economies rely on plans implemented by the way of command, they have become widely known as command economies.

The government takes the initiative and set the goals and targets to be followed by the market forces. The state intervention is limited to formulation of plan and adoption of indirect controls. The private sector becomes partner in the formulation of a plan and responsible for its implementation.

Features of Planned Economy

Target settings for different sectors of economy that determine the supply. It is a type of economy in which some central authority makes a wide range of decisions pertaining to production and wages. The government can harness land, labor, and capital to serve the economic objectives of the state (which, in turn, may be decided by the people through a democratic process). Consumer demand can be restrained in favor of greater capital investment for economic development in a desired pattern.

For example, many modern societies fail to develop certain medicines and vaccines which are seen by medical companies as being unprofitable, but by social activists as being necessary for public health. The state can begin building a heavy industry at once in an underdeveloped economy without waiting years for capital to accumulate through the expansion of light industry, and without reliance on external financing. Second, a planned economy can maximize the continuous utilization of all available resources. This means that planned economies do not suffer from a buisness cycle.

Under a planned economy, neither unemployment nor idle production facilities should exist beyond minimal levels, and the economy should develop in a stable manner, unimpeded by inflation or recession. A planned economy can serve social rather than individual ends: Under such a system, rewards, whether wages or perquisites, are to be distributed according to the social value of the service performed. A planned economy eliminates the dependence of production on individual profit motives, which may not in themselves provide for all society's needs.

Social Determinants of Economic Development

Economic development implies two things: Economic growth which leads to increase in production and generation of income and equitable distribution of this income among the population to improve the quality of life. Although economic development does not necessarily imply industrialization there is no historical precedent for substantial increase in percapita income without diversion of both capital and labour from agriculture. Economic development is synonymous with industrialization.

Economic development is very much influenced by various social factors. Nation states are created with common language and culture. Economic development of any country hinges on the efficient employment of factors of production such as labour, land, capital and organization. There is commercialization of production with monetization of economy. The employment of factors of production is conditioned by cultural and social factors.

The people must have the required ability, experience and knowledge to make the best use of the facilities that are made available. There is decline of the proportion of the working population engaged in agriculture. The technology plays very important role when appropriate social conditions are present. There is trend towards urbanization of society with growth of scientific knowledge.

A new value system emerges which emphasis individual initiative and responsibility and enables the individual to function without any control. The exclusiveness of clan, kin or caste breaks down and provides norms of behavior suited to the secondary group type of relationship characteristic of an industrial society. There is widespread spread of education. The social stratification emerges based on achievement criteria and permitting occupational mobility.

Concept of property

Property refers to the rights that the owner of the object has in relation to others who are not owners of the object. Property rights are backed by the state and enforced through its legal institutions. According to Morris Ginsberg property may be described as the set of rights and obligations which define the relations between individuals or groups in respect of their control over material things or persons treated as things.

Kingsley Davis defines property as consisting of rights and duties of one person or group as against all other persons and groups with respect to some scarce good. It is thus exclusive for it sets off what is mine from what is thine but it is also social being rooted in custom and protected by law.

Man, Nature and Social Production

Man according to Marx is a creative being. He with his labor acts upon the nature and tries to change it. Man can never get satisfied with the existing conditions and always look out for a change. Work provides the most important and vital means for man to fulfill his basic needs, his individuality and humanity. Man uses his labor which is the essence of human being.

In the process of acting upon nature with the help of his labor and transforming it for his benefit man gets satisfaction. At this stage his work becomes a fully satisfying activity, encompassing both himself and the community of fellow human beings. Work through an individual activity becomes a social activity as well. In the process of acting upon nature man gets involved in interaction process with other human beings and gradually society moves towards the stage of complexity. In the process man engages himself in social production.

All type of relationships and institutions emerge in society in this process with the economic process as infrastructure and other sub systems including culture, religion etc as super structure. According to Marx without culture there can be no production possible. The mode of production includes the social relations of production which are relations of domination and subordination into which human beings are either born or enter involuntarily. Class is an economic as well as cultural formation. Thus human beings are also in the process of social production which is a very wide concept including almost all the subsystems of society, culture, religion, economic production etc.

The interaction between man and nature produce significant consequences as in his social production man is in constant touch with the nature. Maclver writes that the revelation of the manner in which the environment mold itself and modified by the life of the group is one of the achievements of the social sciences. The relationship between physical environment and social phenomena has been of particular interest for sociologists leading to development of ecological school stimulated by investigation of R. E Park and E. W Burgess at the University of Chicago.

Indian Type of Market Economy

  • Planning Commission advocates the continuance and effectiveness of Public sector and people participation.

  • Some of the industries and sectors are open to private sector giving greater autonomy.

  • Economic reforms pushed the nation from the planned economy to market economy.

  • New Economic Policy came up in 1991.

  • There is disinvestment of the PSUs, liberalization, privatization and globalization.

  • Still India is not full market oriented economy as some key sectors are still with Govt.

  • Planning in India derives its objectives from Directive Principles of State Policy.

Main Features of Indian Planning

  • Indian model between capitalist and socialist.

  • Indian is the mixed economy where the emphasis is on macro-economic planning.

  • Democratic socialism

  • Social gain as the main criterion rather private profit.

  • India is signatory of WTO and also has some commitment with some regional groups like European Union, ASEAN, APEC, SAPTA etc.