UNIT V.

APPROACHES TO ECONOMIC DEVELOPMENT

“Tomorrow's outcome for our nation is dependent upon how we act today to
create the outcomes we desire for our country”.

INTRODUCTION:
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.

At the end of this topic, the students must be able to:

1. Explain the effects of countryside development on the capacity of the rural areas
to prevent the outmigration of their population
2. Discuss the concessions given by the government to business when import
substitution is pursued
3. Determine the characteristics of the economy to be able to respond to the
different approaches

ACTIVATING PRIOR LEARNING

Describe the municipality where you reside. Fill the matrix with information
regarding the actions made by your leaders in transforming your municipality into a
better place to live in.
 Programs/ Projects Benefits Target Remarks
Beneficiaries ( completed or
on- going)

PRESENTATION OF CONTENT

A popular approach to the problem of inadequate employment and income for

the rural population is known as countryside development. This is 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 approach is
taken:
1. Construction of farm-to-market roads
2. Introduction of production technologies in small scale industries and farming
3. Liberalization of credit, through the presence of rural banks
4. Linking the countryside to the power grid for electrification
5. Opening of non-formal education for occupational skills
6. Improvement of the peace and order situation.
7. Enhancement of the primary health care for the rural population
8. Formation of production and credit cooperatives
9. Establishment of irrigation system
10. Agrarian reform for wider distribution of land ownership
The countryside development approach has the advantage of retaining the population in
the rural areas instead of flowing into the already crowded urban centers where
employment cannot be readily available. People tend to move out of the rural areas
when employment and income opportunities are scarce, hence the effort to generate
economic activities in the countryside.

Agrarian reform can refer either, narrowly, to government-initiated or

government-backed redistribution of agricultural land or, broadly, to an overall
redirection of the agrarian system of the country, which often includes
land reform measures.
Land reform 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.
This is to break the traditional relationship of landlord and tenant in the agricultural
sector in which the former had the upper hand and which used to deprive the latter of
opportunity to attain a better life. The owner-tillers of the land are envisioned to be
liberated from debts and to be motivated for higher productivity through ownership of
the land, hence the inception of land reform.
Cottage industries which generate income and employment in the rural areas
are 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 and food processing establishments operated with little capital and a few
workers. The promotion of this type of business 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 the subsidiary source of income to augment the low income
from agriculture. Cottage industry may cause the farm household to concentrate on it
when the landholding is small.
Import Substitution is the productive capacity of a country that has suffered
trade deficits and usually oriented to the development of a capacity to duplicate
imported goods. This is designed to conserve the foreign exchange holdings of the
economy. The foreign exchange level might be threatened to fall very low due to the
importation of what could be well be produced within the country. This approach may be
accompanied by tax concessions to domestic producers and some degree of tariff
protection against cheap imports.
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.
Cooperative Approach is a formation of member – managed groups for
production, marketing, credit, equipment ownership and supply of consumer goods can
be used to pool resources to generate growth and development through the
acceleration of investment and economic activities. The increase in purchasing power of
the members of a consumer cooperative improves the economic status of the low
income groups just as a farmer marketing cooperative enhances the income of the
members through better prices received for their products. The cooperative is a strong
force in capital formation.
The success of cooperatives depend upon a strong communal bond that exists
among the members who should be concerned for group welfare as much as they are
for their own. Without this bond, the members will go on their own respective ways
when opportunities outside of the cooperative can be obtained. People with a very
strong feeling for individualism in the pursuit of economic gain do not make good
members of cooperative. Moreover, the exploitation of cooperative business for
personal gains of its leader has resulted in the death of many cooperatives.
 Pump-Priming Approach, is the injection of massive government funds into the
economy purposely to spur economic activity, to increase employment and income,
build infrastructure and to induce private sector investment. This is the same with the
pouring of water at the mouth of the well so that the column of water may cause the
water at the bottom to rise when pumping takes place.
The used of pump-priming approach should be premised on the condition that
there is idle liquidity in the hands of prospective investors. The action is to awaken
resources that have stagnated after over production had caused inventories to pile 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 the business,
unemployment, loss of income by the poor and middle class and a standstill situation of
the economy. The application of pump-priming approach is to stir a grown economy at
rest back action, not for a less developed economy to grow. Mere compensatory public
spending to cover deficiency of private sector investment need to be done, otherwise
there shall be inflation.
Attraction of Foreign Investment, provides 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. Infrastructure were set up to meet foreign investor
requirements. Even school curricula were tailored to suit the manpower needs of
prospective foreign investors and the technology that they were to bring with them.
Appropriate Technology, the use of machines and equipment of low capacity,
low cost and suited to small scale production, an approach to the growth of small scale
industry and agri-business. This has also led to the design of small machinery for more
varied uses, one of which is the use of hand tractor as a transport unit for passengers
and light cargo in the countryside. Re-cycled materials are used to make accessories
for machines to make them multi-purpose. This has also enabled develop countries to
find a market for their used surplus equipment.
The use of small threshers and 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 outputs and income but also in the formation of a
machine culture in the farm sector.
Tax Relief an approach that may enable government to influence the quantum of
investment towards the desirable area. This approach is to let private business grow at
a faster rate than they would if taxes were to be paid in full.
Tax exempt status given to an investment area gives the impression that :
a. attracting investment due to its low profitability.
b. A real advantage that should be taken as an opportunity.
c. Anticipation of the collection of more taxes from a full grown industry
 d. An excellent advantage for non-exempt industries
The power to tax is a legislative power. When the tax is suspended to allow an
industry to grow, it means legislative grace has been accorded to the tax exempt
industry and the only justification for this grace is the expectation that economic
growth and development will follow. If the tax exempt industry does not scale its
production upwards by distributing profits to investors instead of acquiring more
productive assets then the cause of development has been side tracked. Tax
exemption may be withdrawn by law.

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 most common is hydro-electric power, dendro-plant and
geothermal power generation.
Hydro- electric plant require large capital outlay for water catchment and
equipment.
Dendro plants which used wood fuel have been found difficult to sustain with the
needed fuel
Geothermal plants can be set up only in countries with steam deposits such as
the one in Tiwi, Albay in the Philippines.
Wind Mill has been given up for power generation which is useful only on small
scale in agri-business farms that produce swine but this has no prospect of being
a major source of power.
Solar Energy is not cost effective even in the tropics because of large physical
plant requirement, low power generation and underdeveloped technology.
Nuclear Power is unaffordable or dangerous for its threats to life.
Growth cannot take place when there are power interruptions that upset
production schedules. In view of its being highly critical to production and to the
quality of life of the people, power generation should be a primary concern for the
developing country.

Labor and Consumer Protection, as economic development is related to

the quality of life of the people, one approach to development is to preserve and
enhance the gains and benefits of laborers and consumers. The income of labor
must be protecte4d from falling below the living wage level just as the purchasing
power of consumers need be protected from inflation. The scheme for protecting
laborers and consumers at the same time may present some problems.
 A high wage rate causes the cost of production to rise. This induces an
increase in the prices of goods and generates inflation. When inflation sets in the
hardest hit are the fixed income earners who are mostly laborers. 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. If the government
imposes price control, the business sector will be unable to give higher wages
and only those that are efficient in production can go on producing. Lay-offs will
the follow beyond the capacity of the government to prevent, so widespread
unemployment may take place. In this instance, protection of laborers and
consumers may be the cause of a disturbed employment situation. To avoid
complications, the scheme of protection must be used judiciously in order not to
cause severe negative effects.

Deregulation is an advocacy for developing countries that have installed

so many regulations on business and industry to dismantle them to allow the
market forces to operate freely. Some of the objects of clamor for deregulation
are wages, energy rates, airfares shipping fares, fuel prices, rent, and land
transport fares.
The minimum wage deters the employment of more people in small scale
industries. The supply and demand for labor should dictate the wage rate.
Energy price should be left to float according to the international price of crude.
Rather than controlled through government ownership of power facilities and
ownership of the system by the power subscribers accompanied by a system of
rebates should be evolved. Power subscribers could become stockholders in the
power corporation.
To improve the service and bring down rates;
A. Land, air and sea transportation should be allowed to charge what
they consider fair and they should be allowed to be more numerous so
as to compete among themselves.
B. Fuel prices should be allowed to float and more refineries should be
licensed to do business.
C. Rent which is controlled should be allowed to rise so that quality of
housing will be improved and so home ownership will rise.
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.
Regulations on wages, prices, fares and are usually given as concessions to interest
and pressure groups. There is no complete removal of regulation in deregulation
because matters like safety, non-discrimination and environmental rules will continue to
be in place.
 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 dependents increase. Family size and dependency limitation to a desirable
level is attainable when the people accept some fertility control measures.
Whether the method applied is natural or artificial, the voluntary curtailment of
fertility can be effective only when supported by an incentive scheme that will boost the
acceptance of the available methods.
1. One incentive is to give critical point value in personnel rating to the practice
of any kind of legal fertility curtailment by working women.
2. Free child delivery and maternity ward service given for giving birth within a
desirable number of children
3. Access to free supply of contraceptives
Members of the middle-income groups even in the developing countries tend to
limit their children in their effort to maintain a high quality of life. On the other hand, the
low-income families tend to have more children in the absence of fertility curtailment.
The poor have more reasons to practice fertility limitation because children born to them
may become heirs to malnutrition and poor housing. The chance of a large family
moving up from low income to middle income status is slim.

APPLICATION
I. True/False: Write True if the statement is correct and False if it is incorrect.

1. A high wage rate causes the cost of production to decrease.

2. Increase in population is not a deterrent to the growth of a developing
country.
3. Poor people have more reasons to practice fertility limitations.
4. Pump priming is when goods could no longer be absorbed by the domestic
market and there is no way to export the excess production.
5. The abolition of tenancy and the conversion of sharecroppers to leaseholders
and later on to be owner-tiller is agrarian reform.
 FEEDBACK

Read the following statements and make a short critical analysis.

1. Impact of countryside development to the residents

2. What should be the characteristic of the economy for it be able to respond
to pump-priming?
3. Identify one technology and explain if this technology slows down
development.

REFERENCES
Pagoso, Cristobal M., Introductory Macroeconomics, Revised Edition 2006
Azanza, Patrick Alain, Economics, Society and Development,2001
Clemente, Romeo C.,Introduction To Economics with TAR, Third Edition
Online Resources