SOCIOLOGY OF DEVELOPMENT (BS 3)

                          DIFFERENT APPROACHES OR THEORIES OF DEVELOPMENT

Objectives

• Approaches to Development: An Introduction
• The Post Globalization Era and the Ascendancy of the Capitalist Model

 

1. The Capitalist Model of Development

2. Capitalist Model of Development: What it is?

3. History of the Capitalist Model

4. Types of Capitalist model of Development

5. Features of the Capitalist Model of development

6. Positive Outcomes of Capitalist Model of Development

7. Negative Outcomes of Capitalist Model of Development

8. Present status of the Capitalist Model of Development

After studying this unit:

You can amass knowledge about the prevalent models of development that have been accepted by different countries in different times. You can get a comparative picture of the two dominant models of development that is the capitalist and the socialist models adopted by different countries of the world. You can very well comprehend their features; limitations and current status. You will get to know how it is distinct from the dominant models of development and distinguished and befitting for a nation like Pakistan. All these will become evident through the analysis of the features of this model. The unit will also acquaint you with the current position of this model.

·         Approaches to Development: An Introduction

The post Second World War period has witnessed two dominant models of development shaping the development discourse, policies and practices of majority of the nations of the globe. They are: the Capitalist model and the Socialist model. The capitalist model of development is mobilization by provision of private ownership of property and means of production, minimum state control on economic enterprises, and a free economy regulated by competition. This developmental model (model adopted by the developing nations) also mobilized sustained growth and mobilization with massive state investment at the takeoff stage. From the view of this perspective, “economic development would revolve around Industrialization and the transfer of an underemployed rural labor force to the more productive occupations in the urban industrial sector. The state would have to mobilize domestic and foreign saving to create an investment pool from which it could finance a programme of directed industrial development. “This model of development is often termed as the First world model of development.

The First World model of development, however, encountered several challenges with the expansion of the socialist model of development represented by the Second World. The socialist model was contradictory to the capitalist model of development as it propagated the abolition of ownership of private property and means of production, emphasized state ownership of means of production, state-owned public enterprise, and a state regulated economy and centralized planning by the state for economic growth. While both the capitalist and the socialist models laid primary emphasis on economic growth, the socialist model also emphasized on the equal distribution of the fruits of growth among all sections of the population. It heavily criticized wealth being rationed by a microscopic minority and the benefits of development getting confined to a particular group without trickling down to the masses.The developing world is represented by the ex-colonial, newly independent and non-aligned countries of Asia, Africa and Latin America. These countries are marked with massive poverty, low literacy, low productivity, low technology and industrial backwardness. These countries represented a diverse variety in terms of their socio-cultural and political setting and historical experiences and levels of technological and economic development. Indeed the developing world development perspectives are caught between the conflicting ideologies of the First and Second world. However, notwithstanding these variations these countries are economically and technologically underdeveloped, and are undergoing the process of nation-building and fast social transformation in the post-colonial era. As against these backdrops, these countries have been experimenting with diverse models of development. For example, India has followed the path of “mixed economy” by adopting a path of development in between the capitalist and socialist models. It becomes worthwhile here to mention the typical indigenous model of development found in India. It is based on the ideology of Mahatma Gandhi. Therefore it is called the Gandhian model of development. The prosperous society visualized by Gandhi, is not a materially or economically affluent society, as conceived by mainstream economists. Gandhi called his prosperous society Sarvodaya. It is a society that ensures the welfare and well- being of all its members. Its emphasis is on all the three components of well-being that are: material, mental and moral-spiritual.

·         The Post Globalization Era and the Ascendancy of the Capitalist Model

Significantly, in the 1950s, the capitalist model of development faced its tragic failure in many developing countries. At this juncture, it was realized that development visualized in terms of economic growth will bring only miseries magnitude among the majority. So, at this point development theory was tuned according to the social, cultural, and political settings of the nations which coincided with the modernization perspective on development. The modernization theory was associated with both the capitalist and socialist social and cultural orders. A vast number of developing world societies followed the path of modernization with varied degrees of success. Indeed the historical experience and specific social-cultural contexts have given rise not only to diverse patterns of modernity across the globe; also they contributed towards the emergence of imbalanced economic and political relationships among the nations. The dependency theorists argued that unequal trading relationships and capitalist development have made the countries of the southern hemisphere dependent on the northern hemisphere, especially Western Europe and North America, for capital, technology and market. To Gander Frank, the exposures of the developing countries to the economic influence of the capitalist countries have contributed to their dependency later which has resulted in economic colonization.It is important that since the 1980s there have been serious changes in the approaches to and theories of development. With the collapse of communism in Russia, the capitalist model is gaining ascendancy. It has also been observed that developing countries have been struggling under the weight of accumulated debt to the developed countries. Globalization has contributed significantly to the popularization and spread of

the capitalist model of development. The “structural adjustment programmes” have been forced on the countries following the socialist and developmental model of development by the West, especially the World Bank and the International Monetary Fund (IMF) with a view to creating conditions of economic growth by removing obstacles to the efficient operation of the free market. This is expected to create a homogenized model of economic development. And not prosperity. Growth centered development leads to poverty of deep magnitude among the majority. So, at this point development theory was tuned according to the social, cultural, and political settings of the nations which coincided with the modernization perspective on development. The modernisation theory was associated with both the capitalist and socialist social and cultural orders. A vast number of developing world societies followed the path of modernisation with varied degrees of success.Indeed the historical experience and specific social-cultural contexts have given rise not only to diverse patterns of modernity across the globe; also they contributed towards the emergence of imbalanced economic and political relationships among the nations.The dependency theorists argued that unequal trading relationships and capitalist development have made the countries of the southern hemisphere dependent on the northern hemisphere, especially Western Europe and North America, for capital, technology and market. To Gunder Frank, the exposures of the developing countries to the economic influence of the capitalist countries have contributed to their dependency later which has resulted in economic colonization.

It is important that since the 1980s there have been serious changes in the approaches to and theories of development. With the collapse of communism in Russia, the capitalist model is gaining ascendancy. It has also been observed that developing countries have been struggling under the weight of accumulated debt to the developed countries. Globalization has contributed significantly to the popularisation and spread of the capitalist model of development. The “structural adjustment programmes” have been forced on the countries following the socialist and developmental model of development by the West, especially the World Bank and the International Monetary Fund (IMF) with a view to creating conditions of economic growth by removing obstacles to the efficient operation of the free market. This is expected to create a homogenized model of economic development.

Thus, in this unit, two main approaches to development are being discussed in detail. They are the Capitalist and the Socialist. They are also called the models of development.

1. The Capitalist Model of Development

The capitalist model of development became a dominant model of development with the growth and success of the industrialized nations of the west. Simply speaking a capitalist model of development is characterized by free markets and the absence of government intervention in the economy. It is a social system based on the principle of individual rights. It is based on the principles of laissez-faire which advocates for “letting the individuals free.” Fundamentally the capitalist model of development rests upon the ideological tenets of capitalism.

Capitalist Model of Development: What it is?

The engine of capitalism is private property and its primary motivational factor is profit. The capitalist model of development is the polar extreme of the socialist model of development in its principles and practice. Whereas the socialist model of development advocates for an economic system in which the major factors of production and large industries are state owned or controlled, while smaller businesses remain under private control, capitalist model of development champions the cause of private ownership of the means of production and industries. Privatization, profit motive are its guiding principles. Socialist model of development is thus a state managed and people centric development model whereas capitalist model of development is a private owner managed and market driven model of development. Capitalist model of development was the model of development followed by the first world. It was adhered to by the industrialized nations of the west. The inherent miseries of capitalism had led to the introduction of the socialist model of development. But, after the falling of the Berlin world in1989 and the new transitional economies of the former Soviet bloc moving towards a market economy, capitalist model of development started getting revitalized. The few remaining stalwarts of communism, such as Cuba and the People’s Republic of China, are now in a process of transition from the socialist to the capitalist model of development. So, now capitalist model of development has become a dominant world model of development.

2. History of the Capitalist Model

The roots of the capitalist model of development can be traced through the origin of capitalism .Capitalism as a way of economic pursuit started with the establishment of trade links. Trades were taken as the means for accumulation of wealth. Economic trade for profit has existed since the second millennium BC. However, capitalism in its modern form is usually traced to the emergence of agrarian capitalism and mercantilism of the Early Modern era. Capitalism emerged gradually from an evolution of feudal social values. With the emergence of the concept of private property and man’s acquisitive instincts getting strengthened, capitalism started gaining momentum as a practice. The term capitalism is derived from the Latin term “caput” meaning “head”. As an economic system it got established and popularized in the 12thand 13th centuries. The main ideas behind capitalism were collecting interest, money, and stocks of merchandise. This evolution occurred most rapidly in Europe during the social revolts in the 15th century that produced the capabilities to generate and accumulate personal wealth. Commercialism became the dominant mode of social interaction. In the mid-1700s, a group of French economists began promoting what came to be known as laissez-faire (originally a French phrase translated as “allow to do”) economics. This principle is the guiding law of capitalist model of development. Laissez-faire economics replaced the tariffs and trade restrictions of mercantilism. This type of economic system dominated Europe from approximately 1400 to 1700. Under the laissez-faire, capitalism grew and new capitalists, mostly merchants, developed better production skills and cultivated privileged trading information to maintain profits. Profits served as a personal reward for efficient transactions. The idea of capitalism got extensive treatment in the intellectual writings of several philosophers. Here a reference is made to Adam Smith, Max Weber and Karl Marx.One of the earliest and most articulate exponents of this new economic system was Adam Smith (1723-1790), a Scottish economist and moral philosopher. Smith championed the idea that laissez-faire economics. To him laissez faire would benefit its practitioners while also promoting society’s general welfare.

His best known work, An Inquiry into the Nature and Causes of the Wealth of Nations, was published in 1776 and remains today a guiding book for the capitalist philosophy. The Wealth of Nations sets forth the idea that the wealth of a nation is to be measured in the number and variety of consumable goods it is able to produce for sale or trade. Free trade with no government interference is thus vital to the prosperity of a country because the demand brought about by free trade will result in the production of more goods. The unfettered production and sale of consumable goods is done in response to the needs of the populace. In fulfilling these needs, the capitalist profits and society prospers. Intrinsic to capitalism is the marketplace. In fact the noted social theorist Max Weber (1864-1920) defined capitalism as an economic activity aligned toward a market and defined capitalists as those profiting from market exchanges and agreements. The marketplace is of course a concept rather than a physical reality. It is a situation in which buyers Renaissance. A new secular merchant class evolved with tremendous capabilities to generate and accumulate personal wealth. Commercialism became the dominant mode of social interaction. In the mid-1700s, a group of French economists began promoting what came to be known as laissez-faire (originally a French phrase translated as “allow to do”) economics. This principle is the guiding law of capitalist model of development. Laissez-faire economics replaced the tariffs and trade restrictions of mercantilism. This type of economic system dominated Europe from approximately 1400 to 1700. Under the laissez-faire, capitalism grew and new capitalists, mostly merchants, developed better production skills and cultivated privileged trading information to maintain profits. Profits served as a personal reward for efficient transactions. The idea of capitalism got extensive treatment in the intellectual writings of several philosophers. Here a reference is made to Adam Smith, Max Weber and Karl Marx.One of the earliest and most articulate exponents of this new economic system was Adam Smith (1723-1790), a Scottish economist and moral philosopher. Smith championed the idea that laissez-faire economics. To him laissez faire would benefit its practitioners while also promoting society’s general welfare. His best known work, An Inquiry into the Nature and Causes of the Wealth of Nations, was published in 1776 and remains today a guiding book for the capitalist philosophy. The Wealth of Nations sets forth the idea that the wealth of a nation is to be measured in the number and variety of consumable goods it is able to produce for sale or trade. Free trade with no government interference is thus vital to the prosperity of a country because the demand

brought about by free trade will result in the production of more goods. The unfettered production and sale of consumable goods is done in response to the needs of the populace. In fulfilling these needs, the capitalist profits and society prospers. Intrinsic to capitalism is the marketplace. In fact the noted social theorist Max Weber (1864-1920) defined capitalism as an economic activity aligned toward a market and defined capitalists as those profiting from market exchanges and agreements. The marketplace is of course a concept rather than a physical reality. It is a situation in which buyers and sellers come together for the exchange of goods, labour, and capital In the mid-1900s, sociologist Karl Marx coined the term “capitalism” which he implies to be any private ownership of property or enterprise. Today economists define capitalism as an economic system based on private ownership of the means of production and distribution of goods, characterized by free competitive market and motivated by maximizing profit. During the 18th century, it designated productive capital. Karl Marx, the German philosopher and radical economist suggested that “capital” and “mode of production” were interchangeable terms. Another characteristic of capitalism according to Marx is its exploitation of the surplus value of labour. During the period of industrial expansion in Europe and during the fag end of colonial domination, capitalism was taken as a foundational model of development and it started getting popularized as model of development. Finally, in the period following globalization, capitalist model of development is emerging as a dominant development worldwide. There is the harmonization of economies due to the opening of borders, deregulations and market expansions. There is the hybridization of the development models followed by the countries formerly following the socialist model of development and the third world countries trying with their own innovative model of development. Thus homogenous capitalist model of development is now followed throughout the world.

3. Types of Capitalist model of Development

Over the period of its evolution, the capitalist model of development has taken different forms. Though the ideology remains almost the same, there is a little variation in practice among them. These models are:

1. The agrarian capitalist model

2. Mercantile capitalist model

3. The industrial capitalist model

4. The post globalization neoliberal model

Mercantile capitalist model

 

      

 

 

The post globalization neoliberal model

Types of Capitalist model of Development

The agrarian capitalist model

The industrial capitalist model

 

 

 

 

 

 

 

 

1.The Agrarian capitalist model:

The agrarian capitalist model of development had its origin in the 16th century England. It was established with the emergence of large estate system in England with the concentration of large acres of lands with few landlords. Under this system, workers were increasingly being employed as part of a broader and expanding money economy. The system put pressure on both the landlords and the tenants to increase the productivity of the agriculture to make profit. The landlords encouraged the laborers to try out better methods, and the tenants were also given incentive to improve their methods, in order to flourish in an increasingly competitive labour market. The stagnant system of custom and feudal obligations was in a process of evaporation. Market forces were the driving forces for production. 2. Mercantile Capitalist Model of Development:

This model of capitalist development took place between16th to18th centuries. The age of discovery, geographic explorations, and discovery of sea routes contributed significantly to the development of this type of capitalist model. Mercantilism was a system of trade for profit, although commodities were still largely produced by non-capitalist production methods. This type of capitalist model is often said to be the founder of modern capitalist model of development and laid the foundation of colonialism.

3. The Industrial Capitalist Model:

 During the Industrial Revolution, the industrialists replaced the merchants as the dominant and deciding group in the capitalist system. It affected the decline of the traditional handicraft skills of artisans, guilds. During this period, the surplus generated by the rise of commercial agriculture encouraged increased mechanization of agriculture. Industrial capitalism marked the development of the factory system of manufacturing, characterized by a complex division of labour between and within work process and the routine of work tasks; and finally established the global domination of the capitalist mode of production. During this system of capitalist development, there was mass scale machine based production. Market was becoming expanded and diversified.

4.The post globalization capitalist model of development: The post

globalization period stressed on a neoliberal economy and private ownership started gaining momentum. There was the withering away of the state. Market started becoming the guiding and governing actor. Due to the opening of the borders, deregulations, market was getting expanded. This brought new zeal to produce better quality and higher quantity of products and to diversify production. But, this led to the development of a temperament to maximize profit and capital accumulation was triggered. This established the post globalization capitalist model. This became an avowed aim of both the socialist as well as the capitalist countries. The model was also emulated by the third world economies while shaping their course of development.

Features of the Capitalist Model of development

The capitalist model of development has got its typical features which are discussed below.

(i) Private Property:

The institution of private property lies at the basis of modern capitalist model of economic development. It is the guiding principle of capitalism. In capitalism every person has the right to earn and maintain property. The right to property is considered as a basic human right. Private property without state regulation is encouraged to motivate people for production and profit.

(ii) Large Scale Production:

It is another important feature of capitalist model of development. Capitalism arose as a result of industrial revolution which made large scale production possible. Under the capitalist model of development, capital is the chief driver and deciding factor of change and development. It insists upon mass scale machine based production to capture the market. The installation of gigantic plants and division of labour are adopted as the foundational principle to increase production. More production means wider use of capital which leads to more profits. Further, large scale production is expected to increase the number of consumers and the prices will be lowered. This would generate more profit, the ultimate aim of capitalist model of development.

(iii)Profit Motive: Capitalist model of development is tuned according to the philosophy of capitalism. According to Marx, capitalism cannot exist in the absence of institution of profit. Property and profit are the lubricating principles of the capitalist model of development. Without the individual’s freedom to own private property and motive to earn profit, there cannot be the process of production. When the system of production is driven by both property and profit, it generates a drive to amass them. This not only increases the quantum, but also the quality of production and galvanizes the process of development. The capitalists invest money and out of investments earn profit. Production under capitalist model of development is profit-oriented. Sometimes under the capitalist model of development so much significance is attached to profit that, growth becomes the end of development, but not people’s welfare.

(iv)Competition:

Competition is one of the inevitable principles of a capitalist model of development. The capitalist model of development intends to bring development by encouraging competition. Competition is encouraged to maintain the quality, introduce innovations in production which ultimately contribute for development. There is a sharp growth due to rising competition which subsequently increases production quality and enriches the market by competitive prices, better alternatives and quality products.

(v) Price Mechanism: Under the capitalist model of development, price of products are in a fluctuating situation. Demand and supply positions in the market determine the price. There is almost no regulation from the state side. Thus, the people become the ultimate deciding authority for price determination. With increasing demand, the price increases and this generates profit and leads to capital formation. Capital formation is the foundation of economic growth and development.

(vi)Wage Distribution:

In capitalist model of development, the wage distribution is not equal. Wages are determined on the basis of the skill and productive capacity of the workers. There is heavy competition among the laborers and they try to improve their skill, knowledge and capacity to deliver the best. Thus, under this model of development, there is not only competition, but a requirement for the human factors of production to improve their capital. Both human capital and knowledge capital flourish under capitalist model of development which spearheads the process of economic development

 (vii) Money and Credit: Credit fuels the capitalist model of development. In the capitalist model of development, the institution of credit plays an important role. The capitalist producers get money on loan and develop their business. Thus, despite a lack of capital, the capitalist increases his property on the basis of credit.

(viii) Business Organization:

Capitalist model of development is marked by vast business structures. The capital of numerous shareholders is pooled and an industrial house is set up. Business organizations are the hall mark of modern day economic development. The role of the state is very limited under the capitalist model of development. The business organizations become the development designers and drivers.

(ix) Market Economy:

Under the capitalist model of development, there is no governmental control over the forces of production, distribution and exchange. It is controlled by the forces operating in the market. There is no price control or regulated distribution by the government. The economy operates freely under the law of demand and supply. The capitalist economy is a liberalized or market economy. Fluctuations in the market bring changes and stable market ensures development.

Positive Outcomes of Capitalist Model of Development

Capitalist model of development reaps its own positive outcomes. The most spectacular among them are:

The governmental interference is minimized under this model of development. So, corruption, lack of a self-interest and poor circulation of information within the market are prevented allowing freedom to individual enterprise and allowing individuals to exercise their choice, decision and reap their results.

            This not only encourages individuals, but also seems to be highly yielding for the country’s economy. This also reduces the burdens of the state and makes the people conscious participants in the process of development.

 A sense of ownership develops among the people which make development healthier.

Capitalist model of development is market driven in character. It honors individual’s choice both in commodity purchase and employment opportunities.

 It allows resources to be distributed according to consumer choice rearing the market to be more productive and consumer friendly in character. Capitalist model of development promotes economic efficiency.

A capitalist model of economy is efficient as it yields high levels of GDP, innovation is encouraged, and one is allowed to exercise freedom of choice. It is positive for economic growth.

Capitalist model of development increases productivity. It solicits rapid innovations in designs, in technology, in products. So it is always forward looking and development boosting in nature.

Under the capitalist model of development, social mobility is better. It pushes individuals to work harder in the interest of self-preservation to achieve more.

Profit increase within the economy and changes the personal identity of the

Individual.

The society becomes not only economically prosperous, but socially

Progressive. The trickling down effect is felt on the marginalized population

too.

Negative Outcomes of Capitalist Model of Development

The capitalist model of economic development however lucrative it may be suffers from certain inherent pitfalls. The worst among them are:

Capitalist economic development always favors the rich and is alleged to be anti-poor. It invariably leads to inequalities in the distribution of wealth and income which negates healthy development to a society.

In a capitalist society, markets dominate the economy. The owners of property gain monopoly power over consumers and workers.

The role of the state is highly limited. So, capitalist model of development leads to mal development and lop sided development which are identified as development maladies by development theorists.

It restricts participation of majority in the decision making process. Only the wealthy dominate the decision making process. This challenges development.

A society based on a capitalist model of development is driven by the profit motives. It tries to maximize economic income in the short term. There is ruthless production and industrial production is emphasized to increase the quantity of production. It has a huge cost on environment in the long-term.

Instead of increasing the quality of life it denounces it.

 It is against the norms of sustainable development.

Under capitalist model of development income is distributed in accordance to the skills and qualifications an individual possesses. Those possessing the skills, qualifications as well as capital resources are highly valued by the market and are entitled to receive high incomes, whereas lower incomes are allocated to persons without such skills and resources.

 Thus there is wide spread income inequality in the society which is not a healthy sign for development. Economic growth is liable to be slow in a capitalist economy. Economic growth can be measured as the increase in real GDP. Productivity is the key component, i.e. producing more at a lesser operational cost. There are fluctuations in the business cycle under a capitalist model of development.

      This makes economic growth unstable and recession creeps in.Capitalist model of development remains blind to the ideals of distributive justice and human rights and as such defy the principles of balanced development.

Thus, the capitalist model of development becomes growth centric, materialistic and often ignores people centric development and quality of life which have appeared as the new indices of development.

Present status of the Capitalist Model of Development

Irrespective of its vices, the capitalist model of development is gaining currency throughout the world following the period of globalization. In its attempt to homogenize the model of development the International Development Agencies are insisting on this type of development model. The failure oftheSocialist model of development has strengthened it as the reigning development paradigm in the world. The East Asia miracle has added further positive note to this model of development. Gradually it is turning to be the determinant, dominant and driving model of economic development.