“DEVELOPMENT”
A GUIDE TO FUNDAMENTAL CONCEPTS
Many models of social and economic change are based on the historical
experience of Western countries. This is true of the demographic transition
model, discussed in the population handout. This is also true of most models
of economic development.
Development refers to changes in the dominant mode of production. This is
a complex term. It means how things are made, but it also refers to what
most people do for a living. Development does not occur in a vacuum. The
mode of production is affected by a society’s culture, politics, and social
organization. It is also affected by the environment in which a society lives.
At the same time, the mode of production affects culture, politics, and social
organization – as well as the environment. (See Figure 1.)
The Development Story
Until about ten thousand years ago, the dominant mode of production was hunting and gathering. People foraged for food
from the environment. Such foraging meant that groups had to be small (fewer than a couple hundred people) and highly
mobile. When food supplies dwindled in one area, they had to quickly move to another. People had few material
possessions and there was no individual ownership of land. Most hunter-gatherer societies had no written language. Their
social organization was simple because there were few jobs. Much of the division of labor was gender based, with women
doing most of the gathering and men doing most of the hunting. Otherwise, there was almost no social stratification, in
large part because there was no land ownership and little accumulated wealth. The political structure was typically very
simple and family based. There were no cities. With small groups operating over a large territory, they had relatively little
impact on their environment compared to other economic systems. It would be a mistake to assume they have no impact on
the environment, however. For example, hunter-gatherer societies have caused the extinction of species and changed forests
to grasslands. The impact of hunter-gatherer societies on their environment was highly localized, however. This was also
true of their impact on culture, politics and social organization.
Over thousands of years, people experimented with food production. They domesticated animals such as dogs, sheep, goats,
pigs and cattle. They experimented with planting seeds. About ten thousand years ago, the series of innovations that
constituted the agricultural revolution was more or less complete and the dominant mode of production changed: most
people had become sedentary farmers -- farmers who stay in one place, planting crops and raising animals. As the dominant
mode of production changed, culture, political structure, social organization, and the environment changed as well. Social
organization and political structure became much more complex and hierarchical. Human societies began to dramatically
alter their environments through the domestication of both plants and animals. People began growing single crops in areas
that once hosted complex ecosystems, flattening land and rerouting water. As people invested more in changing the land
and in producing food, they became sedentary. The first cities emerged in this period. Sedentary societies were more
vulnerable to environmental change – even that which they caused themselves. The concept of land ownership emerged.
People owned more – farming equipment, houses, and animals. Laws were needed to protect property rights. Writing
emerged to disseminate laws. Monarchies became the dominant political structure. New words were coined to describe
newly developed ideas and things. Social organizations became much more hierarchical as more jobs emerged and
differences in wealth became more marked. Populations increased as food supply increased.
The Industrial Revolution is the second significant change in the dominant mode of production. Starting in Great Britain in
the mid-1700s, there was a dramatic shift from animate energy forms to inanimate energy forms. Increasingly, machines
driven by water, steam, coal and petroleum products took the place of human and animal labor. Changes in culture and in
political and social organization led to changes in the dominant mode of production. Changes in the dominant mode of
production subsequently led to further changes in culture, in political and social organization and in the environment. One
of the major changes was that the land itself no longer constituted the major source of wealth. Land-based political and
social organizations such as monarchies became obsolete. Laws adapted to changing conditions. With the Industrial
Revolutions, even more jobs were created and social organizations continued to be highly hierarchical. The population
rapidly increased. Cities grew. Pollution from people and machines filled the air, land and water. The impact of the mode of
production became global.
Sectors of the Economy
Reacting to the high degree of complexity in the dominant mode of production after the Industrial Revolution, economists
and other social scientists began to divide the economy into different sectors. By looking at the percentage of the workforce
employed in each sector as well as the percentage of the GDP derived from each sector, researchers can tell a lot about the
level of development of a country or region.
Primary Sector. Activity that extracts materials directly from the Earth: farming, fishing, forestry, mining, etc. We
refer to crops, fish, timber, and minerals as primary products. Primary does not automatically mean agriculture,
though in most places farming is the largest primary industry in terms of the size of the workforce.
Secondary Sector. Activity that takes primary (or secondary) products and transforms them into something new.
Manufacturing produces secondary products. This can include anything milling flour to manufacturing
automobiles. By making something new, the secondary sector adds value.
Tertiary Sector. In this sector, nothing tangible is produced. Instead, a service is provided. This includes any task
involved in sales and distribution of goods, but also jobs like teaching, government, health care, auto or appliance
repair, sacking groceries, cleaning houses and so on. This includes the informal sector of the economy – that part
of the economy that is unregulated by government. It includes the barter economy, the black-market economy,
unregulated street vendors. The informal sector also includes the illegal economy – drugs, prostitution, gambling.
Sectoral Evolution of Labor
Sectoral evolution is the backbone of development theory. In simplified terms, there are three stages of development:
Pre-Industrial (Undeveloped). Pre-industrial economies are agrarian societies where agriculture predominates. In
traditional agrarian societies, work is not mechanized but is performed primarily through human and animal
power. In a few agrarian societies, agriculture has become increasingly mechanized. This does not mean that
agriculture becomes unimportant to these countries’ economies. It does mean that social and cultural changes will
take place as fewer and fewer people are needed to support agriculture. In most cases, these people will be
absorbed into the service sector where they may work as maids, gardeners, or in the informal sector of the
economy.
Industrializing (Developing). The mechanization of agriculture does not always lead to industrialization, though it
will always decrease the percentage of people involved in agriculture. In an industrializing economy, there is a
shift of labor from agriculture to manufacturing. It is likely that in the early stages of industrialization, the
secondary sector will become quite large, but it will seldom exceed a third of the labor force. This is in part
because a large group of tertiary-sector jobs are needed to support industry. Also, in the early stages of
industrialization, agriculture may not yet be completely mechanized. Therefore, it is very rare for the secondary
sector to be the dominant sector of the labor force.
Industrialized /Post-Industrial (Developed). When a country is fully industrialized, the transformation away from
an agricultural economy is complete. Ten percent or less of the workforce is in the agricultural sector. The
secondary sector will actually begin to shrink a bit because it will become more efficient and mechanized. The
tertiary sector will be the largest. Remember that the tertiary sector represents everything from cleaning office
buildings to being the chief executive officer of a Fortune 500 company.
Urbanization
As labor shifts from the primary sector to the secondary and tertiary sectors of the economy, there is a shift of the
population from rural to urban areas. Therefore, the percent of the population that is urban is roughly equal to the
percent of the workforce employed in the secondary and tertiary sectors. The push factor in this urban-to-rural
migration is a sharp decline in agricultural jobs. The pull factor is that urban areas often have the only possibility of
finding work.
Other Economic Indicators
GNP – Gross National Product. This is the total goods and services produced for sale by the businesses of a
country no matter where they do it. So the wealth that General Motors generates in its factories in Mexico is
counted in the GNP of the United States.
GDP – Gross Domestic Product. This is the total wealth generated within the borders of a country no matter who
does it. So the wealth that General Motors generates in its factories in Mexico is counted in the GDP of Mexico.
This tells us much more about the economic activity within a given country than GNP.
PPP. Some statistical sources provide GDP and per capita GDP expressed in terms of purchasing power parity.
PPP adjusts figures by looking at the cost of a common “market basket” of goods in each country. For example, it
is more expensive to live in New York City than it is to live in Pink, Oklahoma. (No kidding, there is such a
place.) To figure out equivalent salaries in each place, we might look at some kind of cost of living adjustment.
PPP does the same thing, but compares countries to countries.
Per capita GNP or
GDP. Countries differ Luxembourg United States Ghana
in terms of population. GDP US$32.2 billion US$14.0 trillion US$34.9 billion
We cannot expect a Population 0.5 million 304 million 24 million
small country to Per Capita US$64,400 US$46,000 US$1430
compete with a large GDP
one in terms of total Source: Population Reference Bureau. 2010 Population Data Sheet. Note: Total GDP is calculated from
GDP. “Per capita” population and per capita GDP measures.
means per person. Per
capita GDP is calculated by dividing the total GDP by the population. For instance, if you looked only at the
GDPs, you would say that the United States and Ghana are wealthier than Luxembourg. However, when you
compare the per capita data, the people of Luxembourg are wealthier, on average, than the people of the United
States and far wealthier than those of Angola. In spite of their high level of wealth, the small size of Luxembourg
and its total GDP means that the country has less of an impact on the world markets than does a giant economy
like the United States.
Example
Pre-Industrial Industrializing Industrialized/Post-
Industrial
Country Mali Mexico United Kingdom
Labor Force by
Sector*
Primary 80% 20% 1%
Secondary ? 24% 19%
Tertiary ? 56% 80%
GDP Composition
by Sector*
Primary 45% 5% 2%
Secondary 17% 27% 25%
Tertiary 38% 68% 74%
Percent Urban** 30% 74% 89%
Per Capita $840 $9100 $22,800
GDP***
Distribution of
Wealth***
30.2% 39.4% 28.5%
Richest 10%
Poorest 10% 2.9% 1.6% 2.1%
The statistics for each of the three countries make them easy to classify. It will not always be so easy. Notice that the
percentage of the secondary labor force is similar for Mexico and the United Kingdom. The big difference here would be in
the percentage in the primary labor force. Industrialized/post-industrial economies will have very small primary labor
forces. They will also have relatively high per capita GDPs. Notice also that in both Mexico and the United Kingdom a
majority of the workforce is in the service sector. Don’t let that confuse you. Countries where a majority of the workforce
was employed in the secondary sector are extremely rare.
Social Equity (Distribution of
Wealth)
Share of Income Japan United States Namibia
The weakness of per capita GNP Richest 10% 21.7% 29.9% 64.5%
and GDP is that it does not tell Poorest 10% 4.8% 1.9% 0.5%
how wealth is distributed in a Ratio 5 to1 16 to 1 129 to 1
country. As an example, imagine
Per Capita GDP US$33,720 US$44,260 US$7,910
that Country A has 10 people, Source: Share of income from 2007 United Nations Development Report. Income from the Population Data
each earning $1000 per year. Sheet. All other statistics are calculated author.
The per capita income of
Country A is therefore $1000.
Country B also has 10 people. Nine earn only $100 per year while the tenth earns $1 million. The per capita income of
Country B is therefore $100,090. In which country are most people better off?
To understand how most people fare in a country’s economic system, you can look at how its wealth is distributed. Japan is
a wealthy country with one of the most equitable distributions of wealth. The richest 10% of Japan’s population control
21.7% of the country’s wealth; the poorest 10% control 4.8 %. That means that the richest 10% control five times as much
wealth as the poorest 10%. In the United States, wealth is more concentrated at the top. The richest 10% control 16 times as
much wealth as the poorest 10%. In Namibia, the gap between rich and poor is even wider than in the United States. The
wealthiest 10% control 129 times as much wealth as the poorest 10%.
The distribution of income is greatly influenced by each country’s social history. In Northern European countries the ratio
of between the share of income of the richest 10% to that of the poorest 10% is quite low because of the social safety net
many Northern European countries provide. On the other hand, countries that rely on a primary export for most of its
wealth tend to have very high concentration of wealth at the top (and a higher ratio).
Balance of Trade
Balance of trade is a pretty simple concept. You simply subtract the value of all imports from the value of exports. In this
sense, there is no global average because the world balances out at zero. However, there are big differences between
countries that have a positive balance of trade – they export more than they import – and those with a negative trade
balance. The questions to ask yourself about trade balance are 1) can the country sustain its current trading pattern and 2)
what are the causes of the current trading pattern.
Example (all facts taken from the CIA World Factbook: In 2008, the United States exported $1.291 trillion worth of goods
and services. This was the third largest export value after Germany and China. The same year, the U.S. imported $2.221
trillion worth of goods and service, making it the largest importer in the world. The 2008 trade balance was $0.930 trillion
– or $930 billion. Why was our trade deficit so large? To answer this, you need to look at not only what, how much, and
from/to whom goods and services were imported and exported.
Imports. First, let’s look at energy. In 2005, the United States was the leading importer of petroleum and natural gas in the
world. Now, let’s look at what else is imported. It is also a huge importer of consumer goods (what people like you and I
buy all the time), which, if you exclude oil, is the biggest chunk of our imports. China is our biggest import partner.
Exports. Almost half the U.S. exports are capital goods – goods used by people in other countries to run businesses. This
includes transistors, aircraft, motor vehicle parts, computers, and telecommunications equipment. This is followed by
industrial supplies, consumer products, and agricultural commodities.
So, why does the United States have such a large trade deficit? Is it sustainable?
“Women’s Work,” Subsistence Production and the Illegal Economy
Neither GNP nor GDP counts production that never enters the cash economy. Included in this category is subsistence
production – that is, products consumed by producers without being sold. In many agrarian societies, the family consumes
much of what it grows. This can be a significant part of the economy and can add substantially to the health and well being
of the population, but is never counted and figures are practically impossible to find.
Currently, subsistence production falls predominantly on women. Consequently, there is a category labeled women’s work,
which includes subsistence agriculture, securing fuel wood and water for personal use, grinding grain by hand, tending to
domesticated animals, caring for children, preparing meals, and so on. In many agrarian societies, women work 16 hours a
day to accomplish these myriad tasks, usually many more hours of work than their male counterparts do. Unpaid women’s
labor and production are not considered in the traditional economic indicators. On the other hand, if the same tasks are
performed for money they are considered.
The illegal economy is not counted in GNP or GDP even though it greatly affects the cash economy. Money produced from
illegal sale of drugs, from gambling, or from prostitution is not counted. This is not for any moral reasons. Rather, no one in
the illegal economy is conscientiously reporting earnings to the government. The illegal economy forms a significant part
of the economy of many countries. This would include obvious countries like Colombia, but it would also include countries
like the United States.
Mineral Resources and Wealth
Oddly enough, there is no guarantee that countries with huge mineral wealth will be wealthy. On the contrary, the countries
with the greatest mineral resources are among the poorest in the world. (Refer to the discussion of the Resource Curse in
Wikipedia.Org.)
Is it a Free Market???
As Sachs et al. explained in “The Geography of Poverty and Wealth,” free markets are essential to building national wealth.
But what constitutes a free market? Look at the discussion of Free Market at Wikipedia.org. According to economic
theory, what is a free market? What are some of the critiques leveled against the idea of a free market?
It is clear that building national wealth is a function of building personal wealth. To do that, people should be relatively
free to enter the market. What factors can limit entrance to the market? (Think big and small.)