This is going to come off as a very different post for the ‘regular’ readers of my blog. So, here comes the warning: DON’T PANIC. Don’t be alarmed. It happens. Take a deep breath. Now relax. Read on…
This post has been sparked off over the recent debate about India actually needing to import food grains and stuff about inflation and so on. I mean, we had a self-sustaining economy as far as I know. In fact, we used to export food grains all over the world, you know. And now, boom! Major controversy sparked by some dumb comments by politicians in the West. What’s up? (See the last 2 links in the list of references at the end of this post.)
Where have the perceptions and ideas gone wrong? Have we (economists) got it all wrong, after all?
Now I am not going to get into what is happening with the import of food grains and the global inflation and the recession in the West. What I am going to get into is the basis of all this crap – which lies in the perceptions of Economic Growth as defined by Economists the world over. What does a country have to be doing to be classified as ‘textbook’ ‘Developed’ or ‘Developing’ or even ‘Under-Developed’?
(See the Wikipedia article referenced below for more info on Development Economics)
Without confusing the reader more, I shall try to simplify the concepts.
As per what we studied, any economy primarily begins its journey of Development by starting out as an Under-Developed country. The basis of this economy is primarily agrarian (agriculture based). The economy is sustained only by what is produced in terms of agricultural products. These food grains, crops etc are used to create an import-export situation with other countries, whereby other finished goods and production tools are introduced into the country.
Soon enough, the economy of this country begins to develop and grow, and some parts of the finished goods and production tools begin to be manufactured within the country itself. This process continues till the economy begins to produce all its required finished goods and production tools (machinery etc) within the country itself. It then has no need to import these items from other countries. It now transitions into an industrial economy, having started out as an agrarian economy. In short, more people are now working in the industrial sector compared to the agricultural sector.
At this stage, the industrial sector is now importing various service related functions from other countries. But soon enough, the industrial economy begins to provide some basic service functions and it grows well enough to provide all the service functions from within the country itself. This country has now become a ‘Developed’ Country.
So what is wrong with this concept?
According to me: Everything!
Because in simple terms, if all the farmers in a country begin to leave farming altogether, then who is going to grow the crops? And if this becomes a global phenomenon, then we are looking at (possible) starvation – because there won’t be anything to eat at all.
OK. Now, all the farmers leaving farming altogether is an extreme view. But makes one think, doesn’t it?
Even if a small percentage of the farmers leave farming and get into the industrial sector or even the service sector, the Domino Effect will be rippled around the globe.
This means, those many less crops are being grown. The land which was initially being used to grow crops is now used for building factories, malls, offices and what have you. Less crops grown. Throw in the fact that education is reaching everywhere. Which is not a bad thing. But the end result – sons and daughters of farmers are now becoming engineers, lawyers and doctors. Which is good, but it translates to the fact that there will be no one left to grow those many crops which his / her dad grew.
Now if you imagine this on a global scope (or in a macro view) you will see the point.
The basis of deciding the level of development of any economy is wrong. Moving away from agriculture to an industrial and then to a service based economy does not constitute becoming a developed country.
In my view, an economy becomes ‘developed’ when it learns to find a balance between all these three aspects – because all these are equally necessary.
Let me know what you think.