Economic development
Economic development is a term that generally refers to the sustained, concerted effort of policymakers and community to promote the standard of living and economic health in a specific area. Such effort can involve multiple areas including development of human capital, critical infrastructure, regional competitiveness, environmental sustainability, social inclusion, health, safety, literacy, and other initiatives. Economic development differs from economic growth. Whereas economic development is a policy intervention endeavor with aims of economic and social well-being of people, economic growth is a phenomenon of market productivity and rise in GDP. Consequently, as economist Amartya Sen points out: “economic growth is one aspect of the process of economic development.” [1]
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[edit] Term
The scope of economic development includes the process and policies by which a nation improves the economic, political, and social well-being of its people.[2]
The University of Iowa's Center for International Finance and Development states that:
'Economic development' is a term that economists, politicians, and others have used frequently in the 20th century. The concept, however, has been in existence in the West for centuries. Modernization, Westernization, and especially Industrialization are other terms people have used when discussing economic development. Although no one is sure when the concept originated, most people agree that development is closely bound up with the evolution of capitalism and the demise of feudalism.[3]
Mansell and Wehn also state that economic development has been understood since the World War II to involve economic growth, namely the increases in per capita income, and attainment of a standard of living equivalent to that of industrialized countries.[4][5] Economy development can also be considered as a static theory that documents the state of economy at a certain time. According to Schumpeter (2003), the changes in this equilibrium state to document in economic theory can only be caused by intervening factors coming from the outside.[6]
[edit] Social Science Research
The study of economic development by social scientists encompasses theories of industrial/economic modernization causes, the historical phases or waves of economic development, and the organizational aspects of enterprise development in modern societies. Economic development embraces sociological research on a variety of topics including: business organization, enterprise development, evolution of markets and management, and cross-national comparisons of industrial organization patterns. One example inquiry would be: "Why are levels of direct foreign investment and labour productivity significantly higher in some countries than in others?"[7]
In economics, the study of economic development was borne out of an extension to traditional economics that focused entirely on national product, or the aggregate output of goods and services. Economic development was concerned in the expansion of people’s entitlements and their corresponding capabilities, morbidity, nourishment, literacy, education, and other socio-economic indicators. Borne out of the backdrop of Keynesian, advocating government intervention, and neoclassical economics, stressing reduced intervention, with rise of high-growth countries (Singapore, South Korea, Hong Kong) and planned governments (Argentina, Chile, Sudan, Uganda), economic development, more generally development economics, emerged amidst these mid-20th century theoretical interpretations of how economies prosper.[1] Also, economist Albert O. Hirschman, a major contributor to development economics, asserted that economic development grew to concentrate on the poor regions of the world, primarily in Africa, Asia and Latin America yet on the outpouring of fundamental ideas and models.[8]
[edit] Growth and Development
Dependency theorists argue that poor countries have sometimes experienced economic growth with little or no economic development initiatives; for instance, in cases where they have functioned mainly as resource-providers to wealthy industrialized countries. There is an opposing argument, however, that growth causes development because some of the increase in income gets spent on human development such as education and health.
According to Ranis et al. (2000), economic growth and human development is a two-way relationship. Moreover, the first chain consists of economic growth benefiting human development with GNP. Specifically, GNP increases human development by expenditure from families, government and organizations such as NGOs. With the rise in economic growth, families and individuals will likely increase expenditures with heightened incomes, which in turn leads to growth in human development. Further, with the increased consumption, health and education grow, also contributing to economic growth. [9]
In addition to increasing private incomes, economic growth also generate additional resources that can be used to improve social services (such as healthcare, safe drinking water, etc.). By generating additional resources for social services, unequal income distribution will be mitigated as such social services are distributed equally across each community, thereby benefiting each individual. Thus, increasing living standards for the public.[10]
Concisely, the relationship between human development and economic development can be explained in three ways. First, increase in average income leads to improvement in health and nutrition (known as Capability Expansion through Economic Growth). Second, it is believed that social outcomes can only be improved by reducing income poverty (known as Capability Expansion through Poverty Reduction). Lastly, social outcomes can also be improved with essential services such as education, healthcare, and clean drinking water (known as Capability Expansion through Social Services).[11]
[edit] Goals
In the United States, Project Socrates outlined competitiveness as the driving factor for successful economic development in government and industry. By addressing technology directly, to meet customer needs, competitiveness was fostered in the surrounding environment and resulted in greater economic performance and sustained growth. [12]
Economic development typically involves improvements in a variety of indicators such as literacy rates, life expectancy, and poverty rates. GDP does not take into account other aspects such as leisure time, environmental quality, freedom, or social justice; alternative measures of economic well-being have been proposed (more). Essentially, a country's economic development is related to its human development, which encompasses, among other things, health and education. These factors are, however, closely related to economic growth so that development and growth often go together.[13]
[edit] Regional policy
In its broadest sense, policies of economic development encompass three major areas:
- Governments undertaking to meet broad economic objectives such as price stability, high employment, and sustainable growth. Such efforts include monetary and fiscal policies, regulation of financial institutions, trade, and tax policies.
- Programs that provide infrastructure and services such as highways, parks, affordable housing, crime prevention, and K–12 education.
- Job creation and retention through specific efforts in business finance, marketing, neighborhood development, workforce development, small business development, business retention and expansion, technology transfer, and real estate development. This third category is a primary focus of economic development professionals.
One growing understanding in economic development is the promotion of regional clusters and a thriving metropolitan economy. In today’s global landscape, location is vitally important and becomes a key in competitive advantage. The cluster of similar industries, specialties, skilled laborforce, and technologies help lower transaction costs and foster a growing environment of commerce, entrepreneurship, exports, and other market productive activities. Additionally, local services such as restaurants, stores, and trades experience growth as well, helping to develop a vibrant region for the wider community.[14] Even the U.S.’s Economic Development Administration recognizes the importance of clusters with their continued Regional Innovation Clusters initiative which aims to “create jobs and grow the economy” through the geographic concentrations of industries and firms in their need for talent, technology, and infrastructure. [15]
[edit] Organization
Economic development has evolved into a professional industry of highly specialized practitioners. The practitioners have two key roles: one is to provide leadership in policy-making, and the other is to administer policy, programs, and projects. Economic development practitioners generally work in public offices on the state, regional, or municipal level, or in public-private partnerships organizations that may be partially funded by local, regional, state, or federal tax money. These economic development organizations (EDO's) function as individual entities and in some cases as departments of local governments. Their role is to seek out new economic opportunities and retain their existing business wealth.
There are numerous other organizations whose primary function is not economic development work in partnership with economic developers. They include the news media, foundations, utilities, schools, health care providers, faith-based organizations, and colleges, universities, and other education or research institutions.
[edit] International Economic Development Council
With more than 20,000 professional economic developers employed world wide in this highly specialized industry, the International Economic Development Council (IEDC) headquartered in Washington, D.C. is a non-profit organization dedicated to helping economic developers do their job more effectively and raising the profile of the profession. With over 4,500 members across the US and internationally, serving exclusively the economic development community, IEDC membership represents the entire range of the profession ranging from regional, state, local, rural, urban, and international economic development organizations, as well as chambers of commerce, technology development agencies, utility companies, educational institutions, consultants and redevelopment authorities. Many individual states also have associations comprising economic development professionals, who work closely with IEDC.[16]
[edit] Community Competition
One unintended consequence of economic development is the intense competition between communities, states, and nations for new economic development projects in today's globalized world. With the struggle to attract and retain business, competition is further intensified by the use of many variations of economic incentives to the potential business such as: tax incentives, investment capital, donated land, and many others. IEDC places significant attention on the various activities undertaken by economic development organizations to help them compete and sustain vibrant communities.
Additionally, the use of community profiling tools and database templates to measure community assets versus other communities is also an important aspect of economic development. Job creation, economic output, and increase in taxable basis are the most common measurement tools. When considering measurement, too much emphasis has been placed on economic developers for "not creating jobs." However, the reality is that economic developers do not typically create jobs, but facilitate the process for existing businesses and start-ups to do so. Therefore, the economic developer must make sure that there are sufficient economic development programs in place to assist the businesses achieve their goals. Those types of programs are usually policy-created and can be local, regional, statewide and national in nature.
[edit] See also
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- Business cluster
- Constitutional economics
- Development economics
- Economic growth
- FORGE Program
- Infrastructure
- Metropolitan economy
- Private Sector Development
- Public capital
[edit] References
- ^ a b Sen, A. (1983). Development: Which Way Now? Economic Journal, Vol. 93 Issue 372. Pp.745-762.
- ^ O'Sullivan, A. and Sheffrin, S. M. (2003). Economics: Principles in action. Pearson Prentice Hall, Upper Saddle River, New Jersey. 471pgs.
- ^ R. Conteras, "How the Concept of Development Got Started" University of Iowa Center for International Finance and Development E-Book [1]
- ^ http://cbdd.wsu.edu/kewlcontent/cdoutput/TR501/page59.htm
- ^ Mansell, R & and Wehn, U. 1998. Knowledge Societies: Information Technology for Sustainable Development. New York: Oxford University Press.
- ^ Schumpeter, J. & Backhaus, U., 2003. The Theory of Economic Development. In Joseph Alois Schumpeter. pp. 61-116. Available at: http://dx.doi.org/10.1007/0-306-48082-4_3 [Accessed October 19, 2009].
- ^ Lewis F. Abbott, Theories Of Industrial Modernization & Enterprise Development: A Review, ISR/Google Books, revised 2nd edition 2003, pages 1–2. ISBN 978-0-906321-26-3.[2]
- ^ Hirschman, A. O. (1981). The Rise and Decline of Development Economics. Essays in Trespassing: Economics to Politics to Beyond. Pp. 1-24
- ^ Ranis, G., Stewart, F. & Ramirez, A., 2000. Economic Growth and Human Development. World Development, 28(2), 197-219.
- ^ Anand, S. & Sen, A., 2000. Human Development and Economic Sustainability. World Development, 28(12), 2029-2049.
- ^ Anand, S. & Ravallion, M., 1993. Human Development in Poor Countries: On the Role of Private Incomes and Public Services. The Journal of Economic Perspectives, 7(1), 133-150.
- ^ Smith, Esther (1988-05-05). "DoD Unveils Competitive Tool: Project Socrates Offers Valuable Analysis". Washington Technology.
- ^ Hanushek, Eric A., and Ludger Woessmann. 2008. "The role of cognitive skills in economic development." Journal of Economic Literature, 46, no. 3 (September): 607-668.
- ^ Porter, M. E. (1998). Clusters and the New Economics of Competition. Harvard Business Review. Pp. 77-90.
- ^ http://www.eda.gov/AboutEDA/RIC/
- ^ http://www.iedconline.org
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