Leading issues in development economics
In 1967, I first came across the book, "Leading Issues in Economic Development", by Gerald M. Meier (1923-2011) of Stanford University. I learned a lot from this book and even to this day I apply adaptations to some of his identities to cloud-based tools to complete global constraints analyses for Sustainable Development Goals to establish national gaps and needs in low income countries.
Elsewhere Meier wrote2, "An economist is both a trustee of the poor and a guardian of rationality." He remained concerned about the distance between them. "As trustee for the poor, the economist respects the values of altruism and economic justice. As guardian of rationality, the economist respects self-interest and efficiency. But does not the future course of development depend in large part on the capacity to combine the seemingly incompatible values of the trustee and the guardian? Can the professional developer combine a warm heart with a cool head?"
Lately, it has become very apparent that the types of issues addressed in managing national resources in economic development policies to reduce poverty and initiate growth in low income countries have become increasingly relevant to the resolution of the evolution of serious issues facing the constituents of the United Kingdom.
The problems facing this country relate to serious systemic structural economic constraints that are the result of policy decisions based on the theory and practice of Keynesianism and monetarism.
These make up the leading issues, including poverty, of development economics of the United Kingdom.
Gerald M. Meier
Gerald Meier's appeal, that development economists need to uphold the ethic of combining human compassion with rational objectivity has not found traction in the management of economies. Development economics as a subject has been pushed from the foreground by macroeconomic policies based on notions of "free market economics". The result has been, in many developed nations, the development of a constitutional dualism between wage earners an asset holders. A large proportion of the wage earners see their real incomes and standards of living declining as they travel in the direction of increasing poverty.
It is increasingly apparent that development economics needs to be dragged back to centre stage to introduce some serious analysis to diagnose what has gone wrong and is continuing to go wrong, beyond the rhetoric of "market conditions". The reason why this is of importance is that development economics is not committed to any particular economic school of thought because it is more concerned with identifying practical applied solutions across a wide range of econonomies with different structures. Development economics is concerned with identifying and measuring gaps and needs and the identification of the critical constraints causing the gaps in provisions observed. Development economics is concerned with the rational design of feasible solutions
. I use the word design
because introducing "solutions" that "work" elsewhere, does not always result in success because of the different environmental, population structures, income, educational and resource profiles in each country.
The problem with our experience with Keynesianism and monetarism over the last 85 years is that they have shaped economies and societies in ways that now demand other approaches to correct the damage done by these mainstream policies. Most of the damage has been imposed during the last 50 years under increasing financialization and with quantitative easing exacerbating this undesirable trend.
There are many articles on this site pointing to a developmental solution in the form of RIO-Real Incomes Objective policies and I will not repeat the content here. However, below I set out a table to register the leading issues in development economics facing the United Kingdom and which cannot be solved by the continued application of the ineffective policy instruments in the Keynesian and monetarist's toolbox.
This article is a work in progress because it is being fed by an update on the large matrix comparing conventional policies with the Real Incomes Approach where the latest findings under RIO-Real Incomes Objective development are being added. Therefore the table below will be expanded by regular additions.
Leading issues facing the development economics of the United Kingdom
|Item||Issue||KM solution||Development solution|
Increasing income disparity and poverty (inability to purchase essential needs) within lower income segments of employed wage earners
Central bank policies flooding low interest funds almost directly into assets and draining supply side productive investment from productivity and wage-enhancing innovation.
The Aggregate Demand Model (ADM) assumes money volume augment demand and money circulation.
In terms of the issue in question, the developmental model, Production, Accessibility and Consumption Model (PACM) sees the relationship between accessibility of prices of domestically-produced items to paid incomes (wages) as the main source of effective demand.
Globalization has allowed the import of cheap imports on the basis of assuming consumer benefit.
The purchase of cheap imports supplant national production of equivalent products resulting in falling domestic activity investment and employment and/or declines in wage payments.
Growth in the economy eventually depends upon innovation and investment in national production systems for goods and services.
This requires a plan to invest in highly productive activities based on TARI-Time adjusted return impact
Excessive diversion of money supply into assets at expense of supply side productive economy and therefore consumers
KM has no current solution because of reliance on the erroneous Quantity Theory of Money (QTM)
The QTM is no longer a reference component for KM theory or policy analysis because it has been disproven on the basis of a 50 year track record of lack of evidence and on the basis of faulty determinant identity logic.
It was replaced by the Real Money Theory
(RMT) which exposes the reasons funds are drained from supply side ad M increases and interest rates are close to zero, precipitating the problems identified under items 1 and 2.
The rates of investment in increasingly efficient technologies has declined, lowering productivity and ability to establish competitive unit prices and therefore unable to contribute to rises in real purchasing power of paid wages for nationally produced products and services.
Financialization and decision making logic in many businesses see short term growth in financial, sometimes speculative "investment", to be less risky than corporate investment in technological projects. The market risks however are, in part, policy-induced because of depression in purchasing power of wage earners.
There is a need for policy incentives designed augment real incomes of corporate shareholders and workers by establishing real incomes as the policy objective and as a result achieving microeconomic support for policy and sustained traction.
Under RIO-Real Income Objective policies the incentive is a price performance levy reduction for reducing the price performance ratio.
Hector McNeill is the Director of SEEL-Systems Engineering Economics Lab.2 "Development Economist Gerald M. Meier Remembered"
, Graduate Schoool of Business, Stanford University, 2011.
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