OBSTACLES OR CONSTRAINTS ON THE PATH TO ECONOMIC DEVELOPMENT IN DEVELOPING COUNTRIES
At present there are about 6.2 billion people living in the world. Out of these 75% (4,2 billion) persons are living in developing countries. The per capita income in these countries is estimated at around $ 600 per year whereas the per capital incomes in USA is estimated at around $ 41400 per year and in Germany $ 30120 per year. In developing countries it ranges from $ 600 to $ 1000 per year. Why the economic growth in developing countries is low? What stops these countries from developing economically? The answer to these questions is not simple. However, the main obstacles which the underdeveloped countries, including Pakistan are generally facing for promoting development can be identified as under.
Obstacles or constraints to economic development
1. Political Instability. In most of the developing countries, the governments are not stable. A new government comes into power overnight, either through coup defeat or army take over. The new government introduces a new system of rules for the operation of business which causes frustration and discontentment among the people. How does political instability affect growth is discussed in brief below.
(i) Influence of political instability. When there is lack of political stability in the country, it directly affects economic growth. It closes off sources of internal and external investments.
(ii) The external investors. The external investors do not invest in a country where there is political instability. The flow of investment in countries where there is civil war coups, army take over etc. is either negligible or zero.
(iii) Internal investment. Political instability also limits internal investment. The wealthy class in developing countries have enough income to spare. They can invest their savings in profitable projects. Generally, they avoid investing founds in their own country for fear of nationalization of their projects, large scale interference by militant trade unions, harsh and exploitative attitude of the various govt. agencies involved in the setting and operation of the projects etc. The well off people including the politicians in developing countries prefer to take their money outside the country or channel their investment out of their own country. The developing countries are therefore, deprived of investment funds which adversely affect economic growth.
(iv) Internal disorder. The defeated political parties, the rich landlords, the various ethnic groups etc. who are not able to capture power take up and support anti govt. activities by taking out processions, making bomb blasts, killing the innocent people by indiscriminate firing etc. All these activities result in creating political instability in the country and as such adversely affect economic development.
2. Corruption. Corruption is another obstacle to economic development in developing countries. The bribery or gift of money has becomes institutionalized. The govt. officials think bribery is built into their pay structure. The businessmen, if they are to stay in business, have to pay bribes to different departments of the govt. The employees give gift of money to their superiors. When bribery is an acceptable practice, it then becomes difficult for businessmen and industrialists to take part, stay and grow in business. Bribery thus limits economic development. It is one of the major obstacles to economic growth in Pakistan also.
3. Lack of investment. For an economy to grow, it must have investment. The funds for investment can come either from domestic savings or from abroad. Both these sources of investment funds have their own peculiar problems which in brief are discussed as under.
(i) Investment funding by domestic savings. For economic growth we must give up unnecessary expenditure so that the economy can achieve even greater consumption in the future. In developing countries, the people with per capita incomes of as low as $ 600 per year hardly meet the bare necessities of life. They have little to put into savings. The middle class persons do save for their old age, marriage of children etc and put their money in saving banks. The rich people prefer to invest their savings abroad. The overall result is that domestic savings in most of the developing countries is as low around 13% of GDP; whereas it should not be less than 25% of GDP to promote growth.
(ii) Investment funding from abroad. Another way to generate funds for investment is to obtain (a) Foreign loans or (b) foreign private investment or (c) both. The foreign loans or the foreign private investment has their own peculiar problems.
(a) Foreign loans. For financing development of the less developed countries (LDC's) the flow of capital comes from (i) individual national govts (ii) multinational assistance organizations and (iii) multinational companies. (i) The individual national govts give financial assistance to LDC's mainly for their own economic and political interests. So long as the developing country is protecting the interest of the donor countries, the flow of capital counties. It is stopped or very much slowed down when the recipient country is of no benefit to them (America stopped financial assistance to Pakistan after the Afghan War was over). A developing country, therefore, cannot rely on such foreign aid for economic growth. (ii) Same is the position now of the multinational assistance organizations like the Word Bank and international Monetary Fund (lMF) These organizations which are mainly funded by the developed capitalists countries of the world are also using these organizations to promote their own economic and political interests. All the developing countries including Pakistan are now knee deep in bebts of these organizations. The problem of debt servicing, rescheduling has adversely affected economic growth of the poor countries. (iii) As regards the flow of capital from multinational companies, they make investment in those countries where infrastructure facilities such as transportation, power, cheap labour force, raw material etc. are available. As these companies do not generally help in establishing infrastructure in poor countries, therefore they do not contribute much to economic growth of the LDC's. The problem of lack pf proper investment, therefore, remains in developing countries.
4. Right Education. The provision of right education to the citizens of a country is a necessary component of any successful development strategy. In developing countries, the educational system is defective. There is mush-room growth of English medium schools in cities. The syllabi taught to the students at each level of education reflects the Western culture and not the culture and requirements of their own country. The result is that the students holding degrees remain jobless which creates discontment and frustration among them. The brilliant students of the developing countries go outside the country. The outdated syllabi of various classes, the mass failure of the students in various board and university examinations, outflow of the brightest students from less developed countries to the developed countries (Brain drain) create gaps in business, administrative circles and become obstacles to economic growth.
5. Over Population. In developed countries of the world, only 2 to 4% of the population is engaged in agriculture and produces enough food and fibre to meet the requirements of their citizens and also earn foreign exchange by exporting surplus goods. Through technological progress, they have avoided the fate predicted by Thomas Malthus. The developing countries, on the other hand, are struggling very hard to avoid the Malthusian fate. In these countries about 50% to 60% of the population is engaged in agriculture. The diminishing marginal productivity has exceeded technological change. The result is a falling output per person and a slow economic growth. The rapid population growth in developing countries is a major obstacle to economic growth Effective measures shall have to be taken to reduce population growth falling which development of these countries will remain a dream.
6. Inefficient Human Capital. In addition to physical capital, human capital is also limited in developing countries. The quality of population as measured by its skills, education and health is far below the standard in developed countries of the world. Deceases, starvation, glut of unskilled workers stand in the way of economic development of the developing countries of the world.
7. Dual Economy. In developing countries, there are two types of economies which are generally functioning. These economies are somewhat unrelated to each other. One economy is the market economy and the other is a traditional non market or subsistence economy. The life stile of the people, social customs, the methods of production etc. differ very much from each other in these two different economies. The occurrence of dualism stand in the way of optimum utilization of resources. Thus dualism is also considered an important obstacle to economic growth.
8. Demonstration effect. Demonstration effect on consumption level is also a major constraint on the path of economic development of under developed countries. The international demonstration effect increases propensity to consume of the people and reduces the rate of saving and investment in the countries.
9. Inadequate infrastructure facilities. The under developed countries suffer from lack of basic infrastructure such as transport and communication system, power supply, banking and other financial facilities. The provision of inadequate infrastructure facilities stand in the way of economic development of the poor countries.
10. Inappropriate Social Structure. Inappropriate social system such as outdated religious beliefs, caste system, irrational attitude toward family planning etc. is also a constraint on the economic development of developing countries.
11. Market imperfections. Market imperfections in the form of immobility of factors of production, ignorance of market conditions, price rigidity etc. are serious obstacles in the path of economic development of the backward countries.
Summing up we can say that economic development is a complete process. It is directly influenced by economic, social, cultural, administrative and political factors. Ragnar Nurkse has rightly said, ''Economic development has much to do with human endowments, social attitudes, political conditions and historical accidents. Capital is necessary but not a sufficient condition of progress.''