In recent time, the
idea of economic development occupied the minds of the authorities in
governments,
especially in the
developing countries of the world. But no meaningful development can be
properly achieved
without a good
development plan. It is a common belief by economists that it is only through
proper allocation
of resources that the
developing countries can accelerate their pace of economic development.
In view, of this,
emphasis must therefore be laid on the right priorities, and planning is
essential in order to
obtain aid from
developed countries, loan from the World Bank and other development agencies.
It is quite
clear that a
government without any development plan may not be considered for aid and loan
by some
international organizations.
The approach to
development differs from country to country. While some countries feel that
development
can be easily and
better achieved through industrialization, others think that rapid development
can only
be achieved through
agriculture. Again, the role of the government in the economy is still a
controversial
issue. There is no
consensus of opinion among economists as to the extent to which governments
should be
involved in the
economy. But there is no doubt that there will be an agreement on that issue in
the future.
Economics Growth and Development (Conceptual Clarification)
Economic development
is not quite the same things as economic growth. It is, therefore, necessary to
make
a clear distinction
here.
Economic growth means
a rise in average per capital income made possible by continuing increase in
per
capital productivity
(Hagen 1975). It also means a continuing increase on an annual basis in the
production of
goods and services
which will help to raise the living standard of the people of the country as a
whole. The
growth rate is
usually expressed in percentage and it shows the percentage by which a nation’s
production
increases per year.
Substantial growth can only be achieved through planning.
Economic development
on the other hand refers to the changes in economic and social structure that
always accompany
economic growth. The changes in economic and social structure can be in form of
better
health services,
better housing condition and improvement in sanitation. It is necessary to unit
that the United
Nations International
Development Strategy for the 70s stated that the ultimate objective of
development
must be to bring
about sustained improvement in the well-being of individual and bestow benefit
to all.
It has to be emphasized
that planning is very important for of any
country. The
objectives of the planning have to be clearly known and stated.
Factors that Inhibit Rapid Economic Development in Developing Countries
Rapid economic
development in developing countries is faced with a number of obstacles. These
include the
following:
(1)
Inadequacy of Infrastructural Facilities
In order to attain a
rapid development, a developing country needs a stock of public capital goods
usually called the
infrastructure of an economy. Inadequacy of infrastructure facilities reduces
the pace
of development and
since this is the case of developing countries, the rate of development is
usually
slow.
(2)
Low Accumulation of Capital
One problem that all
under-developed countries have in common is relatively low stock of capital.
The
inadequacy of capital
within the country or from outside makes acceleration in the tempo of
development
very difficult.
(3)
Political Instability
Political instability
is another important factor inhibiting rapid economic development in many
developing
countries, especially
in West Africa. Some countries of West Africa changes government as people
change dresses. This
does not only prevent foreign investors from investing in such countries but
also
upsets the
fulfillment of development programme.
(4)
Persistent Deficit in the Balance of Payment
The continuous
deficit in the balance of payment for most developing countries makes it
difficult for
them to achieve
economic development. The money which could have been used in acquiring
materials
to promote rapid
economic development is used to offset the balance of payment deficit.
(5)
Population Problems
Public health
revolution in many developing countries has made possible a fall in death rate
and consequently
rapid population
growth as the birth rate is still high. As a result of high population, more of
the
available resources
which could be used for capital formation necessary for development are used
for
the production of
consumer goods for the growing population.
(6)
Unfavorable Cultural and Social Attitudes
Cultural and social
attitudes play an important role in motivating people to do certain kinds of
work and
accept certain
working condition. It also affects attitudes to work and land tenure system in
many West
African countries. An
example of this can be found in most countries where women are not allowed to
work outside their
homes and this will definitely reduce total production and consequently
national
income.
(7)
Lack of Entrepreneurs with Innovative Ideas
There are not
sufficient entrepreneurs with innovative ideas in most developing countries.
For rapid
economic development
to take place, there should be enough entrepreneurs with innovative ideas as
well as high level
man-power or skilled personnel.
(8) Dependence on One or Few Export Crops
Some countries depend
on one or few export crops. This makes it difficult for such countries to earn
foreign exchange
which is needed to buy equipment required in the development project. Again, if
there
is a decline in
demand for such product, the country concerned will suffer. This happened to
Nigeria
with the oil glut of
late 70s and early 80s.
Privatization of Public Enterprises
Privatization of the
public enterprises is one of the features of Nigerian economy in the 1980’s and
1990’s.
One feature of public
enterprises in the world over, but more particularly in developing countries is
inefficiency
leading to waste,
slow growth and unnecessary dependence on government support, even when the
business is a
profitable one.
As a way of improving
performance of public enterprise, countries the world over have embarked on
commercialization of
public enterprises and they have profit orientation as the main motive of these
enterprises,
As one of the
features under commercialization, government retains ownership and control but
subventions
do not continue and
the institution is allowed to pursue their objectives in their own style,
having
profit as their main
target.
Privatization which
many people advocate for is a little different from commercialization. Privatization
is a
complete take over of
public enterprises by individuals or private sector by buying them and having
the
ownership and control
power in such companies. Privatization, however, can imply commercialization
because
once an industry or
enterprise is sold to the members of the public i.e. private individuals, the
social
objectives will have
to give way to profit motive.
The Merits or Advantages of Privatization
Privatization has
numerous advantage over government ownership, and management of such
enterprises.
The advantages
include:
(i)
Efficiency
Experience has shown
that improved efficiency and effectiveness of enterprises emerge as a result of
privatization. It has
been mentioned earlier that profit is the main motive of the private sector and
in
order to achieve this
profit objective, the management of these enterprises must ensure efficiency.
(ii)
Management Capability
There is improved
management capabilities as the private sector is believed to have better
management
capability that the
public sector. Again, board of director membership will be appointed on the
basis of
competence and not on
political patronage.
(iii)
Reduction on Subvention
Reduced dependence on
the government and therefore, reduction in public expenditure is one of the
outcome of good
management resulting from privatization.
(iv)
Reduction in Waste
The private sector is
noted for employing resources only when they are needed. This will, therefore,
prevent waste from
occurring. Also over staffing will be avoided.
(v)
Quick and Efficient Decision
Bureaucracy is one of
the characteristic of civil service and public enterprise. This is not so in
the
private sector where
decision making is quick and efficient.
(vi)
Profit Retention
It is clear that
profits generated by public enterprises are usually transferred to the
government. But
with privatization,
most of these profits are retained in the organization for development.
(vii)
Management Stability / Continuity
The board of public
corporation usually changes any time. There is change of government and this
leads
to management
instability and absence of long-term corporate planning. This situation, will
change
immediately the
enterprise is privatized and board stability will prevail.
(viii)
Attention of Government to its Real Objective
Privatization will no
doubt enable government focus more on its role as sustainer of peace and
orderliness
and its supervisory
roles in the economy.
(ix)
Cash Flow Effect
It is believed that
the sale of such enterprises to the private sector will have positive cash flow
effect for
the government since
the money so realized could be reinvested on other socially desirable ventures
like
road maintenance,
electricity and water.
(x)
Flexibility
While the public
sector is guided by rigidity, bureaucracy and general order which hinders
flexibility, the
private sector is
always flexible and makes changes as the condition requires.
Problems of Privatization
The advantages of privatization
have already been made clear in the previous discussion. This does not mean
that privatization is
not with some problems. Privatization of public enterprises may have the
following problems.
(i) Unemployment
With privitsation,
such enterprises would naturally trim down their staff and use small number of
staff
more intensively.
This will no doubt lead to unemployment and we are very much aware of the
social
effect of
unemployment.
(ii)
Price Effect
It is quite clear
that prices of services provided by such privatized enterprise will rise and
this will have
substantial real
income effect. Some essential items like electricity, telephone and postal
services may
subsequently be
outside the reach of the low income earners. NEPA is a typical example today.
(iii)
Problem of Share Valuation
The actual, prices of
which the shares are to be transferred may cause a lot of problems. Again,
there
are fears that the
share may be deliberately under-valued to favor the elitist group who will be
in
position to buy them,
this indirectly transferring national wealth to few individuals through
under-pricing.
On the other hand,
there are fears that government may over-value the shares to earn more
revenues.
(iv)
Problem of Fund to Pay for the Shares
Problem may arise as
to the possibility of the availability of fund to pay for the shares. Sales of
public
enterprises may,
therefore, place the few rich in monopoly power. It may also be difficult to
ensure
equitable
distribution to the various income groups, occupational groups and the share
may be undersubscribed
for, especially if
large number of enterprises are involved.
(v)
Externality
In a situation of privatization,
it may be difficult to control externalities. Externalities here refers to
spillovers or
neighborhood effects. This also refers to the discrepancies between private and
social
costs or private and
social benefits. The key aspect of externalities is interdependence without
compensation.
Here some individuals
or firms benefit without paying anything or they cause others to have
higher costs without
compensation.
Loss
of Control
The control of public
enterprises is usually achieved through the appointment of the board members.
Under
privatization, the
control of these enterprises may be difficult as laws will have to be
introduced and there will
be problems and cost
of enforcing compliance.
Sources of Government Revenue
Revenue refers to
money which comes in from any source. It is income which comes to individuals,
group,
firms and government
on the annual basis. This chapter will look at the sources of revenue to the
government.
The sources of
revenue to any government must be a great concern to such a government whether
it
is federal, state or
local government because without adequate revenue, no government can carry out
its
programme
successfully. In the light of this, efforts should be made by the government or
its agency to
ensure that the
expected revenue in the annual budget is realized for utilization in the fiscal
year.
The government
derives its income or revenue from a number of sources. The main sources of
revenue to
the government,
especially in Nigeria include the following:
(i)
Taxation
Taxation is one of
the major sources of revenue to the Federal Government of Nigeria.
(a)
Direct Taxes: The direct taxes comprise personal income tax, corporate or
company profit tax,
capital gain tax,
death or inheritance tax, and pool tax. Actually, these are taxes that are
levied on
specific individuals
or institutions and the burden of the tax falls on the individuals or
institution
concerned. In the
1970s and 1980s, greater proportion of the government revenue came for direct
taxes.
(b)
Indirect Taxes: Government also gets its revenue from indirect taxes. The
indirect taxes include
import duty, export
duty, excise duties, purchase or sales tax. These taxes are levied on goods and
services. In other
words, they are levied on the activities of individuals and institutions and
the
burden of the taxes
can be shifted to the final consumer.
(ii)
Court Fines
Part of the
government revenue comes from court fines throughout the country. For the
Federal Government,
this comes from
Federal High court, Appeal Courts as well as Supreme Court while the states
get from the
magistrate courts, as well as state high courts. This source contributes a
little proportion of
the government
revenue in this country.
(iii)
Fees and Licenses
Other source of the
government revenue are fees and licenses. These include vehicle license fees,
liquor license fees,
postage charges, etc.
(iv)
Royalties from Mining Sector
The major source of
revenue to the Federal Government of Nigeria at this present time is royalties
from
the mining sector.
The declining of the agricultural sector of our economy and the importance of
mineral
resources in Nigerian
economy have made the mining sector to be the major source of revenue to the
Federal government.
Mining sector contributes up to 70% of total revenue of Nigeria today.
(v)
Borrowing
The government gets
part of its revenue from borrowing. This involves domestic and foreign loans by
the government. Loans
may be taken from individuals and institutions within the country by sale of
government security
by the central bank. Equally, loans can be raised from foreign government and
from world financial
institution like the World Bank and the International Monetary Fund (IMF).
Nigeria
has got a number of
loans from African Development Bank (ADB). It has to be borne in mind that
international loan
always posses a great problem to any nation because of its conditionalities.
(vi)
Grants, Aids and Gifts
The government also
gets its revenue from grants, aids and gifts from private and public spirited
individuals
and institutions
within the country as well as friends and government agencies of foreign
countries.
However, these
sources cannot be relied upon as a source of revenue as they are limited.
(vii)
Profit made by Government Corporations and Commodity Boards
Revenue also comes to
the government from profit made by government corporation and the Commodity
Board. Commodity
Boards have replaced the former Marketing Boards in this country.
The Relative Importance of the Source of Government Revenue
In the earlier
section, the major sources of government revenue were discussed.
This section look at
the relative importance of each source of revenue to the government.
(i) Indirect Taxes:
Taking Indirect Taxes as one of the sources of government revenue, we see that
in most
countries of West
Africa, Indirect Taxes for a long time have been the major source of government
revenue. The reason
for this is not far fetched. The heavy dependence on international trade has
led to
the importance of
indirect taxes as a source of revenue to the government, especially in the
1960s and
1970s. During this
period, a lot of revenue came from import duties and export duties. As the
economy
of this country was
not very developed then, most manufactured goods were imported from abroad.
Secondly, the country
depended largely on the exportation of primary products and export duties have
to be imposed on the
exports of these primary products.
(ii) Direct Taxes:
Direct Taxes only made much impact in the revenue of the country recently. With
rapid
in the last two
decades, many industries were established which
provided good jobs
for people thereby making the number of people in wage employment to increase
significantly.
Equally the number of taxable companies in the country increased tremendously
as well as
mining companies. It
is likely that direct taxes will continue to be a major source of revenue to
the
government in many
years to come. The relative importance of direct taxes as a source of revenue
in
this country in
future will depend on whether this country will actually embark on greater
industrialisation
or not. With greater
industrialisation, people’s income will increase and their tax will, as well,
increase. More
companies will also spring up thereby increasing the revenue from corporate
profit tax.
(iii) Borrowing as an
important source of revenue to government may not be seen as an ideal source of
revenue. Much money
is sometimes borrowed from other countries and world financial institutions,
but
most countries try to
avoid borrowing except when the conditionalities are bearable.
(iv) The importance
of profit made by government corporations and commodity boards as source of
revenue
depends on the recent
rate of privatization exercise in this country. If more government owned
companies are
privatilised and passed over to private individuals, less will be left for the
government
and much revenue will
no longer be realized from such companies. Again with much attention given to
agriculture as before
the era of crude oil domination, there may be hope that much revenue will
accrue
to the government
from that source.
(v) Other sources
like grants licenses and fees are not all that important because the amount of
revenue
derived from them are
relatively small. No country can, therefore rely on these sources in order to
carry out any
meaningful project in the economy.
Conclusion
Every nation strives
after development, it is an objective that most people take for granted while
economic
progress is an
essential component of development. This is because development is not purely
an economic
phenomenon ultimately
it must encompass more than the material and financial side of peoples lives.
Economic
development should
therefore be perceived as a multi-dimensional process involving the reorganization
and reorientation of
entire economic and social systems. In addition to improvements in incomes and
output,
it typically involves
radical changes in institutional social and administrative structures as well
as in popular
attitudes and
sometimes even customs and beliefs.
Economic development
has redefined in terms of the reduction or elimination of poverty inequality
and
unemployment within
the context of a growing economy. The three core value of development are life
sustenance self-esteem
and freedom representing common goals sought by all individuals and societies.
They
relate to fundamental
human needs which find their expression in almost all societies and cultures at
all times.
The major factors in
or components of economic growth in any society are:
(1) Capital
accumulation including all new investments in land and human resource.
(2) Growth in
population, growth in the labor force.
(3) Technological
progress. Professor Simon Kuznets has defined a country economic growth as a
long term
rise in capacity to
supply increasingly diverse economic goods to its population, this growing
capacity based on
advancing technology and the institutional and ideological adjustments that it
demands.
All three principal
components of this definition are of great importance.
(a) The sustained
rise in national output is a manifestation of economic growth and the ability
to
provide a wide range
of goods is a sign of economic maturity.
(b) Advancing
technology provides the basis or pre-conditions for continuous economic growth
– a
necessary but not
sufficient condition, in order to realize the potential for growth inherent in
new
technology however.
(c) Institutional
attitudinal and ideological adjustments must be made. Technological innovation
without
concomitant social
innovation is like a light bulb without electricity, the potential exists but
without the
complementary input nothing will happen.
In his exhaustive,
analysis of modern economic growth, Professor Kuznets has isolated six
characteristic
feature of the growth
process of almost every contemporary developed nation. They included two
aggregate
economic variables.:
(1) high rates of
growth of per capital output and population.
(2) high rates of
increase in total factor productivity.
- Two structural
transformation variables.
(3) high rates of
structural transformation of the economy.
(4) high rates of
social and ideological transformation.
- Two factors
affecting the international spread of growth.
(5) the propensity of
economically developed countries to reach out to the rest of the world for
markets and
raw materials.
(6) the limited
spread of this economic growth to only a third of the world’s population.
Summary
In this unit, we have
successfully attempted to identify certain common characteristics and economic
features
of developing
countries. These are classified as the factors that inhibit rapid economic
development in
developing countries.
We can classify these common characteristics into six broad categories as –
- low levels of
living.
- low levels of
productivity.
- high rate of
population growth and dependency burdens.
High and rising
levels of unemployment and under development.
- Significant
dependence on agricultural production and primary product exports.
- Dominance /
dependence in international relations.
- Economic and social
forces both internal and external are responsible for the poverty inequality
and low
productivity that characterize
most developing nations. The successful pursuit of economic and social
development will, therefore,
require not only the formulation of appropriate strategies within the third
world but also a
modification of the present international economic by system to make it more
responsive
to the needs of
developing nations.
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