VICIOUS CIRCLE OF POVERTY THEORY
Regner Nurkes was the prominent economist professor who attempted to examine problems of capital’s formation in underdeveloped countries. The theory express the circular relationship that effect both in demand and the supply side of problem of capital formation in economically backward areas.
According to Nurkes “A society is poor because it is poor”
A society with low income has both low levels of saving and low level of consumption while the low levels of consumption means not enough market to induce investment even if the capital for investment were available. This low level of investment in turn means little ability of the society to expand its productive capacity or transform the quality of the productive force as whole. This in turn/finally leads to a continuation of low incomes in the society / economy and then circle begins again.
According to Nurkse the backward countries have failed to enjoy the stimulating effects of the manufacturing industries because of limitation of the market for manufactured goods and not the weakness of foreign capitalist and their exclusive when with raw material surplus.
What is the way out of this circle 3 The answer according to nurkse to enlarge the market, Application of capital must be made to a wide range of different industries, this will lead to enlargement of the market also Nurkse emphasize the doctrine of “balanced growth”.
Nurkse in 1953 made observation that on an underdeveloped economy, characterized by “Vicious circle of poverty” the investment programme must be both massive and balanced for growth to occur.
NURKSE’S VICIOUS CIRCLE OF POVERTY
THE RELEVANCE OF NURKSE’S VICIOUS CIRCLE THEORY
While there is no/little doubt that third world countries particularly those in Africa are locked in a vicious circle of poverty, the theoretical cause of poverty /historical cause of poverty are not underlined by vicious theory.
The reality way of this theory also ignored by Nurkses theory, theory ignores the reality of under developed countries characterized by dependent economics which make it impossible to create an environment for massive investment and balanced growth.
Nurkse was however not very optimistic about the role of foreign aid in developing countries and instead emphasis on domestic saving and the role of the state as important factors for balanced growth.
However, Nurkse’s theory succeeds in indicating the extend of poverty / backwardness of the developed countries through it thrown very little on owner understanding of the causes of poverty or backwardness.
SCHUMPETER’S THEORY OF MOTIVE FORCE, PROCESS AND GOAL
Prof. J. Schumpeter in his book, capitalism, socialism and Democracy also contribute to the development debate. Schumpeter theory hinges on three aspects motive force, process and goal as sources of development.
According to Schumpeter the action of creative entrepreneurs will produce spurts of industrial progress, even though innovation originated each other time in a particular industry, the monetary effects and other circumstances were such as to promote each time a wave of new application of capital over a whole range of industries. According to Schumpeter, Innovation makes profit and may trigger off new innovation in other fields.
According to Schumpeter’s model of development, entrepreneurs provide a generating force, the process is innovative and the goal is the establishment of a position of a wealth and power for entrepreneurs.
THE RELEVANCE OF SCHUMPETER’S THEORY
The Schumpeter’s theory does not satisfy the case of the less developed countries in fully obvious, entrepreneurs in most African countries is not the man’s driving force, innovation is not the most characteristics process (indeed it hardly to exist) and private enrichment is not the dominant goals. Hence the process of innovation and technological development remain outside the development process in most African countries. The goal of private enrichment for the African has yet “take off” as enrichment of multinational cooperative becomes the goal in most African countries.
Another weakness of Schumpeter is that he said development depend on innovations but development does not depend only on innovation but on whether adequate incentives for interpreters activity exist and he neglect the role played by consumption, saving and foreign aids technology, assistance and Non – credit sources of investment in development process.
However strength of the theory is that, it tries to show that development is generated within a society by its own member and development process cannot started or sustained by outside efforts. Theory tries to show important roles played by entrepreneurship embodied in person with innovation.
HARROD – DOMAR GROWTH MODEL / THEORY
These theory developed by two economists, SIR ROY HARROD of Britain and E.V DOMAR of the U.S.A.
According to this theory, level of investment is the main determinant of economic growth and economic growth is determined by level of saving and productivity of capital. Theory also suggests no natural reason for an economy to have balanced growth.
According to this theory growth rate of gross domestic product (GDP) depends directly on National saving ratio(s) and inversely related on the National capital / output ratio (K) i.e. The more the economies save and invest, the faster they can grow but the actual rate of growth is measured by the inverse of the capital output ratio – output capital ratio.
GROWTH CONCEPT ACCORDING TO THEORY
Warranted growth – This is growth rate of output at which firms believe they have the correct amount of capital and therefore do not increase or decrease investment, given expectation of future demand
Natural rate of growth
The rate at which labor forces expands, a large labor force generally mean larger aggregate output.
Actual growth – The Actual aggregate output change.
Therefore there is no guarantee that an economy will achieve efficient output – According to theory problem arise when actual growth exceeds or falls to meet warranted growth expectations – difference is exaggerated by attempts to meet the actual demand, causing economic instability.
According to Harrods – Domar Model factor explaining/affecting growth rate are saving rate, (s) capital productivity capital depreciation (etc).
Hence increasing the saving rate, increasing the marginal product.
CLASSICAL THEORIES OF DEVELOPMENT
Classical theory is widely as the first school of economic thought its major developer includes Adam Smith, David Ricardo Thomas Malthus and John Stark Mill.
The classical school of economic development began with the publication in 1776 by Adam Smith “The wealth of a Nation” The book according to Adam Smith identified main determinant of production and growth is resources of production, the book identified main determinant of production and growth is resources of production, the book identified land, labor and capital as the three main factors of production and major contributors to a Nation’s wealth.
According to Smith the ideal economy is a self regulating market system that automatically satisfy the economic needs of the populace/population, He described market mechanism as an ‘invisible hand’ that leads all individuals, in pursuit of their own self interests to produce the greatest benefits for a society as a whole.
Then Adam Smith come with physiocrats ideas in his theory including Laissez – faire but rejected idea that only Agriculture was productive.
While Adam Smith emphasized the production of income David Ricardo focused on the nglish-swahili/distribution” target=”_blank”>distribution of income among land owners, workers, and capitalists. Record saw a conflicting objective between land owners on the one hand and labor and capital on other arise in the process of production and development, He posited that the growth of population and capital, pressing against a fixed supply of land, pushes up rents and hold down wages and profit.
Rev. Thomas Malthus used the idea of diminishing return to explain Lowing standards in relation to population growth. He argued population tended to increase geometrically outstripping the production of food, with increased arithmetically. The force of rapid growing population against a limited amount of land, meant diminishing return to labor the result according to him is chronically low wages, which prevented the standard of living for most of the population from raising the substance level.
Coming at the end of the classical tradition, John start Mill parted Company with the earlier classical economists on the inevitability of the nglish-swahili/distribution” target=”_blank”>distribution of income produced by the market system. Mill pointed a distinction between nglish-swahili/distribution” target=”_blank”>distribution on income produced by market system, Mill pointed to a distinct difference between the market’s two roles allocation of resources and nglish-swahili/distribution” target=”_blank”>distribution income, market might be efficient in allocating resources but not in distributing income. He wrote, making it necessary for society to intervene.
GROWTH POLICIES OF TANZANIA
Growth policies are those policies or strategies adopted in Tanzania economy by Tanzania government in order to accelerate economic growth and development in Tanzania economy.
In order to achieve high rate of economic adopt different growth politics or strategies all those grouped into the following policies:-
- Poverty eradication policies / National development strategies poverty eradication policies include many policies adopted in order to eradicate poverty so as to create strong economic base and economic growth in this policies Tanzania government formulate strategies such as “MKUKUTA” MKURABITA, economic policies such as monetary and fiscal policies, external development management policies, external borrowing, employment policies, Youth empowerment and other strategies in order to accelerate high rate of economic growth and economic development.
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Sectorial policies
This is the policy of improving economic sector in Tanzania economy in this policy Tanzania government adopt strategies like establishment of strategies of improving Agricultural sector as a main sector in Tanzania economy. This police include improving Agricultural productivity, government formulate District Agricultural development plans (DADP’s and KILIMO KWANZA which is recent policy, also formation of policies for development of other sectors by providing subsidies.
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Creation of sustainable development.
Sustainable development include the use of National resource for current development without affecting future use of resources, in this policies, government of Tanzania enhance Biological diversity, protection and development on use of sea and ocean. Sustainable production and consumption. Also in order to protect sustainable development URT establish environmental management Act and other policies to ensure environmental sustainability.
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Social justice and inclusion policy.
In social policies and inclusion, government promote youth development, gender equality and empowerment of women, in this government gender equally in governmental school, employment and other areas such as political opportunities / leadership together with poverty reduction for development.
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Development Cooperation and global partnership for development.
In this policy URT establish Bilateral development Cooperation, external debt management, external borrowing, debt relief, also managing Aid relationship and formation of management development cooperation / economic cooperation and integration, which may help to accelerate economic growth even development.
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Social progress policies
These are policies of improving social services in an economic so as to improve economic growth and development, social policies include development of social services such as health services, education services, housing, water and sanitation in an economy.
THE ROLES OF INTERNATIONAL TRADE AND FOREIGN
AIDS IN ECONOMIC, DEVELOPMENT
International trade is the trade among Nations while foreign aid is the assistance country get from developed countries and international organizations such as IFM, World Bank, etc.
The following are roles or contribution of international trade and economic 1 foreign aid in process of development:-
- International trade and Aid facilitate improvement in technology that may be used in utilization of resources and production process that may facilitate economic development in an economy.
- International trade and aid ennglish-swahili/courage” target=”_blank”>courage competition within domestic industries, which may aid as a catalyst for increase in production (output) and improvement of quality of goods and services.
- International trade expand market for our industries which may facilitate exploitation of resources optimally which may bring development in an economy.
- International trade and aids increase revenue and income due to tax and financial aids which may increase international income and used as a capital for investment and production.
- International trade and Aid help to get income and assistance for improvement social services such as school, health services and for the development of a Nation.
- Foreign Aid and international trade helps to improve economic infrastructures which may create conducive environment for economic activities and development of a Nation.
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International trade and Aid help in financing budget which may be used to allocate expenditure so as to bring development in a country.
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