9 – Development Concepts

Some Basic Concepts of Development

This piece is actually the appendix to article #1.  It is re-introduced here as an independent article for two reasons: i) its importance towards clarifying the nature of development, and ii) because people tend to not see it – being tucked away at the very end of the blog. 

Being able to understand basic concepts related to development is necessary to be able to understand many other aspects of everyday life; it will also allow one to meaningfully participate in many social forums – whether in informal conversations on issues or formal decision making – while enabling to weed out much of the BS we hear in such forums and hence avoid being simply misled or persuaded to lend support to or take part in making the wrong kind of decisions. 

We shall begin at the very beginning and proceed step by step, and define development simply as “the continued improvement in the access to the necessities of life, in addition to a better state of the natural and human-made environments and the scope for meaningful participation in one’s political culture.” 

And to simplify matters and outline basic principles, we shall limit our discussion to the italicized part of this definition, namely, access to the necessities of life.  (In reality, without this part being fulfilled, the remaining part will not be of much value – for example, someone who is starving or homeless will not be in a position to care much about one’s environment or be involved in any political culture.) 

“Access to necessities of life” in its turn has two sides to it: having money to buy them and their being available to buy.  These two aspects are intrinsically entwined, and (basic) development happens to the extent that those two conditions are fulfilled.  Let us take the second aspect first – availability.

Availability of goods and services to the general public happens when someone provides them, and that someone is usually the private sector.  Now, the primary motivator for the private sector is profit.  There is nothing wrong with this; selling what one can produce best (be it a good like the kind available in any shop or a service like the expertise of a physician) at a profit and buying with the money gained one’s all other necessities is the norm on which all modern economies function.  We can conclude that it is due to a well-functioning private sector that people are able to access goods and services they desire – which is one aspect arising from our definition of “development.”  The other aspect arising from this definition or money, or jobs through which money is earned, happens when the private sector functions properly and provision happens – since provision leads to employment or earnings.  And to simplify the description of the development process, we shall limit our discussion here, once again, to the provision aspect alone.  Naturally, the right policies by the government will enhance both aspects and facilitate development. 

It is obvious that if there is no scope for profit, there will not be a significant private sector to provide the goods and services that people need, in particular their more advanced kind.  Such is the case in the outlying atolls of the Maldives, as people don't have sufficient buying power, meaning money to spend, and as populations are small and lack sufficient mass to generate scale economies.  And since the people do not have access to goods and services, even the most basic ones, they are labelled “undeveloped.”

It is clear that if people in such undeveloped areas are to have access to even their basic necessities, then someone must provide them, and not on a “commercial” basis.  This someone is the government in most cases.  Recall our early schools (Majeediyya & Ameeniyya) and health services (Central Hospital – now ADK); they were financed solely from the government's budget and people had access (although limited spatially) to those respective basic necessities.  In the relatively developed Malé now, the government can gradually minimize its role in those areas where the private sector can function in a self-supporting manner, and that is precisely what today's picture shows.  But this is not the case in the outer lying areas, and the government has to play an active role if people in those areas are to have basic necessities.  (And to do so requires organizations like STO, MTCC, and BML*** even at a loss commercially – given that their basic mandates are more important.)  But given that the government cannot, and should not, go on doing this for ever, forced development of those areas becomes necessary.  Thus adopting the right policies to rectify this deficiency and converting those areas that cannot support a well-functioning private sector to areas that can is the primary purpose of development policy – while temporarily taking the slack or filling the void arising from the lack of a well-functioning private sector.  It is clear that the perception people have about government intervention as efforts to cater people freely and indefinitely is a most misguided one.  Unfortunately, our current efforts are more like Yehya's behaviour than sensible and consistent policy – as they are not based on any sound theoretical understanding of the dynamics of the processes involved. 

The above is sufficient to show that mere “commercialization” without any thought to the complexities involved will create more problems than they solve (not to mention the suffering that such blind policy will produce) and that those who trump such dogma do not know what the hell they are talking about!  

The discussion above also makes the primary role of public enterprises abundantly clear.  The fact that such enterprises have a profit-making role is a secondary concern, though it may be an important one.  This importance arises not so much from its contribution to the government’s budget as from the fact that the government, already burdened with numerous demands, cannot continue to support them in their basic and mandated roles indefinitely.  Therefore making profit where they can is important to the extent that they can cross-subsidize and work in those areas where they cannot make a profit without burdening the government.  We saw above that this is necessary for the development of the rest of the economy.  It is well and good if they can make contributions to the government’s budget (which would help ease the burden on it due to the demands from other sectors) but the basic mandate of such public enterprises or the very purpose for which they were established in the first place should not be compromised. 

Unfortunately, this broad and important purpose of public enterprises is lost on most people, including those in government high office.  To their limited thinking, especially those who return with degrees in related fields from abroad fresh from universities (where such differences are usually not taught) public enterprises that do not make a profit have to be scraped!  Inexperienced young people who return with such degrees and are appointed for one reason or another as CEOs of those very enterprises have the same ignorant attitude!  It was not once or twice that I saw them proclaim on TV that the most important goal of the enterprises they head is increasing shareholder value, which boils down to maximizing profit.  (I believe that such people should be removed from those jobs regardless of what advanced degrees they may have or what political connections; they can cool their heels somewhere else until they gain enough experience or, more importantly, clarity of understanding of the purpose of those enterprises.)  This is not to say bureaucracy and inefficiency, not to mention corruption, are to be tolerated, though we know that these characteristics are often associated with them.  In my opinion, such deficiencies do not arise from the inappropriateness of their basic mandates but from mismanagement; the lack of clarity of goals being a crucial reason for such mismanagement.  This in its turn arises from the fact that such guidance should have come from the government agency mandated for that purpose, but which agency itself is so confused about its own role in the national economy that it cannot even guide itself, let alone be able to guide someone else to the right path!  (See my 1998 memo labelled “Plan’g Min Role Redirection.”) 

We can see from the above discussion that there is a crucial difference between public enterprises and their commercial cousins – the primary goal of public enterprises is not just profit maximization above all else, whereas it is the basic purpose of commercial enterprises.  As would be clear, there is nothing wrong with profit maximization; it would also be clear that it is a well-functioning private sector that is responsible for what we call “development.” It is, however, important to remember that there is a certain path that should be taken before an undeveloped nation can transform itself into a developed one.  Those who have studied only theories in institutions of higher education and lack the relevant knowledge and experience ought to know that this has been the most crucial factor for those nations that we now call “developed.”  For example, World War II had decimated virtually all European industries and it was the establishment of government funded, and run, public enterprises that helped those nations to get on their feet.  In the USA, it was the construction of interstate highways that enabled it to grow and be the world leader, and they were federally funded and maintained, even now! The four East Asian “Tigers” – South Korea, Taiwan, Hong Kong, and Singapore – did not grow and catapult to world fame by relying solely on the private sector; their private industries were heavily subsidized and/or otherwise supported by their governments.  Even corporations like Airbus and Boeing (regardless of what the latter claims about its free market practices) are subsidized by huge research grants and defence contracts. And yet while those who come with degrees fresh from universities talk loud about corporations, they do not seem to have a clue about how the real world works but keep making ignorant statements and misleading others! 

In sum, public enterprises in developing nations cannot be judged by the same standards used to judge private corporations in advanced nations; methodology of the latter cannot be applied arbitrarily to the former.  Similarly, the basic goal of public projects in developing nations is to get the nation to grow, not merely to make profit; they should be viewed accordingly and not through another viewfinder.  

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***  For the acronym designations, please Google, "STO Maldives," "MTCC Maldives," "BML Maldives," etc.