One of the principal failures of development economics of the developing nations in the 1950s and 1960s was their inability to adapt to their circumstances the valuable experience of economic growth in the West. The reasons why the growth experiences of developed countries could not directly spread into the developing countries was due to the less favorable initial economic, social and political conditions of these countries in the postwar era. The significant differences that led to a divergence in the growth patterns seen in the two types of countries were due to the following factors:
1. Physical and Human Resource Endowments:
The developing countries are much more endowed with abundant natural resources than the developed nations, but they often lack the methods or technology for their exploitation. As seen in parts of Latin America and Africa, where the natural resources are abundant, only the powerful developed country joined by multinationals are engaged in large-scale utilization of resource. The difference in skilled human resource endowments is even more pronounced. The ability of a country to convert natural resources into higher value products depends on the skills of the labour force. The population in the developing countries is less educated, are less trained and are inexperienced as compared to their counterparts in the developed nations.
The technology gap between the two nations can be divided into two types; a physical object gap involving factories, roads etc, and an idea gap that includes knowledge about marketing, distribution, inventory control etc. No such gaps existed for the developed countries on the eve of expansion of their industrialization. In these countries, industrialization was brought about by a long process of change. During the change process the population of these countries adjusted to the social and political framework On the other hand, in the developing countries the institution of industrialization was introduced without the population getting adequate time and opportunities to absorb the related social and political change.
2. Relative levels of per capital income and Gross National Product (GNP):
The lower per capital income in the developing countries, relative to that in the pre-Industrialization phase of the developed countries, was probably due to the lower productivity of agriculture and the lower supply of agricultural land per worker in the developing countries. This implies that in the pre-industrialization period the ratio of per worker income in the agricultural sector to that of the non-agricultural sector in the new developed countries was not equal as it was not of as large as in the late industrialization developing countries. At the beginning of the modern growth era, the developed countries were thus in an advantageous position with their relatively better financial position and could accelerate their economic growth to widen the income gaps between themselves and the developing countries. The developing countries began their industrialization from the lower end of the international per capita income scale. This weak position slowed down their economic growth.
3. Climatic differences:
Majority of developing countries are situated in the tropical or sub-tropical climatic zone by the virtue of which they are rich in a variety of natural resources. It has been observed that the developed countries are primarily located in the temperate zone. Industrialization pattern and connected life styles under those climatic conditions when imposed in the heat and humidity of developing countries is likely to have contributed to deteriorating soil quality, rapid deterioration of goods, poor health of animals, weakening of the health of workers etc. This is seen as another reason why economic growth of developed countries has not spread in equal measure in the developing countries.
4. Population size, distribution and growth:
Before and during their early growth years, the developed countries experienced a slow rise in the population growth. As industrialization proceeded, the death rate declined and the birth rate rose slowly, but as simultaneously incomes were rising, these countries did not experience natural population growth rates in excess of 2% per annum. By contrast, the population in the developing countries has been increasing at the rate of 2.2% per annum. (Table.7.1). This has also worsened the availability of agricultural land per capital in most developing countries not only compared to what is presently available in most developed countries, but also compared to the pre-industrialization phase. Basically the developing countries have a much higher person to land ratios than the presently developed countries in the early growth years.
5. Economic Policy:
Economic policies and measures influence the patterns, directions and rates of growth by affecting investment structure as well as choices of technological progress. Significant differences between the economic policies of developed countries and developing countries need to be recognized. Thus, inward-oriented trade policies give rise to output market that ultimately determine total factor productivity of chosen technology. In the Indian context, after independence, the government adopted the ideology of economic nationalism and self-reliance rather than forging connections with the global economy.
A restricted growth of 1.5% per annum in Gross Domestic Product (GDP) was achieved for three decades till 1980s. Apart from this, with incentives generated by the soft-budget constraint in the public sector coupled with policies of industrial licensing resulted in building capabilities in non-competitive market structures, constricted flexibility in adjusting to the market signals and opportunities for rent-seeking behavior. The higher incremental capital output ratio restricted the overall economic growth rates. Although technological capability was built, the economic consequences of this policy, that has since 1991 changed, were:
i) Focus remained on restricting imports rather than exports.
ii) Insulation from international competition resulted in undermining competitiveness internationally.
iii) The technology gap between what prevailed in internationally competitive economics of the developed countries and what was present in India increased.