Approaches to Developments and its influences Nepalese Development

Approaches to Developments and its influences Nepalese Development Plans Rabi S. Sainju Joint Secretary Ministry of Commerce Rabi S Sainju NASC : Approaches to Development Planning 30 August 2017

Presentation Outline Ø The quest for development Ø Economic System Ø Development Plan and its necessity Ø Approaches to development Ø Growth Situation in Nepal Ø Conclusion Rabi S Sainju NASC : Approaches to Development Planning 30 August 2017

The quest for development Ø Economic development is the process that transforms a country’s capacity to provide for the material well-being of its people. § § associated with economic growth; which needs to be sustained over time for successful development success of process usually judged also by distributional effects Ø Concern for development was an outgrowth of the determination post. WWII to avoid a recurrence of the 1930 s Ø Initial focus on recovery of war-ravaged economies; from mid-1950 s, emphasis shifted to growth prospects of poorer countries Rabi S Sainju NASC : Approaches to Development Planning 30 August 2017

Economic System • Political ideology and economic system are connected • In countries where individual goals are emphasized free market economies are likely • There are three types of economic systems: • Capitalist or market economies • Socialist or command economies • Mixed or welfare economies Rabi S Sainju NASC : Approaches to Development Planning 30 August 2017

Capitalist Economy • In a capitalist economy all productive activities are privately owned. • Price systems are used in the market, which means price determines everything. • Production is determined by the interaction of supply and demand • The motivating force of Capitalism is self interest. • The role of government is to encourage free and fair competition between private producers • The distribution of goods in a capitalistic society is to each according to his/her quantity and value of contribution to society. • This distribution scheme causes an unequal spread of income and wealth. Rabi S Sainju NASC : Approaches to Development Planning 30 August 2017

Socialist Economy • In a socialist or command economy, the government plans the goods and services that a country produces, the quantity that is produced, and the prices as which they are sold • All businesses are state-owned, and governments allocate resources for “the good of society” • However, because there is little incentive to control costs and be efficient, command economies tend to stagnate • It is a planned economy in which resources are allocated by need. • The spread of wealth and income is more equal in a socialistic society, however the individuals tend to lose motivation because the pay off is vastly less. • This distribution scheme is a humane, but mostly an inefficient one. Rabi S Sainju NASC : Approaches to Development Planning 30 August 2017

Mixed Economy • Welfare Capitalism is a prime example of a mixed economy. • The principles of capitalism are followed, but with government involvement. • Certain sectors of the economy are left to private ownership and free market mechanisms while other sectors have significant state ownership and government planning • Governments tend to own firms that are considered important to national security • The government will step in to take care of citizens and help to maintain a minimum standard of living. Rabi S Sainju NASC : Approaches to Development Planning 30 August 2017

Development Plan • A key tool which influences decisions about priorities and resource allocation, and aims to influence the direction, and pace of development • Often involves linkages between different sectors of development and levels of government • An opportunity to ensure micro-macro links • An opportunity to integrate actions of different government and non-government agencies • A major point where integration and the Sustainable Livelihoods principles of holism and partnerships can be fostered • A set of actions to achieve a certain goal 8 Rabi S Sainju NASC : Approaches to Development Planning 30 August 2017

Necessity of National Planning • Depends on a country’s stage of development – the political or administrative structure also relevant • Few high-developed countries have national planning systems – Korea terminated its planning ministry a few years ago. • Fragile countries generally have ineffective planning systems – Their plans promise more than the government can deliver • Developing countries have the most potential for national planning – Their plans can prepare the way for investments and policy initiatives that stimulate development • Current circumstances appear highly favorable 9 – The fact that many developing countries has indicated they can make effective of formal planning 30 August 2017 9 9 Rabi S Sainju use NASC : Approaches to systems Development Planning

Approaches to Economic Development Literature on economic development is dominated by the following four strands of thought: Ø Linear-stages-of-growth model: 1950 s and 1960 s Ø Theories and patterns of structural change: 1970 s Ø Neo-classical, free-market counterrevolution or market fundamentalism: 1980 s and 1990 s Ø New Approached to Development : Right based Approach/ Inclusive Development • Four major and often competing development theories, all trying to explain how and why development does or does not occur. • Newer models often draw on various aspects of these classical theories. Rabi S Sainju NASC : Approaches to Development Planning 1 0 30 August 2017

Approaches to development • In the 1950’s and 1960’s, linear-stages-of-growth models were popular. They described the process of development as a series of successive stages. • These models were replaced in the 1970’s by Structural Change and International Dependence models. • Structural change models emphasized the internal process of structural changes that a developing country must go through, Rabi S Sainju NASC : Approaches to Development Planning 30 August 2017

Approaches to development • In the 1980’s and 1990’s the neoclassical counterrevolution focused on the beneficial role of free markets, open economies and the privatization of public enterprises and suggested that the failure of some economies to develop is a result of too much government intervention and regulation. • In 2000 s, much attention in this decade to other “solutions” to under-development and used various aspect of classical approach. Development economist are more focused on inclusive development approach and right based approaches Rabi S Sainju NASC : Approaches to Development Planning 30 August 2017

Linear-Stages-of-Growth Models • Assumed that the developing countries could learn a lot from the historical growth experience of the now developed countries. • Representative Models are: • Rostow’s Stages of Growth • Harrod-Domar’s Growth Model • Emphasis was on: üCentral planning ü Industrialization ü Import substitution • Emphasized the role of: accelerated capital accumulation; augmented savings/investment; and adequate supplies of foreign exchange (for imports of capital goods). • Strong bias towards western model of modernization which tries to fit economic progress into a linear system. Rabi S Sainju NASC : Approaches to Development Planning 1 3 30 August 2017

Influence of Linear Growth Model in Nepal • Periodic Plans: üFirst Plan: 1956 -61 üSecond Plan: 1962 -65 üThird Plan : 1965 -71 • Started its initial plans under the complete absence of data and information and any infrastructure to begin with. • Plans focused mainly on growth led strategies giving priority to the expansion of infrastructures to develop industrial Sector. • Plans emphasized the role of capital formation and increase investment in the modern industrial sector. • Import substitution policy adopted failed to sustain economic development. In fact, reliance on external market increased due to growing needs of capital goods and intermediate inputs Rabi S Sainju NASC : Approaches to Development Planning 1 4 30 August 2017

Structural-Change Models In the 1970 s • Representative examples of this strand of thought are ü The Lewis theory of development ü Chenery’s patterns of development • These models tend to emphasize the transformation of domestic economic structures from traditional subsistence agriculture economies to more modern, urbanized and industrially diverse manufacturing and service economies. Shift in emphasis: ü basic needs and poverty reduction – Mc. Namara, Nairobi 1973 ü integrated area development ü investment in social sectors – human capital • Concerns for the distributional consequences of growth; sharing benefits of development more equally Rabi S Sainju 15 NASC : Approaches to Development Planning 15 30 August 2017

Influence of Structural-Change Model in Nepal Periodic Plans ü Fourth Plan : 1971 -76 ü Fifth Plan : 1976 -81 ü Sixth Plan 1981 -86 • During early 1970 s, it had become clear that the modernization strategies of the initial plans could not induce industrial investment. • Adopted regional approach in development planning • Adopted distributive approach in development strategies • Nepal adopted the ideology of Basic Needs and Integrated Rural Development in this era. 16 Rabi S Sainju NASC : Approaches to Development Planning 30 August 2017

The Neoclassical Counterrevolution: Market Fundamentalism • • • The debt build-up from the 1970 s became burdensome as the developed countries took steps to eliminate inflation. Interest rates rose sharply, trade growth slowed, and further oil price increases. Neoclassical counterrevolution in 1980 s called for freer markets, dismantling of public ownership, and government regulations Neo-classicist also obtained controlling power of the world’s two most influential international financial agencies –WB & IMF Argued that underdevelopment is the result of poor resource allocation due to incorrect pricing policies and too much state intervention. Four component approaches : • • The Free Market Approach: markets alone are efficient and effective Public-choice theory: Government can do nothing right Market-friendly Approach: government need to facilitate the markets New institutionalism: success or failure depend on fundamental institutions Rabi S Sainju 17 NASC : Approaches to Development Planning 17 30 August 2017

Influence of The Neoclassical Counterrevolution in Nepalese Plan • Plan Period ü Seventh Plan : 1986 -1991 ü Eight Plan : 1993 -1998 ü Ninth Plan : 1998 – 2002 • The failure of previous development strategies had created macroeconomic imbalance. • Accepted IMF Stabilization package and WB's Structural Adjustment Programme and shifted towards the ideology of liberalization and open market policies. • The main objectives of these plan were attainment of sustainable economic growth, poverty alleviation. • Efforts made to adopt the market based economy by promoting private sector participation and investment and by reducing the role of the state. 18 Rabi S Sainju NASC : Approaches to Development Planning 30 August 2017

New Approaches to development Since 2000: • Much attention in this decade also to other “solutions” to underdevelopment, including: ü establishment of appropriate institutions (“more important than policy”) ü promotion of better governance: ü anti-corruption ü democracy ü bureaucratic competence ü corporate oversight • And more proposed remedies that have something of the “silver bullet” about them: micro-credit; social entrepreneurship • Finally, renewed emphasis on human capital – partly a result of the focus on knowledge; distributional issues; and growing concern 19 about environmental impacts of growth. Rabi S Sainju NASC : Approaches to Development Planning 30 August 2017

Influence of New Approaches in Nepalese Plan Period ü ü Tenth Plan 2002 -2007 Eleventh Plan 2007 – 10 Twelfth Plan : 2010 – 13 Thirteen Plan : 2013 -2016 • These plans focused more on poverty alleviation, reconstruction, rehabilitations and peace mitigations. • Realized that governments do fail, but so do markets; a balance is needed • Attentions to institutional and political realities • Focused on inclusiveness in planning 20 Rabi S Sainju NASC : Approaches to Development Planning 30 August 2017

Economic Growth Situation in Nepal Plan Period ICOR Economic Growth at base price (%) Third Plan (2022 -27) 2. 2 Fourth Plan (2027 -32) 1. 8 Fifth Plan( 2032 -37) 2. 3 Sixth Plan (2037 -42) 4. 4 Seventh Plan (2042 -47) 4. 57 2047 -48; 2048 -49 Poverty line (%) Gini Coefficient 34 (NPC) 49 NPC 7. 03; 4. 66 Eighth Plan ( 2049 -54) 4. 3 4. 84 41. 76 (NLSS I) Ninth Plan (2054 -59) 4. 1 3. 70 38 Tenth Plan (2059 -64) 4. 3 3. 58 30. 85 (NLSS II) 0. 41 TYIP (2064 -67) 4. 8 4. 65 25. 16 (NLSS III) 0. 33 TYP ( 2067 -70) 5. 0 3. 96 23. 8 Thirteen Plan (2070 -73) 5. 0 2. 92 Rabi S Sainju Remark 0. 34 NPC NASC : Approaches to Development Planning CBS/NPC 21 30 August 2017

Sectoral Growth Rate Sectors Agriculture, fishery and Forestry 7 th Plan 8 th Plan 9 th Plan 4. 17 2. 95 Construction Retail and wholesale trading Hotel and restaurant Transport, storage and communication 3. 62 3. 58 5. 20 2. 77 0. 35 4. 24 4. 17 3. 18 5. 49 5. 19 6. 29 7. 32 4. 89 2. 87 4. 35 2. 88 3. 86 13. 94 6. 42 6. 02 8. 94 5. 18 8. 82 2. 96 -0. 17 4. 07 4. 35 2. 19 5. 38 5. 25 4. 67 6. 33 4. 37 5. 95 1. 13 0. 98 3. 83 5. 24 8. 11 7. 29 5. 32 7. 43 5. 89 13. 58 4. 69 4. 47 4. 41 5. 13 2. 29 5. 15 7. 94 9. 01 3. 99 7. 94 7. 62 4. 05 4. 04 7. 31 7. 45 3. 58 11. 34 4. 65 6. 32 3. 97 5. 24 5. 73 2. 98 General administration and defense Education Health and social work Other community, social and individual service Total value added at base price Rabi S Sainju 12 th Plan 2. 88 Financial intermediation Real estate, rent and business activities 11 th Plan 3. 43 Non agriculture Mining and quarrying Manufacturing Electricity, gas and water 1 10 th Plan 6. 61 4. 57 6. 18 4. 84 8. 67 3. 70 NASC : Approaches to Development Planning 30 August 2017

HDI trends on new component and new methodology Year Life Expected Mean GNI per expectancy at years of capita (2005 birth schooling PPP$) HDI value Remark 1980 48. 2 4. 5 0. 6 0, 566 0. 234 5 th Plan 1985 51. 1 5. 5 1. 2 0, 633 0. 285 6 th Plan 1990 54 7. 4 2 0, 706 0. 341 7 th Plan 1995 57. 5 8 2. 2 0, 811 0. 37 8 th Plan 2000 61. 6 8. 8 2. 4 0, 902 0. 401 9 th plan 2005 65. 6 8. 9 2. 7 0, 960 0. 429 10 th Plan 2010 68. 5 8. 9 3. 2 1, 090 0. 458 11 th Plan 2012 69. 1 8. 9 3. 2 1, 137 0. 463 12 th Plan 2015 70. 0 12. 2 4. 1 2337 0. 558 13 th Plan Rabi S Sainju NASC : Approaches to Development Planning 30 August 2017

Human Development Index Trend Year 2014 2012 2011 2010 Nepal 2005 2000 1990 1980 Low HD Medium HD South Asia 2012 LDCs World Norway * 2006 data Rabi S Sainju HDI 0. 540 0. 463 0. 460 0. 456 0. 429 0. 401 0. 314 0. 234 0. 466 0. 640 0. 558 0. 449 0. 694 0. 955 MPI 0. 197 0. 217 GII 0. 479 0. 485 0. 350* 0. 498 0. 627 0. 649 0. 578 0. 457 0. 568 0. 566 0. 463 0. 065 IHDI 0. 384 0. 304 0. 310 0. 485 0. 395 0. 303 0. 532 0. 894 NI-HDI Remark 0. 526 0. 524 0. 523 0. 486 0. 445 0. 371 0. 224 0. 487 0. 661 0. 577 0. 475 0. 690 0. 977 12 th Plan NASC : Approaches to Development Planning 11 th Plan 10 th Plan 9 th Plan 7 th Plan 5 th Plan 24 30 August 2017

Conclusions • In an environment of widespread institutional rigidities and severe socioeconomic inequality, both markets and governments will typically fail. • The linear-stages model emphasizes the crucial role of savings and investment. • The Lewis two-sector model emphasizes the importance of attempting to analyze the many linkages between the traditional sector and the modern industry • International dependence theories highlight the role of the structure and workings of the world economy and the impact of decisions made in the developed world on the growth prospects for LDCs. • The neoclassical economic models point to the promotion of efficient production and distribution through a proper functioning price system and the damaging effect of government-induced domestic and international price distortions. Rabi S Sainju NASC : Approaches to Development Planning 30 August 2017

Conclusion • There is a need to have a broad based and inclusive growth to benefit all sections of society and improve economic growth. • It is more challenging for the country to achieve inclusive growth than getting 8 to 10 per cent growth in GDP • There are strong social, economic and political reasons for achieving broader and inclusive growth. • Socially, lack of inclusive growth leads to unrest among many people. • There is also an economic argument. The measures which raise equity also promote economic growth. • Lastly, the political argument is that no government in a democracy can afford to ignore large sections of workers and non-working population. • If it is not inclusive it can generate very severe social tensions. Thus, politically, for having a stable and democratic society one needs to have inclusive growth. Rabi S Sainju NASC : Approaches to Development Planning 30 August 2017

Thank You All for your kind attention Rabi S Sainju 27 NASC : Approaches to Development Planning 30 August 2017