Economic history, development theory

As a result of the recent financial crisis, some economists are going back to the study of economic history to search for relevant development principles to the challenges at hand.

Economic history throws some light on how populations grow and decline; what stages a country passes through to reach developmental maturity and what are the common causes of economic depressions.

We cannot talk of growth in gross domestic product (GDP) unless we relate it to what happens to the size of the population.

The GDP grows only if its rate is higher than population growth.

Malawi has accumulated more wealth today than it did 40 years ago. But we are not rich. Not because wealth has stagnated, but because population is growing fast.

All countries that have attained high levels of economic growth have at the same time undergone a drastic decline in their demographic growth.

But how do populations grow and decline?

Economic historians tell us that in a primitive economy, birth and death rates are equally high. Children die of malnutrition while grown-ups die of diseases which in developed countries are easily cured.

When you introduce good hospitals, improve public health and people’s diets, populations grow faster because death rates decline.

The number of babies born does not change only the death rate does. Most developing countries are in this category.

At the time we attained independence in 1964, Malawi’s population was between four and five million. Today, Malawi is a home to over 13 million people.

The growth in population is largely due to improved health facilities that make people live longer.

As a country starts to industrialise, economic growths tend to be higher than population growth rates because people prefer to have smaller families; they no longer look at children as their sole source of support in old age.

They feel it is better to have few well fed and educated children than to have too many of them but uneducated.

Following this observation of how populations grow and decline some people say development is the best contraceptive.

In other words, you do not have to use some of the methods of birth control, just achieve accelerated development, population will slow down.

Some historians with a grounding in sociology and anthropology say it is not just economic growth, but also culture that influences population size.

In some communities, appeals for family planning are not effective while in others they are.

In the early 60s, Professor WW Rostow made a great appeal with his book The Stages of Economic Growth in which he listed five stages with the take off at the third stage.

This stage is preceded by traditional and preconditions stages. Take off required the doubting of productive investment.

Though Rostow’s theory of stages was at first severely criticised, some pundits of development economics are now coming back to him, especially when he talks of linkage.

Whatever were the main causes of the economic depression of 1933, the crisis in the countries of the Far East in the 1990s and the financial meltdown of 2007 and 2008 have one common cause which is tax regulation of the financial system. Borrowers borrowed too much lenders lent too much.