The defence, in a degree programme with Rural Development as its principle title, is that there is no unique recipe, no common understanding, no single framework which can adequately explain how development happens.  We might very well quarrel with what we think we mean by development.  In these circumstances, one set of thoughts and notes makes as good a starting point as any other.  Furthermore, since this is the only core economics course in the programme, it should be helpful to have an unashamed (if slightly idiosyncratic) economic viewpoint on development. In short - these notes are intended to promote discussion, and thus to generate improvement in our common understanding of the processes - and thus, with luck, to improve and develop the notes for the next cohort of students!

1. What is development and what does it mean to be underdeveloped.
2. The Sustainable Livelihoods approach.
3. Local Economies - the notion of Multipliers.
4. A personal view.

• Increase in availability and improved distribution of essentials: (survival & resilience)
• food
• shelter
• protection from natural or external threat
• health
• Improved standards of living for all (efficiency and effectiveness)
• more jobs
• more income
• better education, health, sanitation, services etc.
• Increased security and absence of threats and shocks
• absence of theft, violence, fraud, corruption
• stability of conditions and social relationships
• insurance against catastrophe and ill-fortune, and resilience against variabilities of both nature and culture
• Expanded  range of personal and social choice and freedom to choose - civilisation? -  (being a peasant may be pleasant, but only if you can choose whether or not to stay being one rather than do or be something else)
• liberal government by the people for the people
• universal franchise, and (perhaps) improved participation and belongingness (reduced exclusion)
• tolerance of difference and diversity
• meritocracy which appropriately rewards contribution, sustains realistic ambitions, encourages aspirations
• enjoyment of both work and leisure

• Under-resourced:  Poor, illiterate and ill-educated, unhealthy, limited choices - subsistence and food/shelter provision takes up most effort, with little left over for enjoyment or investment.
• Over-populated - too many people trying to scratch a living from too few resources
• Low productivity - not much out for the effort put in (lack of appropriate technology, or lack of training/skill, or too much risk of starvation associated with available technologies)
• General inequality - a few manage to be relatively well provided for, at the apparent expense of the many condemned to subsistence or worse.

• Increase in GDP per head (as the principle measure of capacity and ability to choose)  which can only result from:
• increased capital stock (equipment etc. (including land improvement)) -implies either increased savings or inward investment from outside the community.
• improved technologies for converting inputs into outputs
• improved management of resources (better allocation of resources to production activities, and better mix of production activities to generate income)
• improved capacity of people (human capital or capacity) - better education, better skill acquisition and development
• Increasing diversity and differentiation in socio-economic activity and occupation, and associated increase in consumer choice - implying structural transformation of the economy, especially the declining importance of agriculture as an occupation
• Increasing complexity and sophistication of social and ideological bases for society
• Increasing trade and geo-poliotical linkages with the rest of the world
• Increasing divergence between the haves and have-nots?? [Limited evidence for this seemingly obvious proposition - just consider our history]

 Does economic growth necessarily require growing inequality? (an aside from the international development debates)

2.    Sustainable Livelihoods Approach (DFID)

The starting point is a definition of sustainable livelihoods (following from Robert Chambers and Gordon Conway):

"A Livelihood comprises the capabilities, assets (including both material and social resources) and activities required for a means of living. A Livelihood is sustainable when it can cope with and recover from stresses and shocks and maintain or enhance its capabilities and assets both now and in the future, while not undermining the natural resource (NR) base."

The focus of this approach is the concept of CAPITAL ASSETS on which people draw to build their livelihoods. Natural Capital comprises land, water, biodiversity, environmental resources etc. - (the natural circumstance of the community); Social Capital includes the social institutions (rules and habits) and associated trust and networks (the history and culture of the community); Human Capital includes the skills training and education of the people (as workers) as well as their health (the character of the community, as the way in which it acts); Physical Capital includes the infrastructure (transport, housing, water, energy, communications) as well as production equipment: factories, machines and tools - the physical circumstance of the community; Spatial Capital includes the spatial relationships between this community or region and its neighbours and traders, the geography or context of the community. [Note:  DFID suggests that the fifth element of capital is Financial - however, the finances of a community are essentially associated with the ways in which it manages to transform and augment its fundamental stocks of natural, social, physical, human and spatial capitals, and hence can be regarded as one way of measuring each of the fundamental capitals].  The access which this community has to each of these fundamental capital stocks is measured (at least conceptually) along an axis from the centre of the pentagon - which produces a web profile of the community's STRENGTHS (household, group, region, parish, village etc.).  Generally, the further any group lies from the central point of the pentagon ("The Black Hole?"), the more robust is it likely to be in the face of shocks and stresses.  However, this is only a snap-shot of the current status of the community.
Structures (organisation and pattern of both markets and governments) and Processes (mechanisms of transactions and negotiations) are critical in developing the asset base:

• in contributing to the strategies or behaviours which people follow to pursue their livelihoods.
• in determining the extent to which assets can be transformed and through which access by particular groups is authorised and legitimised, and hence determining the value of assets to each group within the community (and it relation to transactions between the community and the outside world)

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A.    The Production Possibility Frontier and its implications

If the rate at which the two outputs can be traded for each other in the market place is represented by the trade price line Z, (which indicates one of the more important links with the outside world), then the appropriate (economically efficient) production mix for the region is Q*1; Q*2 - which will define the economic structure and income earning ability of the region, and will be the outcome expected by the operation of an effectively competitive market place.

Notice - if the capital asset base of this region is increased, then the constraint lines shift outwards from the origin - the productive capacity or feasible set of outputs for the region is increased.  Notice, too, that we could also include measures of the other two major forms of capital (spatial and social), and could also further subdivide these major forms into their component parts (with differing relative capacities in the production of the two goods (or services), which would tend to make the PPF (the Feasible region) even more convex to the origin (bowed outwards from the intersection of the axes).  We could also consider a greater number of outputs - though drawing the diagram would then become even more messy.  However, if we can draw the diagram, we can also express these relationships mathematically, and thus remove the difficulties imposed by a two dimensional representation of the problem as a diagram.

One obvious problem with this representation of the capacity or capability of a region or community is that the production systems available to transform the capital assets (combined with appropriate inputs) into the potential products or outputs is not uniform - the representation of the use of capital assets to produce outputs 1 and 2 in this figure as if they could be transferred between uses at a uniform rate (the constraints as straight lines) is a gross simplification.  However, this is not a serious problem.

Figure 2:  Consider the simplest relaxation of this initial assumption - that there are at least two different ways of producing a single output (Process 1 and Process 2).  Process 1 uses more of factor A (capital type A) than factor B in producing output 1, while Process 2 uses more of B than A.  If you like, Process 1 is the capital intensive production system, and 2 is the labour intensive alternative.  The choice of which process is the most appropriate (most efficient) depends on the alternative uses possible for each of the factors - what they could earn doling something else instead of producing output 1 (their opportunity costs).  If these opportunity costs are as represented by the ratio of values (prices) as price ratio x, then process 1 will be the most efficient use of these factors for output 1.  If the price ratio is y, then the most appropriate (efficient) process is process 2.

Furthermore, we can think of subdividing our major capital (factor) classes into those bits which are more suitable for the production of one good or service rather than another - output specific factor classes - which would introduce more constraints on the first of these two figures.  In the limit - a particular capital class which is only suitable for the production of one good, and completely useless for the production of another, makes the relevant constraint line in Figure 1 either vertical or horizontal (depending on which is the relevant output).

These conceptual relationships can be explicitly modeled using linear programming techniques, which replicate this logic for many outputs and many different factors (capital classes) and processes.

The fact that many of the particular outputs and capitals relevant to the problems of rural development and sustainable resource use are difficult to measure accurately, and that the processes used to produce the relevant outputs are not well known or understood can be viewed from two rather different perspectives:

• It is therefore impossible to simplify the problems and issues in this manner, still less hope to model the various alternatives in a computable form - so this whole exercise is a waste of time.  However, if you take this stance, then you are obliged to advance an alternative framework which can be used to seriously address then problems and issues.
• These facts identify and emphasise the critical difficulties of managing (or even managing with) these complex systems - that of generating good understandings of the ways in which they actually work and could be conceived of as working differently.  The solution is then to make educated guesses about the capacities available and the process transformations which could be used, and experiment with their consequences.

In practice, establishing the production processes, input and factor requirements for a regions outputs is a difficult and time consuming task.  However, we do have some important information, at least in principle, from the national income accounts, in the form of the Input-Output (IO) Table.  The following paragraphs explain the logic of this table, and of the multipliers (the effects of changes in final demands etc.) which follow as a consequence. [You will NOT be expected to learn and reproduce this stuff from memory - it is provided simply to inform you of the systematics of the economic system and their implications, and to provide you with the necessary background to understand the principles of multiplier analysis, and to enable you to interpret multiplier figures when you come across them - as you undoubtedly will if you have anything at all to do with development issues.]

Note: The IO table is now often known as the Social Accounting Matrix (SAM). A short outline description of this approach is here, and references to the intricacies of their estimation can be found on the International Food Policy Research Institute (IFPRI) site. Reference to a pilot version for the UK can be found on the National Statistics site (Nov. 04).

The potential and the use of this table is best explained using a simple example, with the economy divided into just three sectors - Agriculture (A), Manufacturing (M) and Services (S).
In this Table, the top left hand block of numbers represents the purchases by one sector from the others, and the sales of each sector to the others.  Thus, here, Agriculture buys £4bn. worth of inputs from itself (seed, feed, animal replacements etc.), and buys (reading along the top row) £5bn. from manufacturing and £1bn. from services.  Reading down the first column, Agriculture sells £8bn. to Manufacturing and £2bn. to services.  (Obviously, these numbers are illustrative, and not the real indicative numbers).
The bottom left hand block of numbers shows the amount of Labour (HL) purchased (used) by each sector, with Agriculture using £4bn of labour and so on, while IM indicates the purchase of imports (from outside this region or country), with agriculture purchasing £14bn worth of imports.
The top right hand block of numbers shows the sales of each sector to final home consumption (HC) and to exports from the region or country (EX), with agriculture selling £3bn to domestic or home consumption, and £19bn. to exports.
The bottom right hand block accounts of transactions directly between the Primary Inputs (Factors of production (all assumed to be Labour here)) and Imports with Final demand (Home Consumption or Exports)
The sum of the row elements (all sales from a sector) must equal the sum of the column (all purchases by the sector), since total inputs into each sector must equal the total sales from each sector, as in the circular flow of income.  Essentially, the IO table shows the detail of the inter-industry of sectoral interactions which is suppressed in the circular flow of income picture of the economy (and is also suppressed in the National (or sectoral) income accounts associated with this simplified picture).

The A Matrix: a Matrix of Technical Coefficients of transactions (Inputs/Outputs):  We can express the elements of the transactions matrix as a proportion of the final total output of each sector, so that Agriculture uses 4/32 (= 0.125) units of its own production in producing each unit of final output, and also uses 0.125 (= 4/32) units of labour for each unit (£1bn.) of final output, and so on for all the other elements.  Expressing the transactions matrix in this way gives us the matrix on the left - known as the A matrix.  The total output of agriculture can now be written as:
Xa = 0.125Xa + 0.25Xm + 0.05Xs + 22, where 22 is the sum of the final demands (Home consumption of 3 and Exports of 19), and Xa, Xm and Xs are the total outputs (or total inputs) of each of the three sectors respectively.
More generally, Xi (the total output of sector i) can be expressed as: Xi = *j a(i,j)Xj + Di.  In words, this expression says: the total output of sector i (Xi) equals the sum of (*) the relevant IO coefficient (a(i,j)) times the output of each of the sectors, j, (where j signifies each of the sectors identified in the IO table, here, j= 1 for agriculture, = 2 for manufacturing and = 3 for services) plus the final demand for outputs from sector i (Di).
This messy equation can be cleaned up by using matrix notation (for any number (n) of sectors) as follows:
X = AX + D, where:
Why is this important?  Because we can now re-arrange this set of simultaneous equations (X = AX + D) to indicate the effects of final demand on the outputs and inputs of each sector of the economy.  In effect, we need D = X - AX to see what effects any change in final demand would have on each of the Xs, the outputs and inputs of each sector.  In matrix terms, X - AX is equivalent to (I-A)X, where the (I-A) matrix is known as the Leontief Matrix (after the mathematical economist who first developed this analysis - [I simply signifies the matrix equivalent of 1 in scalar (single number) terms, called the identity matrix - a matrix with 1 in each of the main diagonal cells and 0 everywhere else.]
For the example here, (I-A) - the Lenotief Matrix, is as shown on the right.  Now, given this, we can further re-arrange our equation (D = (I- A)X) to get an expression in terms of X (so that X = D divided by (I-A))  Division in matrix algebra is carried out by multiplying by the inverse of the divisor (1 over the divisor) - and we need to invert the I-A matrix to do this (any spreadsheet will generate an inverse of a primary matrix).  The Inverse of (I-A), the inverse of the Leontief Matrix, is written as (I-A)^-1 and, for our example, is as shown on the right. The elements of this matrix show the amounts of output of each sector required to meet one unit (£1bn.) of final demand (home consumption plus exports).  Alternatively, the sum of each row shows the effects on that sectors output (first row is agriculture, in our example) of a one unit increase (or fall) in final demand. Or, finally, the sum of each column of this matrix shows the total effect on output from all sectors of an increase (or fall) in the final demand for that sector - so the sum of the first column of this matrix shows the overall effect on the outputs of all sectors of a one unit change in the final demand for agriculture output - the multiplier effect of a change in demand.

Output Multipliers:  These elements show the direct and indirect output required from industries in response to a unit increase in Final Demand (D).  Refer to these elements as b_ij.
Thus, a one unit increase in Final Demand for agriculture requires an increase in output of 1.26 units from agriculture; an increase in output of 0.39 units from manufacturing; and an increase in output of 0.21 units from services.  A Simple Output Multiplier (showing the direct and indirect output requirement) can be obtained for each sector by summing the columns of the inverted Leontief matrix: so the Simple Output Multiplier for sector j = *(i) b_ij  where b_ij = the direct and indirect requirement needed from sector i for a unit increase in the Final Demand of sector j.  In our example, this is shown on the left.

Income (Labour) Multipliers:
The direct effect on income from an increase in the output of a sector is simply the payment to labour (or households), as shown in the Primary Inputs quadrant of the IO Table at the top of this section, as a proportion of sector output, i.e., the labour coefficient (w_j).  For the industries in our example, these coefficients are: A (w₁) = 0.125 ;  M (w₂) = 0.15 ;  S (w₃)= 0.25., which we can write in matrix form as W.
The direct and indirect effect on income (y_j) resulting from an increase in the Final Demand of sector i can be estimated as:
y_i = *(j) b_ji w_j , or, in matrix form as Y = bW, where b is the Leontief Inverse matrix from above.  Calculating this result for our example gives the result shown on the left. As such, y_i is the direct and indirect income multiplier for the sector, given an increase in sales to Final Demand,  showing the total effect of a one unit change in final demand on the employment or incomes (these are effectively the same thing in our illustration of I/O analysis - but see below) earned in each sector.  To make these figures more meaningful, we can express these figures as ratios of the direct income or employment effect (the w_j figures):
Type 1 income multipliers are defined by dividing each of these by the appropriate direct income effect (w_j), to show the direct and indirect income generated by an increase in direct income.  Thus, the Type 1 income multiplier for sector j = y_j / w_j,    In our example, these are shown on the left, which show that, for example in agriculture, a one unit increase in direct employment or income will be associated with a further 1.14 increase in indirect employment or income effect, resulting from the interactions between agriculture and the other sectors, making the total effect (multiplier) 2.14.

Induced effects:  The Simple Output Multiplier and the Type 1 income multiplier embody only the indirect effect generated by a change in direct output or income.  An additional induced effect will be initiated by consumer spending resulting from this change in income.  To account for this induced effect, the households' row and column (HL and HC in our example) need to be moved into the Transactions Matrix.  This 'closes' the model with respect to households, effectively treating households as an industrial sector.
Thus, our “Augmented” A matrix (A*) now becomes as shown on the left, where the HL row shows the labour proportions of final output used by each sector, and the HC column shows the proportions of total output used up in final domestic or local consumption. As such, consumer purchases (HC) become a linear function of income.  This means that the income generated as a result of the direct and indirect effects induces further increases in output and income through increased consumer spending.  (Consumer spending is now endogenous, rather than being exogenous in Final Demand.)

Direct, indirect and induced output effects can be derived from the inverse of the (I-A*) matrix, where A* is the A matrix enlarged to n+1 sectors by including households.  Summing the columns of the inverse of this matrix - the  (I-A*)^-1 matrix - over the n non-household sectors gives an estimate of the Total Output Multiplier, which includes direct, indirect and induced output:  Total Output Multiplier = *(i) r*_ij,  where r*_ij = the elements of the (I-A*)^-1 matrix.
In our example, this produces the result shown on the left, where it can be seen that the Type II (direct, indirect and induced effects) are larger than the Type I multipliers shown earlier.

Type II Income Multipliers (including the induced effects) The elements in the households' labour row of the inverted matrix represent the direct, indirect and induced income accruing to households as a result of a unit increase in the respective sector's output.  Yj = r*Hj)   where Yj = the direct, indirect and induced income generated from a unit increase in the Final Demand of sector j. and  r*Hj = the appropriate element in the households' row of the (I-A*)^-1 matrix. These direct, indirect and induced income multipliers can also be expressed in terms of a Type 2 multiplier where, as with the Type 1 multiplier, the total increase in income is divided by the direct income effect:  Type 2 multiplier for sector j = Yj / wj.  In our example, these figures are as shown on the left.

Employment multipliers:  These can be calculated in similar fashion to income multipliers.  As employment is not explicitly included in the I-O model, a vector (u) of employment coefficients has to be estimated.  These coefficients will represent, for each sector, the amount of employment created by a unit increase in output.  Employment multipliers from the open model are then obtained following exactly the procedures outlined above, but substituting the u coefficients for the w coefficients.
 

Interpretation of I/O Multipliers

What are the possible reasons for this major and worrying discrepancy and which might we believe?

 i. National Macro Model estimates versus I/O estimates of Multipliers:
This is not a topic on which there is any literature that I have been able to find.  National econometric models of the national Economy (such as the Treasury, Bank of England, London Business School etc.) contain upwards of 500 equations for various parts of the economy but do not contain the inter-industry detail of the I/O models.  However, the national models are not restricted to linear relationships and constant I/O coefficients (see below), and do have a forecasting ability which is substantially in excess of I/O models - which are not sufficiently general to provide forecasts of national (or regional) economies.  Thus, there is more reason to be confident of the overall income (and employment) multipliers generated by the national models, suggesting that I/O models are likely to generate over-estimates of the income and employment multipliers, though their relativities between different sectors may be reasonable.  Why do I/O models generate overestimates?

ii. I/O multiplier estimates and their determinants
I/O models generally and typically make the following three key assumptions:

1. unlimited capacity of primary factors to each and every sector, which has its effect through the 3rd critical assumption below
2. fixed proportion production possibilities - each sector always consumes inputs and factors in the same fixed proportions as shown in the basic IO table;
3. there are no price effects anywhere in the system, all prices are assumed constant and fixed. This is a critical assumption - in effect, all adjustments have to take place through quantities produced and consumed, so the overall effects are likely to be larger than if buffered by some relative price adjustment.  In particular, the assumption of unlimited supplies of primary factors means that all quantity adjustments are pushed to their logical conclusions, rather than being damped by the changes in the prices (rents, wages etc.) of primary factor supplies.

In reality (and as reflected in the national econometric models), expansion of one sector must generally bid resources and inputs away from other sectors (supplies of factors and inputs are not unlimited, increased use in one part of the economy will mean reduced use in others.  Furthermore, expansions (or contractions) of sectors will seldom occur with input and factor use combinations in the same fixed proportions as the past average of the sector as a whole - production systems do not follow the fixed and constant proportions assumed in I/O analysis.  In the real  world, changes in input uses, outputs and factor combinations do happen in response to price signals and incentives (among other signals). Ignoring these interactions ignores much of the feedback mechanisms at work in the economic system.

For all these reasons, one would expect the multipliers exhibited by I/O models to be possibly substantial overestimates of those implicit in the real world.  As Midmore, 1993, notes (p288) “the validity of the augmentation (to produce Type II results) is dubious, because, although intermediate inter-industry trade flows are at least partly technologically determined (i.e. by fixed I/O coefficients), arguments cannot be made for proportionality between consumption and income.”  Midmore also suggests that “Type I multipliers may, ceteris paribus, understate the impact of changes in final demand, Type II multipliers do not provide an accurate guide to the proportionate shortfall.” -   I would add that the ceteris paribus assumptions are so extreme that even the Type I multipliers are considerably suspect, at least in terms of their size, if not their relativities.  Midmore also highlights the dangers of using the multiplier ratios (of the direct effect), where the critical danger is that a small (even insignificant) direct effect translates into a large ratio effect (as exemplified, I suspect, in some of the estimates of the effects of banning hunting on local and regional economies).

Much more important is the multiplier effect per £ of additional demand, or as a proportion of existing industry or sector output.   The rest of the Midmore article further examines the reliability and justification of I/O multipliers, especially comparing forecasts of income changes from IO analysis (constructed for Wales as a separate region) with actual outcomes for Wales.  He concludes (p 298) "The evidence suggests that the criticism of upward bias in input-output multiplier forecasts (predictions) is justified."

How are regional I/O matrices constructed from the national version?
The starting point for the non-survey methods of approximating a regional I-O table is the A matrix from the national I-O table.  The aij coefficients of the national table are then adjusted on the basis of regional output or employment data.  Basically, if an industry is relatively less important at the regional level than at the national level, the aij coefficients for that industry are scaled down in the regional I-O table.
For example, the location quotient (LQ) based on employment data can be calculated as shown here, where E = employment level; i = industry sector (i = 1, 2, ..., n); r = region; and s = nation.  In this example, the aij row coefficients for industry i would be halved, with the other half moved to a 'regional imports' row in the Primary Inputs quadrant.   Regional economies will tend to be less integrated than the national economy, 'importing' inputs from outside the region but from within the nation.   As a consequence of their greater 'openness', regional economies will exhibit smaller multipliers, typically between 1 and 2.  (See Johns and Leat, 1987.)

So, Why is I-O Analysis Used?
I-O tables for the UK, compiled by the Central Statistical Office (CSO), are typically only produced every ten years or so, so that I-O tables are typically years out of date.  However, they do offer a route to examination and analysis of regional or sectoral economies which is not offered by any other regular national statistics or models of the economy - which have never been disaggregated to regional or local levels (nor have they been integrated between nations).  If we want to analyse regional or local economies, there is, as yet, no practical alternative to using an input/output approach.

Extension of the IO analysis involves embedding this framework within a general equilibrium model - which allows for feedbacks between trade flows and capital investment flows to income levels - to produce computable general equilibrium models.  These models, although typically highly aggregated (few large sectors) do include the effects of changes in relative prices in factor and goods markets, thus allowing for some adjustment to shocks and changes on the price axes as well as the quantity axes.  As a result, they are less prone to generate such exaggerated results.  However, these models generally suffer from the second of the critical assumptions of IO models - fixed factor proportions in production activities, with only limited possibilities available for technology adjustment and substitution between factors.

Final Caution - do not be fooled by ill-educated use of I/O results - use with extreme care!

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4.    A PERSONAL VIEW

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Human systems are living systems - they follow a Darwinian logic - making the best possible use of available resources according to the socio-economic and political pressures ruling at the time (which determine the best fit of allocation of scarce resources to best uses), and making use of such technologies and techniques as are available, tried, tested and trusted.  The best-fitted systems and organisms (firms, organisations etc.) grow better and replicate faster than those which do not fit.

In such systems, specialisation of function and trade between entities (people, communities, localities, regions, sectors and states) are necessary characteristics.

In this sense, Economics is very largely simply a respecification of the principles of darwinian evolution and the survival of the fittest - not, notice, the winner taking all, nor, by and large, domination by single species (except in the most malign, sparse and poor environments).  Economic development, then, should lead to richer environments and greater diversity.  How does this happen in evolutionary systems?

The development process happens as a result of experiments and innovations - new ways of doing things, both technical and institutional (the human rules and habits governing how we do things and for what purpose).  Natural development is the result of historical accidents - most of which fail, and only a few succeed - and are then able to replicate, breed, multiply and succeed.  Arguably, most human (socio-economic) development has also happened by accident - most favourable innovations surviving and replicating while less favourable developments tend not to be able to compete - in the ecological sense.

As with natural ecologies, development status is necessarily context and circumstance specific (where you are and where you come from matter).  The richer the habitats (the more resources) the more extensive and diverse will be the ecologies (economies), but these will differ from one another if they are isolated - the Galapagos and Australasia for example, though available niches will tend to be filled with similar organisms in the sense of filling the same place and role in the food chains and cycles.  Isolated ecologies, though, tend to be vulnerable to invasion and invasive species, which are better fitted to the environment than the natives.

Furthermore, naturally developing ecologies tend to develop their own resource base - making soil from rock etc. - via re-cycling their food stuffs - the socio-economic counterparts being the circular flow of income and the flows of information and knowledge, habits and rules.  In this sense, living systems accumulate resources and capacities.

But human systems are different from natural systems - human systems self-select, whereas natural systems are naturally selected.  Humans think they can make the rules about who lives and who dies, who prospers and who does not. It is the self-selection systems which are critical in human development processes - what signals, incentives and penalties are attached to certain forms of behaviour and activity?

The market system provides one set of incentives and penalties - through explicit or implicit prices on goods, services and factors of production, and thus on the returns and incomes to be made from various activities and the choices made about what to consume and how much to save.  This system - the competitive market place - operates largely according to natural principles - survival, prosperity and replication of the fittest - leading to obvious inequality, but limited accumulation of power over the natural selection process - the large are necessarily most vulnerable to disruption of their food chains, and are frequently indicator species - a signal of the richness and diversity of the whole surrounding ecology.  Market power (the ability of producers to dictate what and for whom) is regarded as a market failure, which needs social governance (typically formal government) to offset and overcome.

Our governance systems - from local habits and customs to formal government rules and regulations - provide the other major set of incentives and penalties - which does admit of power, and the fundamental exercise of self-selection rather than natural selection.  Power, then, is the ability to choose and the associated ability to persuade or require others to make particular choices.

The implication is that development is a reflection of the interaction of all these constituent parts and mechanisms - no one part is inherently more or less important than ay other - it is fit which counts, what will fit with what in any particular context and circumstance?  If we change the context and circumstance, we will get a different (not necessarily better or worse) development pattern.  If we change one part (such as substituting democratic control for autocratic control) this will have different consequences depending on what other systems we have in place and what resource base we have.

Trade and specialisation (market systems) naturally evolve in human systems through and from barter as the most efficient and effective ways of making the best use of available resources.  All other forms of human interaction associated with doing things will tend to involve higher transactions costs (be less efficient or effective) except in special circumstances, such as small and highly cohesive communities and families (the human organisation equivalent of single organism)  - when different organisations or communities (different species) compete for use of the same resources, then the market system - natural selection - tends to take over as the most efficient form of transaction/transformation.  Ecologies do this through the transmission and transformation of food and energy (the various biological and bio-physical cycles), while economies do it through economic cycles, like the circular flow of income and the interactions between markets.

However, markets and natural selection require that the final arbiter of who lives and dies is external, as a given outside determinant (g.o.d.) - in the natural selection case, as the laws of bio-physics governing the nature of the transactions and transformations of food and energy, and the possibilities for improvement or adjustment/adpatation of practice within these laws.  In the human case, governance takes over from the bio-physical laws as the final arbiter.  Markets exist and are allowed to thrive only insofar as their societies will let them and encourage them.  Hence, it is these governance systems (our habits and rules of social organisation - called institutions by North) which are the key elements of the development process.

Prudent and sensible macroeconomic management (requiring stable and legitimate (legitimised) government) is generally a necessary precursor, as are the major elements of a functioning market system.  However, neither of these is sufficient to ensure sensible development, and both could, perhaps, be overcome by socio-political governance of the 'right' type - i.e. the type which best fits existing contexts and circumstances.

B   Some Implications

• Development Processes are necessarily unique to the time and space within which they happen - the development experience of, e.g. western europe or north america, will be different from each other and will almost certainly not be replicated by other countries development trajectories or opportunities.  For example, the major development phase of the industrial revolution (driven by an extraordinary harnessing of fossil fuels and minerals to the engine of engineering innovation, and more lately production line manufacturing and processing) is unlikely to be repeated in quite the same way now - it has happened already and when and as it happens again (as in India, for instance) it will happen differently.  Similarly, the extraordinary development of North America cannot happen again (as the exploitation of a territory treated as virgin by groups of refugees and expatriates from elsewhere).
• The Processes are probably much more important than the structures - who builds and runs a dam, for what purposes and according to whose priorities, and who gets the rewards, is much more important than the dam itself - similarly with socio-economic organisations such as private companies, banks etc.  One thing is clear- if people can make a living at it, it has a very good chance of happening - example
  
• But, mostly our present theories and understandings have to do with structures rather than processes - so our abilities to analyse and understand development is likely to be confused and confusing.  Hence - development remains a very significant challenge to social sciences and practitioners.
• Just possibly, notions more akin to husbandry, cultivation, selective breeding, nurture etc. are more useful to understanding development than much of our more conventional social science tool kits (from whatever discipline). Culture, not just agriculture, is a key?
• But, if so, who governs the cultivators?  The answer must be that future history will govern present cultivators - those trying to do the development.  If it works and fits, it will perpetuate and the future history will judge and govern the present developers.  if it doesn't work, then the present developers will not find their work and ideas replicated.  Problem - this is small comfort to those who are required (through no available alternatives) to suffer the present development experiments.
• The only alternative is to develop a common framework within which the development processes can be commonly understood and discussed - which we do not have at present.  Without this, we cannot hope to avoid the stupid mistakes by talking about them and thinking about them before we commit to them.

C.    Some other evidence?
Jared Diamond: Guns, Germs and Steel, a short history of everybody for the last 13,000 years., Vintage, London, 1998, addresses the question of why some societies (especially the north west, seem to have made different progress than other societies, which, furthermore, appear to have become the dominant societies in the present world.  His underlying rationale is: "History followed different course for different people because of differences among people's environments, not because of biological differences among people themselves" (p 25).  The germ of his argument (thesis, story), which is a good read, is as follows:

• The proximate causes of European expansion into (especially) the Americas appear to be:
• European germs wiping out native peoples
• Horses (unknown in South America)
• Literacy (enabling habits, conventions and institutions to be replicated between generations with more certainty)
• Political organisation - collective action
• Technology - especially guns
• Ultimate Causes of these 'advantages'?
• Food production and cultivation (the progression from hunter-gatherer to farmer - depended on the availability of cultivable and domesticable plants and animals - only locally available grasses (cereals) and domesticable animals, all to be found in central europe but not, typically, elsewhere.
• which could spread only in specific directions, governed by the early geography of the planet
• and which allowed for the development of dense populations, which generated diseases particularly adapted to such populations
• and which also generated the advantages of writing - to pass on the lessons of cultivation and also enable the necessary transactions between commercial farmers and the rest of the population (involving money and contracts).
• and which also allowed for specialisation, including the development of a craftsman and ultimately inventor, entrepreneurial and bureaucracy (governing and organising) classes -> technology & political organisation (and necessary investment)
• aided and abetted by relative abundance of raw materials (coal and iron).

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