CAUSES OF UNDERDEVELOPMENT AND CONCEPTS FOR

DEVELOPMENT
AN INTRODUCTION TO DEVELOPMENT THEORIES

By DR. FRITHJOF KUHNEN*

The Journal of Institute of Development Studies, Studies, NWFP Agricultural
Vol. VIII, 1986,1987 University, Peshawar.

INTRODUCTION
Since the end of World War II, we have been experiencing a worldwide
struggle for the improvement of living conditions in the so-called developing
countries. At the beginning, there was little query as to the causes of
underdevelopment; the newly independent countries as well as United
Nations bodies and industrialized countries tried to promote development by
applying measures like the introduction of know-how through the assignment
of experts, the expansion of education, the development of infrastructure,
etc., i.e., they followed the example of the industrialized countries. In the
course of time it became obvious that this was more or less a treatment of
symptoms instead of causes, and the gap gradually widened between the
developed and less developed countries of this world.
During the early period of development efforts there was little discussion on
the historical causes and the real nature of underdevelopment. Theoretical
considerations at this time of "cold war" explained the situation of
underdevelopment and the path for development from the viewpoint of
western or socialist metropoles. Only in more recent times has the viewpoint
of developing countries gained momentum in development theory. This has
great practical implications: development theory offers the justification for
policies. The answer to the question "What is development?" determines
which strategies, policies, projects, what type of industry, or what
organization of agriculture should be considered to be in line with
development goals or detrimental to these. Different positions in
development policy are based on differences in underlying development
theories.
There are a great number of explanations for underdevelopment and
concepts of development.
This paper tries to introduce the reader to the most important theoretical
explanations of underdevelopment and development without aiming at
completeness. As regards its presentation, there are several possibilities of
organizing the paper. Some authors organize the theories along the scientific
disciplines which are basic for the analysis and differentiate between
economic theories, sociological theories, demographic theories, climate
theories, etc.* (BOHNET 3). Others differentiate between socialistic and
market-economy oriented theories because these two groups have a
different way of analysing and diagnosing the causes of underdevelopment,
and they are distinct as to their opinion on the possibilities of reform or
revolution with a view to influencing the development process (KEBSCHULL

1 | INTRODUCTION TO DEVELOPMENT THEORIES

11). In this paper, the theories are organized according to their basic
conception of the causes of underdevelopment.
1. MODERNIZATION THEORIES
(BACKWARDNESS THEORIES)
According to modernization theories, internal factors in the countries, such
as illiteracy, traditional agrarian structure, the traditional attitude of the
population, the low division of labour, the lack of communication and
infrastructure, etc., are responsible for underdevelopment. Differences in
structure and historical origin are considered of little importance;
international dependencies are not taken into account.
Consequently, a change of these endogenous factors is the strategy for
development. The industrialized countries are the model for economy and
society, and this model will be reached sooner or later. There is a continuum
between the least and the most developed country and each country has its
position on this line. The difference as compared to the industrialized
countries is the degree of backwardness which has to be made up for.
Suitable measures are the modernization of the production apparatus, capital
aid, transfer of know-how, so that the developing countries can reach the
stage of industrialized countries as soon as possible. Development is seen as
an increase of production and efficiency and measured primarily by
comparing the per capita income.
1.1 DUALISM THEORIES
Dualism theories assume a split of economic and social structures of
different sectors so that they differ in organization, level of
development, and goal structures. Usually, the concept of economic
dualism (BOEKE 1) differentiates between two sectors of economy:
the traditional subsistence sector consists of small-scale agriculture,
handicraft and petty trade, has a high degree of labour intensity but
low capital intensity and little division of labour;
the modern sector of capital-intensive industry and plantation
agriculture produces for the world market with a capital-intensive
mode of production with a high division of labour.
The two sectors have little relation and interdependence and develop
each according to its own pattern. The modern sector can be
considered an economic enclave of industrial countries, and its
multipli-cator and growth effects will benefit the industrial countries
but have little effect on the internal market.
Several authors stress the dualism of specific factors. ECKHAUS (4),
for instance, differentiates, in his concept of technological dualism,
between labour and capital-intensive sectors. GANNAGE (7) explains
regional dualism as a lack of communications and exchange between
regions, the capital sometimes being an island which, in geographical
terms, belongs to the developing country, in economic terms,
however, to the industrialized country.
Economic, technological, and regional dualism are often the
consequence of a social dualism, the absence of relationships between

2 | INTRODUCTION TO DEVELOPMENT THEORIES

 people of different race, religion, and language, which, in many cases,
is a legacy of colonialism.
Development in dualism concepts is the suppression of the traditional
sector by concentrating on and expanding the modern sector. In time,
it is assumed that the trickle down effects will reduce and abolish
dualism. In this line of thinking, the main problem is capital formation
because its degree determines the scope and speed of expansion of
the modern sector. In general, agriculture has to provide the
resources, labour as well as capital, for expanding the modern sector.
In details, the strategies vary. Some authors, like LEWIS (14) and
FEI/RANIS (5), assumed that a reduction of the labour force in
agriculture, because of the widespread disguised unemployment,
would not reduce agricultural production. The productive employment
of these labourers in the modern sector would increase the total
production of the economy and hence priority of investment in
industry is necessary. Concentration on the modern sector led to an
increasing regional disparity, rural urban migration, urban
unemployment, a decrease in agricultural production, and hindrance
in industrial development because of a lack of purchasing power in the
rural areas. The anticipated trickle-down effects hardly ever
happened. In praxis, development plans following this line of thinking
led to failures like the early Indian development planning. Therefore,
other authors, like JORGENSON (10), LELE (12), and MELLOR (17),
emphasize the important role of agriculture at the beginning of
development, i.e., preceding or parallel to industrial devel-,, opment in
order to provide enough internal resources for the development
process.

1.2 STRATEGY THEORIES

Underdevelopment from the viewpoint of these theories is the result of
vicious circles of factors. One example is based on the fact of low real
income in developing countries which is the result of low labour productivity.
This low labour productivity, in turn, is a consequence of capital shortage
which is a result of the population's low saving ability. As the saving rate is
determined by the low real income, the circle is closed.
Strategy theories intend to break up this cycle at a certain point which they
consider critical and which varies according to the different theories. Thus,
they want to initiate development and
transform traditional subsistence economy into a modern market economy.
Their main emphasis is on capital formation and investment (investment
theories) and, by and large, they prescribe action for overcoming
underdevelop-ment while they contribute little towards explaining the causes
of underdevelopment.

1.2.1 Theory of Balanced Growth

(NURSKE 20)

3 | INTRODUCTION TO DEVELOPMENT THEORIES

This theory sees the main obstacles to development in the narrow market
and, thus, in the limited market opportunities. Under these circumstances,
only a bundle of complementary investments realized at the same time has
the chance of creating mutual demand. The theory refers to Say's theorem
and requests investments in such sectors which have a high relation
between supply, purchasing power, and demand as in consumer goods
industry, food production, etc.
The real bottleneck in breaking the narrow market is seen here in the
shortage of capital, and, therefore, all potential sources have to be
mobilized. If capital is available, investments will be made. However, in order
to ensure the balanced growth, there is a need for investment planning by
the governments.
Development is seen here as expansion of market and an increase of
production including agriculture. The possibility of structural hindrances is
not included in the line of thinking, as are market dependencies. The
emphasis is on capital investment, not on the ways and means of achieving
capital formation. It is assumed that, in a traditional society, there is ability
and willingness for rational investment decisions along the requirements of
the theory. As this will most likely be limited to small sectors of the society, it
is not unlikely that this approach will lead to super-imposing a modern sector
on the traditional economy, i.e., to economic dualism.

1.2.2 Theory of Unbalanced Growth

(HIRSCHMAN 9)
Contrary to the theory of balanced growth, in Hirschman's opinion, the real
bottleneck is not the shortage of capital, but lack of entrepreneurial abilities.
Potential entrepreneurs are hindered in their decision-making by institutional
factors: either group considerations play a -great role and hinder the
potential entrepreneur, or entrepreneurs aim at personal gains at the cost of
others and are thus equally detrimental to development. In view of the lack
of enterpreneurial abilities there is a need for a mechanism of incentive and
pressure which will automatically result in the required decisions. According
to Hirschman, not a balanced growth should be aimed at, but rather existing
imbalances— whose symptoms are profit and losses—must be maintained.
Investments should not be spread evenly but concentrated in such projects
in which they cause additional investments because of their backward and
forward linkages without being too demanding on entrepreneurial abilities.
Manufacturing industries and import substitutions are relevant examples.
These first investments initiate further investments which are made by less
qualified entrepreneurs. Thus, the strategy overcomes the bottleneck of
entrepreneurial ability. The theory gives no hints as to how the attitude of
entrepreneurs and their institutional influence will be changed in time.

1.2.3 Theory of Stages of Growth

(ROSTOW 27)

4 | INTRODUCTION TO DEVELOPMENT THEORIES

This theory tries to explain the long-term processes of economic
development from the point of view of economic history by describing five
ideal types of stages through which all societies pass:
The 'traditional society' has more than 75 per cent of the population engaged
in food production, and political power is in the hands of landowners or of a
central authority supported by the army and the civil servants.
The 'transitional stage' creates the preconditions for take-off by bringing
about radical changes in the non-industrial sectors. Export of raw material
gains momentum; a new class of businessmen emerges; and the idea of
economic progress coming from outside spreads through the elite.
The 'take-off stage' brings a sharp increase in the rate of investment in the
per capita output. This stage of industrial revolution is accompanied by
radical changes in the production techniques. Expansion takes place in a
small group of leading sectors at first and, on the social side, is accompanied
by the domination of the modern section of society over the traditional one.
The 'drive to maturity* brings a spread of growth from the leading to the
other sectors and a broader application of modern technology followed by
necessary changes in the society at large.
The 'stage of high mass consumption' can be reached after attaining a
certain level of national income and formulating an economic policy giving
priority to increased private consumption. The critical phase for development
is the 'take-off stage' during which net investment rates have to increase
from 5 to 10 per cent of the national product and during which the political,
social, and institutional framework has to be built in order to reach a
situation of self-sustained growth. The financial resources must be
accumulated internally by higher saving rates. Income distribution favouring
classes and strata which are willing and able to use capital more productively
than others has the same effect.
While this theory became widely known, perhaps because of its author's
political post and the fact that it is a counter-position to Marxian approaches,
this "time-table of development" does little to explain why some societies go
ahead on this ladder and others not. As well, its value for forecasting the
results of development activities is limited. The rather fixed stages hardly
allow for alternative goals and processes of development and incorporate a
high degree of ethnocentrism.

1.2.4 'Big-push' Theory

(ROSENSTEIN-RODAN 26)
This theory is an investment theory which stresses the conditions of take-off.
The argumentation is quite similar to the balanced growth theory but
emphasis is put on the need for a big push. The investments should be of a
relatively high minimum in order to reap the benefits of external economies.
Only investments in big complexes will result in social benefits exceeding
social costs. High priority is given to infrastructural development and
industry, and this emphasis will lead to governmental development planning
and influence

5 | INTRODUCTION TO DEVELOPMENT THEORIES

1.2.5 Theory of Development Poles
(RERROUX 22)
The promotion of regional development centres will serve as focal point and
incentive for further development. Such a regional concentration helps to
reap the benefits of technological external economies and makes the growth
centre attractive to entrepreneurs, thus initiating further development. This
theory is a sort of 'regional unbalanced growth theory' which uses temporary
regional imbalances to initiate development. Little attention is given to the
process which is necessary to ensure a spread or linkage from the centres to
the hinterland without which the poles may transform the economy of the
region into a dual economy.

1.2.6 Theory of Circular Causation

(MYRDAL19)
Myrdal opposes the strategy of development poles because social systems
and economic processes do not develop towards an equilibrium but, on the
contrary, factors tend to cumulate to positive or negative cycles. Under
laissez faire' conditions in developing countries, there is a tendency towards
a negative cumulation. In principle, Myrdal's theory is a negation of the
monocausal explanation of problems of developing countries by economic
factors alone. Rather, in a comprehensive way, all social relations have to be
incorporated. At national level—different stages of development between
regions—as well as international level— trade between industrialized and
developing countries—differences tend to increase because of the spread
effects in the more developed areas and modern sectors and backwash
effects in backward areas and traditional sectors. For instance, industrial
import goods are in competition with traditional crafts; terms of trade
deteriorate; capital is being transferred, etc. The direction of processes
depends on the initial situation and the factors causing the change. Under
the conditions in developing countries, increased regional dualism often is a
consequence of such processes of circular causation.

1.3 SOCIAL-PSYCHOLOGICAL THEORIES

In the dualism and (economic) strategy theories discussed so far,
underdevelopment and development are explained by economic factors
alone while individual or group values and motivations are neglected. The
social-psychological theories consider these very factors as main
determinants of underdevelopment and development. Thus, they add a new
component to the discussion. Because they reduce the causes to aspects of
one discipline, like economic theories, they are partial explanations as well.

1.3.1 Sociological Explanation of Socioeconomic Change

One of the earliest and widely discussed concept is WEBER's (32) treatise
"Protestant Ethics and the Spirit of Capitalism" in which he combines
Psychological & Sociological variables with economic development. Because
of its determination of the value systems of societies, he put primary

6 | INTRODUCTION TO DEVELOPMENT THEORIES

importance on religion. According to Weber, the Protestant religion was a
precondition for capitalistic development for two reasons: Protestant ethics
led to an ascetic life style which, instead of advocating affluence, reinvested
the proceeds. As well, it is the basis of rationalism and goal achievement
behaviour. While a value system which motivates economic development can
hardly be limited to Protestantism Weber's stress on values and the resulting
motivation influenced later thought.
In more recent times, PARSONS (21) and SMELSER (31) explained economic
development as a result of tension and unrest in societies. If a traditional
undifferentiated society experiences economic growth and economic
differentiation as a result of external inputs, this leads to unrest. Frustration
of groups of the population not & participating and gaining generates further
differentiation and growth, and these small steps happen within relatively
short times.
McCLELLAND (16) sees the cause of underdevelopment in the absence of
achievement motivation. The desire to do well to attain an inner feeling of
personal accomplishment is the pre-requisite for innovative activity

1.3.2 Theory of Social Change

(HAGEN 8)
Following McClelland's concept that a level of development is correlated with
achievement motivation, Hagen tried to explain why this achievement
motivation varies between societies and their classes and strata. He argues
that in traditional societies the status of individuals is fixed. Children learn to
act according to established norms, and deviations (initiative !) are punished.
If by external influences a new group gains power, the status of the old elite
is challenged and weakened. The insecurity and frustration leads to changed
behaviour which has consequences on the family structure. Children tend to
become dissatisfied with the society and readily accept new values. In time,
they become innovative personalities. If these persons become dominant
groups in the society, this causes economic development. Similar
phenomena may happen as far as the changing situation of marginal groups
or minorities is concerned.

DEPENDENCE THEORIES
According to dependence theories, the cause of underdevelopment is the
dependence on industrialized countries while internal factors of developing
countries are considered irrelevant or seen as symptoms and consequences
of dependence. The development of industrialized countries and the
underdevelopment of developing countries are parts of one historical
process. Developing countries are dependent countries. The economic and
political interests of industrialized countries determine their development or
underdevelopment. The goals are superimposed. Underdevelopment is not
backwardness but intentional downward development.

7 | INTRODUCTION TO DEVELOPMENT THEORIES

As to the causes of dependence, the various theories differ, economic factors
always dominating. External trade theories concentrate on economic
relations between countries. Imperialism theories stress the politicoeconomic
interest while dependencia theories concentrate on the deformation of
internal structures by dependence which perpetuates the situation.
Dependence theories concentrate on explanations of the genesis of
underdevelopment and pay little attention to strategies for overcoming this
situation. Implicit development here means liberation, end of structural
dependence, and independence.

2.1 EXTERNAL TRADE THEORIES

The structure of supply and demand in industrialized and developing
countries is such that industrialized countries are able to reap the benefits
from international trade. This transfer of resources makes development
impossible, and these unequal trade relations are seen as the reasons for
underdevelopment.

2.1.1 Theories of Circular Deterioration of Terms of Trade

(PREBISCH24)
The structure of supply and demand is such that industrialized countries
offer industrial products and buy raw products and the developing industries
do the reverse. According to Engel's law, the demand for raw materials tends
to be inelastic while the demand for industrialized goods is elastic. The
technological progress in the production of industrialized goods not only
makes it possible for industrial countries to increase their incomes and thus
the standard of living, but, because of the elastic demand on the world
market, also to enforce higher prices. The situation in developing countries is
the opposite: technological progress in primary production results in lower
prices because of the inelastic demand. This mechanism leads to
deteriorating exchange relations between industrialized and developing
countries (and, as well, between the industrialized and the agricultural sector
in developing countries). MYINTs (18) and RAO's (25) 'theory of partial
pauperization' and PERROUX's (23) 'theory of dominating economy* argue
along very similar lines.

2.1.2 Theory of Immiserizing Growth

(BHAGWATI2)
This theory follows the argumentation of the theory of circular deterioration
of terms of trade and concludes that countries, in order to improve their
balance of trade, have to increase their exports to compensate for falling
prices. This means a further deterioration of terms of trade. The unchanged
structure of supply intensifies the structural dependency and, regardless of
growth, there is no development but only 'immiserizing growth.' This
situation is especially pertinent for countries with agrarian monoculture. As a
consequence, BHAGWATI later asked for a speedy industrialization including
heavy industry for larger countries.

8 | INTRODUCTION TO DEVELOPMENT THEORIES

2.2 IMPERIALISM THEORY
The imperialism theory explains the domination of underdeveloped areas by
industrialized countries as the consequence of different economic and
technological levels and unequal power potential resulting from a different
economic growth. The consequence of the development of industrial
capitalistic societies is a pressure for expansion which may lead to military or
political acquisition (colonies) or to maintaining economic dependence
(developing countries). Different theories have their own explanation of the
reason for the pressure for expansion but it is always seen as the result of
the inability to cope internally with the consequences of permanent
technological innovation and their effects on the society.

2.2.1 Classical Imperialism Theory

(LUXEMBURG (15), LENIN 13)
The desire for profit maximization causes production beyond the needs of
the internal market and leads to the establishment of new markets in
underdeveloped areas. Here, the autochthon production and markets are
being destroyed and, thus, unemployment is exported to underdeveloped
areas. Lenin in addition assumed a decrease of investment possibilities and,
therefore, of profit rate in industrialized countries. Thus, capital is being
exported in order to maximize profits. In the underdeveloped areas, this
capital is invested, not according to the needs of these countries, but
according to the interests of industrial countries. The profit is transferred to
the industrial countries whose development is based on the exploitation of
underdevelopment areas.

2.2.2 Modern Imperialism Theory

(SANTOS (28), GALTUNG 6)
The thesis of classical imperialism theory has been disproved empirically.
New imperialism theories therefore, postulate the dependency theorem with
a new explanation of exploitative relations. The new phase of relation
between industrialized and developing countries can be called technological-
industrial dependence. Industrial countries invest in the production and
export of raw materials in developing countries, influence with their potential
of power the terms of trade in their favour, and thus perpetuate the
international division of labour. While imperialism is seen as a phenomenon
of capitalism and these theories are based on Marxian concepts, the fact
remains, nevertheless, that communist countries also participate in the
exploitation of developing countries by accepting the advantages of the
world market.

2.3 DEPENDENCIA THEORIES

The multitude of approaches1 combined under the heading 'Depen-dencia'
like imperialism theories are based on the assumption of an external
dependency of developing countries which makes exploitation possible.
9 | INTRODUCTION TO DEVELOPMENT THEORIES
However, while imperialism theories hold the dependence relation to be
directly responsible for the exploitation of developing countries, the
dependencia theories develop this concept further. They postulate that
external dependencies lead to an internal structural deformation which
perpetuates the external dependency. The process started with the political
and military dependency of colonies which have been exploited through the
destruction of the indigenous life style and culture, economic extraction, and
forced integration into the international division of labour. This asymmetric
integration caused structural changes in the peripheral societies: an
economy oriented towards the requirements of The industrial countries and a
functional dependency of the traditional sector on this export-oriented
sector. The dynamics of reproduction of the modern sector in developing
countries are similar to those of industrialized countries, thus leading to an
extreme stratification, i.e., externally oriented elites and marginalized
masses. Elites accept the norms and values of the industrialized countries
and cooperate in maintaining a status quo.
The deformation of the economic and social system leads to structural
heterogeneity: rich elites and marginal masses, the destruction of traditional
economy oriented towards fulfilling the internal needs. Thus, the centre-
periphery relationship reproduces itself within developing countries. Between
metropolis and rural hinterland, relations are similar to those existing
between industrial and developing countries.
Underdevelopment, from this point of view, is not a phase on the way to
industrialization but rather a consequence of capitalism. In its concentration
on external factors, possible internal conditions are neglected or considered
irrelevant. Examples of countries with limited external contacts, like Nepal,
Thailand, and Ethiopia, cast doubt on the general applicability of this partial
explanation. Dependencia theories do not concentrate on strategies for
development beyond the demand for structural changes, independence, and
participation.
In recent times, however, the strategy of autocentric development has been
aiming to overcome this shortage (SENGHAAS 29). Development should take
place on the basis of local resources. In order to make this possible, a
temporary dissociation from the world market controlled by capitalists is
considered necessary. This dissociation should not be understood as autarkic.
It allows for a certain degree of cooperation, a selective relation to
industrialized countries. The goal is a reformation of the internal social and
economic structure and, afterwards, re-entry in the international relations
under conditions of equal rights. The way to reach this goal is via a
selfreliance policy, i.e., a development according to the felt needs of the
population based on local resources, increase of agricultural production to
satisfy basic needs, concentration of decentralization with the participation
of the masses. While this line of thinking is obviously based on the Chinese
and Tanzanian experiences, it is on a high level of abstraction with
preconditions which are difficult to fulfil and rather weak for concrete
application. It has more the character of a goal vision that of a strategy for
implementation.

3 TOWARDS A GENERAL THEORY OF DEVELOPMENT

10 | INTRODUCTION TO DEVELOPMENT THEORIES

All the theories discussed in the last chapter are only partial theories. They
explain certain aspects but do not fully explain the cause of
underdevelopment. The explanation is more adequate for certain historical
situations and specific conditions of production while they are less relevant
for others. They offer a strategy for overcoming the prevailing situation and
initiating development which may be suitable under certain economic and
social conditions but are not applicable to others. A general theory of
development is still lacking.
Drawing up such a general theory is indeed a difficult task; it would have to
include
an explanation of underdevelopment for different countries;
an explanation of the development process of industrialized countries;
and
a strategy for overcoming underdevelopment in developing countries.
As well, it would have to include
all relevant disciplines and their interdependence;
the different levels at which development takes place, from the local to
the international level;
the processes and relations between the different sectors and strata of
society and economy; and
the international dimensions of the development process.
While the system theory opens up the possibility of organizing such a vast
theoretical body, the activities of different researchers hitherto have not yet
been successful. Even in the absence of a concise theory to guide political
activities, decision-makers must have some yardsticks to measure whether
their strategies and tools will achieve the goals of the society. Here, goals
play an important role. While, in detail, the question of goals in the
development process is a political question, and difference of opinion and
conflict are possible, at a high level of abstraction, universal agreement
seems to be possible.
It is widely agreed that preservation of human dignity and fulfilment of basic
needs are the foremost duties of every society. While there is wide
agreement on this goal, differences of opinion exist on the question of the
degree to which these basics should be supplied and, as well, how they
should be supplied. These differences allow for different paths of
development.
From the common denominator "basic needs," one can deduct five basic
goals of development:
economic growth to secure food and other requirements for the
population;
social justice to reduce inequality;
employment as means of earning an income but, as well, because of
its ethical and social value;
participation as political involvement and social sharing;
11 | INTRODUCTION TO DEVELOPMENT THEORIES
 independence as freedom from external domination.
While individual societies may have different opinions on the priorities of
these goals, in the absence of a general theory of development; one can use
the criterion of fulfilment of these goals as a yardstick in development.
Development is then understood as a simultaneous progress towards these
five goals.

12 | INTRODUCTION TO DEVELOPMENT THEORIES