Models of Economic Growth

Let's learn about different model of economic growth in this blog.This will help you to prepare for your exam as well as to help you to prepare your classroom notes. Lets gets started.

Capitalism

Because of the invention of steam and other new energy sources for a wide range of industrial applications, feudalism lost its value. Capitalism came into being as a result. Capitalism (Burns et al., 1948) is a system in which each person owns a piece of equipment that is used to make money, and each person tries to make as much money as possible. The capital is owned by the people who own it. They have the power to spend and give away resources and hire people to work for them. Individuals (or groups of individuals) who own resources and hire workers are the people who make the system work. It's just like land and machinery to make things. Workers are just another tool for making things, like them To start with, the goal is to make profit the bottom line of shareholder value. By the end of the 17th Century, mercantilism took over economic thought. By the end of the next, it started to fade away.

It was important for mercantilism to grow capital so that businesses and trade could grow, giving the country a strong economy. In fact, the State helped the mercantile class. The philosophy of mercantilism was based on the idea that trade should grow. The strength of a country was a lot based on how many ships it had and how much gold and silver it made from trading. Having a good balance of trade meant that the country had more money in gold and silver. The East India Company is a good example of mercantilist government, which is when the United Kingdom (UK) helped exports by giving the trading company monopoly rights. The goal of mercantilism was to make the country stronger.

Most of the countries in Europe at the time were ruled by monarchs, and their main goal was to make their kingdom stronger through policies of state intervention to make goods for both domestic use and export, like woollen textiles in the UK or iron in France. All mercantilist governments encouraged the production of machines and other materials for manufacturing, either by giving them money or making them do it. As a result of state law, today was a good day. In this way, it is interesting that the state isn't a new thing in the 20th century. Trying to help and protect local businesses was a government goal. As time went on, the allocation of economic resources and the composition of national output became the responsibility of the government. As the 19th century went on, the systems imposed by the mercantilist states began to fall apart.

Laissez Faire

When mercantilism went away, economic liberalism took its place. Under this rule, each person had the right to buy and sell, make and consume what he wanted. Individualism was driven by the desire to be on your own. The government's role in people's economic activities became less important when the government used a laissez-faire or "let them be" style of administration. The goal was to let trade move freely and to remove government rules on production, employment, prices, wages, and consumption. The free market economy took over as the main rule. It was thought that it would help the common wealth (Smith Wealth of Nations). The assumption was that the sum of all individual interests was the public interest. A growing part of the business community saw in the economic freedom a lot of room for profitable projects.

Let things happen was the way things were done in Britain during the Nineteenth and early Twentieth Centuries. Even in the United States, it was still the most important social philosophy, but over time, it faded away.

Individuals should be able to do as much as they want with their money, work, trade, and consumption, but only if national security is at risk. This is the "laissez-faire" theory. The free market system there is therefore the essence of capitalism.

In the end, this system led to a lot of people having too much economic power and exploiting their workers. The workers had to work long hours and in harsh conditions with little or no concern for their well-being. Only people who had a lot of money and good social connections were able to get ahead. This led to big differences in income and wealth in the society, which made it hard for people to get along.

In the end, it was found that self-interest couldn't be trusted to lead the processes of making things, giving people money, and buying things, too. People's private interests had to be changed, regulated, and added to by the government. In Europe, two World Wars and the Great Depression led to a return of some authoritarian control over the economy. North America stayed mostly with free enterprise, but Europe, especially the UK, started to be more socialist.

Socialism

The terrible living conditions imposed by industrialization in the early 19th century were the groundwork for the seeds of socialism to be sowed in.

People were forced to leave their jobs and way of life in the country to live in cities. There were a lot of profits made by the industrialist class, but wages for workers were low and the living conditions of workers were terrible. A humanitarian bent led to some changes in England after 1832. There were efforts to protect child and female labour. They thought that they couldn't get better under the current capitalist system, though. Their new social system should be different from the one that capitalism used because it did bad things to people, so they thought it was time to start over. Economic and political pressures led to a new way of organising society. The capitalist model of economic development was associated with the exploitation of both workers and consumers from the very start of the Industrial Revolution in the 1800s. Socialism was the form that it took to be. When the government took control of the means of production and made sure the society's needs were met, it created a new economic social order that was very different from the one we know today.

The socialist doctrine is based on three things: (a) capitalism is a system that grows through monopolistic activities; (b) it creates a lot of big differences in income and wealth; and (c) it keeps a lot of people poor. Many things, like this, can be made better if the government owns the tools of production and distribution.

The French Revolution, which took place in the 18th century, started the socialist movement. The French Catholic Church and the nobility had a big influence on the political and social order in France. Even though socialism has been around for a long time, it didn't take off until the October Revolution in Russia, which was inspired by Marx's philosophy in The Communist Manifesto and Das Kapital.

The adoption of the socialist ideology by the Union of Soviet Socialist Republics, Eastern Europe, and China, as well as some newly independent countries in Asia, Africa, and Latin America, gave a boost to the public sector. This meant that the public sector would play a bigger role in development.

There are a lot of different schools and people who practise socialism in different ways. The way the concept was put into practise led to even more differences. Bertrand Russell, a British philosopher, says that "Socialism, like everything else that is important, is more like a trend than a set of rules." Socialism is all about letting people own land and money through a democratic government. This is what socialism is all about. In socialism, there is a lot of concern for people who haven't been able to get what they need before.

Fabian Socialism

Fabian socialism is a moderate form of socialism. There was a group in the UK called Fabian Socialists who didn't want to overthrow governments with violence. This group was different from Marxists, who wanted to overthrow governments with violence.

Many famous social thinkers like Bernard Shaw and H.G. Wells were among the fabians, as they came to be called. Several of the most important people in the U.K.'s intellectual elite were either members of the Fabian Society or had close ties to it. The Fabians thought that socialism was going to spread all over the world because of the unfairness of capitalism. In contrast to the Marxists, the Fabian Socialists chose a peaceful political change that was very different from what they did. During the time that Fabian Socialism was growing in Britain, it spread to Germany and other parts of the continent, too (Dutt). Jawaharlal Nehru, the first Prime Minister of independent India, was a big fan of the Fabian philosophy. He was also a big fan of non-violent socialism through a democratic process.

Marxism

Karl Marx (1818–1893) founded the radical school of socialism.

The Marxist theory inspired European socialism movements in the late nineteenth and early twentieth centuries. Marx referred to his socialist ideology as communism and scientific socialism. Marx and Eagels (Mars & Engles, 1948) stated in their seminal work, The Communist Manifesto, that capitalism was intrinsically an exploitative system that was doomed to fail. The labour theory of value is a significant contribution to the literature on socialism, implying that value can only be created by human labour. Because only labour produces value, the capitalist, who owns the means of production (land, buildings, machinery, and raw materials), removes surpluses from labour and claims them as profit.

As an ideology, communism is based on the idea that there will always be a clash of class interests between the "haves" and the "have nots," and that a shift must occur - or be forced - if an egalitarian society is to be built.

The Communist Manifesto stated explicitly and firmly that a new social and economic system "can only be achieved by forcible overthrow of all existing social conditions." Let the ruling classes shudder at the prospect of a communist revolution. The proletariat, or wage earners, have nothing to lose except their chains. They have a world to conquer. "Let the working men of the world band together" (Das Kapital 1867). According to the Manifesto, "the history of all previously existing society is the history of class battles," meaning that capitalists and workers are in an adversarial relationship. The treasured - yet first phase of the communist movement was proletarian dictatorship, which was expected to eventually lead to a classless society.

The concept calls democracy's core foundation into question. To the rest of the world, the Soviet Union represented the essence of Marxism.

Other varieties of socialism that flourished at the time included French syndicalism, guild socialism, and British Fabian Socialism.

The concept of the public sector is derived from the state's ownership of the means of production. The public sector is the portion of a country's production and distribution system that is owned and managed by the community through the state or its organs.

World Wars I and II wreaked havoc on a number of countries on both the European and Asian continents. In the 1930s, there was a severe downturn. Employment became scarce, and poverty was visible everywhere. Thinkers of the time, such as John Maynard Keynes (who proposed the General Theory of Unemployment, Interest, and Money), urged for the government to play a larger role in addressing issues of unemployment, economic disequilibria, and common man unhappiness.

The General Theory of Keynes was released in 1936, the seventh year of the Great Depression, when the previous policy of laissez faire (little governmental involvement and free market operation) had failed. Unlike conventional policymakers who believed that depression and unemployment were caused by a lack of supplies, Keynes believed that an increase in demand for products, services, labour, and capital would lead to economic growth - demand-led growth. The General Theory was also supported by the 1929 market crash, which wiped away many people's savings and salaries. According to the theory, the only option to stop the economic decline was to increase expenditure. Individuals opening their wallets during a downturn would be impractical, and the only agency that could promote demand is the government. The importance of the government making significant investments to spur growth is at the heart of Keynesian economics of state-funded employment creation - "dig trenches and fill them up."

Mixed Economy Model

The Indian type of socialism selected a moderate path, rejecting both capitalism and communism's essential doctrines. The Indian ethos and culture did not tolerate a violent or revolutionary route. Indian philosophy is profoundly rooted in peace and tolerance (of different denominations).

India's strategy to economic development was a hybrid of centrally planned and market economies. While the public sector originated in the West, particularly in the United Kingdom and France, through nationalisation of established sectors, the Indian experiment took a different path. When it gained independence in 1947, the country was woefully underdeveloped. It was deemed counter-productive to destroy something that already existed, therefore the country opted to focus on the development of new industrial facilities and to expedite development at the lowest possible cost.

Although the Indian National Congress adopted a resolution advocating nationalisation of key industries as early as 1931 at its Karachi session, Jawaharlal Nehru, the first Prime Minister who dominated the political scene, believed that the interests of development would be best served by utilising the resources that the state could spare in setting up new units of production in the public sector.

For decades following independence, the Congress, the ruling party, envisioned that new ventures in defence, key and public utility industries, and those that were in the nature of monopolies or helped the country as a whole, would be publicly held. The Economic Policy Report also suggested that the private sector be subject to state control and regulation, that banking and insurance be nationalised, and that financial cooperatives be established. The establishment of a planning body "to plan integrated growth of the country's economy in order to achieve a just social order eliminating exploitation in production" was proposed in the Report.

The underlying assumption was that, while the existence of the private sector was transitory in nature, the social order should be transformed without disturbing the existing economic pattern. It was noticed that throughout the transitional era, private units should not only be allowed to exist, but should also be offered possibilities for expansion within their own domains of activity.

The mixed economy model assumes the existence and expansion of both private and governmental firms. It did, however, anticipate the public sector occupying the commanding heights of the economy. The concept of dominating heights was expanded upon. The role of the private sector would be constrained and controlled by a planning system under the paradigm. The first Industrial Policy Resolution, passed in 1948, tacitly stated the concept of a mixed economy, which included the essentials of the American market economy with the Russian centrally planned economy.

It was recognised that, with the exception of a few large-scale industrial undertakings in the steel, textile, and sugar sectors owned by the industrial houses of the Birlas, Tatas, and a few others, India possessed little industrial base or infrastructure capable of enabling the country to achieve the required rate of economic development.

The private sector lacked the necessary financial resources as well as the capacity and experience to undertake large projects. As a result, the government had no choice but to invest in numerous socioeconomic sectors such as infrastructure, industry, education, health, and other critical services. Massive investments were required in practically all sectors, including agriculture, industry, and other tertiary industries, as well as infrastructure (electricity, roads and road transport, communications, trains, aviation, and shipping). It was also critical to improve backward and inaccessible regions in order to achieve balanced social and economic development for the people. Later, it was discovered that a huge number of private sector industrial ventures had become ill as a result of outmoded technologies and poor management. In the absence of any other feasible alternative, it was deemed that the government had no choice but to intervene to protect the employment of these units.