CAPITAL ACCUMULATION: Capital means stock of physical reproducible factors of production. The capital stock increases with the passage of time and is called capital accumulation or capital formation. Capital formation is investment in capital goods that leads to increase in capital stock, national output and income. Investment in capital goods not only raises production but also employment opportunities, it is capital formation that leads to technological progress, which in turn leads to specialization and the economies of large scale production. Capital formation helps in providing machines, tools and equipment for the rising labor force. The provision for social and economic overheads like transport, power, education etc in the country is possible though capital formation. It also leads to the exploration of natural resources, industrialization and expansion of markets which are assented for economic progress.
ENTREPRENEUR: The function of an entrepreneur is to organize and manage a business enterprise. Economist Schumpeter regards innovation as the most important function of an entrepreneur. He regards the entrepreneur as the focal point of the process of economic development. The entrepreneur possesses special abilities which always motivate him to innovate new goods, or to adopt new techniques or to find a new market. Thus entrepreneur is one of the important factors in economic development of a country.
TECHNOLOGICAL: Technological changes relate to changes in the methods of production which are the result of some new technique or research or innovation. Changes in technological factors leads to increase in the productivity of labor, capital and other factors of production. According to Mason, technological improvements may lead to a number of advantages, in the field of rave materials thereby accelerating economic development.
TRADE MONEY AND CAPITAL: Since the time of Adam Smith market economics have evolved enormously advanced capitalist economies such as the United States, Western Europe and Japan have three distinguishing features: trade, specialization, money and capital.
An advanced economy is characterized by an elaborate network of trade, among individuals and countries that depends in great specialization and on intricate division of labor. As economics develop they became more specialized. Division of labor allows a task to be broken into a number of smaller chores that can each be mastered and performed more quickly by a single worker. Specializations arise from the increasing tendency to use roundabout methods of production that require many specialized skills. As individuals and countries become increasingly specialized, they tend to concentrate on particular commodities and trade their surplus output for goods produced by others. Voluntary trade, based on specialization benefits all.
Modern economies today make extensive use of money, or the means of payment. The flow of money is the life blood of any system. Money provides the yardstick for measuring the economic value of things and for financing trade. Trade in specialized goods and services today relies on money to lubricate its wheels Money is the universally acceptable medium of exchange including primarily currency and checking deposits. It is used to pay for every thing from apple tarts to zebra skins. By accepting money people and nations can then trade them for others. Without money we would waste much time negotiating and bartering.
Modern industrial technologies rest on the use of vast amounts of capital, precision machinery large scale factories and stocks of inventories. Capital goods leverage human labor power into a much more efficient factor of production and allow productivity many times greater then that possible in an earlier age. Capital goods produced inputs such as machinery, structures and inventions of goods in process permit roundabout methods of production that add much to a nations output.
In measuring the economic status of a person or a nation, the two yard sticks most often used are income and wealth. Income refer to the total receipts or cash earned by a person or household during a given time period usually a year. Income consists of labor earnings, property income and Government transfer payments.
National income consists of the labor earnings and property income generated by the economy in a year. Government takes a share of that national income in the form of taxes and gives back part of what it collects as transfer payments, the post tax personal income of an individual includes the return on all the factors of production, labor and property that the individual owns plus transfer payments from the government less taxes.
Wealth consists of the net dollar value of assets owned at a given point of time. Wealth is a stock, while income is a flow per unit of time. A house hold’s wealth includes its tangible items such as houses and its financial holdings such as bonds. Items that are of value are called assets while those that are owed are called liabilities. The difference between total assets and total liabilities is called wealth or net worth.
NON ECONOMIC FACTORS
Non economic factors such as social, cultural and political organizations influence the economic factors and have great importance.
CULTURAL ATTITUDES: There are religious and cultural traditions which are not conducive to economic development. Religion gives less inducement to the virtues of thrift and hard work. People are fatalists and therefore do not like to work hard. They are more influenced more by traditional customs and place high values on leisure, contentment and participation in festivals and ceremonies. Thus money is wasted in non economic ventures. Cultural attitudes stand in the way of progress and they keep social economic and political institutions in a state of back ward ness. Thus they are inimical to economic development of the country.
People should be imbibed with such religious ideas that may induce them to toward economic progress. This peculiarity is predominant in western culture which lays emphasis on materialism where as the oriental culture emphasizes spiritualism. All cultural changes spread discontentment and bring resistance in their way, thereby adversely affecting economic progress.
SOCIAL VALUES AND INSTITUTIONS: Social values and institutions hinder economic development. The family is the primary economic and social unit. It therefore, prevents people from taking independent economic decisions. In such a society relations are personal or patriarchal. People are influenced by caste, clan or creed at the social level.
JOINT FAMILY: Spread of education, knowledge will have in reducing social valves and institutions.
CASTE SYSTEM:A free society with a powerful middle class capable of increasing its income through trade and commerce is required for development
CHANGE IN SOCIAL ATTITUTES: Certain races have higher tendencies to develop than other, Such as Punjabis in India and Negroes in America and Brazil. Races should be interred mixed so that there could be a union of cultural values and racial qualities. The UN Report laying emphasis on changes in social values, attitudes and institutions observes that without painful adjustments rapid economic progress is impossible. Old ideas will have to be dispensed with, old social institutions will have to be dispersed with, the bonds of caste, religion and race will have to be broken. But the process of change should be evolutionary rather than revelatory other wise radical changes in social attitudes will bring about dissatisfaction discontentment and violence in their wake and retard the path to economic development.
INSTITUTIONAL CHANGES: It is essential for economic progress that there should be such institutional changes whereby saving could be mobilized for conversion into productive capital. For these public and private financial institutions like banks, stock exchanges etc. should be established. To meet the deficiency of administer nation. Engineers managers, scientists and other technical experts such institutions should beset up which may help in education and training them.
POLITICAL AND ADMININSTRATIVE CHANGES: The weak administrative and political structure is a by hindrance in the economic development of countries. A strong efficient and incorrupt administration is essential for economic development. Peace, stability and legal protection encourages entrepreneurship. Clean and strange administration full of justice stimulates economic development. As rightly pointed by Lewis “No country has made progress without positive stimulus from intelligent governments.”
Over the last quarter century country like Japan, South Korea, Hong Kong, Taiwan and Singapore have proved remarkably successful by achieving high investment rates, a sound financial system, rapid improvements in education and an outward orientation in trade and technology policies.
Faced with slowing economic growth and the desire for economic reform Russia and other formerly communist countries are making the difficult transition to market economics. These countries are undertaking reforms by taking simultaneous measures and cautious step by step approach, in which reforms are sequenced to prevent disruption.
LIVING STANDARDS: The material living standards of any society depend on how much it can produce in order to consume. If its small, then the living standards of its typical citizen will be low, only by raising it average living standards be raised. No society can generate increased real consumption merely by voting its citizens higher money incomes.
JOB: The trend in employment in the United Kingdom has been positive throughout the twentieth century; however, the rise was rapid in the first half of the century and only gradual in the second half.
LABOUR PRODUCTIVITY: Labor productivity refers to the amount produced per hour of work. Rising living standards are closely linked to the rising productivity of the typical worker. The long period of sustained productivity growth in the twentieth century, and especially since the Second World War, has caused British citizens to expect to be substantially better of than their parents and grandparents. Indeed, if output per person continues to double every 34 years or so, the average citizen will be nearly twice as well off as his or her parents.). Productivity increases at the rate of 4.6 per cent will double output every 16 years! Unfortunately, not all of this increase was accounted for by increased output of each person who remained in a job. Instead, a large number of firms closed down in the 1980, and the ones that closed tended to have lower-than –average productivity. As a result, total productivity in manufacturing rose to some extent because lower-productivity jobs were eliminated, not because those in high-productivity jobs raised their productivity by 4 per cent per year. In the later part of the period, however, most of the increase was accounted for by rising output of people who continued to work in that part of the economy.
ONGOING CHANGE: The growth in incomes over the centuries since market economies first arose has been accompanied by continual technological change. Our technologies are our ways of doing thing. New ways of doing old things and new things to do are continually being invented and brought into use. These technological changes make labor more productive, and they are constantly changing the nature of our economy. Old jobs are destroyed and new jobs are created as the technological structure slowly evolves.
JOB STRUCTURE: Not only has output per worker changed over, times; the pattern of work has also changed. In traditional economies, a high proportion of employment tends to be in agriculture. Great Britain, as the first industrial nation, was also the first to exhibit a sharp decline in agricultural employment.
The other clear structural change in employment has been the shift from manufacturing to services. Manufacturing employment peaked in Britain in the mid-1950s at around 38 per cent of total employment. This declined steadily thereafter, but the fall accelerated sharply in the early 1980s. Employment in services displayed a contrasting pattern. Only 15.5 per cent of employment was in services in 1955, but by the late 1980s this proportion had more than doubled to over 35 per cent.
NEW PRODUCTS: One of the most important aspects of the change that permeates market economies is the continual introduction of new products. Most of the myriad instruments and tools in a modern dentist’s office, doctor’s office, and hospital did not exist 50 years ago. Penicillin, painkillers, bypass operations films, stereos, television, videocassettes and recorders, pocket calculators, computers, ballpoint pens, compact discs, mobile phones, and fast, safe travel by jet aircraft have all been introduced within the lifetimes of people still alive today. So also have the products that have eliminated much of the drudgery formerly associated with housework. Dishwashers, detergents, disposable nappies, washing machines, vacuum cleaners, microwave ovens, refrigerators, were not there to help our great-grandparents when they first set up house.
GLOBALIZATION: Another aspect of the constant change that occurs in evolving market economies is the globalization that has been occurring at an accelerating rate over the last two decades. At the heart of globalization lie the rapid reduction in transportation costs and the revolution in information technology. The cost of moving products around the world has fallen greatly in recent decades. More dramatically, our ability to transmit and to analyze data has been increasing dramatically, while the costs of doing so have been decreasing, equally dramatically.
On the investment side, the most important result of globalization is that large firms are seeking a physical presence in many major countries. In the 1950s most foreign investment was made by US firms investing abroad to establish a presence in foreign markets. Today, most developed countries see major flows of investment in both directions, inward as foreign firms invest in their markets, and outward as their own firms invest abroad.
It is also interesting to note that globalization of investment had big effects on what ‘national interest’ means. The pension funds and personal savings of most UK citizens are now internationally diversified, making them less dependent upon the future success of Britain. Instead, the citizens of most advanced industrialized countries are accumulating shares in the world economy. The world is truly globalizing in both its trade and investment flows.
Today no country can take an isolationist economic stance and hope to take part in the global economy where an increasing share of jobs and incomes are created.
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