HOW DOES AN ECONOMY GROW?

SEBASTIAN CHAMFORT - "Society is composed of two great classes: Those who have more dinners than appetite, and those who have more appetite than dinners."

WHY DO WE NEED TO TRY TO UNDERSTAND ECONOMIC GROWTH? 1. Help you appreciate the factors or processes which have direct bearing on your present and future. 2. Understand why the average Filipino family has less of food, clothing and other material things in life than, the average American family. 3. Understanding will also encourage you to strive to change at least your own and your family.

THEORIES OF ECONOMIC GROWTH MAY BE CLASSIFIED INTO THREE BROAD GROUPS. 1. theories viewing economic growth as a NATURAL AND INEVITABLE PROCESS. 2. theories explain economic growth as a RATIONAL PROCESS BROUGHT ABOUT WHEN MEN RESPOND TO OPPORTUNITIES IN THE ENVIRONMENT TO PROMOTE THEIR OWN SELF-INTEREST OR MATERIAL WELFARE. 3. theories views economic development as a result of seemingly economically IRRATIONAL YET PSYCHOLOGICALLY AND SOCIOLOGICALLY SATISFYING ACTIVITIES OF ENTERPRISING MEN. (*General, Economic and Socio-psychological theories)

GENERAL EXPLANATIONS OF ECONOMIC DEVELOPMENT A. Economic development proceeds according to a master plan or LAW OF NATURE. - 1932, SPENGLER "a society is a living organism that grows, lives and dies. - Economic development is a natural thing that happens to an existing culture; it is part of life and is something to be expected. -Herbert Spencer view the same way. He viewed society as an organism constantly in the process of evolution.

B. Economic development is brought about by an INVISIBLE HAND. - 18th century, ADAM SMITH according to him, while individuals seek to work for their own personal goals, they unknowingly promote what is best for all.

C. Economic development is brought about by CULTURAL DIFFUSION. - men produced more, and at the same time had more energy left for other productive activities. As production increased, society developed economically.

D. Technology improvements and division of labor lead to development. -ADAM SMITH, believed that the invention of better machines and equipment brought about increased productivity which together with specialization or division of labor, made economic growth possible.

E. Population changes affect development. - according to DAVID RICARDO, population increases eventually lead to stagnation or a final stationary state of the economy. (While admitting that sustained increases in population would at first lead to more and more demand for food, he argued that the time will come when land becomes less productive, and requires higher production costs in order to continue producing. the rise in prices would in turn push up wage rates and pull down profits for the capitalists. With expectations of lesser profits, the capitalist correspondingly would reduce his investment. the economy's growth cycle would then eventually come to a stop.)

- JOHN MAYNARD KEYNES (1936) disagreed with Ricardo's conclusion. Keynes maintained that capitalists or entrepreneurs are most likely to invest their resources when there is a demand for the commodity.

SOCIO-PSYCHOLOGICAL EXPLANATION OF DEVELOPMENT - in viewing men as rational being, economists theorize that societies engage in entrepreneurial activities because they would gain from doing so. (people would have jobs, communities would have the services they need).

- however, in many instances, people engage in enterprise even if it seems "irrational," that is, even if it seems that they will not gain materially or that the venture is without bright prospect.

JOSEPH SCHUMPETER an entrepreneur is an individual driven by noble motives and therefore differs from the early economists' rational self-motivated capitalist.

SOCIOLOGICAL FACTORS IN ECONOMIC DEVELOPMENT sociologists explain economic growth in terms of social or cultural values, norms and other structures that differentiate modern from traditional economies.

TALCOTT PARSONS DESCRIBE THE CHANGE IN VALUES HELD BY CULTURES AS THEY EVOLVE FROM TRADITIONAL TO MODEERN ECONOMIES. (Individuals in modern societies) 1. unemotional 2. interested in themselves 3. able to relate to others in terms of their social roles (as buyers, sellers, middlemen, etc.) or the ability to do a job. 4. known for their accomplishment (achievements) 5. able to relate to others, in specific economic terms, that is in terms defined and limited by a labor contract.

INDIVIDUALS IN TRADITIONAL SOCIETIES ARE: 1. emotional 2. more interested in the general welfare of the community. 3. relate to others in terms of their unique qualities (ex. my old classmate, my neighbor, my wife). 4. be known for who they are. 5. tie up economic relationship (employer-employee, manufacturer-customer) with all sorts of other relationships involving kinship and political, religious and other social structures.

PSYCHOLOGICAL FACTORS IN ECONOMIC DEVELOPMENT psychologists view economic growth as a product of individual human behavior, that is of a persons decisions, thoughts and actions. all these are manifestations of conscious or subconscious motives or needs.

- a motive that psychologists have identified positively as one which enterprising individuals seek to fulfill is the NEED TO ACHIEVE or n Ach. DAVID MCCLELLAND - defines need for achievement as the need to do well, not so much for social recognition or prestige, but for the sense of personal accomplishment it gives an individual measuired against an internal standard of excellence.

ENTREPRENEURS - are individuals who are alert to profitable opportunities for the exchange of goods or services.

ENTREPRENEURIAL ACTIVITIES - the process of creating something new and different with value as entrepreneur focuses his time, effort and with his available resources under his disposal and thus receiving personal satisfaction for his monetary achievement.

Entrepreneurs VS. Intrapreneurs ENTREPRENEURS - are people that notice opportunities and take the initiative to mobilize resources to make new goods and services.

INTRAPRENEURS - also notice opportunities and take initiative to mobilize resources, however they work in large companies and contribute to the innovation of the firm. - Intrapreneurs often become entrepreneurs.

* Entrepreneur as a missionary - entrepreneur creates an environment in which success is possible and the possibility of failure is controllable.

* Entrepreneur as an Extraordinary Businessman - he uses his inherent talIent for innovating distribution of goods or making new service to satisfy his customers.

* Entrepreneur is Goal Driven - he sets high goals and strives to attain the projected target and accomplishments. - he accepts challenges and responsibility for results. - he is persistent to innovation.

* Entrepreneur is Marketing Man - needs and wants of customers are properly identified and these are the propelling reason for him to take the opportunity to make profit. - make the customer aware that his product or service is more superior than those offered by others.

* Entrepreneur Starts Small to Become Big - entrepreneurs are generally extrovert, aggressive and would like to work, and value he possesses. He perceives risk as opportunities.

* Entrepreneurship as a Dynamic Process - the real entrepreneur is an individual with the greatest drive for expansion and growth. - entrepreneur develops strategic plans and programs that will ascertain a definite advantage over the others in their line of business.