Economic Development and Social Change Essay Example for Free

Economic Development and Social Change Essay Section 1 1) What is the primary goal of modernization theory in contrast to theories of capital formation? Compare and contrast Hoselitz’ formulation of modernization theory with Lewis’ theory of capital formation In the 18th century, during the Age of Enlightenment, an idea named the Idea of Progress emerged whereby its believers were thought of being capable of developing and changing their societies. This philosophy initially appeared through Marquis de Condorcet, who was involved in the origins of the theoretical approach whereby he claimed that technological advancements and economical changes can enable changes in moral and cultural values. He encouraged technological processes to help give people further control over their environments, arguing that technological progress would eventually spur social progress. In addition, Émile Durkheim developed the concept of functionalism in the sociological field, which emphasizes on the importance of interdependence between the different institutions of a society and their interaction in maintaining cultural and social unity. His most well known work, The Division of Labour in Society, which outlines how order in society could be controlled and managed and how primitive societies could make the transition to more economically advanced industrial societies. Another reason for the emergence of the modernization theory derived from Adam Smith’s Wealth of Nations, which represented the widespread practical interest on economic development during a time when there was a constant relation between economic theory and economic policy that was considered necessary and obvious. It was by analysing, critiquing, and hence moving away from these assumptions and theories that the modernization theory began to establish itself. At the time the United States entered its era of globalism and a ‘can do’ attitude characterized its approach, as in the functionalist modernization advanced by B. Hoselitz: â€Å"You subtract the ideal typical features or indices of underdevelopment from those of development, and the remainder is your development program†. As he also presents in Social Structure and Economic Growth , this body of economic theory â€Å"abstracted from the immediate policy implications to which it was subject†Ã ‚  and also â€Å"assumed human motivations and the social and cultural environment of economic activity as relatively rigid and unchanging givens†(23-24). He claims that the difference lies in the extra examination of what is beyond simply economics terms and adjustments, by â€Å"restructuring a social relations in general, or at least those social relations which are relevant to the performance of the productive and distributive tasks of the society†(26). Most forms of evolutionism conceived of development as being natural and endogenous, whereas modernization theory makes room for exogenous influences. Its main aim is to attain some understanding of the functional interrelationship of economic and general social variables describing the transition from an economically â€Å"underdeveloped† to an â€Å"advanced† society. Modernization theory is usually referred to as a paradigm, but upon closer consideration turns out to be host to a wide variety of projects, some presumably along the lines of ‘endogenous change’ namely social differentiation, rationalization, the spread of universalism, achievement and specificity; while it has also been associated with projects of ‘exogenous change’: the spread of capitalism, industrialization through technological diffusion, westernization, nation building, state formation (as in postcolonial inheritor states). If occasionally this diversity within modernization is recognized, still the importance of exogenous influences is considered minor and secondary. I do not view ‘modernization’ as a sing le, unified, integrated theory in any strict sense of ‘theory’. It was an overarching perspective concerned with comparative issues of national development, which treated development as multidimensional and multicausal along various axes (economic, political, cultural), and which gave primacy to endogenous rather than exogenous factors. (Tiryakian, 1992: 78) In the context of Cold War modernization theory operated as a highly interventionalist tool enabling the ‘free world’ to impose its rules and engage in ‘structural imperialism’. Typically this occurred in the name of the forces of endogenous change such as national building, the entrepreneurial spirit and achievement orientation. In effect modernization theory was a form of globalization that was presented as endogenous change. Modernization theory, therefore, emerged from these ideas in order to explain the process of modernization within societies. The theory examines  not only the internal factors of a country but also how with the aid of technology and the reformation of certain cultural structures, â€Å"traditional† countries can develop in the same manner that more developed countries have. In this way, the theory attempts to identify the social variables, which contribute to social progress and the development of societies, and seeks to expl ain the process of social evolution. The question of the functional relations between all or most culture traits is left open, and special attention is â€Å"given only to those aspects of social behaviour that have significance for economic action, particularly as this action relates to conditions affecting changes in the output of goods and services achieved by a society†(30). They conceptualize the process of development in a similar linear, evolutionary form as older evolutionary theories of progress, but seek to identify the critical factors that initiate and sustain the development process. These factors, they argue, are both intrinsic and extrinsic: the former involves the diffusion of modern technologies and ideas to the developing world, while the latter requires the creation of local conditions, such as the mobilization of capital, which will foster progress. Modernization theorists believe that primitive production, an anachronistic culture, and apathetic personal dispositions combine to maintain an ar chaic socioeconomic system that perpetuates low levels of living. Modernization theorists hold that policies designed to deal with these traditional impediments to progress primarily through economic intervention, provide the key to prosperity. Overall, Hoselitz’s modernization theory is a sociological theory of economic growth that determines the mechanisms by which thesocial structure of an underdeveloped economy was modernized – that is, altered to take on the features of an economically advanced country. Hoselitz’s answer was based on the â€Å"theory of social deviance† – that is, that new things were started by people who were different from the norm. Unlike Lewis’ theories that we will revise later, Hoselitz thought that small-scale private economic development was the best way of achieving development in Third World economies. This particularly involved revaluing what he called â€Å"entrepreneurial performance†, something that Lewis also agrees with, but in a way that provided not only wealth but also social status and political  influence. In Chapter 8 of Sociological Aspects of Economic Growth, Hoselitz focuses on the creation of â€Å"generative cities† ( that is, cities producing innovations) rather than traditional rural areas were the focal points for the introduction of new ideas and social and economic practices. Many of the early colonial settlements in the New World and South Africa, Hoselitz claimed, were parasitic, enjoying a certain degree of economic growth â€Å" within the city itself and its surrounding environs† only at the expense of the rest of the region, which was ruthlessly exploited for its natural and agricultural resources (p.280). Although prescriptions for inducing social change and removing cultural obstacles to economic modernization in developing countries may be described as social policies, they do not seek to deal directly with mass poverty and its attendant problems of malnutrition, ill-health, inadequate housing, illiteracy, and destitution. These critical welfare concerns are seldom referred to by modernization theorists, namely by Hoselitz. Instead, the implicit assumption in his writings is that the process of economic development and social change will raise levels of living and remedy these problems automatically. Since economic growth, engendered by capital investments in modern industry, will expand employment, the proportion of the population in subsistent poverty will steadily decline. The increasing numbers of workers in the modern economy will experience a steady rise in real income that will be sufficient not only to satisfy their basic needs for food, clothing, and shelter but permit them to purchase consumer commodities as well as social goods such as medical care, education, and social security. Arthur Lewis was one of the first economists to create a theory about how industrialized and economically stable countries are capable of helping undeveloped countries progress. He presented this theory in his work Economic Development with the Unlimited Supplies of Labor† where he brings about the concept of capital formation. He defines it as the transfer of savings from households and governments to business sectors, resulting in increased output and economic expansion. He claims that his â€Å"model says, in effect, that if unlimited supplies of labor are available at a constant real  wage, and if any part of profits is reinvested in productive capacity, profits will grow continuously relatively to the national income, and capital formation will also grow relatively to the national income†(158). From here bridged off his development of the two-sector model of the economy and the theory of dualism. Both posit the existence of a substantial pool of underutilized labo r in a backward, subsistent agricultural sector of an economy that perpetuates low levels of production and mass poverty. This model comprises two distinct sectors, the capitalist and the subsistence sectors. The former, which may be private or state-owned, includes principally manufacturing industry and estate agriculture; the latter, mainly small-scale family agriculture and various other types of unorganized economic activity. Here the capital, income and wages per head, the proportion of income saved, and the rate of technological progress are all much higher in the capitalist sector. The subsistence sector is both at a very low level, and also stagnant, with negligible investment and technical progress and no new wants emerging. Institutional arrangements are the ones maintaining this chronic disequilibrium between the sectors, implicit in these differences in real income and productivity. In the extended family the members receive approximately the average product of the group even if the marginal product is much less. The process of development, initiated by an increase in the share of capitalist s in the national income, I essentially the growth of the capitalist sector at the expense of the subsistence sector, with the goal of the ultimate absorption of the latter by the former. To some extent, this is similar to Hoselitz’s development of the modernization theory, whereby the claims that the formation of his generative cities (a) creates a new demand for industrial raw materials from the surrounding region, and (b) attracts new population to the cities, thereby increasing the demand for food from the countryside. The net effect of these forces is a â€Å"widening of economic development over an increasing area affecting a growing proportion of the population outside the city†(Hoselitz, 282). However, Lewis’ theory has several limitations and conditions, most importantly that his theory can be applied only in countries with unlimited supplies of labor. Unlimited supplies of labor arise from the employment of  more workers than is productively effective. Lewis went through all of the areas of Caribbean society where he thought there were pools of labour in which the marginal productivity was negative, negligible or zero. His plan now was to make this a potential, industrial labour force. He could take all of the labour away from agriculture, away from casual labour, without lowering the profit margins of the places where they are currently employed. This was not a radical, disruptive assault on the existing economic order, which resulted in one of the main reasons that his theory was so successful. Ineffective production, occurring when an additional worker prevented the previous one from producing another product (hence equaling a negative marginal productivity) was common in the Caribbean, Southeast Asia and other undeveloped regions of the world. Several sectors of the economy employ too many people with negligible, zero or negative marginal productivity. According to Lewis these productively unnecessary individuals are employed in agriculture, or are casual workers, petty traders, or women of the household. He claims that the transfer of these people’s work from these areas towards commercial employment is one of the most notable features of economic development. The second source of labor for expanding industries is the increase in the population resulting from the excess of births over deaths. After his analysis of the effect of development on death rate, whereby he concludes that â€Å"[death rates] come down with development from around 40 to around 12 per thousand†(144), he claims therefore that â€Å"in any society where the death rate is around 40 per thousand, the effect of economic development will be to generate an increase in the supply of labor†(144). From this point of view, he states, †Å"there can be in an over-populated economy an enormous expansion of new industries or new employment opportunities without any shortage of unskilled labor†(145), though too many people could again cause ineffective production. He clarifies this by saying, â€Å"Only so much labor should be used with capital as will reduce the marginal productivity of labor to zero†(145). This can be achieved by offering and maintaining decently high wages. The wages offered should be only slightly higher than the wages available in the subsistence sector, since wages that are too high may attract more workers than needed. But firstly, and perhaps most importantly, entrepreneurial-minded capitalists are required in order to invest in the nation. Tax holidays attract the foreign capitalists. It is not a very difficult task, because they have very good incentives to come. The planter class in the Caribbean seemed just like the planter class in the American South – it had no desire to go industrial and no desire to go competitive. It was still trapped in a situation between an old monopoly system and a market situation since they were able to negotiate for a protected market for sugar, not a competitive market. Lewis then looked around realized the only way he could keep this program of industrialization launched would be by visiting England and America where capitalists and entrepreneurs were flourishing and foster their entrance into the Caribbean. Again, he employed the concept of a dual economy where a subsistence sector existed, but also from where he created from scratch this modern industria l sector to establish on modern capitalism. Capitalists in North America and Europe found these labouring conditions and costs in the Caribbean quite attractive. Getting this labour to the imported capitalists would not be resisted locally because he was taking those labourers with marginal productivity of zero. Once they began working, he would then re-invest more capital into the factory, so that it could expand, employ more workers, export more products, and increase profits, hence developing a self-feeding system that would eventually lead the national income to grow. Although Hoselitz also is of the belief that the formation of a dual economy is beneficial, rather than necessarily attract foreign capitalists through such incentives, Hoselitz believes that the creation of westernized cities led the way forward. He claims that cities modelled after the Western cities exhibited a spirit difference from the traditionalism of the countryside. In this way, he differs slightly from Le wis in that he favored a shift in political power away from traditional leaders and toward total control by economic and urban modernizers in underdeveloped countries, not necessarily foreign entrepreneurial capitalist as Lewis asserts. Lewis knew that some products would work better than others, so he developed an Industrial Programming Market – a number of basic calculations about those particular commodities, if produced in the Caribbean, would be  particularly competitive internationally. And so as a result of this study Lewis found that the production of airbrushes, gloves, furniture, needles, shirts, and leather goods would be particularly good to produce, given the skills of the labour force available at the time. For the self-feeding system to be a continuous process, costs of labour had to remain fairly constant. If the cost of labour rose too rapidly, they would not be sustained since the goods would no longer be internationally competitive. The key to this model is indeed international competitiveness. Capitalists can create more capital when the supply of money is higher, and hence if governments create credit, inflation arises yet does not have the same effect as the inflation that arises durin g depression periods. This inflation only has an effect on the prices in the short-run so that in the long run the final effect equal to what it would be if capital was formed by the reinvestment of profit. Lewis discusses at some length the methods by which governments of underdeveloped countries can raise revenue, especially the substantial funds required for government capital formation. For familiar political and administrative reasons much of this revenue has to be raised from indirect taxes, notably import and excise duties and export taxes. He argues that indirect taxation is more likely to increase than to decrease the supply of effort: The taxpayer usually does not know how much tax is included in the prices of the articles he buys, so in so far as the disincentive effect of taxation is psychological it can be avoided by using indirect rather than direct taxes†¦ If it is an increase in indirect taxation, the effect is probably to increase effort rather than to reduce it (414). Because of the multiple restrictions in this model, it is designed for countries with unlimited supplies of labor and hence this growth has a limit: â€Å"The process must stop when capital accumulation has caught up with population, so there is no longer surplus labor†(172). Furthermore, if wages are too high, they may consume the entirety of the profit leading to no re-investment. Several other reasons for the end of capital formation vary; the occurrence of natural disasters, war or a change of political system can also prevent further economic expansion in a closed economy. Lewis’ model is powerful but also highly restricted and specific to only a handful of nations. Some critics also claim that the distinction between the two sectors is too sharp; that small-scale agriculture is often far from stagnant and the emergence of the production of cash crops by individual producers has in fact been a key instrument in economic development since capital formation is actually created in this type of agriculture. Also, this model requires low wages for the labor force, yet very low wages result in a wide gap between the lower and upper class in a society, an issue that many have questioned thoroughly. Lewis says openly that exploitation can easily occur in this model, but that it is part of capital accumulation. He believes that one has to sacrifice a generation to grow the economy, because he assumed that if all goes well and more consumers are attracted to Caribbean, they will generate more business, and the economy will grow to the point where the weal th can be redistributed to the people. He reckoned that it would take, given the rate of growth that he observed in the Caribbean, one generation, thus a period between 40 and 50 years, to grow the economy and claim that poverty could be eradicated in this region. And yet the cost of this would be exploiting this generation, so that their children could benefit from it later. Hoselitz, as stated earlier, applied the ideas of Parsons and other sociologists to an analysis of the development process under the assumption, drawn from Adam Smith, that increasing productivity was associated with more detailed social divisions of labor: A society on a low level of economic development is, therefore, one in which productivity is low because division of labor is little developed, in which the objectives of economic activity are more commonly the maintenance or strengthening of status relations, which social and geographical mobility is low, and in which the hard cake of custom determines the manner, and often the effects, of economic performance. An economically highly developed society, in contrast, is characterized by a complex division of social labor, a relatively open social structure from which caste barriers are absent and class barriers are surmountable, in which social roles and gains from economic activity are distributed essentially on the basis of achie vement, and in which, therefore, innovation, the search for and exploitation of profitable market situations,  and the ruthless pursuit of self-interest without regard to the welfare of others is fully sanctioned. (Hoselitz, 1960: 60). These preceding theories both provide us with some preliminary indications and developments of views of modern social orders broader than that envisaged in the initial models provided. They stress the historical dimensions of the process of development, emphasizing that this process is not universal, something in the very nature of humanity or in the natural development of human societies. Instead, the modernization process is fully bound to a certain period in human history, even though in itself it is continuously developing and changing throughout this period. Development and the challenges it brings forward constitute a basic given for most contemporary societies. Though it certainly is pervasive in the contemporary setting, it is not necessarily irreversible in the future, and it would be wrong to assume that once these forces have impinged on any â€Å"society†, they naturally push toward a given, relatively fixed â€Å"end-plateau.† Rather, as we have seen, they evoke within different societies, in different situations, a variety of responses which depend on the broad sets of internal conditions of these societies, on the structure of the situation of change in which they are caught, and the very nature of the international system and relations, whether those of â€Å"dependency† or of international competition. Section 2 5) Briefly outline David Ricardo’s theory of comparative advantage; then outline in greater detail Samir Amin’s theory of periphery capitalism and why he thinks that trade between the central and peripheral capitalist economies does not meet the conditions of Ricardo’s theory In 1817, David Ricardo, an English political economist, contributed theory of comparative advantage in his book Principles of Political Economy and Taxation. This theory of comparative advantage, also called comparative cost theory, is regarded as the classical theory of international trade. According to the classical theory of international trade, every country will produce their commodities for the production of which it is most suited in terms of its natural endowments climate quality of soil, means of transport, capital, etc. It will produce these commodities in excess of its own requirement and will exchange the surplus with the imports of goods from other countries for the production of which it is not well suited or which it cannot produce at all. Thus all countries produce and export these commodities in which they have cost advantages and import those commodities in which they have cost disadvantages. Ricardo states that even if a nation had an absolute disadvantage in the production of both commodities with respect to the other nation, mutually advantageous trade could still take place. The less efficient nation should specialize in the production and export of the commodity in which its absolute disadvantage is less. This is the commodity in which the nation has a comparative advantage. Ricardo takes into account the following assumptions: there are two countries and two commodities; there is a perfect competition both in commodity and factor market; cost of production is expressed in terms of labor; labor is the only factor of production other than natural resources; labor is homogeneous i.e. identical in efficiency, in a particular country; labor is perfectly mobile within a country but perfectly immobile between countries; there is free trade; production is subject to constant returns to scale; there is no technological change; trade between two countries takes place on barter system; full employment exists in both countries; there are no transport costs. In 1973, Samir Amin, an Egyptian political economist, begins his dialogue in Unequal Development by referring to Marx’s writing on non-European societies, namely India and China, and creates a work in which he reevaluates Peter Evans theory of Dependent Development and simultaneously presents his theory of peripheral capitalism in developing societies. He shows how these early ideas established the notion of the centre and the periphery, and how â€Å"the development of capitalism in the periphery was to remain extraverted, based on the external market, and could therefore not lead to a full flowering of the capitalist mode of production in the periphery†(199). He then begins to develop his own theory of the transition to peripheral capitalist economy by questioning David Ricardo’s assumptions in his theory of comparative advantage, and later outlines nine theses to support his views. Peripheral capitalism is based on, but not identical to, the imperialistic relationships developed between colonizing nations and their colonies. In this economic relationship, the players are the same – the colonizing nation becomes the center, while the colony becomes the periphery – but the role that each society plays is different from the classic imperialist relationship. The peripheral economy is marked by extreme dependence on external demand, or extroversion, as well as stunted and unequal rates of development within the society. Amin maintains that in order for these societies to break free of extroversion and develop, they must be actively removed from the peripheral capitalist relationship. He proposes nationalization and socialization as an alternative, a system which-when contrasted with peripheral capitalism-could not be a more different approach to economic development. Unfortunately for the developing nations, socialism was largely uns uccessful as an economic experiment, consistently causing stagnation and underdevelopment in societies that attempted it. Peripheral capitalism evolves from colonial imperialism, an economic system in which the colonizing nation penetrates deep into the heart of the colonial economy in an effort to manipulate it towards the benefit of the mother country. Every aspect of the colonial economy is geared not towards the expansion of the colonial economy itself, but rather towards the production of something that the colonizing nation cannot produce itself. As a result, the success and the existence of a particular sector of the colonial economy is dependent upon whether or not the mother country has a need for that sector; colonial economies are rooted heavily in external demand. This extroversion leaves the colonial economy without an indigenous set of linkages, as economic sectors that will benefit from colonial activity function mostly within the economy of the colonizing nation. When autocentric, or internally-driven, economic growth is blocked in such a way that a peripheral economy emerges with the sa me sort of external dependence on the central economy that was suffered by the colonial economy. The peripheral economy is typically plagued by an unequal division of labor, or specialization, between itself and the central economy. While the latter enjoys the benefits and progress associated with industrialization, the periphery tends to remain predominantly agricultural. What little industry may exist in the peripheral economy is most often light industrial production of small, simple goods, as opposed to the heavy industrial production of machinery and complex products that characterizes the central economy. Additionally, Amin argues that there is often a â€Å"hypertrophy of the tertiary sector†(200) of the peripheral economy; too much of the economy is devoted to providing services, â€Å"expressed especially in the excessive growth of administrative expenditure†(201) effectively anchoring the societys development due to a lack of productive advancement. Yet another malady of the peripheral economy is the reduced value of the local ‘multiplier effect’, another result of the remnants of economic infrastructure modification from the colonial period. If an economy is replete with linkage sectors, then any money put into the leading sector will generate a multiplied effect in all of the forward and backward linkages of that industry. Peripheral economies, however, are effectively stripped of linkages during their colonial phase of development hence spending in the peripheral economy ultimately benefits the central economy, where most of the peripheral industries linkages are realized. Not only is the local multiplier effect reduced in the peripheral economy, but Amin claims that it also leads to â€Å"the marked propensity to import†(201), and thus is in effect transferred to the central economy, where revenue is collected every time money is spent in the periphery. Because peripheral input ultimately goes abroad, loc al businesses are not stimulated, as they would be if linkages were realized within the periphery, worsening the already-detrimental conditions of the peripheral economy. Adding to the lack of stimulation of local business is the fact that peripheral industries tend to be dominated by monopolies established from foreign capital. After the majority of revenue goes to the central economy through linkage industries, what little money remains in the local economy is often put into businesses controlled by central capitalists. In other words, almost every dollar put into the periphery ultimately finds its way to the central economy. In Unequal Development, Amin maintains that no economy can be expected to develop without successfully making the transition from extrovert to introvert so that it can â€Å"assert the dominance of the exporting sector over the economic structure as a whole†(203), and that no peripheral capitalist economy can independently heal the economic wounds inflicted by colonialism. Therefore, the only way to promote development in peripheral capitalist economies is to actively remove them from their disadvantageous relationship with the central economy, which, according to Amin, should be replaced by internal nationalization and socialization of the once-peripheral economy. The establishment of a nationalist socialist state would serve both to eliminate external dependence, as well as to reconcile the disarticulated nature of the local economy. The first critique of Ricardo’s theory made by Amin is its lack of specificity – claiming that his examples of trade between Portugal and England were very exclusive to intra-European trade and could not exactly be applied to relations between several different country relations around the World. If there is a large difference in GDP between two countries, then what statistics demonstrate is that the country with the smaller GDP would benefit more from this transaction, and this was â€Å"the source of special problems that dictate[d] development policies in the periphery that [were] different from those on which development of the West was based†(201); a factor that Ricardo hadn’t considered it in his theory. Another vital yet neglected consideration was the importance of the commodity in terms of a nations’ GDP: wine was a big section of the Portuguese GDP, greater than it was for England, so the trade benefited the Portuguese to a greater extent than it did to the British. He elaborates upon this idea by explaining how the relation between central and periphery assumes the mobility of capital, since the centre is investing greatly in the periphery. What the periphery chooses to specialize in is to a large extent determined by the centre, since very often the selection comes after it has been forced to serve the imperial country. As he clearly states, this type of trade â€Å"compels the periphery to confine itself to the role of complementary supplier of products for the production of which it possesses a natural advantage: exotic agricultural produce and  minerals†(200). The result is a decrease in the level of wages in the periphery for the same level of productivity than at the centre, hence limiting the development of industries focused on the home market of the periphery. The disarticulation due to the adjustment of the orientation of production in the periphery to the needs of the centre prevents the transmission of the benefits of econo mic progress from the poles of development to the economy as a whole. Overall, this is what Amin defines by ‘unequal specialization’, which in turn violates the conditions of Ricardo’s theory. Another argument that Amin makes involved the Keynesian multiplier effect. He claims that this effect does not take place to the situation at the centre because of its advantaged stage of monopoly, characterized by difficulties in producing surplus. Due to this unequal specialization as well as the significant propensity to import that follows, the effect is a transferring of multiplier effect mechanisms and the accelerator theorem from the periphery to the centre. Furthermore, Amin includes the social aspect of this process, which is a result of the individual history of each nation and the power imbalance created. Amin finds that the nature of the pre-capitalist formations that took place previously and the epoch in which they became integrated in the capitalist system are both very important factors in determining the presence or lack of development to come. He also draws a line between two different terms, ‘peripheral formations’ and ‘young central formations’, whereby the latter, based on the predominance of a simple commodity mode of production, are capable of independently evolving towards a fully developed capitalist mode of production. Amin terminates by asserting â€Å"the domination by central capital over the system as a whole, and the vital mechanisms of primitive accumulation for its benefit which express this domination, subject the development of peripheral national capitalism to strict limitationsâ₠¬ (202). These countries would hence not gain equal benefits under this trade, only if the patterns of specialization were undertaken in more ideal conditions, conditions that approximated Ricardo’s theory more closely. Rather than being a positive force for development, this type of trade becomes a force created under development. It will contribute to development in the centre, and underdevelopment in the periphery. He concludes that this inevitably hinders the development of peripheral nations: â€Å"the impossibility, whatever the level of production per head that may be obtained, of going over to auto centric and auto dynamic growth†(202).

Thoughts on a Possible Rational Reconstruction of the Method of Essay

Thoughts on a Possible Rational Reconstruction of the Method of "Rational Reconstruction" ABSTRACT: Rational reconstructions standardly operate so as to transform a given problematic philosophical scientific account-particularly of a terminological, methodological or theoretical entity-into a similar, but more precise, consistent interpretation. This method occupies a central position in the practice of analytic philosophy. Nevertheless, we encounter-even if only in a very few specific publications-a vague image of it. This is due on the one hand to the problem of the intentions of application, i.e., of the normativity of rational reconstruction (descriptive/prescriptive-ambivalence). It is also due on the other hand to the problem of the significance of the method in the field of history of philosophy (systematic/historical-dichotomy). The varied usage within analytic philosophy, as well as the increasingly inflationary and interfering usage outside, contribute to make rational reconstruction somehow appear a Proteus in contemporary philosophical methodology. This paper attempts to administer first aid and to close a bit of the theoretical gap and thus to reach a more exact image for the interests of analytic philosophy. Self-application of the method appears to be the right remedy. A graduating rational reconstruction of a standard concept of rational reconstruction will be suggested, differentiating the concept of rational reconstruction according to normativity, and explicating the method of rational reconstruction into two such variants. Introduction The method of rational reconstruction occupies a central position in the practice of Analytical Philosophy. Andreas Kamlah once has dealt with it in an article under ... ...85), pp.71-82 Poser, Hans [1971]: Philosophiegeschichte und rationale Rekonstruktion. Wert und Grenze einer Methode. In: Studia Leibnitiana 3 (1971), pp. 67-76 ________ [1980]: "Rekonstruktion, rationale." In: Speck, Josef (ed.): Handbuch wissenschaftstheoretischer Begriffe. Band. 3, Gttingen 1980, pp. 555-556 Stegmller, Wolfgang [1967]: Gedanken ber eine mgliche rationale Rekonstruktion von Kants Metaphysik der Erfahrung. Teil I. Kants Rtsel der Erfahrungserkenntnis. In: Ratio 9 (1967), pp. 1-30 ________ [1973]: Probleme und Resultate der Wissenschaftstheorie und Analytischen Philosophie. Band IV. Personelle und Statistische Wahrscheinlichkeit. Studienausgabe Teil A, Berlin 1973 ________ [1985]: Probleme und Resultate der Wissenschaftstheorie und Analytischen Philosophie. Band II. Theorie und Erfahrung. Studienausgabe Teil E, 2nd ed., Berlin 1985.

Haw Par Value Chain & Financial Ratios Analysis Essay

1. PART ONE 1.1 Introduction Haw Par Corporation Limited is a multinational corporation engaged in healthcare, leisure businesses securities and real estate investment, among which we will mainly focus on Haw Par’s traditional business sector-the healthcare segment, which includes 9 subsidiaries (Annual report, 2010). Based on revenues generated and locations of manufacturing facilities, two prominent geographical markets, Asia and America, are selected for discussion. We will look into the competitive environment of the corporation, and the generic strategies adopted to survive in the environment. Then we will investigate operations within Haw Par by analyzing its value chain activities, and propose improvements to enhance its competitive advantages. Lastly, we will identify the top risks imposed to the corporation. 1.2 Competitive Environment – Michael Porter’s Five-Forces Model 1.2.1 Threat of New Entrants Initial capital requirement of entering the healthcare industry is high, including investment in property, plant, equipment and research and development. Moreover, compliance burden with various regulations is heavy, as illustrated by the warning letter received by Haw Par from the Food and Drug Administration (FDA) in the US. Besides, its scale of business, well-establish brand and distribution network are difficult to imitate. Thus, the threat of new entrant is low. 1.2.2 Threat of Substitute Currently, Haw Par’s healthcare products mainly consist of traditional herbal medicines and newly developed chemical products. The substitutes of herbal medicines are mostly western chemical medicines. We can see that Haw Par is actively responding to the challenge of chemical medicines. However, the existing pharmaceutical companies are very strong, and their products are more competitive on the whole. Therefore, the threat of substitutes is medium. 1.2.3 Bargaining Power of Buyers The products of healthcare division are mainly traditional Chinese medicine oil and its related products, as well as muscle rub, spray and gel (Hoover’s, 2011). As the products are generally medications for daily use, the majority of buyers are individual consumers. Hence, the buyers’ bargaining power is weak. However, if the buyers’ group is large, for example, wholesalers or retailers, the bargaining power of buyer could be moderate or high (ME Porter, 2000). 1.2.4 Bargaining Power of Suppliers Due to Haw Par’s broad product lines, it would have contracted with vast suppliers for the procurement of various crude materials. The main ingredients are common Chinese medicines (Alternative Health Supplies, 2005). The company may choose from a wide range of suppliers. In general, bargaining power of suppliers is low. 1.2.5 Industry Competitors Haw Par has distinguished itself from small and medium size medicine oil businesses by its branding and broad market distribution, yet it is still involved in intense competition with business of comparable market share, for example, Biosensors International and Sun Pharmaceutical Industries Limited which is a main competitor both in Asian and American market. In 2010, Sun Pharmaceutical’s deal with Taro Pharmaceutical Industries boosted Sun’s dermatology and topical products in U.S which might deeply affect Haw Par’s extension market. Generally rivalry among existing firms is high (Hoover’s, 2011). 1.3 Competitive Strategies – Michael Porter’s Three Generic Strategies The general global economic climate took a favorable turn in 09-10, boosting the consumer confidence. On the other hand, the competitive environment of the business is challenged by the intense competition and rising costs (PM Danzon, 2000). To enhance the performance of the business, Haw Par had responded â€Å"by introducing more products that will appeal to a larger group of consumers and by conducting more intensive marketing† (Wee Cho Yaw, 2010). The generic strategy adopted by the business is focus differentiation. The business focused on selective markets and products to raise entry barrier. For example, Haw Par launch a new product in 2011—Tiger Balm Active Muscle Rub which focused on a certain buyer segment—sporting enthusiasts. It also endeavored to distinguish itself by branding as well as adding uniqueness and value to products. One such example comes from Tiger Balm Medicated Plaster, a product with combined functions of energizing body and relieving pains. To do branding, Haw Par increased popularity by sponsoring public events such as marathons in Singapore, and advertising in national magazines in America (Haw Par, 2010). Besides, it also undertook social responsibility by contributing to charities, such as organizing the fundraising event â€Å"The Tiger Balm Record Roar† which supported the Society for the Physically Disabled (Haw Par, 2010). This focus differentiation strategy helped lower the degree of substitutability of other companies’ products and reduce the level of competition. 1.4 Top Three Business Risks The top risk was the intense competition from existing companies, as this would directly affect the percentage of market share owned by Haw Par, and hence its profitability. The second risk was the rising cost of raw materials, which was also an industry-wide problem that might limit a company’s development. Another risk was the failure of compliance with regulations, which had only emerged in the US market, but certainly reflected defects in Haw Par’s internal control. 1.4.1 Intense Competition from Existing Companies Haw Par Corp Ltd faced strong competition from a number of multinational corporations. According to the Competitive Landscape Singapore, in 2011, Haw Par ranks the third in the healthcare sector for market capitalization. The companies listed in Appendix 1 are the major competitors of Haw Par Healthcare Limited in Singapore. Besides, although Haw Par’s healthcare products were distributed to 150 countries via 70 distributors, it still faced high risk from competitors which could render its market share shrink in the health-care area (Haw Par, 2010). To mitigate this risk, Haw Par managed to boost its market shares through improvement of Tiger Balm brand by advertising, sales promotions and the extension of manufacturing line. Another strategy adopted was to diversify product line to broaden customer choices so that consumers would be more likely to choose Haw Par’s product and hence this risk would be minimized. 1.4.2 Increase in Costs of Raw Materials Due to upwards general inflationary pressure, unit price of herbal materials for traditional Chinese medicine was expected to rise. Haw Par also expressed serious concerns in its annual report on rising costs of raw materials and operating activities that would erode its profitability in healthcare sector. This would be one of the reasons why gross profit slipped 3.52% while net profit raised 88.50% in 2010, compared with 2009. To neutralize the negative impact, Haw Par put emphasis on expanding its product portfolio to cater for more customers (The edge, 2011). 1.4.3 Failure to Comply with Regulations and Provisions When Haw Par was expanding its market in foreign countries, it faced challenges in conforming to the different regulations and standards. For example, an inspection on Haw Par’s manufacturing facilities by FDA, discovered â€Å"significant violations of Current Good Manufacturing Practice regulations for finished pharmaceuticals† (FDA, 2010). Failure of conforming to regulations would pose a potential threat of being banned in specific markets, which would negatively affect revenue, brand image and social acceptance. To mitigate this risk, Haw Par shall immediately review the unqualified production and procurement practice while proposing appropriate remedies. Furthermore, Haw Par shall also seek opportunity to make appeal to the public so as to restore and conserve its corporate image. 1.5 Value Chain Activities – Primary Activities 1.5.1 Inbound Logistics For Haw Par’s health-care segment, inbound logistics contains management of raw materials, inventory control, warehousing and even returns to suppliers. Efficient inventory management system is an essential factor in boosting profits for Haw Par, by enhancing efficiency and thus reducing expenses. 1.5.2 Operations In the operating process, value is created through transforming the raw materials into final products. Unfortunately, Haw Par Healthcare was warned by FDA about mislabelled products and inadequacies (FDA, 2010). In this case, Haw Par failed to show itself â€Å"to be capable to detecting potential impurities†. Therefore Haw Par Healthcare should improve its testing and packaging operations, so as to maintain its product quality to secure current market position (CBS Interactive, 2010). 1.5.3 Outbound Logistics Though possessing a worldwide distributing network covering 70 countries, Haw Par continued expanding its markets. Nevertheless, Haw Par’s healthcare manufacturing facilities were centralized in its major markets, so as to reduce the costs and improve the overall efficiency. 1.5.4 Marketing and Sales Haw Par focused on marketing activities to boost sales and build brand image, as discussed in competitive strategies. According to the General Manager Ah Kuan Han, Haw Par would intensify substantial advertising activities to enlarge consumer bases (The Business Times, April 1st 2010). According to the horizontal analysis of income statement, the sales and marketing expense increased by 6.00% in 2010. Furthermore, with the already widespread fame, Haw Par was striving to expend its market in UK, America, Caribbean and other parts of world through its comprehensive marketing and sales strategies (The Business Times, 2009). 1.5.5 Service Haw Par has built the Tiger Balm website to facilitate serving its customers. The website provides a wide range of information about its products. Haw Par also provides experience sharing service on its website, through which past users can share their experience with others. 1.6 Value Chain Activities – Support Activities 1.6.1 General Administration A strong and effective board of directors would bring Haw Par to success, by supporting the whole Haw Par Corporation through the activities including planning, general management, risk management, and so on. Good management and information systems would increase operating efficiencies as well as improving the company’s image. 1.6.2 Human Resource Management Haw Par has been recruiting a large pool of staffs. More significantly, Haw Par emphasized on maintaining high quality employees, as evidenced in its advertisement of hiring o-level and above diploma holders as laboratory technicians. (Jobstreet.com, 2011) 1.6.3 Technology Development Haw Par has been actively engaged in technology development, indicated by its â€Å"launching of line extensions on a slate of new products that would address lifestyle needs of modern consumers† (Haw Paw, 2010), which would secure Haw Par’s long term competitiveness in the market. Yet Haw Par shall continue its efforts in innovation to further strengthen market power and improve efficiency. 1.6.4 Procurement As the ingredients of Haw Par’s product are mainly traditional herbs supplied from China, India and Malaysia, the cost of materials from these suppliers is relatively low. However, the procurement activity still needs to be further improved. As mentioned above, Haw Par received a warning letter from FDA which identified a problem of unqualified suppliers. Thus, apart from outsourcing cheaper raw material from suppliers, Haw Par should keep monitoring its suppliers regularly to ensure reliability. 2.2 Financial Ratios Analysis The following sessions will assess the profitability, liquidity (including operating efficiency) and solvency of Haw Par in 2009 and 2010, and account for any substantial fluctuation emerged, through analyzing relevant financial ratios respectively. One of Haw Par’s major competitors – Sun pharmaceutical industries Ltd. is also referred to for comparison. 2.2.1 Profitability Analysis Ratios adopted here include net profit margin, gross profit margin, return on assets, return on equity and earnings per share. The net profit margin of Haw Par nearly doubled from 46.10% to 86.90%. Such a rise is aligned with the increase in sales revenue from $124m to $130m, mainly due to the recovering global economy. As the International Monetary Fund (IMF) stated, the world real GDP growth is 1.4% and 2.5% for 2009 and 2010 respectively, while for Asian countries the growth was estimated to be 5.5% and 7.0% (Michael Mussa, 2009). As an Asian company, Haw Par has benefited greatly from the economic recovery. However, the gross profit margin displays a slight decrease from 58.25% to 56.20%. This can be partially attributed to rising material costs and operating expenses. Haw Par reported a 7.51% increase in costs of sales while Sun Pharmaceutical reported a 28.3% rise in the costs of sales. Consistent with the trend shown in profit margins, the return on assets, return on equity and earnings per share ratios are also nearly doubled, owing to a better economic environment. Though the total assets and owners’ equity increased due to the market expansion in America, the increase is insufficient to offset the effect of a strong rebound in net income. In short, ratios concerning the profitability manifest a rising trend, and thus we conclude that Haw Par’s profitability has improved from 2009 to 2010 by tapping the opportunity of the warming global economic climate. It also outperformed its competitor, Sun Pharmaceutical, which reported an 8.62% fall in income from operation in 2009-2010(Sun Pharmaceutical, 2010). 2.2.2 Liquidity and Efficiency Analysis Ratios adopted here comprise of current ratio, quick ratio, assets and fixed asset turnover, inventory and receivable turnover, average days in inventory, and average days of receivables. Quick ratio and current ratio are used to assess group’s ability to pay the current liabilities due within one year. The current ratio of Haw Par dropped from 12.57 to 12.09 because of the fair value losses in its investment in United Overseas Bank Limited and disposal of available-for-sale financial assets (Haw Par, 2010). However, the quick ratio, a more stringent measure on liquidity, indicated a rise from 2.70 to 3.31. The contradictory result is actually justifiable on the basis of the very reasons just mentioned. Due to an increase in cash and net accounts receivable, the quick ratio increased, it can be concluded that Haw Par demonstrated a greater capability in meeting its short term bond obligations. The assets turnover and fixed assets turnover ratios assess the group’s ability to generate revenue for each dollar invested in assets and fixed assets respectively. Haw Par’s assets turnover experienced a slight drop from 0.07 to 0.06, while its fixed assets turnover increased from 2.73 to 2.91. Possible explanation would be the group’s heavier investment in subsidiaries and inventories, which increased the total assets, resulting in lower asset turnover ratio. Since the fluctuations on both indicators are insignificant, it is unconvincing to say that Haw Par’s management efficiency improved. The inventory turnover ratio and average days in inventory assess how fast the company is selling its inventories. From 2009 to 2010, the inventory turnover declined from 8.19 to 7.41 and average days in inventory lengthened from 44.59 to 49.29. This is attributed to a 52.30% increase in inventory. These two indicated that Haw Par’s inventory management became less efficient. However, Haw Par might have accumulated inventory purposely to counteract the negative impact of rising raw material costs. The receivable turnover and average days of receivables both indicated the improved efficiency in collecting receivables. While the receivable turnover rose from 6.17 to 6.99, the average days of receivables fell accordingly from 59.20 to 52.23 days. It is discussed earlier that sales revenue increased sharply. Besides higher sales revenue, another factor accounting for this may be a better economic situation under which fewer customers face liquidity problem. In all, though its current ratio decreased slightly, Haw Par still retains its ability to cover short-term debt. However, there is still room for Haw Par to enhance its operating efficiency. It may improve the inventory and receivable management system to boost its business performance. 2.2.3 Solvency Ratio Analysis Ratios adopted for solvency analysis are debt to assets and cash acquisition. The debt to asset ratio reflects the degree of reliance on creditor finance. Haw Par’s debt to asset decreased from 0.047 to 0.045, indicating Haw Par’s improvement of financing strategy by financing more on equity. Two possible explanations for that change may be: (1) Sufficient cash flow allowed Haw Par to rely less on loans. (2) The promising trend in economy helped restore confidence of shareholders who in turn invested actively, as evidenced by the rise in share capital. The cash acquisition ratio nearly doubled from 5.92 to 9.40. The numerator, net cash from operation, plummeted by more than half; however, the denominator, cash paid for PPE, fell more dramatically by two thirds. The two fluctuations as a whole resulted in a rise in cash acquisition ratio, giving a positive indication on Haw Par’s solvency situation. As the two ratios suggested, it seems plausible that Haw Par has improved its solvency. However, its competitor Sun Pharmaceutical, with the debt to assets ratio of merely 0.026, has outperformed Haw Par in solvency. It is still possible for Haw Par to improve further. 3. CONCLUSION To conclude, though benefited from the overall economic recovery, Haw Par was also surrounded by risks and challenges in the competitive environment. However, it has been actively engaged in product innovation and adopted pertinent strategies, especially in marketing sector. Haw Par’s responses were fairly effective in tackling the above-mentioned problems, as proven by its successful financial year. So far, Haw Par has been tapping the benefits of economies of scale, enjoying the opportunities in the emerging Asian market and taking advantage of the global economic recovery. Yet in the contestable market where the barrier to entry is minimal in the long run, Haw Par should continue to strive hard so as to maintain its competitiveness in the ever-changing business world.

Serving The Purpose Of Education - 885 Words

In Kisautaq Lenona Okakok’s essay â€Å"Serving the Purpose of Education† she discusses the education dilemma in her borough of North Slope, Alaska, where many of the occupants are indigenous people of the Inupiat. Western education was thrust upon the Inupiat people of Alaska, changing the traditional way they taught their children. Okakok explains why and how The Board of Education for North Slope, Alaska took entire control of their education system after having Western education try to influence their way of teaching. The way the Inupiat teach is different from that of Western education, not only do they teach a different language (Inupiaq), they also need to teach a different curriculum that is better suited for the people of the North Slope compared to that of Western education. 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