In spite of the fact that central planning has fallen into disrepute, foreign aid continues to follow the central planning model. International aid to less-developed countries strives to achieve macro-economic objectives, effecting great altering strides in the economy of an entire country or region. Thus, development programs tend to spawn very large-scale projects.
By contrast, in industrialized countries at a more advanced economic stage, most ongoing development takes place at a micro-economic level, with little reference to macro-economic theories and objectives. This micro-economic development can be characterized as product development, the development of products and services, by small sub economies within the economy.
If product development works for industrialized countries, why cannot the process of development in less-developed countries also be treated as the development of products for markets? This approach changes entirely the nature of development aid, and of projects launched in the name of development. It also provides a basis for decision making about how to invest development aid capital.
Economic development theory evolved in the 1950s and 1960s in the euphoria following the success of the Marshall Plan. It held that capital infusions from developed countries would enable less-developed countries to achieve economic “take-off”, eventually attaining self-sustained growth. It was assumed that recipient countries would adjust their economic structures to make maximum use of aid (Roger C. Riddell, Foreign Aid Reconsidered; Baltimore: Johns Hopkins University Press, 1987, p. 94. 3 E.F). This assumption turned out to be faulty; yet large, capital-intensive projects sponsored by international donor agencies remain the norm. Alternative international development practices have arisen, however, in response to the criticisms of large capital-intensive projects. The alternative practices take two forms: wealth redistribution, and grass-roots concepts like community development and appropriate technology.
Redistributive approaches, though sometimes termed “microeconomic”, are really either pure charity which can interfere with normal incentives to development -- or are exercises in central planning. The dismal failure of central planning in the socialist countries has yet to be recognized in the application of macroeconomic development policies. Price, wage and taxation policies are designed by technicians whose concepts are often divorced from the market place and whose designs for economic improvement often turn out to be tragically wrong.
Community development efforts have evolved into “integrated rural development”, an attempt to do everything at once for grass-roots communities which also suffers from the central planning fallacy and has been a notable failure.
E. F. Schumacher’s emphasis on the beauty of smallness spawned the appropriate technology movement. But in spite of its grass roots orientation, this movement has been dominated by tinkerers instead of entrepreneurs and mass marketers. The unfortunate result has been that hundreds of creative technologies that are too expensive or otherwise not right for the market or that simply have not been marketed properly, now lie gathering dust on the shelf.
If, instead, appropriate technologies were developed, marketed and sold as they are in industrialized countries, development objectives would be better served.
Deriving learning’s, IDEI follows the market based approach for all its work.