Development Intelligence
 Introduction      Economic Development Report      The Economic Paradigms      About DIO      Leading Issues




Development Intelligence Organization

Economic Development Report - May 2015-May 2018

Below we summarize the findings of our Economic Development Report covering the period January 2015-January 2018.

It is evident that since 2007 there has been little rationalization of macroeconomic and microeconomic theory and practice with which to bring about a proactive correction in the emerging challenges. During the last three years the most significant challenges identified since 2007 have consolidated into a situation that exposes the failure of conventional theory and policy practice to gain any traction in addressing:

  • falling productivity
  • rising financialization
  • decline in currency values under quantitative easing (devaluations)
  • rising private and public debt
  • declining relative investment in the real economy
  • rising relative investment in assets and instruments (FIRE)
  • falling real incomes
  • low growth
  • the decline in representative governance

On the broad indicators front the Sustainable Development Goals (SDGs) extended and substituted the Millennium Development Goals (MDGs) in 2015. Theses were applied to most countries as opposed to low income countries with some 119 countries signing up to the agreement.

SDGs have been the cause of some discussion in the area of development economics. For example with project managers considering SDGs to be general objectives runs the risk of making more pressing community-specific needs subservient to political priorities that are of less relevance to the communities a project is designed to serve.

SDGs, because each one can only become sustainable and accessible, even in low income countries has brought into the frame evaluations of the relevance of the conventional macroeconomic models used to structure policy. Of particular importance is how to secure policy traction and economic growth to support SDGs. In this context, the Aggregate Demand Model (ADM) applied within the Keynesian, Fiscal, Monetarist and Supply Side Economics places emphasis on "Demand" as the controlling factor of growth, prices, employment and inflation. The broad outcome is inflation, indeed, the 2% price stability target of most central banks, devalues currencies by in excess of 18% each decade. This places a strain on the lower income groups in agricultural sectors because projects need to achieve higher levels of productivity under precarious conditions. The precarious conditions do not only relate to weather conditions but also to the ineffective and out-moded procedures used to design and management projects (see Leading Issues).

Developing countries and in particular their agricultural sectors and investment projects require practical economic rules to maintain a close relationship between productivity, unit prices, real incomes and the value of the currency. It is essential to balance the rate of real incomes growth and purchasing power with unit price movements. To date the most promising macroeconomic framework to support this is the Production, Accessibility, Consumption Model (PACM). This provides an explanation of how a supply side approach can enable growth to be based on the degree to which output is accessible to lower income groups. This model is quite distinct from the ADM approach but it is transparent and logical and has the added benefit of being counter-inflationary.

The recognition of the signifcance of locational state theory

It is now impossible to advance this subject without mentioning the recognition of Locational State Theory (LST) as an important rationalizing model for the role of innovation in economic development. LST also provides a model environment that places the PACM in a strong position to represent the working model for successful economic growth.

The PAC Model emerged from Real Incomes Approach to economics which has evolved since its inception in 1975 by Hector McNeill, a British economist with extensive experience in low income countries and in particular the agricultural sectors. McNeill is also the leader developer on LST since 1985. This approach provides a more transparent supply side model than what is considered to be supply side economics which is, in reality, a fiscal policy variant.

A comparison of the main economic theory and policy paradigms is provided under "The Economic Paradigms"

DIO-Development Intelligence Organization