DEVELOPMENT POLICY AND PLANNING (DST 2103)

BACHELOR OF DEVELOPMENT STUDIES

LECTURE NOTES

LECTURE 1

INTRODUCTION TO DEVELOPMENT POLICY: MEANING, CONCEPTS AND

ISSUES

Economic development in the Third World has been elusive for a great many reasons.
Primary among those reasons, however, has been the failure of development theory,
and the consequent policy thrusts arising from such theory, to capture the real long-
term issues, associated with the economic environment at the time, that ultimately
determine the prospects for development. For example, perhaps the two most crucial
elements in the quest for development, namely leadership and the development
management machinery, have invariably not been included in the theoretical
formulations nor in the policy considerations and subsequent policy implementation.

One of the lessons learned from the formulation of development theory and policy in
the Third World is that "New ideas win a public and professional hearing, not on
their scientific merits, but on whether or not they promise a solution to important
problems that the established orthodoxy has proved itself incapable of solving". Much
of the work on development theory and policy has intellectual merit that makes it
appropriate for insertion in professional publications to be read by professional
economists. However, the formulation and implementation of development policy must
also entail appropriateness. If development policy has intellectual merit but lacks
relevance it is likely to be ineffective to effect economic development in the third
world.

The concept of economic development has become very commonplace in this

century and there is a growing body of literature on its historical development.
Moreover, economists have gone to great lengths to between terms economic
development and economic growth. It is now recognized that they are two different,
but related, processes that are both counterparts and competitors, depending on the
time span involved, and that the distinction is important from both theoretical and
policy-making standpoints (Flammang, 1979). In the commonly used meanings of
the two terms, they are clearly complementary processes, each having the
potential to contribute to the success of the other. But this does not negate their
competitive nature. Unusually favourable growing conditions may easily result in
impressive growth in the traditional outputs of a country or in increased leisure for
its population, without much, if any, structural change, as was found to be the case
in e.g. Liberia (Glower et al, 1966). Similarly, development is possible without
growth. One sector may grow at the expense of another. Industrial expansion may
be matched by a decline in the agricultural sector, for example, as was found to
be the case in the Caribbean (Hope, 1986).

The development-growth distinction is essential in economic thinking. Growth and

development are different processes that are considered to be complementary in
the long-run but competitive in the short-run. Economic growth is regarded as a
process of simple increase, implying more of the same, while economic
development is a process of structural change, implying something different if not
something more (Flammang, 1979).

There have been several contrasting perceptions of development. In the 1940s,

the less affluent countries, located in Africa, Asia, and Latin America, were usually
described as backward. By the 1950s, the term backward, with its pejorative
connotations, had been generally discarded in favour of the term
underdeveloped, which implied the existence of a potential that could be realized
and did not suggest directly, at least, an attitude of superiority on the part of the
industrialized nations. In the 1960s, these countries began to be referred to as
less developed, which was an even more acceptable term, since the countries in
question were somehow to be regarded as developed but only less so than
some others.

At the same time, the expression Third world became prominent and was used to
distinguish these nations from the Western industrialized countries (First World), on
the one hand, and the Eastern socialist nations (Second World), on the other. In the
1970s, several new terms came to be commonly used. One was the expression
developing nations, which seemed to have removed all implications of inferiority. A
distinction was also made between the oil producing and non-oil-producing
nations. In the 1980s, the term newly industrializing countries emerged, referring
primarily to four Asian nations - Hong Kong, Korea, Singapore and Taiwan - that were
experiencing sustained industrial growth and economic development. At the present
time, the appellations less developed nations, developing countries, and Third World
countries are the most widely used and are usually employed interchangeably.

All through the years the term economic development, used outside the Marxist
literature, continued to denote the development or exploitation of natural resources.
In the last three decades, economic development became virtually synonymous with
growth in per capita income in developing nations (Arndt, 1981). Development meant
a rising gross national product, increasing investment and consumption, and a rising
standard of living. A theory was elaborated on the basis of Western experience
during the nineteenth century. Accordingly, a developing economy was moving to a
developed status when it became strong and complex enough to take off toward the
industrial heights scaled by many countries in the Northern Hemisphere.

The tools of this type of development also were, quite clearly, anything that could
help get the engines of investment, production, and consumption moving including
the inflow of capital goods from the rich nations. At the same time, priority was given
to import-substitution policies. Import-substitution industries were to become the key
to development. This theory worked extremely well in some countries. In South
Korea and Taiwan, for example, production of goods and services leaped upwards -
assisted, of course, by United States aid and defence outlays - until the coutries
effectively began to leave poverty behind (Hunter, 1971).

However, some flaws appeared in the theory. For one thing, many Third World
nations challenged the notion that development could be measured purely in terms
of growth in GNP. That challenge resulted in a search for a new meaning and
approach to development. "The task was therefore one of finding a new measure of
development to replace the growth of national income measure, or, more precisely,
to enable the national income to be given its true, somewhat limited, significance as
a measure of development potential" (Seers, 1909). Development was seen as being
brought about not through reliance on external assistance but through national effort.
In the early 1960s, import-substitution policies were discarded and rapid
industrialization for export expansion became the task.

Unfortunately, the debate over development strategy then, as now, often swirled
around the relative importance of agriculture versus industry. This dichotomy is
frequently overstated. The notion that rapid industrialization entails a total neglect of
agriculture is erroneous; it underestimates the importance of the mutually beneficial
links between agricultural and industrial development. In fact, in most Third World
nations, successful industrialization has been supported by agricultural growth.
Therefore, growth in countries is highly dependent on the development policy
adopted

WHAT IS DEVELOPMENT POLICY AND PLANNING ABOUT?

Many growth-enhancing activities require coordinated policy, frequently at the national

level. Development planning is the government’s use of coordinated policies to
achieve national economic objectives, such as reduced poverty or accelerated
economic growth. The concept of development planning includes a wide range of
activities, from central management of the economy in communist nations to
government-sponsored forecasts by private groups in countries such as Sweden.

However, planning can be defined as as the formulation and execution of a

consistent set of interrelated measures designed to achieve certain specific
economic and social goals. Or, as the former Indian Prime Minister Jawaharlal
Nehru (1961) defined it: "Planning is the exercise of intelligence to deal with facts
and situations as they are and find a way to solve problems". Waterston (1965),
As such, Planning can de generally defined as: the conscious and continuing
attempts by governments to increase rates of economic and social progress
and to alter those institutional arrangements considered to be obstacles to the
achievement of that aim.

A plan encompasses programs. These may be antipoverty programs, family planning,

agricultural research and extension, employment policies, education, local technology,
savings, investment project analysis, entrepreneurial development programs, and
international trade and capital flows. Planning involves surveying the existing
economic situation, setting economic goals, devising policies that are consistent with
achieving these goals.

Planning takes place in capitalist, mixed private–public, and socialist Countries

Capitalist countries plan in order to correct for externalities, redistribute income,
produce public goods (for example, education, police, and fire protection), provide
infrastructure and research for directly productive sectors, encourage investment,
supply a legal and social framework for markets, maintain competition, compensate
for market failure, and stabilize employment and prices.
Usually the country’s head of government (prime minister or president) assigns the
plan to a planning office that includes politicians, civil servants, economists,
mathematicians, statisticians, accountants, engineers, scientists, educators, social
scientists, and lawyers, as well as specialists in various industries, technologies,
agriculture, international trade, and ethnology.

In the 1950s, economists stressed an expert planning agency independent of political

and bureaucratic pressures. After many a sophisticated plan lay on the shelf unused,
the emphasis shifted to a planning commission directly responsible to politicians and
integrated with government departments of industry, finance, commerce, petroleum,
agriculture, health, education, and social welfare, as well as with regional and local
government departments and planners.

Economists are ambivalent about integrating the central bank into the government’s
monetary and fiscal planning. To be sure, most economists favor the integration of
monetary policy with the government administration’s fiscal policies. Still, because
many economists fear that political and administrative leaders will not be vigilant in
fighting inflation, these economists recommend that the central bank operate
independently of the head of state and government departments. However, it is
important to ask; do policies in democratic states differ from those under authoritarian
regimes? Political scientists find no difference between the macroeconomic policies of
established democratic and authoritarian governments, but countries undergoing
transitions to democracy pursued more expansionary monetary and fiscal policies
than before and after the transition and compared to established regimes (Sandbrook
1985; Diamond, Linz, and Lipset, 1988; Haggard and Kaufman 1989:57–77).

National governments have played an important role in the successful development

experiences of the countries in East Asia. In other parts of the world, including some
countries in Africa, Latin America, the Caribbean, and the transition countries,
government often appears to have been more of a hindrance than a help, stifling the
market rather than facilitating its role in growth and development. This chapter
examines the balance of and relationships between states and markets in the process
of economic development.

Achieving the proper balance between private markets and public policy is a
challenge. In early years of development following World War II and decolonization, a
perception of the state as a benevolent supporter of development held sway, at least
implicitly, but the record of corruption, poor governance, and state capture by vested
interests in so many developing countries has made this view untenable. More
recently, a negative view of government has predominated, but it too has been based
more on theory than fact and has failed to explain the important and constructive role
that the state has played in many successful development experiences, particularly in
East Asia. Now a middle ground has emerged, recognizing both the strengths and the
weaknesses of the public and private roles, providing a more empirically grounded
analysis of what goes wrong with governance in development and the conditions under
which these flaws can be rectified, and incorporating an appreciation of the role of civil
society. More subtle shadings between the sectors are also becoming more
appreciated.
WHAT IS POLICY?

We shall use the word ‘policy’ to mean: “a set of guidelines or decisions that determine
and underline the way individuals or groups of people think and behave in a certain
social, cultural, economic and political environment. Itis important to note that policy is
not always in written form, but rather may be implied through practice. This is
particularly true for individuals and informal group organisations.”

The word 'policy' can also be taken to refer to the principles that govern action directed
towards given ends. The concept denotes action about means as well as ends and it,
therefore, implies change: changing situations, systems, practices, behaviour. And
here we should note that the concept of policy is only meaningful if we (society, a
group, or an organisation) believe we can affect change in some form or another. We
do not have policies about the weather because, as yet, we are powerless to do
anything about the weather. But we do have policies (or we can have policies) about
illegitimate children because we think we have some power to affect their lives - for
better or worse depending on whether you are the policy-maker or the illegitimate
child.

The word 'policy' is used here in an action-oriented and problem-oriented sense. The
collective 'we' is used to refer to the actions of government in expressing the 'general
will' of the people - whether of Britain, Nigeria or China. The meaning and validity of a
concept of the 'general will' is, of course, hotly debated.

Policies help to determine our conduct in a particular setting so that social harmony
and peace are maintained and our welfare is secured. While we may all be aware of
formal policies that governments and agencies develop and implement, let’s look in
the following case study at how policies can impact community life too.

TYPES OF DEVELOPMENT POLICIES:

ECONOMIC POLICY

An economic policy is a course of action that is intended to influence or control the

behaviour of the economy. Economic policies are typically implemented and
administered by the government. Economic policies are statements of aims and
ideals to be achieved through various instruments outlined by the Government
to guide the process of economic development. In a way, it can be termed as a
structural response to correct economic imbalances (and inequality). By
manipulating economic and social variables, governments, influence the
process of resource allocation to achieve desired level of economic
development and stability. An economic policy essentially relates to either or all of
the three basic economic decisions viz., ‘what to produce’, ‘how to produce’ and ‘for
whom to produce’ at macro level.

Generally, it is believed that economic policy-makers are guided by economic

considerations supported by economic theories in framing various subsets of
economic policies. However, in democratic countries, the decisions about public policy
in general and economic policy in particular are taken by the elected representatives
at different levels. Hence, these are essentially political decisions. Apart from
legislators, different shades of public-opinion, through mass-media, bureaucracy,
judiciary, trade organisations, experts’ bodies, voluntary organisations (NGOs), and
other interest groups exert ‘pulls and pressure’ to influence the process of economic
policies formulation. Hence, comprehension of the interaction between politics and
economics can help us to gain insight into the key questions of ‘making,
implementation and failure’ of economic policies and programmes.

Examples of economic policies include decisions made about government spending

and taxation, about the redistribution of income from rich to poor, and about the
supply of money. The effectiveness of economic policies can be assessed in one of
two ways, known as positive and normative economics.

THE NEED FOR ECONOMIC POLICY

Why do we need economic policies? Seemingly naïve, this is an important question.

The answer to this question leads us to the most exciting and ceaseless ideological
debate in Economics and is beyond the scope of this unit. However, a brief discussion
on this topic will help you to develop a perspective about economic policies and plans
of the Government.

The Market system is an institutional arrangement that has persisted and evolved over
the past few hundred years because it has contributed greatly to our economic well-
being. It is not perfect, however, and in some situations, our economic well-being can
be raised by regulating it or even by side-stepping it altogether. Failure of market is
the most important reason behind ‘making of’ an economic policy.

Economic literature says that competitive markets generate a Pareto optimal solution
and an economy that reaches a Pareto optimal solution is commonly said to be
efficient. Pareto optimal solution is based on certain assumptions. If one or more of
these assumptions does not hold good, the market system does not give rise to an
efficient outcome. These inefficient outcomes are called ‘market failures’.

Choices through time, under-provision of public goods, presence of externalities,

existence of common property resources, imperfect competition, asymmetric
information, etc., are some of the well-documented reasons for ‘market failures’.
These need some sort of Government intervention in the form of ‘economic policies
and programmes’. Further, even if under Pareto optimal solution resources are
efficiently allocated, the distribution may not be ‘equitable one’. State through
participation in the production activities can give a direction to the resource allocation
in more efficient manner in the larger public interest. It can directly own and manage
various public utility services (also called social consumption of public goods).
Competition is wasteful in such industries, and, hence, these can be best entrusted to
the state. The state itself can undertake the production and distribution of public goods
meant by collective consumption. Production of public goods is necessary not only for
itself but also for generating new opportunities to secure the goal of full employment.
The state may engage itself in production of such services that are beneficial but which
do not attract private enterprise either because they are too risky or because the rate
of return on capital employed is too low. There are certain goods of strategic
importance that cannot be left in the hands of the state. The state can also act as a
countervailing power to private monopolies. The state may: (i) prevent consumption of
noxious products, and (ii) protect the consumers against fraudulent practices.

Further, if certain well-specified conditions are met, the Government can shift the
economy from one Pareto optimal solution to another by redistributing purchasing
power and then allowing people to trade in competitive markets. The need for
‘redistribution that takes the economy to any desired Pareto optimal solution’
underlines the need of economic policy. Besides, all constitutional obligations of
government can only be fulfilled by a sound economic policy.

GOALS OF ECONOMIC POLICY.

The goals of economic policy consist of value judgments about what economic policy
should strive to achieve and therefore fall under the heading of normative economics.
While there is much disagreement about the appropriate goals of economic policy,
several appear to have wide, although not universal, acceptance. These widely
accepted goals include:

Economic growth: Economic growth means that the incomes of all consumers and
firms (after accounting for inflation) are increasing over time. In a developing economy,
the principal goal of economic policy is to ensure rapid economic growth. Growth, i.e.
increased output of goods and services, helps to build up backward and forward
linkages that are so essential to ensure trickle-down and other spread effects.

Full employment: The goal of full employment is that every member of the labor force
who wants to work is able to find work. Linked to the growth objective is the goal of full
employment, i.e., to find productive use for all available resources in the economy.
The economic gains from full employment are enormous. Full employment yields the
individual security, which, in turn, promotes progress, contributes to human dignity and
weakens non-functional discrimination.

Price stability: The goal of price stability is to prevent increases in the general price
level known as inflation, as well as decreases in the general price level known as
deflation. Monetary instability adversely affects both the growth process and the
welfare. Fluctuations in the rate of foreign exchange affect international trade and
introduce an element of uncertainty into the economic life of the country. Economic
policy is a powerful instrument to ensure stability.

Better Distribution of Income: Market mechanism left to itself promotes inequalities

in the distribution of income and wealth. Inequalities lead to misallocation and
misutilisation of resources. They lead to a serious breach of social welfare. Economic
policy can be so designed as to achieve a somewhat better distribution of income and
wealth.
Human Development: Human development as an indicator of improvement in the
quality of life is considered an important objective of economic development. Several
factors like education and illiteracy rate, life expectancy, the level of nutrition,
consumption of energy per head etc. are involved in the measurement of such
qualities. With the growing concern of human development, decent work has emerged
another goal of economic development. There are four dimensions of decent work:
work and employment itself, rights at work, security, and representation and dialogue.

Maintenance of Fair Competition: Competitive conditions are essential for welfare

maximisation. These can be ensured by an effective antimonopoly policy.

Avoidance of Cyclical Fluctuations: An essential feature of free market economies

is what we call business cycles or trade cycles. These refer to regular cyclical
fluctuations in economic activity with attendant consequences. An important goal
before economic policy is to rid the economy of these ups-and-downs.

INSTRUMENTS OF ECONOMIC POLICY:

Though there is no theoretical framework about the necessary components of an

economic policy, based upon our historical experience, we can outline a few of them.
Properly defined targets, explicitly outlined strategy to achieve those targets, specific
programmes for implementation and objective methods of evaluating outcomes are
some of the basic ingredients of a ‘sound economic policy’.

The instruments of economic policy vary between the types of economic policies.
Broadly speaking, we can distinguish between two types of economic policies, (i)
macroeconomic policies (or aggregative policies), and (ii) microeconomic policies (or
sectoral policies).

§ Macroeconomic Policies are designed to address the big aggregative macro

variables, like national output, employment, general price level, investment,
saving, rate of exchange, etc.
§ Microeconomic Policies are sectoral policies and are designed to direct and
contribute to the growth in the individual sectors of the economy, like
agriculture, industry, services, etc.

1) Macroeconomic Policies

It is in the macro-economic arena that the state finds its full flow. It encompasses the
whole spectrum of economic activity. The state has to employ different weapons to
achieve the targeted goals. Before we attempt to prepare a brief catalogue of these
weapons, we need to reiterate that these different weapons cannot be seen in
isolation; these have to be employed in an integrated manner to achieve a balanced
growth.

The principal instruments of macro-economic policy can be identified as follows:

 i) Fiscal Policy: The foremost among the instruments of macro-economic policy
is the fiscal policy, also called the budgetary policy. As the name implies, the
policy operates through the budgetary operations. A budget is an annual
financial statement of the Government’s transactions. Public revenue and
public expenditure form the core constituents of budget. The principal sources
of public revenue are taxes of different kinds. Besides, governments can and
do raise large sums of money by way of borrowings, both internally and from
external sources. On the expenditure side, subsidies, economic and social
sector, etc. constitute the principal heads. Each of the items on the revenue
side and the expenditure side has the potential to affect the course of economic
activity, both in aggregative sense and in the sense of individual sectors.
ii) Monetary Policy: Monetary policy deals with the volume and price of money
in an economy. Volume of money refers to the amount of money in circulation
in the economy. While an inadequate quantity of money in an economy may
fail to provide the required liquidity for the growing volume of transactions in
the economy, and may, thus, adversely affect the process of economic growth,
an excessive supply of money, on the other hand, may prove inflationary, and,
hence, in turn, may adversely affect the process of economic growth.
Therefore, the state (or the monetary authority, i.e., the Central Bank of the
country) would have to exercise judicious control over the creation of money
(both by the Central Bank and Commercial Banks) in the economy.
Domestic price level also affects the external value of currency. Fluctuations in
the external value of currency, i.e., the rate of exchange, may, in turn, have
adverse effect on the domestic economic activity. This becomes another
important reason why too-little or too-much of money cannot be created in an
economy.
The total supply of money (along with its demand) also affects the rate of
interest, i.e., the price of money. Rate of interest, in turn, is an important
determinant of various macro variables, like consumption, saving and
investment.

iii) Commercial Policy: A third important component of macro-economic policy

is commercial policy. Commercial policy defines, broadly speaking, the
Government’s attitude towards the external sector of the economy, i..e., policy
towards investment by foreign capital in the host country (both in the form of
portfolio investment and direct investment), policy towards inflows and
outflows of foreign exchange, goods and services. A state may opt for a total
open-door policy; another extreme could be when at every entry or exit, a call
is to be made to the state. A mild protection may be a middle way. Which of
the policies, absolute free trade or protection, or mild protection comes to be
selected is determined by obtaining economic environment, both domestic
and international.

2). Microeconomic Policies

The state need not be content with restricting itself to broad macro-economic
aggregates. The state can and does define its attitude towards activity in different
individual sectors of the economy, like agriculture, industry, and services of different
types. The state may permit and promote certain lines of activity in agriculture, industry
and services. On the contrary, the state may prohibit and discourage certain lines of
action. The different instruments of micro-economic policies may be identified as: (i)
industrial licensing, (ii) quota-permit system, (iii) import control, (iv) export control, (v)
competition or anti-monopoly policy, (vi) procurement policy, (vii) policy of minimum
support prices, (viii) policy of buffer stocks, etc. These are only a few illustrations of
micro-economic policy, by way of examples.

Structural reform policies: these may cover a wide spectrum of microeconomic

policies that are particularly targeted in the area of competition (the business
environment, research and development, innovation, sustainable use of resources,
modernisation and development of transport and the ICT network) and the labour
market (a flexible market, market integration, education)

SOCIAL POLICY

What do we mean by social policy?

Connected with this is the equally important question: whose social policy?

The greatest semantic difficulty arises, inevitably, with the word 'social'. We have, for
example, social geography, social planning, social psychology, social psychiatry,
social administration, social work, social law, social linguistics, social history, social
medicine, social pathology, and so on. Is it really necessary to drive home so
ponderously the fact that all these subjects and groups are concerned in some way
with man in society - and particularly with the non-economic factors in human
relations? Are they not all, in short, emphasising that man is a social being; that he is
not solely Economic Man; and that society cannot be thought of in terms of
mechanistic-organic models or physiological models? It may well be that much of the
current fashion for 'social' is a reaction against the sillier models of man in society
constructed in the past by economists, political philosophers, experimental
psychologists and sociologists. Take, for example, the attempts of the Victorian
economists to establish a competitive, self-regulating total market argues that 'in the
main social policy is an attempt to steer the life of society along channels it would not
follow if left to itself'. This is in some senses a more limited definition - but it does imply
a substantial interventionist role by Government in the provision of a wide range of
community facilities and safeguards hence called socialism.

"Social Policy" is not a technical term with an exact meaning. Rather, it is taken to
refer to the policy of governments with regard to action having a direct impact
on the welfare of the citizens, by providing them with services or income. The
central core consists, therefore, of social insurance, public (or national) assistance,
the health and welfare services, housing policy. Again, social policy is seen to be
beneficent, redistributive and concerned with economic as well as non-
economic objectives. Like many of the other definitions, social policy (as with
economic policy) is all about 'what is and what might be'. It is thus involved in choices
in the ordering of social change.

In the broad view, social policy contains three objectives - and, of course, value
judgements. Firstly, it aims to be a beneficent policy directed to provide welfare for
citizens. Secondly, it includes economic as well as non-economic objectives; for
example, minimum wages, minimum standards of income maintenance and so on.
Thirdly, it involves some measure of progressive redistribution in command-over-
resources from rich to poor.

Dissenting somewhat from these views social policy is seen as being more concerned
with the communal environment - with the provision of social amenity (urban renewal
and national parks, for example, and measures against pollution, noise, etc.) which
the individual cannot purchase in the market as a lone individual. It however also puts
emphasis on individual transfer payments (like pensions).

There are three contrasting models or functions of social policy.

1. The Residual Welfare Model of Social Policy

2. The Industrial Achievement-Performance Model of Social Policy
3. The Institutional Redistributive Model of Social Policy

1. The Residual Welfare Model of Social Policy: This formulation is based on

the premise that there are two 'natural' (or socially given) channels through
which an individual's needs are properly met; the private market and the family.
Only when these break down should social welfare institutions come into play
and then only temporarily. The true object of the Welfare State is to teach
people how to do without it.

2. The Industrial Achievement-Performance Model of Social Policy:This

incorporates a significant role for social welfare institutions as adjuncts of the
economy. It holds that social needs should be met on the basis of merit, work
performance and productivity. It is derived from various economic and
psychological theories concerned with incentives, effort and reward, and the
formation of class and group loyalties. It has been described as the
'Handmaiden Model'

3. The Institutional Redistributive Model of Social Policy: This model sees

social welfare as a major integrated institution in society, providing universalist
services outside the market on the principle of need. It is in part based on
theories about the multiple effects of social change and the economic system,
and in part on the principle of social equality. It is basically a model incorporating
systems of redistribution in command-over resources through-time.

The three contrasting models of social policy represent different criteria for making
choices. These three models are, of course, only very broad approximations to the
theories and ideas of economists, philosophers, political scientists and sociologists.
Many variants could be developed of a more sophisticated kind. However, these
approximations do serve to indicate the major differences - the ends of the value
spectrum - in the views held about the means and ends of social policy. All three
models involve consideration of the work ethic and the institution of the family in
modern society.
Social policy and economic policy

Policy areas are linked. Hence social policy should not be analysed or discussed in
isolation. It is inextricably linked to other types of policy. This link becomes clearer if
we think of social and economic development. Just and equitable social development
is founded on economic prosperity: economic growth is vital to economic prosperity
and therefore to social development. Economic growth determines economic policy,
which then determines the budget of the government and what it is prepared and able
to spend on welfare. However, economic development does not necessarily guarantee
social welfare and social protection. It is necessary, but not sufficient. Think of the
plight of the poor in cities like Detroit and Paris, which boast a sound economy but fail
to provide an equitable welfare system. There are other policies (especially the
sectoral ones such as housing policies, insurance policies, tourism policies, etc.) that
may not be seen as social or welfare policy but that may in fact make an important
contribution to social and community development. An example is trade policy, which
can only be effective in poor countries if rich countries’ trade policies permit. For
example, “If European Union and United States cotton subsidies were removed, cotton
exports from sub-Saharan Africa could increase by up to 75%” (Doney and Wroe,
2005). This would improve economic growth and feed into higher incomes, improved
health and better education.

The most important link that social policy makes with any other policy area in the public
sector is with economic policy. In the activity above you discovered that foreign affairs
policies affect social policy mostly through economic factors such as trade
relationships and aid, which are provided by foreign governments with which the host
country has fostered close relationships. Hill (2003) says that the key political issue in
this context is who controls the economy. The social implications of the linkage
between social and economic policy are that: the main factors that determine welfare
are economic. Besides, the government’s role in putting resources into social policy
is closely linked to its role in economic management. Therefore, social policies are
determined by views about the way the economy does or should operate. As such,
social policies can best be understood in terms of their relationship with economic
policies.

PUBLIC POLICY

Public Policy is a broad concept that embodies several different dimensions. The
challenge is to articulate in a comprehensible and cogent way the meaning of this
term. Public policies are the policies accepted and executed by government
bodies and officials. They are framed by authorities in a political system.
Namely, “elders, paramount chiefs, executives, legislators, judges, administrators,
councilors, monarchs, and the like. These are the persons who “engage in the daily
affairs of a political system, are usually recognized by most members of the system
as having the responsibility for these matters and take action that are accepted and
binding most of the time by most of the members so long as their act within the limit of
their roles.
In a nutshell, public policy seeks to achieve a desired goal that is considered to
be in the best interest of all members of society. Examples include clean air, clean
water, good health, high employment, an innovative economy, active trade, high
educational attainment, decent and affordable housing, minimal levels of poverty,
improved literacy, low crime and a socially cohesive society, to name a few.

These examples of broad societal goals are not intended to imply that all public
policies are directed toward the entire population. Sometimes policies deemed to
promote the public interest target only a certain group. Crime prevention policies are
in place, for instance, to control the behaviour of repeat offenders. Public health
policies may require the forced treatment of individuals with active tuberculosis. The
intent of these public policies is to protect all members of society by focusing upon a
select few.

It is evident that the public policy is the significant factor in the democratic government
and it emphasizes on the public and its problems, in fact it is a discipline which is
branded as public. The concept of public policy assumes that there is an area of life
which is totally individual but said in public. Likewise, public policies have a significant
purpose to work in the society where the democracy is prevails. The important role of
the public policy is to make the society to lead a better life and to maintain the delivery
of the goods and services are significant, it is regarded as the mechanism for
developing economic-social system, a procedure for determining the future and so on.

It is evident that the area of public policy has an important role in the public domain, it
can upsurge the growing density of the society. Public policy is not only worried about
the explanation and extension of the reasons and concerns of the government actions.
It also has the development of scientific information about the services determining
public policy. The examination of public policy aids us in determining the social ills of
the matter under the examination.

Policies do more than effect alteration in the situations of the society, they bring the
people together to follow the uniformity in the state. These public policies are the main
devices for any democratic nation and they improve the social and economic
procedures from the present of the future. Hence, the examination of the public policy
has become a significant element of the academic society as well.

NATURE OF PUBLIC POLICY

It is very much evident that policy might take different procedures like legislation,
executive orders or the official acts. They actually comprise of a set of intentions or
objectives a combination of devices or means for attainment of intensions, a
description of governmental or non-governmental units indicted with the accountability
of transporting out the intensions, and distribution of resources for the necessary
tasks. To recognize public policy, it is very much needed to examine the nature. A
policy may contain with specific or general, broad or narrow, simple or complex, public
or private written or unwritten explicit or implicit, discretionary or detailed and
quantitative or qualitative.
Public policy is in fact a skill because these tasks regularly some information about
the social sciences and in this case the stress is on the „public policy‟ which is
known as government policy, selected by a government as a direction for action.
From the perspective of public policies, actions of government could be put broadly
into two groups and they are:

1. Definite or Specific policies and

2. General, vague and inconsistent policies.

In reality a government rarely will have a fixed of supervisory values for all its actions
and in fact the significant public policies are frequently made clearer specifically where
the issue of law, regulation or strategy is involved. The Supreme Court can give its
decisions, by new interpretations to some of the articles of the Constitution which can
be develop into new policy.

These policies may be too unclear or too broad and may not be reliable to each other,
in turbulent atmospheres like the current ones government has to make regular actions
without reference to any particular policy, sometimes government announces some
sort of policy for political convenience or for some reasons, in such cases, government
will not have any intention to carry it successfully. Hence, it is likely to have a policy
without action or it can have action without policy.

Public policy contains major segment of actions, like, development policy, economic
growth, socio-economic growth, equality, social justice, or any other such policy may
be accepted by national policy. Hence, it can be observed a single policy in various
written documents. However, it may be narrow, covering a particular action. Public
policy is an area commonly defined by policy areas like health, education, housing,
economic, environment, transport and social and it is mostly set that interdisciplinary
and intergovernmental relations taking place. These policies can be developed either
by the central government or local government.
POLICY DEVELOPMENT IS A DECISION-MAKING PROCESS

A public policy is a deliberate and (usually) careful decision that provides guidance for
addressing selected public concerns. Policy development can be seen, then, as a
decision- making process that helps address identified goals, problems or concerns.
At its core, policy development entails the selection of a destination or desired
objective.

The actual formulation of a policy involves the identification and analysis of a range of
actions that respond to these concerns. Each possible solution is assessed against a
number of factors such as probable effectiveness, potential cost, resources required
for implementation, political context and community support. In short, any given policy
represents the end result of a decision as to how best to achieve a specific objective.
Most people actually apply a similar process in the decisions they make in their
everyday lives – even around fairly inconsequential choices.

Say, for example, that a person wanted to travel from Kampala to Nairobi, to attend a
meeting. There are several options to consider in determining the optimal travel plans.
First, it is possible to drive this distance. But an early morning start to the meeting
requires a previous day departure and an overnight stay, adding to the cost of the trip.
Moreover, the driver must feel comfortable navigating an area with which he or she
may not be familiar. The fatigue factor is an important element – particularly if the
driver is an organizer of, or presenter, at the meeting. Some individuals may also need
to consider environmental sensitivities. A second possibility is to fly from Kampala to
Nairobi. This option also involves commuting arrangements to and from the airport.
But while it is the quickest route, it is also the costliest. This route will save time, but
not money.

In the case of this decision, the traveler must weigh the following factors: travel time,
scheduling considerations, cost, potential fatigue and degree of comfort with the
proposed arrangement. The choice will depend upon the relative importance, from the
perspective of the decision-maker, of each factor. What may be an obvious preference
for some (e.g., the least expensive route) may not be the best option for others (e.g.,
they cannot make appropriate child care arrangements for a trip that requires an
overnight stay). The example presented here is not intended to imply that public policy
formulation is a simple or simplistic process. Rather, the intent is to illustrate that most
people engage – every day and all the time – in a similar method of making choices
from a range of options in order to meet their unique needs or achieve certain goals.

Obviously, public policy issues are also far more complex than the travel case
presented here. They typically affect a large group of people or even an entire
population rather than simply one individual. But the process involved in the
formulation of public policy is analogous to this personal exploration. A clear goal or
destination – an objective to be achieved must first be set. The various ways to get
there or attain that goal are then identified and assessed.

Each possible route to a desired objective has unique strengths and weaknesses.
These must be carefully considered in determining the appropriate option(s).
Assessing and weighing the possible choices is important because the final selection
must be justified on several grounds once it is made. There is always a requirement
to ‘make the case’ for and then ‘sell’ the selected approach – whether the goal is
poverty reduction, neighborhood revitalization or welfare reform, to name just a few
areas of current concern.

In addition to the complexity of public policy decisions, they also focus upon issues of
greater consequence than how to get from one destination to another. The objectives
of public policy include, for example, protecting the environment, enhancing healthy
child development, promoting economic competitiveness, reducing poverty and
revitalizing neighborhoods.

In all these cases, there are many different routes (far more than the two identified for
the Kampala-Nairobi travel). But like the travel decision, a combination of approaches
typically is required to reach the destination. It is rarely sufficient to employ only one
method to find a feasible solution – particularly in the case of a stubborn and seemingly
intransigent problem. Poverty is a prime example.

THE POLICY PROCESS

It would be unrealistic and even incorrect to say that the formulation of policy follows
a clear and consistent pathway or route. Policy development is actually an involved
and sometimes haphazard process that differs widely depending upon the concern
being addressed. Sometimes it is a long and winding road with lots of detours and
stops along the way. The disability agenda is a case in point.

Despite the variation in policy process, there are some general steps (described
below) that are common to its development. These are:

a. selecting the desired objective

b. identifying the target of the objective
c. determining the pathway to reach that objective
d. designing the specific program or measure in respect of that goal
e. implementing the measure and assessing its impact.

a. Selecting The Desired Objective

The first step in policy formulation is to determine the desired objective. Policy
directives can be understood as an expression of commonly accepted societal values
e.g., fairness and equity are often cited as strong values. Public policy is basically
shaped by and must be consistent with these values.

Within this context, the selection of objectives typically derives from priorities and
imperatives set at the political level. The desired objective may be rooted in the
platform of a political party or approved at its policy conference. A policy direction may
be announced, for example, in the Speech from the president or in the National
Budget. It may be signalled in a ministerial or departmental announcement regarding
the government’s intended agenda in a certain area, such as promoting skills and
learning, reforming the income security system, supporting a bio-based economy or
investing in environmentally clean technologies.

Policy objectives can also arise from negotiations with all stakeholders and
subsequent intergovernmental agreements that effectively incorporate an explicit or
implicit agenda. For instance, the framework agreements on early childhood
development (Nursery schools) are made after discussion with the parents and
nursery schools in the area. Besides, policy can be derived from a country’s
commitments to international covenants and treaties such as the UN Universal
Declaration of Human Rights (1948), the International Covenant on Economic, Social
and Cultural Rights (1966) etc. Through their signatures, nations commit themselves
to bring legislation, policies and practices into line with these obligations.

Policy directives also arise from a range of driving forces that have a social,
environmental or economic impact. For example, the effects of climate change crisis
drive the need to generate new policies and public responses that would not have
been introduced in the absence of these crises.

However, determining the objective may be difficult even in the presence of clear
political intent. Some observers would argue that identifying the right question(s) is the
most challenging part of the policy process. This is where the engagement of citizens
becomes particularly relevant.

While governments are the primary formulators of policy, there is growing recognition
of the need to engage the potential targets of any measure and citizens, more
generally, in discussion of the options. Citizens certainly are keen to ensure that their
voices are heard in the formulation of public policy. This is usually through policy
dialogue. There is also a need to consider the input from other sectors as well –
including the voluntary and private sectors – in the formulation of public policies. If
governments are to work effectively with other sectors, they must seek ways to open
up the policy process.

b. Identifying the Appropriate Target

The next step in the policy process is to identify the appropriate targets toward whom
the policy should be directed – the entire population or designated households or
group that meet certain criteria. The selected target is linked to the overall objective,
which embodies within it either a direct or indirect statement of who will or should be
affected by the proposed measure.

To a large extent, this task is tied to the next phase, which involves setting out the
possible route(s) to reach the goal. Sometimes the target derives from the selected
pathway, discussed below.

c. Determining the Pathway

in the policy process is to determine from a range of options how best to reach the
specified objectives. This part of the work is often difficult and contentious. Few
oppose, for example, the need to reduce poverty or to improve the quality of life. But
substantial debate can arise when it comes to selecting the most appropriate route to
achieve this goal. While the end may be clear, the means may be hotly contested.

Sometimes the choice is not all that difficult. Someone with active tuberculosis requires
medical treatment. While there may be disagreement as to the extent of force
employed for the provision of treatment, only a minority would deny that it is in the
public interest for active carriers to receive effective and prompt medical care.

Goals that can be reached by a wide range of possible interventions, by contrast, spark
far more debate. Considerable thought, discussion, consultation (some would say not
sufficient or genuine) and research typically precede any major public decision. In
contrast to the usual way in which actions are rationalized, the means – when it comes
to public policy – must justify the ends.

Say, for instance, that the overall goal of government is to reduce poverty in the
country or even in a particular community or neighbourhood. As noted, there are many
possible ways to reach this goal.

The desired outcome may be achieved, for example, by enhancing the knowledge and
skills of an identified group in an effort to promote their employability. While the
immediate result is not necessarily a reduction in poverty, the intervention has
substantially improved their employability potential. Evidence points to a strong,
positive correlation between educational attainment, occupational status and level of
income. Higher levels of education are strongly linked, on average, to better jobs and,
in turn, to higher income.

Based on this information, a focus upon knowledge and skills development is

considered to be one of the most important pathways to reduce poverty. If this
particular route to poverty reduction were selected, then a desirable output or result in
respect of this objective might be the number of individuals who increased their level
of education or acquired new or upgraded skills.

If the selected target group included high school dropouts, the long-term unemployed
persons, for example, then improved literacy skills might be the relevant measure of
success. If, by contrast, the effort sought to upgrade the skills of those who became
unemployed as a result of technological change, then the desired outputs might focus
upon retraining. Alternatively or in addition, a poverty reduction effort could create jobs
for the unemployed or link them to existing work opportunities. In this case, the outputs
or results of the effort would be the number of new jobs or work placements.

For the most part, these examples involve the provision of supports to individuals or
households. But there are other possible routes to reducing poverty. One is to focus
upon employers in the private, government and voluntary sectors to encourage them
to pay decent wages. Another is to ensure that various income security programs
deliver benefits that are higher than poverty levels and that households potentially
eligible for these programs are aware of their existence.

These possible measures in respect of a specified policy objective – reducing poverty

are intended to illustrate a general point. The same outcome of reduced poverty can
be achieved in several different ways – e.g., education and training, employment and
increases to wages and/or benefits. The specific results and their associated
measures will vary depending upon the route selected to achieve the poverty reduction
goal.

In short, several key factors act as a lens against which to assess decisions in the
development of public policy. Potential effectiveness – how well a policy will meet the
stated goals – is the first key factor. Efficiency is a second key factor, which involves
how well resources are utilized in achieving goals and implementing policy.
Consistency is a third factor; it refers to the extent of alignment with the broader goals
and strategies of government and of society, more generally.

d. Designing the Intervention

Policy formulation does not end once a preferred route to the desired outcome has
been selected. There is typically considerable design work to be done after the
approach has been identified. In fact, it is at this point that the detailed work and
tough decisions actually begin. Say, for example, that the government decides to
tackle poverty through the delivery of income benefits. It then faces hard questions
related to appropriate design including policy target, cost and financing of the
proposed measure(s), and political factors.

Policy target: The target is explored yet again at the design stage, which involves a
focus on detail. It is essential at this time to move beyond a generic statement of target.
At the design phase, a decision must be made to determine precisely for whom this
measure is intended (to the extent that this precision is possible) and how many
individuals or households this selection potentially represents.

Using income security as an example, the first element of design has to do with deter-
mining the intended beneficiaries of the new or expanded benefit. Should it go to
individual adults or to the household as a unit? In the latter case, should the benefit
vary by family size? Should the current level of individual or household income be
taken into account? Should the assets to which the individual/household has access
be counted in the determination of eligibility and/or in the calculation of the benefit
amount? The answers to these questions have a significant impact upon the types
and numbers of recipients of the new or enhanced measure.

Employment status might also be considered in the design of the benefit. Should it be
delivered only to those who are working in order to encourage attachment to the labour
force? Or is it intended to promote workforce participation by recognizing employment-
related costs? Yet another option is to pay the benefit only to those who are
unemployed on the assumption that most live on incomes that fall well below generally
recognized poverty standards.

The answer to these questions is linked intrinsically to the original policy objective. If
the intent is to reduce poverty by enhancing labour force participation, then the former
approach of providing additional benefits to those already employed is likely to be
favoured. If, by contrast, the policy objective is to reduce the depth of poverty (i.e., the
extent to which those who are poor fall below low income levels), then the second
option involving the provision of assistance to the unemployed likely would be
selected.
The determination of target includes other relevant issues. In addition to identifying
the primary beneficiaries of a given measure, a set of questions typically is asked
about which households or groups actually or potentially might ‘lose’ as a result of the
proposed initiative. Sometimes a certain group will no longer qualify for a particular
program because of the proposed redesign. At other times, the new measure may
deliberately exclude a specific group because their inclusion would contradict its
intended purpose.

Provincial and territorial social assistance programs determine eligibility for welfare
not only on the basis of level of income and needs of the applicant. Assets are also
considered on the assumption that applicants should first ‘spend these down’ before
applying for income benefits from government. Applicants with assets that exceed the
designated levels set by provinces and territories are deemed able to support
themselves – if only for a limited period of time.

In short, policy decisions always consider the trade-offs and who might be expected
to ‘lose’ – or at least not advance – if one party ‘wins’ some advantage, right or
resource. The interests of a single group or region of the country typically are balanced
against the interests of other groups or regions. Another important design
consideration is the actual level of benefit. Several factors are explored at this point,
including its adequacy and interaction with other income programs, social services
and the income tax system. One of the most significant design factors is cost and
financing.

Cost and financing: Not surprisingly, the question of cost is a key element of the
policy process. The design of any policy initiative – whether related to income security
or other area – must be costed to establish how much is required to support the
proposed plan. In the case of income security benefits, cost is determined not only by
the proposed level of benefit but also by the number of people/households that
potentially qualify for the assistance. An amount deemed excessive or prohibitive in
a tough fiscal climate may mean scrapping the plan. Alternatively, it could involve
going back to the drawing board to figure out how to address the identified problem in
a less expensive way. The actual cost is not the only consideration. Sometimes the
deciding factor is not how much, but who pays.

Political factors: There is also a set of questions related to the politics of design.
These arise from governance framework. We can say that the government has
jurisdiction over areas that affect the well-being of the nation, including the armed
forces, communications and international trade. More complex is the issue of income
security, which basically became defined as a field in which both federal and provincial
governments share an interest.

The political waters have been muddied through government involvement in health,
education, welfare and social services arising from its constitutional spending power.
This means that any given policy area, a range of actors whose various interventions
ideally should fit together into a coherent package. The problem is that these pieces
often contradict one another. Sometimes benefits delivered by one level of
government are offset by another – thereby nullifying their effect.
 e. Implementing the measure and assessing its impact

Policy formation is complex processes. But it is clear that implementation is crucial to

its effectiveness, efficiency and consistency. A plan that may be excellent on paper
could end up being very different from its intent if not properly implemented. It may be
too slow, there may be too little investment for effective application or the policy may
be inconsistent with other objectives or measures.

Ideally, all policies and programs should assess and correct their course on an
ongoing basis. The need for continuing feedback within the policy process is based
on the assumption that evaluation is important not just for accountability purposes.
There is also a vital learning component implicit in this work, which leads to better
quality practice when lessons are widely shared.