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Role Of Public Sector And Private Sector Economics Essay

Introduction Public sector and private sector plays significant role in achieving economic growth of a nation. An effect of their function is noticed on the achievement of country’s socio-economic development. Strong and leading Bhutanese public sector was established in 1961 with the inception of first five year plan. Moreover, it played driving role for the development of Bhutanese economic.
Privatization was declared during the 6th FYP with the objective that the private sector should play an increasingly important role in fostering economic growth and as a source of employment. Since, from that period, private sector along with Royal Government of Bhutan has enhanced socio- economic development and Bhutan is recognized as one of the fastest economic growing country in the South East Asia. However, both the sectors are still under developed in terms of financial, human resources, efficiency and management. Furthermore there are many difficulties in the path of developing both public and private sector.
Thus, this assignment will discuss roles of public and private sector, their development history, indicators for economic development, contribution made in GDP as well as employment and difficulties for their development.
. DEFINITION OF PRIVATE SECTOR AND PUBLIC SECTOR Private sector can be define as the part of economy in which the factors of production is owned by an individual or the group of people, with profit maximization as their main objective. (
Private goods – produced by the private sector- are produced only for profit motive and its rival in consumption. Benefits are enjoyed by only a person who pays, with no benefit to society and therefore it’s exclusive in nature. Private entrepreneur go for self benefit rather than social welfare. Competition is the one thing that occurs between each and every private entrepreneur and this leads to efficient use of resources.
According to Willson

Relationship between population growth and economic development

The relationship between population growth and economic development has been a topic under debate for a long time. Different economists have brought up their views as to the definitions of population growth, economic development, the relationship between them and how they impact or affect the varying economies (i.e. less developed economies, developed economies and transition economies). The popular Malthus theory postulates that as population increased in a geometric mode, food supply only increased in an arithmetic mode. This is also the view of Todaro et. al. (2009) when he says that Malthus’ postulation of population growth of a country was growing at a geometric rate and can be repressed with a decline in food supply. The food supply he said, will grow at an arithmetic rate as diminishing returns are likely to affect agricultural land produce over time and an increase in population also resulting in competition over the use of land with the opportunity cost of either agricultural use or other needs such as housing, hospitals etc.
The purpose of the course work is a critical evaluation of the effects of population growth on economic development in light of key issues that will help our understanding especially with the use of reviews of various literature and culminating in a possible conclusion.
Definitions and Review of literature 2.1 Economic Development Economic development can be understood to mean the process by which the quality of life of the citizenry or population is improved. This can be attained by increasing the standards of living of the people – especially by increasing the consumption level of food, healthcare, education etc; institute political, social and economic sectors that advance the values for human dignity thereby boosting the peoples’ sense of worth and raising the opportunities enjoyed by the people by way of increasing the variety of goods and services available to them.
Economic development can equally mean a more improved state of the economy transiting from a lower level of activity to one characterized by improved advancements and technologic activity. Coale et. al. (1958) explains economic development as a transformation of a major agrarian-based economy to one that utilizes more machinery in the form of tools and equipment, possessing a mix of labor and where amenities such as improved healthcare and sanitation, transportation, law and order, communication etc exist to help reduce the death rate. Thus, the state of economic development can be said to be the beginning of the Industrial Revolutionary era.
2.1.1 Population Growth Population growth can be defined as a numerical increase in people who occupy a certain area measured within a period of time. Population increases when people are either born in a country or immigrate to a different country from their country of birth. The population equally decreases as people die out or emigrate out of their country of birth. According to the World Development Indicator (ed. September 2009), total population is defined as ‘based on the de facto definition of population, which counts all residents regardless of legal status or citizenship-except for refugees not permanently settled in the country of asylum, who are generally considered part of the population of their country of origin’ [i] . Theories of Population Growth
There are theories that show forth the characteristics of population growth and means by which such population sizes can be controlled – the Malthusian Theory and the Theory of Demographic Transition.
Malthusian theory
Malthusian theory is based on two assumptions – that food is a necessity if man will have to exist and that procreation will remain in almost the same state. Malthus’ (1993) theory proposes that if the population is left unimpeded for any reason it will lead to a rise in geometric proportion with subsistence left or constrained to increase in arithmetic proportion. Malthus further explains that an increase in population within a limited land resource is likely to lead to a set-in of diminishing returns. The theory proposes two possible ways to control the increase in population growth – either a means to curb the population growth by way of ‘positive’ methods such as famines, pestilence, wars etc or the ‘preventive’ method which uses sexual abstinence, delayed marriages etc (Bizien, 1979).
According to Malthus, a nation which has an unchecked population growth is likely to experience an unfavorable economic growth, due mainly to the presence of limited resources with which economies are endowed. His opinion was that diminishing returns will most likely affect food and resources as an increase in the population of a country is expected to decrease available natural resources and in the long-run lower the production of goods. Population growth and size also tend to determine the standard of living in an economy that is characterized by low capital accumulation, low technological change as well as being closed or isolated to interactions with the international community.
Demographic Transition Theory
Demographic Transition Theory according to Hicks (1957 p.302 cited in Katzen. 1998, p.231) describes the historic ‘unprecedented rise in population’ as being liable for the Industrial Revolution. Rapid population growth was, to Ashton (1966), the major characteristic of the industrial revolution. However, Habakkuk (1971, p.39) also notes that his contemporaries did not only believe that industrialization could be solely responsible for population growth but that an increase in economic activity also plays a role in population growth.
Figure 1 – The Demographic Transition Graph (Source: Bizen 1979, p. 13) Relationship between Population Growth and Economic Development
The relationship between population growth and economic development can be measured by looking at the impact of population growth on economic development and vice-versa.
The phases of Demographic Transition theory can be considered looking at three different time frames i.e. before the transition, during the transition and post-transition to better have an understanding of the population growth pattern. ‘World population growth is entirely the result of natural increase- the excess of births over deaths. For any subdivision of the world, net migration- the difference between out- and in-migration is also a factor’ (National Academy of Sciences.1972). From Bizien (1979), Habakkuk (1971) and Ghatak (1995) the pre-industrial era was mainly agriculturally inclined and so when there was poor harvest, it had a negative effect on the economy e.g. there was increase in epidemics. Therefore, the need for families to want to have more children was high as they provided the labour required to work in the farms and in the long-run they provided support for their parents when the aged. The higher the mortality rate, the higher the fertility rate producing a net population phase. The second transitional stage was the beginning of the industrial era. This period was characterized by a declining death rate though birth rate remained high. This decline in the death rate was mainly attributed to improved health care, more regular food supplies and improved law and order. Population growth was at its peak at this stage as the birth rate was way ahead of the death rate. The third stage of the demographic transition was the era of previously low death rate mixed with a waning and stumpy birth rate. The decreasing birth rate was attributed to an increase in the age of marriage, celibacy, increased awareness on reproductive health and family planning practices etc. This mix stabilized population growth as the decreasing birth rates as well as a stumpy death rate were the present occurrences in the economy.
According to Coale et al.(1958) economic development was responsible for the decline in the death rate that was seen in the demographic transition theory. The changing roles played by women, especially activities they carried out outside the household and the falling importance placed on the family, were some of the changes attributed to economic development. Another feature of economic development was economic mobility as members of families were from time to time moved around as a result of the kind of jobs they did. Also, rising urbanization discouraged the birth of so many children as women later began to view them (children) as burdens rather than assets in helping out with the home front, especially with regards to the care of the aged. Old-age economists like Malthus and Adam Smith also supported this view as population growth was determined by the demand on labor (Habakkuk, 1971).
The impact of economic development on population growth has been considered and it will be proper to also consider the impact of population growth on economic development as a part of this study. The negative impact of a fast growing population on economic development especially with regards to Less Developed Countries will come to bare when not properly managed. These negativities are commonly being referred to as the Cost of Population Growth (Katzen. 1998, p.233).
An increasing population has the tendency of slowing down the per capita income growth in Less Developed Countries leading to income distribution inequalities. It also stifles savings and capital investment thereby limiting the growth rate of the nation’s Gross National Product (National Academy of Sciences.1972, p.2). Therefore, assuming increasing per capita income (or output) is used as an indicator of measuring the improvement in the average standard of living, it then implies an economy with a stagnant total income and a rising population is likely to have its average standard of living worsen over the specified time frame under consideration (Katzen. 1998, p.231-232).
Migration – is the movement of people from one geographical location to another one. A high increase in rural-urban migration tends to lead to a situation in which the rural area is left under-developed as most people move to the urban areas in search of jobs, education or even what they perceive as a ‘better life’. The resultant on one hand is the choking up of the urban areas, whilst on the other hand, the populations in the rural settlements are left decimated. This is also a reflection of what is obtainable in the case of international migration. Todaro et al (2003, p.291) cite many highly educated and skilled workers who move from the Less Developed Countries to developed countries as legal migrants resulting in what is termed as Brain Drain, thereby contributing to stifling the economic development of their parent countries.
Population growth competes with capital formation. A growing population could result in a continuously increasing dependency ratio (i.e. the ratio of the non-working population to the working population) and as such more is spent on the dependent ratio at the expense of other investments (Habakkuk.1971, p.46).
The combination of an increase in birth rate and a decrease in death rate is likely to increase the dependency ratio of the population. The assumption that this dependency ratio is made up of a high number of children between the ages of 15-16 years might aggravate the problem of food supply and employment creation Katzen (1998, p.233).
An increase in population with a fixed amount in land tends to lower man-land and man-resource proportions. This means that a static backward economy without any form of technical progress might lead to an increase in poverty, especially with a growing pressure on available resources (Katzen. 1998, p.232).
Rapid population growth places a lot of strain on the available social infrastructure; this is especially a huge challenge in Less Developed Countries. For instance a large family surviving on a low income reduces the chances of the children being properly educated by their parents. Also, due to the fierce competition for scarce resources, there are more constraints on the government to spend thinly on the educational sector thereby trading or diluting quality for the sake of quantity (Todaro et al. 2003, p.290-291).
A rapid population growth can also put excessive demands on the environment leading to different forms of environmental degradation and pollution. Products of this scenario include but are not limited to increase in number of shanty towns, air pollution, juvenile delinquency, deforestation, soil erosion, squalor, fuel-wood depletion, congestion, declining fish and animal stocks, inadequate and unsafe water supply (Todaro et al. 2003, p.291; Katzen. 1998, p.233)
A rapid population growth that exists in a poor and fairly static economy can increase the problems of inequalities in income distribution. As the poor (who are usually the worst hit as they are the ones who are rendered landless) bear the consequences of environmental hazards, reduced government healthcare, educational programs and massive job losses – they are the main victims of the imbalance. Again on the average, poor families tend to be larger in number than rich families with usually only one bread winner in both kinds of financial classes. Therefore, real consumption, real and per capita income will definitely be lower in the poor family when compared with the rich family (Todaro et al. 2003, p.290; Katzen. 1998, p.233).
The relationship between population and economic growth can also be looked at from the demand and supply perspective. For the demand side, population growth leads to an increase in the demand for food, services and other scarce resources. On the supply side, the consideration is on the availability of more labor to produce more goods and services (Katzen. 1998, p.231).
There are, however, benefits to be derived from population growth as suggested by Katzen (1998, p.231), Habakkuk (1971, p.47). These include:
An increase in the market size with a resultant increase in aggregate demand that comes from population growth.
It provides the labor required for employment to produce the required goods and services. If labor supply is constrained to grow, then an increase in labor force will inadvertently increase output and growth.
Population growth might directly increase the acquisition of technical knowledge.
Population growth might be of benefit to economic progress as the presence of deficient demand means that the rate of investment is less than available resources. This situation then moves demand to more capital intensive goods like houses. Also, by promoting urbanization and expansion of cultivated areas, investment is stimulated as a result of population growth increases demand and quickens output growth.
Population growth might encourage individuals to work harder and be better prepared to undertake land clearance, enclosure and reclamation i.e. a higher rate of investment is likely to lead to an extra effort put in on the part of the cultivator.
It is also important to distinguish between developed and less developed countries or communities as the effects on each differ significantly. For less developed countries, the main economic effects of rapid growth are on supply, productive capabilities and capacities, where as for the developed countries the effects are mostly seen on the level of demand.
Katzen (1998, p.231), states that in developed countries, the long-run growth of the economy could be constrained by the supply of labour and here an increase in population growth rate might raise the rate of economic growth.
CONCLUSION According to Jhingan (2005), the impact of population growth on economic development is different in the varying economies. When in developed countries, population growth helped to increase the Gross National Product, in developing countries the reverse is the case.
It has thus been suggested that due to the cost of rapid population growth (as most countries who experience population explosion have high birth rates and low death rates), especially in the case of most Less Developed Countries, that policies be put in place to control the population growth in question. Some countries have gone ahead to put in place Population-Related policies which, according to The National Academy of Sciences, (1972, p.70) and Todaro et al (2003, pp.294-299) can be differentiated along two broad headings, namely the Population-Responsive and Population-Influencing policies are:
Audio and visual media education both in the formal and informal sector to educate people on the need to have small families.
Encourage the establishment of family-planning programs in hospitals.
Teach sex education and the implications of teenage pregnancy to reduce fertility unwanted pregnancies, thus lowering birth rates.
The government can manipulate economic incentives and disincentives to having children by either imposing financial penalties for having more than a certain number of children, subsidization of smaller families through direct money payments, reducing income tax relief when the number of children is kept within the limits stated.
“Raise the social and economic status of women and hence create conditions favorable to delayed marriage and lower marital fertility” (Abadian S., 1996 and Jeejeebhoy S.J, 1995 cited in Todaro et al (2003, pp.296).
Kuznets (1967 cited in Katzen. 1998, p.234) found a positive correlation between population growth and economic development although the analysis never made reference to whether population growth was the cause of economic development. This notion being supported by The National Academy of Sciences (1972, p.65) states that though population growth is one of the variables that affect the quality of life of an economy there are other variables which act on the quality of life. Some of which are the degree of concentration of human settlements, social and cultural diversity of the population, per capita income, state of technology etc.