Economics Essay 33: Dependency on Primary Commodity Production

Explain why dependency on a narrow range of primary products may damage an economy’s economic development.

Dependence on a narrow range of primary products can have significant implications for the economic development of a country. Economic development refers to a broader concept that encompasses not only economic growth but also improvements in living standards, human well-being, and structural transformation. Here's a comprehensive explanation of why such dependency can damage an economy's economic development:

1. Vulnerability to external shocks: When an economy relies heavily on a narrow range of primary products, it becomes highly vulnerable to external shocks such as changes in global commodity prices, natural disasters, or shifts in international trade policies. Any adverse event that affects the primary product can have a severe impact on the economy, leading to revenue losses, reduced government spending capacity, and lower economic growth. This vulnerability hampers the overall progress and stability needed for sustained economic development.

2. Limited diversification and structural transformation: Dependence on primary products can hinder diversification efforts and structural transformation in the economy. Economic development requires the expansion and development of various sectors, such as manufacturing, services, and knowledge-based industries. By relying on a narrow range of primary products, a country misses out on opportunities for diversification and fails to develop other sectors that can drive innovation, create higher-skilled jobs, and increase productivity. This lack of diversification limits the country's potential for sustained economic development and puts it at a disadvantage in the global economy.

3. Lack of value addition and low technology adoption: Primary product dependency often involves limited value addition and low technology adoption. Countries primarily engaged in the extraction and export of raw materials tend to focus on exporting the unprocessed products without adding significant value. This results in missed opportunities for increasing value through processing, manufacturing, and innovation, which are crucial for economic development. Without value addition and technological advancements, the country's competitiveness and productivity remain low, hindering overall development prospects.

4. Unequal distribution of wealth and income: In economies dependent on primary products, wealth and income tend to be concentrated in the hands of a few individuals or sectors involved in the primary product industry. This can lead to income inequality and socio-economic disparities, hindering inclusive development. The lack of equitable wealth distribution can undermine social cohesion, limit opportunities for social mobility, and hinder efforts to reduce poverty and improve living standards for the broader population.

5. Environmental and sustainability challenges: The production and extraction of primary products often have significant environmental consequences, including deforestation, pollution, and depletion of natural resources. Countries overly reliant on primary products may face environmental challenges that can damage ecosystems, impact biodiversity, and jeopardize the long-term sustainability of the economy. Sustainable economic development requires balancing economic growth with environmental conservation and ensuring the responsible use of natural resources.

An example that exemplifies the challenges of primary product dependency is several African countries heavily reliant on a single commodity, such as oil, diamonds, or minerals. Despite having substantial natural resources, these countries have struggled to achieve sustained economic development and have faced issues related to economic volatility, limited diversification, environmental degradation, and social inequalities.

In conclusion, dependence on a narrow range of primary products can damage an economy's economic development by exposing it to external shocks, hindering diversification and structural transformation, limiting value addition and technology adoption, perpetuating income inequalities, and posing environmental challenges. Promoting economic diversification, investing in human capital and technology, enhancing value addition, addressing income disparities, and pursuing sustainable development practices are essential for breaking the cycle of primary product dependency and fostering long-term economic development.

When evaluating the impact of primary product dependency on economic development, we can consider the theory of comparative advantage. The theory of comparative advantage suggests that countries should specialize in producing goods or services in which they have a lower opportunity cost compared to other countries. This specialization allows for increased efficiency and trade, leading to mutual gains.

In the context of primary product dependency, the theory of comparative advantage provides some insights:

1. Comparative advantage in primary products: Countries with abundant natural resources may possess a comparative advantage in producing primary products. They can exploit their resource endowments and export these products to earn foreign exchange and generate revenue. This specialization can initially bring economic benefits by capitalizing on the country's natural resource advantages.

2. Limited diversification challenges: However, reliance on a narrow range of primary products can hinder diversification efforts. The theory of comparative advantage suggests that countries should diversify their production and trade to fully capitalize on their comparative advantages in different sectors. By focusing excessively on primary products, countries may miss out on opportunities to develop and expand other sectors with comparative advantages, such as manufacturing or services. This limited diversification can impede economic development and make the country susceptible to external shocks.

3. Volatility and instability: Primary product prices tend to be more volatile compared to prices of manufactured goods or services. Changes in global demand, technological advancements, or shifts in supply conditions can lead to significant price fluctuations in primary product markets. This volatility can impact the stability of an economy, making it more vulnerable to economic downturns or revenue shocks. Economic development requires stability and predictability, and excessive dependence on primary products can hinder these objectives.

4. Building a knowledge-based economy: Comparative advantage also emphasizes the importance of building a knowledge-based economy. This involves investing in education, research and development, and technology adoption to enhance productivity and competitiveness. While primary products can provide a short-term advantage, long-term economic development relies on the ability to innovate, add value, and move up the value chain. Overreliance on primary products can discourage investment in developing a knowledge-based economy, slowing down the overall pace of development.

5. Structural transformation challenges: Comparative advantage suggests that countries should undergo structural transformation, shifting resources from low-productivity sectors to high-productivity sectors. Excessive reliance on primary products may hinder this transformation process by locking resources and labor in a specific sector. This can limit the development of higher-skilled industries and impede overall economic growth.

In evaluating the impact of primary product dependency on economic development through the lens of comparative advantage, it becomes evident that while countries may initially benefit from their comparative advantage in primary products, overreliance can pose challenges to long-term development. Diversification, building a knowledge-based economy, addressing volatility, and promoting structural transformation are critical for sustained and inclusive economic development.

It is important to note that the evaluation of primary product dependency should consider country-specific factors, such as institutional quality, governance, and policies. Each country has unique circumstances that can shape the outcomes of primary product dependency, and a comprehensive assessment requires analyzing these factors in conjunction with the theory of comparative advantage.

As a doctor, I say it’s time to nationalise GP surgeries

Practices refuse to take on work that benefits patients because it isn’t in their business interest. Let’s bring them into the NHS writes Dr Paul Williams, a GP and the Labour MP for Stockton South, in the Guardian

  

‘Public satisfaction with general practice remains relatively high, but not all practices work as well as they should for their patients.’ A receptionist at a GP surgery. Photograph: Anthony Devlin/PA


General practices support patients through every stage of their life. They are the heart of their communities and the gateway to our NHS. Every day, around a million GP consultations take place in English practices. We should rightly be very proud of our system of primary care.

But it isn’t perfect. As data published this week shows, patient demand for general practice services is increasing while the number of GPs is actually falling – according to the survey, one in 10 GPs are in contact with 60 or more patients a day, which is double the safe limit. At a time when people are living longer, and health problems are becoming more complex, the government has spectacularly failed to deliver its promise of an extra 5,000 GPs. Not enough medics want to be GPs, and too many doctors leave general practice too early.

Simple changes might make things better for staff working in primary care, and for patients. When the NHS was founded in 1948, hospitals were brought into public ownership and general practice was left in the private sector, where, mostly, it has remained. Most of the time your GP doesn’t get a salary. They have contracts with the NHS and local authority for a variety of services and they take home the “profit” that they make.

While some think the partnership model is more productive than being employed like hospital colleagues, it is not right for everyone. Increasingly, GPs do not want to become partners because of the levels of responsibility and financial risk involved. Evidence suggests that many GPs would be open to moving to a salaried model. At the same time, there are many other staff who work in primary care who would like more influence over the organisation they work for.

Public satisfaction with general practice remains relatively high, but not all practices work as well as they should for their patients. In many practices you can see a doctor on the same day, but in the area I represent as an MP, in March 4,437 people had to wait more than 28 days between making an appointment and having a consultation. In some parts of my constituency, poor access to a GP is the biggest issue that people contact me about.

 ‘Evidence suggests that many GPs would be open to moving to a salaried model.’ Photograph: Alamy Stock Photo

As a health service leader, I was astounded by the number of times practices wouldn’t take on work that was clearly beneficial to their patients, because it wasn’t in their business interest. I have battled with GPs who told me that they weren’t paid enough to do annual health checks for adults with learning disabilities (they get more than £100 per check), wouldn’t take student nurses on placement because the profits weren’t large enough, and wouldn’t offer appointments in early mornings or evenings because it was “optional”. That clearly isn’t right or fair to their patients.

Our health services should be designed around need. The places with the oldest people and the highest levels of deprivation should get the greatest resources. The inverse care law tells us that in the real world the opposite happens. Practices emerge where doctors want them to be, rather than where public health needs assessment tells us they should be.

Culture and leadership are always more important than organisational structure, but a new ownership model for primary care would create an environment that facilitates happy staff and healthier patients.

Employee-led mutuals should be created within the NHS with nurses, doctors, pharmacists, therapists, managers and patients all having a say in how the organisation is run. These new organisations – instilled with a progressive and innovative culture – would be much better working environments for staff, with improved career pathways for nurses and more incentives to invest in people. As they would be within the NHS, there would be no profit motive. Crucially, they wouldn’t be able to pick and choose which services to offer to their patients. Struggling practices could receive investment to bring them up to the level of the best.

This model would enable a strategic shift from reactive and hospital-based care to preventive community care – without the NHS having to pay a premium price that includes GP profit. All existing GPs should be offered salaried employment within these organisations. Those that wish to retain their existing contractual arrangements should be allowed to do so. This is likely to be particularly important in rural communities.

Groups of general practices are already coming together into primary care networks. This is a step in the right direction. Why not give them the option to go one step further, become NHS primary and community care organisations, and complete Nye Bevan’s NHS?

Primary school maths whiz kids are set up for life

Hamish McRae in The Independent

An important, if troubling, bit of research has just been published by the Institute for Fiscal Studies, backed with some government money.

It shows that 10-year-olds who are good at mathematics earn significantly more once they reach their thirties than those who are not. The IFS took a large group of children born in April 1970, then looked at their maths and English scores 10 years later. Then, they looked at their earnings at the ages of 30, 34 and 38.

The findings showed that those who were in the top 15 per cent of maths scores at age 10, earned on average 7.3 per cent more at 30 – equivalent to £2,100 a year – than the child who scored the average in that class, even adjusting for all other factors. Those who did similarly well in English earned 1.9 per cent – or £550 – more than the middle-ranker. So, being good at English is helpful, but being good at maths is even better.

The IFS says this suggests that employers value maths skills and are prepared to bid for people who have them, and it therefore concludes that we need to invest more in lifting children's performance in maths.

This makes sense, but also carries the worry that if 10-year-olds happen to be bad at maths, they are disadvantaged through life. It would thus follow that having a bad maths teacher at primary school can really damage people's chances, while a great one can lift children up for the rest of their lives.

The task for educators is huge, and clear objectives are a help. But, if numeracy is more important in the job market than literacy, what conclusions should we draw?