Traditional economics is concerned primarily with the efficient, least-cest allocation of scarce productive resources and with the optimal growth of these resources over time so as to produce an ever-expanding range of goods and services. By traditional economics we simply mean the classical and neoclassical economics taught in introductory textbooks. Traditional neoclassical economics deals with an advanced capitalist world of perfect markets; consumer sovereignty; automatic price adjustments; decisions made on the basis of marginal, private-profit, and utility calculations; and equilibrium outcomes in all product and resource markets. It assumes economic "rationality" and a purely materialistic, individualistic, self-interested orientation toward economic decision making.
Political economy goes beyond traditional economics to study, among other things, the social and institutional processes through which certain groups of economic and political elites influence the allocation of scarce productive resources now and in the future, either exclusively for their own benefit or for that of the larger population as well. Political economy is therefore concerned with the relationship between politics and economics, with a special emphasis on the role of power in economic decision making.
Development economics has an even greater scope. In addition to being concerned with the efficient allocation of existing scarce (or idle) productive resources and with their sustained growth over time, it must also deal with the economic, social, political, and institutional mechanisms, both public and private, necessary to bring about rapid (at least by historical standards) and large-scale improvements in levels of living for the masses of poverty-stricken, malnourished, and illiterate peoples of Africa, Asia, and Latin America. Unlike the more developed countries (MDCs), in the less developed countries (LDCs), most commodity and resource markets are highly imperfect, consumers and producers have limited information, major structural changes are taking place in both the society and the economy, the potential for multiple equilibria rather than a single equilibrium are common, and disequilibrium situations often prevail (prices do not equate supply and demand). In many cases, economic calculations are dominated by political and social priorities such as building a new nation in Africa, replacing foreign advisers with local decision makers, resolving tribal or ethnic conflicts, or preserving religious and cultural traditions. At the individual level, family, clan, religious, or tribal considerations may take precedence over private, self-interested utility or profit-maximizing calculations.
Thus development economics, to a greater extent than traditional neoclassical economics or even political economy, must be concerned with the economic, cultural, and political requirements for effecting rapid structural and institutional transformations of entire societies in a manner that will most efficiently bring the fruits of economic progress to the broadest segments of their populations. It must focus on the mechanisms that keep families, regions, and entire nations in poverty traps, and on the most effective strategies for breaking out of these traps. As such, a larger government role and some degree of coordinated economic decision making directed toward transforming the economy are usually viewed as essential components of development economics.
Because of the heterogeneity of the developing world and the complexity of the development process, development economics must be eclectic, attempting to combine relevant concepts and theories from traditional economic analysis along with new models and broader multidisciplinary approaches derived from studying the historical and contemporary development experience of Africa, Asia, and Latin America. Today development economics is a field on the crest of a breaking wave with new theories and new data continuously emerging. These theories and statistics sometimes confirm and sometimes challenge traditional ways of viewing the world. The ultimate purpose of development economics, however, remains constant: to help us better understand developing economies in order to help improve the material lives of three-quarters of the global population.
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