Thursday, 16 April 2015

Growth and Development

What is the relationship?

Growth is a concept used in Economics to mean an
increase in national income of a country and an
increase in per capita income (PCI) which is nothing
but the national income divided by the total population
in the country. The measure of annual national income
of a country is in terms of Gross National Product
(GNP) which is the money value of the total goods and
services produced by a country in a year. This GNP
divided by total population gives the figure which is
called the GNP per capita, or simply ‘per capita income’.
It is the average income of the population. Like all
statistical averages, it suffers from certain drawbacks.
It does not show the distribution of income in the
country. Besides, it only measures money income and
nothing else. So all the goods and services that do not
come for market transactions, like the labour women
do inside homes, are not counted in the GNP. Also,
most importantly, it does not show up achievements
that people value significantly, for example, better
nutrition, health care, secure livelihoods, better working
conditions, freedom from crime and violence, and
participation in social, cultural and political activities.
As we shall soon see, income may be important, but it
is not the sum total of human life.
It is easy to assume that more the income of a country,
more will be the development and people’s well being.
But it may not be so, just as being wealthy does not
necessarily guarantee being healthy. According to
Amartya Sen (1988), the relationship between GNP
and conditions of living is complex.
Although Oman has more than twenty times the GNP
per capita of China and Sri Lanka, yet it has significantly
low life expectancy than other countries. Likewise,
Brazil, South Africa and Mexico have much higher
incomes than China and Sri Lanka, but much lower
life expectancy than them. That means the countries
highly ‘developed’ in terms of income may not be as
developed in other social indicators. Hence, Amartya
Sen (2004) states that development cannot be measured
only with economic growth. It is true that keeping
other things constant, with an increase of GNP of a
country, the condition of living of people improves, so
does life expectancy. This may happen in the long run,
but not necessarily in the short run. So, there exist
other factors that affect the living conditions, and the
concept of development cannot forgo these.

New view of development

After winning independence from colonial powers in
the 1950s and 1960s, many of the countries (called
Third World) chose the growth oriented approach of
development through industrial and agricultural
expansion, aided by technology transfer and financial
assistance from the industrialised countries as well
as international financial institutions. The growth-led
developmental experience of industrialised countries
served as the models of their future. The decade of
1960s was characterized by the predominance of “growth
models” of development. We have discussed about
one such model given by Rostow in Chapter 3 on
Industrialisation. Such models proposed that increasing
the growth of these economies through investments
would lead to higher growth, the benefits would ‘trickle
down’ to the masses and there would be economic
Many of these economies achieved growth. The per
capita income of a number of countries had grown over
this period and health and education levels had
improved; yet in a number of countries which had
experienced a rise in their GNP, the standard of living
did not improve for a vast majority of the population. In
fact, many millions joined the already hundreds of
millions of people in absolute poverty (Webster, 1997).
In many countries, sharp inequalities appeared with
the rich minority growing richer and the poor majority
becoming poorer. In other words, the “trickle down”
had not occurred. This necessitated a reexamination
of the concept of development. In this context, Seers
(1969) asked three important questions regarding
development: “What has been happening to poverty?
What has been happening to unemployment? What has
been happening to inequality? If all three of these have
been a period of development for the country concerned.
If one or two of these central problems have been
growing worse, especially if all three have, it would be
strange to call the result ‘development’ even if per
capita income doubled.”
Critics of growth-oriented approach argued that such a
situation arose because sufficient attention was not
paid to real human welfare. It was argued that a
complete change of approach for third world development
was needed. Economists like Streeten and Seers
advocated for a programme that had its essential
ingredient a redistribution of income and resources
downwards. This led to the strategy of “redistribution
with growth”, and later the “basic needs strategy” of
development. The basic needs strategy was concerned
with two things: (1) providing all human beings,
particularly the poor and deprived in the third world
countries, with material needs like food, clothing,
shelter and fuel; and (2) alleviating absolute poverty as
quickly as possible. It had elements of social justice.
Gradually, it was realized that development must focus
beyond meeting the basic needs of people in poor
countries. It should encompass all the opportunities
needed to live a fuller human life. Also, human beings
should not be seen as recipients of development
benefits, but as the goals of development. And while
discussing human well being, it is the poorest and the
weakest sections that must be especially taken into
consideration. With this, the preoccupation with growth
is replaced by a holistic idea of human welfare or wellbeing
as the central concern of development. Growth
is meaningful if it enhances human well being. This
approach is known as the human development approach .