< Previous | Contents | Next >
For a comparatively longer period of time after the birth of economics, economists remained focused on aspects of expanding the quantity of production and income of a country’s economy. The main issue economists discussed was—how to increase the quantity of production and income of a country or a nation-state. It was believed that once an economy is able to increase its production, its income will also increase and there will be an
automatic betterment (quality increase) in the lives of the people of the economy. There was no conscious discussion over the issue of quality expansion in the lives of the people. Economic growth was considered as a cause and effect for the betterment of the lives of the people. This was the reason why economists, till the 1950s, failed to distinguish between growth and development, though they knew the difference between these terms.
It was during the 1960s and in the later decades that economists came across many countries where the growth was comparatively higher, but the quality of life was comparatively low. The time had come to define economic development differently from what the world meant by economic growth. For economists, development indicates the quality of life in the economy, which might be seen in accordance with the availability of many variables such as:
(i) The level of nutrition
(ii) The expansion and reach of healthcare facilities—hospitals, medicines, safe drinking water, vaccination, sanitation, etc.
(iii) The level of education
(iv) Other variables on which the quality of life depends
Here, one basic thing must be kept in mind that if the masses are to be guaranteed with a basic minimum level of quality-enhancing inputs (above- given variables such as food, health, education, etc.) in their life, a minimum level of income has to be guaranteed for them. Income is generated from productive activities. It means that before assuring development we need to assure growth. Higher economic development requires higher economic growth. But it does not mean that a higher economic growth automatically brings in higher economic development—a confusion the early economists failed to clarify. We may cite an example here to understand the confusion: two families having same levels of income, but spending differing amounts of money on developmental aspects. One might be giving little attention to health, education and going for saving, and the other might not be saving but taking possible care of the issues of health and education. Here the latter necessarily will have higher development in comparison to the former. Thus, we may have some diverse cases of growth and development:
(i) Higher growth and higher development
(ii) Higher growth but lower development
(iii) Lower growth but higher development
The above-given combinations, though comparative in nature, make one thing clear, that, just as for higher income and growth we need conscious efforts, same is true about economic development and higher economic development.
Without a conscious public policy, development has not been possible anywhere in the world. Similarly, we can say, that without growth there cannot be development either.
The first such instance of growth without development, which the economists saw, was in the Gulf countries. These economies, though they had far higher levels of income and growth, the levels of development were not of comparable levels. Here started the branch of economics which came to be be known as ‘development economics’. After the arrival of the WB and IMF, conscious economic policies were framed and prescribed for the growth and development of less developed economies.
We can say that economic development is quantitative as well as qualitative progress in an economy.3 It means, when we use the term growth we mean quantitative progress and when we use the term development we mean quantitative as well as qualitative progress. If economic growth is suitably used for development, it comes back to accelerate the growth and ultimately greater and greater population brought under the arena of development. Similarly, high growth with low development and ill-cared development finally results in fall in growth. Thus, there is a circular relationship between growth and development. This circular relationship broke down when the Great Depression occurred. Once the concept of the ‘welfare state’ got established, development became a matter of high concern for the governments of the world, policymakers and economists alike. A whole new branch of economics—welfare economics has its origin in the concept of welfare state and the immediacy of development.
Although economists were able to articulate the differences between growth
and development (Mahbub ul Haq, a leading Pakistani economist had done it by the early 1970s), it took some more time when the right method of measuring development could be developed. It was an established fact that the goal of progress goes beyond the mere ‘increase in income’. International bodies such as the UNO, IMF and WB were concerned about the development of the comparatively underdeveloped regions of the world. But any attempt in this direction was only possible once there was a tool to know and measure the level of development in an economy and the determinants which could be considered as the traits of development. The idea of developing a formula/method to measure the development was basically facing two kinds of difficulties:
(i) At one level it was difficult to define as to what constitutes development. Factors which could show development might be many, such as levels of income/consumption, quality of consumption, healthcare, nutrition, safe drinking water, literacy and education, social security, peaceful community life, availability of social prestige, entertainment, pollution- free environment, etc. It has been a realty difficult task to achieve consensus among the experts on these determinants of development.
(ii) At the second level it looked highly difficult to quantify a concept as development constitutes quantitative as well as qualitative aspects. It is easy to compare qualitative aspects such as beauty, taste, etc., but to measure them we don’t have any measuring scale.
The dilemma of measuring the developmental level of economies was solved once the United Nations Development Programme (UNDP) published its first Human Development Report (HDR) in 1990. The report had a human development index (HDI) which was the first attempt to define and measure the level of development of economies. The ‘index’ was a product of select team of leading scholars, development practioners and members of the Human Development Report office of the UNDP. The first such team which developed the HDI was led by Mahbub ul Haq and Inge Kaul. The term ‘human development’ is a corollary of ‘development’ in the index.
The HDR measures development by combining three indicators—Health,
Education and Standard of Living—converted into a composite human development index, the HDI. The creation of a single statistic in HDI was a real breakthrough which was to serve as a frame of reference for both ‘social’ and ‘economic’ development. The HDI sets a minimum and a maximum for each dimension, called goalposts, and then shows where each country stands in relation to these goalposts, expressed as a value between 0 and 1 (i.e., the index is prepared on the scale of one). The three indicators4 used to develop the composite index are as given below:
The Education component of the HDI is now (since HDR-2010) measured by two other indicators–
(i) Mean of years of schooling (for adults aged 25 years): This is estimated based on educational attainment data from censuses and surveys available in the UNESCO Institute for Statistics database and Barro and Lee (2010) methodology.
(ii) Expected years of schooling (for children of school entering age): These estimates are based on enrolment by age at all levels of education and population of official school age for each level of education. Expected years of schooling is capped at 18 years.
These indicators are normalised using a minimum value of zero and maximum values are set to the actual observed maximum value of mean years of schooling from the countries in the time series, 1980–2012, that is
13.3 years estimated for the United States in 2010. The education index is the geometric mean of two indices.
The Health component is measured by the life expectancy at birth component of the HDI and is calculated using a minimum value of 20 years and maximum value of 83.57 years. This is the observed maximum value of the indicators from the countries in the time series, 1980–2012. Thus, the longevity component for a country where life expectancy birth is 55 years would be 0.551.
The Standard of Living component is measured by GNI (Gross National Income/Product) per capita at ‘Purchasing Power Parity in US Dollars’ (PPP
$) instead of GDP per capita (PPP $) of past. The goalpost taken for minimum income is $100 (PPP) and the maximum is US $87,478 (PPP), estimated for Qatar in 2012. The HDI uses the logarithm of income, to reflect
the diminishing importance of income with increasing GNI.
The scores for the three HDI dimension indices are then aggregated into a composite index using geometric mean. The HDI facilitates instructive comparisons of the experiences within and between different countries.
The UNDP ranked5 the economies in accordance of their achievements on the above-given three parameters on the scale of one (i.e., 0.000–1.000). As per their achievements the countries were broadly classified into three categories with a range of points on the index:
(i) High Human Development Countries: 0.800–1.000 points on the index.
(ii) Medium Human Development Countries: 0.500–0.799 points on the index.
(iii) Low Human Development Countries: 0.000–0.499 points on the index.
The Human Development Report 2015 is discussed in Chapter 21 together with India’s relative position in the world.
Though the UNDP commissioned team had evolved a consensus as to what constitutes development, academicians and experts around the world have been debating this issue. By 1995, economies around the world had officially accepted the concept of human development propounded by the UNDP. Basically, the UNDP designed HDR was used by the World Bank since the 1990s to quantify the developmental efforts of the member countries and cheap developmental funds were allocated in accordance. Naturally, the member countries started emphasising on the parameters of income, education and life expectancy in their policymaking and in this way the idea of HDI got obligatory or voluntary acceptance around the world.
For many years, experts and scholars came up with their own versions of defining development. They gave unequal weightage to the determinants defining development, as well as selected some completely different parameters which could also denote development in a more suitable way. Since quality is a matter of value judgement and a normative concept, there was scope for this representation. Most of such attempts were not prescriptions for an alternative development index, but they were basically
trying to show the incompleteness of the HDI, via intellectual satires. One such attempt was made by economists and scholars of the London School of Economics in 1999 which concluded that, Bangladesh was the most developed country in the world with the USA, Norway, Sweden getting the lowest ranks in the index.
Basically, it is very much possible to come out with such an index. As for example, we may say that peace of mind is a necessary element of development and betterment in human life which depends heavily on the fact as to how much sleep we get everyday. House theft and burglary are major determinants of a good night’s sleep which in turn depends on the fact as how assured we go to sleep in our homes at night from burglars and thieves. It means we may try to know a good sleep by the data of thefts and burglaries in homes. Since minor house thefts and burglaries are under-reported in police stations, the surveyor, suppose tried to know such cases with data as how many ‘locks’ were sold in a country in a particular year. In this way a country where people hardly have anything to be stolen or no risk of being burgled might be considered having the best sleep in night, thus the best peace of mind and that is why this will be the most developed country.
Basically, the HDI could be considered as one possible way of measuring development which was evolved by the concerned group of experts with the maximum degree of consensus. But the index which calculates the development of economies on certain parameters might be overlooking many other important factors, which affect the development of an economy and standard of living. As per experts, such other determinants affecting our living conditions might be:
(i) cultural aspects of the economy,
(ii) outlook towards aesthetics and purity of the environment,
(iii) aspects related to the rule and administration in the economy,
(iv) people’s idea of happiness and prestige,
(v) ethical dimension of human life, etc.