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Development: Meaning, Measurement and Strategies - Part One of ten

Dr Y Subba Reddy, Faculty, Institute for Financial Management and Research (IFMR), Chennai.

Preamble

The endeavors of emerging economies to achieve sustainable levels of development have been the focus of attention of many individuals and agencies in developing as well as developed countries. For those in developing countries, the renewed challenges afford opportunities to better their living conditions and to come out from the clutches of poverty, famines and other social, political and human deprivations. For those in developed countries, the opportunities emanate from the developing countries present new ways to overcome the growth plateau that they have encountered in recent years. As a prelude to a discussion of risks and opportunities in emerging economies, we attempt to understand the concepts and issues related to development.

For very long, growth in national income has been thought of as a predominant measure of the health of a nation. However, in the last 50 years advances in the field of economics and the evolution of development economics as a separate branch have brought to the fore the different dimensions of development. In the following we explain the concepts of growth and development and the differences in them. The contentious issue of measurement of development is also dealt with. The development process of advanced countries has varied in many respects. We study the different paths followed by them with a view to understand their implications for the present. We also analyze the strategies followed by many developing countries in their efforts to conquer poverty, illiteracy, malnourishment, shortened lives, and lack of adequate opportunities for a decent livelihood. We also study the issues of the relationship between democracy and development and the implications of prevalence of widespread corruption for development efforts.

Growth and Economic Development

A country's well being can be measured using a variety of parameters such as national income, indicators of health and education etc. Gross National Product (GNP), the broadest measure of national income, measures the total domestic and foreign value added claimed by residents. In 1997, GNP of high-income economies countries aggregated to $24001 billion, where as the low-income and middle-income countries together accounted for only $6124 billion. The aggregate GNP of all middle- and low-income countries in 1997 was less than that of the US, which aggregated $7783.1 billion. Sub-Saharan Africa continues to be at the bottom of GNP figures with an aggregate of $311 billion. Growth rate of income is one parameter, which has frequently been employed to gauge the state of an economy. In 1997, The low- and middle-income countries recorded an average annual growth of 4.8 percent compared to a 3.0 percent growth of the high-income countries.

However, the measures of GNP and the average growth rate suffer from the drawback of not considering the distribution of income and the changes in population. The per capita GNP is an improvement over GNP, in the sense that it also considers the population in measuring the economic activity of a country. The World Bank designates forty-nine of its member countries as "low-income economies" with a GNP per capita of $765 or less in 1995, and fifty-eight other countries as "middle-income economies" with a GNP per capita of more than $765 but less than $9385 in 1995. The bank's low-income and middle-income countries constitute the LDCs of Africa, Asia the Middle East, Latin America, and the Caribbean. In contrast, "high-income economies", mainly industrialized members of the Organization for Economic Cooperation and Development (OECD), number twenty-six countries, with an average GNP per capita of over $24,930 in 1995.

Another important measure of economic activity and standard of living of a country is the Purchasing Power Parity (PPP) measure. The PPP measures the relative purchasing power of different countries over equivalent goods and services. The per capita GNP measured in terms of PPP in 1997, shows a higher average level of $1400 for low-income economies compared to $712 in terms of per capita GNP. The aggregate GNP in terms of PPP for low- and middle-income economies in 1997, amounts to $15187 billion compared to an aggregate of $21253 billion for the high-income economies.

Rate of growth along with rate of employment and inflation capture to a reasonable extent the economic state of an advanced country. However, such an approach has many shortcomings, particularly when evaluating the state of human progress in developing countries. The concept of economic development is broader and encompasses growth.

GNP growth accompanied by reasonably equitable distribution of income is generally the most effective path to sustainable development. The Republic of Korea shows what is possible. But if the distribution of income is unequal and if social expenditures are low (Pakistan and Nigeria) or distributed unevenly (Brazil), human development may not improve much, despite rapid GNP growth.

Many human choices extend far beyond economic well being. Knowledge, health, safe drinking water, a clean physical environment, political freedom and simple pleasures of life are some of the other dimensions of development, which may not exclusively be dependent on income.

Concept of Human Development

Human development is a process of enlarging people's choices. The most critical of these wide-ranging choices are to live a long and healthy life, to be educated and to have access to resources needed for a decent standard of living. Additional choices include political freedom, guaranteed human rights and personal self-respect. The process of development should create conducive environment for people, individually and collectively, to develop their potential and to have a reasonable chance of leading productive and creative lives in accord with their needs and interests.

Amartya Sen emphasizes that development should be interpreted as a process of expansion of the positive freedom that people enjoy and as the process that expands the "entitlements" and "capabilities". Human development thus concerns more than formation of human capabilities, such as improved health or knowledge. It also concerns the use of these capabilities, be it for work, leisure or political and cultural activities. Thus the concept of human development is a holistic one putting people at the center of all aspects of the development process. However, capturing all the dimensions of development either through a single measure or a composite measure is riddled with many difficulties.

[To be continued]