5 Reasons for Incorrect Assessment of an Economy

The following are the five reasons for incorrect assessment of an economy.

Reason # 1. Per- Capita Income Growth does not Measure Welfare:

Firstly, economic growth is associated with an increase in GNP/GDP per capita. It measures wrongly—per head GNP does not, by Itself, constitute or measure of welfare or success in development. GDP assumes that people have money or assets and thus operate in the market without any hitch.

It is observed that a vast number of people fail to operate in the market as they don’t have enough money or assets and are subject to torture and exploitation by the people who have money or assets. This then suggests that per capita income does not give any information about income distribution. It is observed that, despite high rate of growth, some of the countries experience high incidence of poverty and unemployment.

Secondly, economic growth does not talk about the quality of life. Under-nutrition, diseases, and the associated problems of lower life expectancy at birth and higher infant mortality rates, literacy rates, and many other indicators of health and education of different populations comprise human development. In poor developing countries (i.e., global South), people end themselves at low level of literacy, low standards of health and nutrition, etc. Miseries arising from lack of food and shelter do not get reflected in the concept of economic growth.

Rising per capita income gives us the impre­ssion that the economy is growing, wealthier. But it does not take into account the above-noted aspects of life. India’s GDP is rising but she is down in terms of other indicators. It has been revealed that 42.3 p.c. of under- 5 Indian children are severely and moderately underweight. This kind of under-nutrition is a ‘national shame’. There is more to the ‘quality of life’ than having more income.

Reason # 2. Growth Ignores Environmental Issues:

Thirdly, economic growth does not deal with environmental issues. In the process of achieving higher economic growth, environmental considerations like deple­tion of renewable natural resources, air pollution, etc., are given little weightage. These aspects have an important bearing on the economic develop­ment of a country in the long run. Desire for higher and higher economic growth is associated with environmental damages. It is economic deve­lopment that cares for environmental issues.

Reason # 3. Economic Development ‘A Multidimensional Process’:

It is, thus, obvious that economic deve­lopment involves something more than economic growth. In fact, there are certain qualitative dimen­sions in the process of development that are cons­picuous by their absence in the growth or expansion of an economy. Economic development implies both more output and changes in the technical, institutional arrangements by which it is produced, and a change in attitudes and values.

“Development concerns not only man’s material needs but also improvement of the social conditions of his life. Development is, therefore, not only economic growth but growth plus change—social, cultural and institutional as well as economic. Development is, thus, not purely an economic phenomenon; it has to be conceived of as a multi-dimensional process.”

Naturally, economic development is a value-based concept. It should include not only the acceleration of economic growth but also the reduction of inequality and eradication of poverty, increase in employment opportunities and welfare of the masses, etc.

Reason # 4. Growth is Silent About the Quality of Life and Broad Human Development:

However, economic development may mean more. Economic develop­ment must encompass human development. Amartya Sen defines economic development in terms of ‘entitlement’ and ‘capability’.

Entitlement refers to be set of alternative commodity bundles that an individual can command through the totality of rights and obliga­tions that he or she faces. Thus, ‘entitlements’ of people generate ‘capabilities’. Entitlements of people do not only depend on their incomes but also on a host of power relations in a society, the spatial distribution of resources in a society (like facilities of health care and schooling) and what individuals can accumulate from such supplied by the state. Capability represents a person’s freedom to achieve various functioning combinations. Thus, the notion of capability is essentially one of freedom—the range of options a person has in deciding what kind of life he or she wants to pursue.

Poverty, according to Amartya Sen, is a kind of ‘capability deprivation’. Sen says that economic development should be interpreted as a process of expansion of the freedoms that people enjoy. Important areas of un-freedom that people face are famine and undernourishment, mass illiteracy, poor state of health of people, lack of shelter and other basic needs, economic insecurity, denial of basic civil and political liberty, etc.

Through the policies of expansion of human capabilities, development processes can be initia­ted. That is why it is said that the basic objective of development is the process of expansion of entitlements and human capabilities. That is to say, how GNP growth is used to improve human capabilities and, in turn, how people utilise their capabilities is economic development.

Amartya Sen, thus, emphasises that, instead of concentrating on GNP or GDP, development economics should take into account both entitlements and capability expansion. He argues that income does not necessarily address the nature of entitlement. Taking a cue from the Chinese famine (1958-1961) as well as the Bengal famine (1943), he emphatically demonstrated that famines, in general, were to be attributed to the entitlement failure rather than the shortage of food. Despite abundant supplies in food, people had to suffer miserably from hunger and famine in Bengal due to the entitlement failure in collecting food from the market. Famine is one source of un-freedom.

Sen Says: “Development requires the removal of major sources of un-freedom.” The basic condi­tion for economic development are the freedoms from hunger and famine, malnutrition, deficient schooling, poverty, poor health, economic insecu­rity, denial of civil and political rights, social inequalities, etc. These human goals of economic development as emphasised by Amartya Sen have brought about a radical change in development thinking—at least since the 1970s.

Amartya Sen, carrying on his value-loaded development economics, talks on social justice.

He says that undernourishment of children, absence of opportunities of basic schooling, lack of entitlement of basic medical attention, particularly to the underprivileged of our society, etc., are nothing but social injustices. Since most of these facilities—meant for all Indians—crowd out the underdogs through the dominant class or partners of the society, injustices pile upon the vulnerable sections of the population. This kind of gross injustice is nothing but denial of development or ‘exclusive development’. Thus, in the development discourse, social justice—a more normative concept—needs to be provided to all. And that is economic development.

How economic growth and economic development are interrelated can be known from the Fig. 1.1.

Reason # 5. Growth Says Nothing About Gross National Happiness (GNH):

With the change in development thinking ‘new’ measures of success have been unveiled—social well-being is an important component of development. In other words, well-being has emerged as a substitute for ‘wealth’. Overall public happiness or satisfaction with life describes well-being. The GNH aims to ensure that prosperity or well-being is shared across society and it is balanced against preserving cultural identities and traditions, protecting the ecology, preserving democracy with social equality.

We know that ‘growth is not necessarily good’ as it ignores some very crucial issues. Growth does not increase human well-being. Growth may improve standard of living but undermines ‘quality of life’. That why, today, we see ‘de-growth’ movement—a movement that attempts to shift emphasis from material goods to non-material factors, or human well-being or, more specifically, ‘happiness’.

Economic progress of a country is to be measured not only in terms of GNP/GDP or poverty-unemployment-inequality but also in terms of ‘pursuit of happiness’. Economic progress must be such that happiness levels of people across society without damaging environment need to be included. Happiness of people is measured through surveys when people are asked to assess how happy they are.

This ‘happiness index’ is used in Bhutan—the Buddhist economy— and is called ‘Gross National Happiness’ (GNH), National happiness score is attained when basic needs of the people are met. These are: housing, wealth, employment, environment protection, peaceful atmosphere, morality, basic healthcare, presentation of cultural traditions, love and respect, democracy, etc.

These aspects of life are missing both from the concepts of growth and even from economic development. Anyway, the economy does not grow in a conventional sense. GNH uses more complex hybrid indicators. Some of these elements are invisible things but essential to our happiness or well-being.

As per 2007 GNH criterion, Bhutan was ranked the second fastest developing country in 2007. To keep the level of happiness of Bhutanese people, a decree had been issued for affores­tation of the country to the extent of 60 p.c. But, since tourism has the potentiality of damaging environment, it has also been decided that it needs to be controlled and regulated. Otherwise, tourism will pull down the level of GNH. Thus the end of happiness depends on how environmental damages are minimised.

Till the other day, we had been concentrating more on the wrong indicator—the GNP/GDP— for too long. However, measurement of ‘GNH’ is a difficult task. Anyway, the concept of GNH is gaining ground—Canada, France, Costa Rica, U. K. and many other countries have been contemplating on measuring GNH. The basic objective is to measure ‘social welfare’.