Economic Development, Poverty & Human Development

- Conceptual Linkages

Structure of the present lecture

The lecture will have two broad parts:

Part 1:

How Poverty links up with Human Development

How Poverty and Human Development link up with Economic Development – A historical perspective

Part 2:

Economic Development: How the notion evolved over time

• Economic history of the modern world started with the Industrial Revolution (17th Century)

• Factory-based industrial production came into being

• Markets expanded : - Division of labour promoted large-scale production. - Larger surplus led to greater capital formation,

investment, production capacity and growth of income

• The economy transformed gradually - From a primarily agricultural to an industrial economy

• Arthur Lewis’ model of Economic Development –

Economic Development: How the notion evolved over time (Contd…)

- Mobilize surplus generated by agriculture.

- Use this surplus to set up industry.

- Shift surplus labour from agriculture to newly set up industry.

- This will set in a process of industrialization and income growth.

Economic Development: How the notion evolved over time (Contd…)

• Experiences of Developed nations broadly matched this story.

• However, country experiences of exactly how agricultural surplus got mobilized and led to industrialization differed.

- Britain, United States of America, Japan and Soviet Russia had model experiences.

• The Capital Growth Paradigm of Economic Development :

Economic Development: How the notion evolved over time (Contd…)

• A higher Saving Rate

• A higher Investment Rate

• A higher Income Growth Rate

• A higher Consumption level for the Nation as a whole

• Experience of countries during the 1960s :

Economic Development: How the notion evolved over time (Contd…)

• The Trickle Down question :

- Does a higher overall income growth rate mean a higher income level for all?

(1) Most developing countries of Asia, Africa & Latin America experienced income growth along with rising income inequality

(2) In most of these countries incidence of absolute poverty increased.

• Simon Kuznets’ hypothesis :

Economic Development: How the notion evolved over time (Contd…)

– With rising per capita income, income inequality rises first and then starts declining after a threshold income level has been crossed.

- Intervention needed to improve income distribution & alleviate poverty of the population.

• Many country experiences corroborated this hypothesis.

• Policy implication of Kuznets’ hypothesis:

• Poverty took up the centre stage of development discussions in late 1970s.

Economic Development: How the notion evolved over time (Contd…)

• Concept of Absolute Poverty in terms of Food Security & Nutritional Inadequacy evolved

• Along with per capita income & income inequality measure, incidence of poverty became a major development indicator of the developing countries of the World.

• In mid 1980s, Professor Amartya Sen enunciated a comprehensive notion of Human welfare in terms of his now famous Entitlement, Capabilities & Functioning concepts.

Economic Development: How the notion evolved over time (Contd…)

• In brief :- Welfare / Well being derives from consumption (of goods & services) - Access to consumption requires Entitlement (in terms of purchasing power for procuring goods & services for

consumption)

- Capabilities (defined in terms of health, access to education, Knowledge & information) helps converting consumption into welfare. - Lack of entitlement / capabilities is defined to be violation of proper Functioning

• In late 1980s, Professor Mahbub Ul Haq, under the auspices of UNDP concretized & implemented Human Development as a measurable concept.

Economic Development: How the notion evolved over time (Contd…)

• As a core concept, Human Development encompasses three basic dimensions :

– Income

– Health– Literacy

• The index of Human Development, which is an aggregation of the component indices, is a macro measure of development or lack of it for a given community of people.

• Many other dimensions such as Gender discrimination, Environment & Ecology, Human Rights, Governance etc. are also thought to be ingredients of Human Development and are brought into the ambit of its discussion and measurement.

Economic Development: How the notion evolved over time (Contd…)

• Human Development, which has income growth & inequality as just one of many dimensions, is clearly a much broader & comprehensive concept of economic development.

How Poverty links up with Human Development

• Originally, Poverty used to be viewed as uni-dimensional relating to inadequacy of income / consumption.

• Typically, a conventional Absolute Poverty measure would count the number of persons in a given community having income / consumption below a threshold level.

• Now Poverty is recognized to be multidimensional. Nutrition, Health, Housing, Clothing, access to Education, Knowledge & Information are regarded as the various relevant dimensions.

• One may define Poverty in respect of each dimension separately and a comprehensive overall measure of poverty may be defined.

• To the extent, components of Human Development constitute poverty dimensions, Poverty & Human Development become closely related notions.