ECONOMIC GROWTH OR DEVELOPMENT?

Shuchita Shukla

In developing countries like India, one often hears an argument made by many ambitious politicians that what separates their government from the one in power is a shift from the narrow focus on economic growth to health, education and other measures of human development which undoubtedly have a more relatable ring to a layperson’s ears. But this is a false choice. In actuality, a nation’s overall rank on the HDI often aligns very closely with long-term growth recorded, a fact that has been corroborated by many studies.

Every year, the United Nations puts out a Human Development Index (HDI) ranking countries by educational measures like years of schooling, health measures like life expectancy and basic infrastructure measures like access to electricity and clean running water. Analysis of this data reveals that the countries with the lowest per-capita income also tend to have the worst human development records.

India, for example, ranks 131 out of 188 countries on the latest list. It has climbed up 4 ranks in the past 15 years and has recorded a steady increase in its HDI value over this period, with a total rise of 0.196 points from its 1990 level. This increase in HDI ranking coincides with a steady rise in annual GDP growth rate of approximately 2% from its 1990 level of 5.3%. Clearly India has risen in ranking only as its economy grew. This is not only specific to the Indian economy. Only 10 countries with lower per-capita income than India rank above 131 and only 5 countries with higher per-capita income rank below 131 for development. It is not to say that economic growth and development is a rule of thumb but it seems to be the general calling. 

Clearly, links between economic growth and human development can be mutually reinforcing in the long run and can be strengthened through policy action. Diverting government expenditure from items that do nothing for human development (e.g. military expenditures) to necessary investment in human capital with larger social benefits, elimination of 

information asymmetries to avoid market failures and credit provision to people (especially poor) who might want to borrow for education and health can be seen as correction of markets through government action. It is not a giant leap of logic to say that this correction can only continue with sustained growth. Thus, refocusing of government expenditure seems to be a better political stand than mere shift of focus from growth to development.

Of course, it cannot be said that economic growth will invariably and automatically translate to human development if there are other important factors in absenteeism. Countries differ in their human development efficiency or in how well they translate income into human development. The people of South Africa, for example, live unusually short lives for a country with per-capita gross national income of $12,087, due in part to a high murder rate and the AIDS epidemic. In countries like South Africa and others that have fallen behind on specific development measures, a focus on these specific issues can make sense. In general, however, if a country focuses on growth, development will follow.