Economic Development, Poverty & Human
Development
- Conceptual Linkages
Structure of the present lecture
The lecture will have two broad parts:
Part 1:
How Poverty and Human Development link up with
Economic Development – A historical perspective
Part 2:
How Poverty links up with Human Development
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
Economic Development: How the notion evolved over time
(Contd…)
• Arthur Lewis’ model of Economic Development –
- 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.
Economic Development: How the notion evolved over time
(Contd…)
• The Capital Growth Paradigm of Economic Development :
• A higher Saving Rate
• A higher Investment Rate
• A higher Income Growth Rate
• A higher Consumption level for
the Nation as a whole
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?
• Experience of countries during the 1960s :
(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.
Economic Development: How the notion evolved over time
(Contd…)
• Simon Kuznets’ hypothesis :
– With rising per capita income, income inequality rises first
and then starts declining after a threshold income level has
been crossed.
• Many country experiences corroborated this hypothesis.
• Policy implication of Kuznets’ hypothesis:
-
Intervention needed to improve income distribution &
alleviate poverty of the population.
Economic Development: How the notion evolved over time
(Contd…)
• Poverty took up the centre stage of development
discussions in late 1970s.
• 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.
Economic Development: How the notion evolved over time
(Contd…)
• In mid 1980s, Professor Amartya Sen enunciated a
comprehensive notion of Human welfare in terms of his now
famous Entitlement, Capabilities & Functioning concepts.
• 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
Economic Development: How the notion evolved over time
(Contd…)
• In late 1980s, Professor Mahbub Ul Haq, under the
auspices of UNDP concretized & implemented Human
Development as a measurable concept.
• 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.
Economic Development: How the notion evolved over time
(Contd…)
• 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.
• 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.