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 (17 th 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.