Economic Development, Poverty & Human Development - Conceptual Linkages

1. Economic Development, Poverty & Human Development- Conceptual Linkages

2. Part 1: Structure of the present lecture How Poverty and Human Development link up with Economic Development – A historical perspective The lecture will have two broad parts: Part 2: How Poverty links up with Human Development

3. 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

4. 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.

5. 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.

6. 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

7. Economic Development: How the notion evolved over time (Contd…) • The Trickle Down question : • Experience of countries during the 1960s : - Does a higher overallincome 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.

8. 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.

9. 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.

10. Economic Development: How the notion evolved over time (Contd…) • In mid 1980s, Professor AmartyaSenenunciated a comprehensive notion of Human welfare in terms of his now famous Entitlement, Capabilities & Functioningconcepts. • 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

11. Economic Development: How the notion evolved over time (Contd…) • In late 1980s, Professor MahbubUlHaq, 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.

12. Economic Development: How the notion evolved over time (Contd…) • Many other dimensions such as Gender discrimination, Environment & Ecology, HumanRights, 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.

13. 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.