The model of Homo economicus gave rise to the concept of Gross Domestic Product or GDP. Economists define GDP as “an aggregate measure of production equal to the sum of the gross values added to all resident, institutional units engaged in production.” GDP measures are generally used to indicate or measure the economic performance of a country. Since its birth in the 1930s, GDP has been widely adopted as a reliable measure of economic performance, progress and development around the world. Another derivative idea of Homo economicus is what has come to be known as the Washington Consensus, which equates development with economic growth and holds that development occurs mainly in the context of economic growth. The Washington Consensus, which has been embraced by developed nations and endorsed by international financial organizations like the World Bank and the International Monetary Fund, links development with the powers of the market, which are thought to be absolutely rational and reliable. The collapse of the Soviet Union in 1991 and the rapidly dwindling fortunes of socialism throughout Europe led some commentators to speak of the inevitable triumph of free market capitalism. Francis Fukuyama euphorically -- and myopically -- spoke of the end of history, marked by the astonishing success of the free market economy and liberal democracy.
In the 1970s some economists began to focus attention on the worrying consequences of unbridled economic growth for the environment, the earth’s finite resources and human populations. In 1972 a group of researchers at the Massachusetts Institute of Technology brought out an important document Limits to Growth, which warned that unchecked economic growth could threaten the planet’s limited resources. A year later, an eminent British economist E. F. Schumacher wrote a best-selling book Small is Beautiful, in which he launched a blistering attack on neo-classical economics and pointed out that the single-minded concentration on output and technology had dehumanizing consequences. He was one of the first economists to question the appropriateness of using GNP to measure human well-being. The critique of GDP as an exclusive and absolutely reliable index of development and progress has gathered momentum over the past few years. A growing number of economists, policy makers and environmentalists point out that the model of GDP leaves out of account the benefits from the ecosystem as well as the environmental, human and social costs of unbridled economic growth. Moreover, it does not address the important question of the unequal distribution of resources in society and the widening divide between the rich and the poor. The complacent view that economic growth held the key to development was rudely shaken by the 2008 global meltdown.
A distinguished American economist and Nobel laureate Joseph Stiglitz points out that development, measured in terms of economic growth, is meaningless in the long run unless it is sustainable, equitable and participatory. He emphasizes that it is not just income that matters but overall standards of living. Stiglitz says that the discourse on development cannot be divorced from the issues of social justice, equality, cultural diversity, environmental safeguards and universal access to education and health care. Stiglitz emphasizes that it is important for countries to focus on equity and on ensuring that the fruits of economic growth are widely shared. This is necessary if there is to be sustainable growth. Stiglitz points out that if the benefits of economic growth are not shared throughout society, it will inevitably result in growing inequalities. In Latin America, for example, while GDP rose by 25 per cent from 1981 to 1993, the proportion of the population living under $2.15 a day increased from 26.9 per cent to 29.5 per cent. 1
High economic growth is not necessarily or invariably accompanied by a corresponding progress in human development indicators. This is attested by the record of quite a few countries around the world which have made impressive economic progress but have not performed well enough on social indicators. The United States is the world’s largest national economy with a GDP of $16.8 trillion. Despite having a robust economy, the US lags behind other OECD countries in respect of life expectancy, child mortality and poverty rates, health, and economic and social inequality. Life expectancy in the US (at 78.7) is one of the lowest among all OECD countries and lower than the OECD average of 80.2. The obesity rate (which is positively correlated with greater health risks) in the US is the highest among all OECD countries. Child poverty in the US is among the worst in developed countries. According to UNICEF, nearly one-third of children (32.2 per cent) in the country live in poor households, and the numbers have increased since 2008. Inequality in the US is not only entrenched and widespread but growing. The 2013 UNDP report ranked the US 28th in its inequality-adjusted HDI. Rising income inequalities and social disparities have fueled the growth of a vast underclass. Americans experience more stress than people in 144 other countries and consume nearly two-thirds of the world’s anti-depressants. More than a third of Americans over 45 years of age report being depressingly lonely. 2
Israel is a developed country, with a GDP per capita income of around $37,000. However, inequality and poverty in Israel are among the highest in OECD countries. The unemployment rate in Israel is 24%, one of the highest in the world. Israel has a deplorable record of discrimination and exclusion of its Muslim minority population. In addition, the country is plagued by endemic ethnic violence.
In some developing countries, impressive economic growth has been accompanied by poor performance on social indicators. This is the case with many Latin American countries, India, Kenya, Venezuela and many Arab countries. In 2011 the United Nations recognized that gross domestic product was a poor index of a nation’s progress and an insufficient and inadequate guide for safeguarding the well-being of people and their future. Despite poor or modest economic growth, some developing countries, such as Bangladesh, Brazil, Mexico, Algeria and South Korea, have made impressive progress on the human development index. According to UNDP, four of the top 10 HDI performers had annual income growth of less than 3 per cent. From 1993 to 2005, the rate of economic growth in Brazil was a modest 1 per cent, compared with India’s 5 per cent. But Brazil managed to cut poverty rates much faster than India. Mexico and Algeria witnessed a modest rise in annual income, ranging between 1 and 1.7 per cent, in 1990-2012, but they were among the top performers in human development index. China, whose income rose by 9 per cent a year from 1990 to 2012, was ranked third on the human development index. But South Korea, whose income per head rose by about 4 per cent, was ranked first by the human development measure. This convincingly shows that though economic growth matters, it is not an absolutely reliable index of overall human development. 3
The United Nations emphasizes a “more inclusive, equitable and balanced approach to economic growth that promotes sustainable development, poverty eradication, and happiness and well-being of all people.” In November 2007 a high-level international conference called “Beyond GDP” was held in Brussels under the auspices of the European Commission, European Parliament, Club of Rome, Organisation of Economic Cooperation and Development and WWF. The conference brought together some 650 experts, policy makers and civil society representatives to deliberate over indices most appropriate to measure human well-being and progress and how these indices could be integrated into policy making processes and public debates.
The relentless pursuit of economic growth and higher incomes has resulted in growing inequalities of wealth and power, caused serious environmental damage, swelled the ranks of marginalized and deprived people and generated growing increasing insecurity and dissatisfaction around the world. There is increasing disenchantment with the reckless, profit-driven model of development which is invariably associated with a consumerist society. A growing number of economists emphasize that development and progress require not just investment in economic capital but also in social capital, which refers to shared values and social trust that bind people together. Elinor Ostrom, the Nobel Prize-winning American economist, and Noreena Hertz, a distinguished economist, question the assumptions of classical economics and point to a shift from what Hertz calls “Gucci capitalism” to cooperative capitalism, which involves values like collaboration, partnership, relationships, networking and social capital. The World Development Report 2015 recognizes that people’s thinking and behaviour and human agency need to be accommodated in the formulation and implementation of economic policies.
A pioneering contribution to the idea of human development, which has been embraced by the United Nations and which has become part of the contemporary discourse on development, was made by the Pakistani economist Dr. Mahbub ul Haq (1934-1998). During his tenure as Special Advisor to the UNDP from 1985 to 1989 and as Project Director of the Human Development Report, Dr Haq gathered a team of distinguished economists, including Paul Streeten, Amartya Sen, Frances Steward and Richard Jolly.
The paradigm of human development, as conceived and developed by Dr Haq and Professor Amartya Sen, seeks to go beyond such issues as economic growth (measured in statistical terms) and the rise and fall of national incomes. It focuses on creating an environment in which people can develop their full potential and lead productive and creative lives in accordance with their value preferences, needs and interests. The focus in the discourse on human development is on building human capabilities. The most basic capabilities are to lead long and healthy lives, to have access to resources needed for a decent standard of living, and to be able to participate in the life of the community. The notion of human development is closely intertwined with issues of human freedom and human rights.
Dr Haq maintained that the real objective of development is to enlarge people’s choices in all fields, including economic, political and cultural. He emphasized that people are both the means and the end of development. To quote him:
The basic purpose of development is to enlarge people’s choices….
People often value achievements that do not show up at all, or not
immediately, in income or growth figures: greater access to knowledge,
better nutrition and health services, more secure livelihoods, security
against crime and physical violence, satisfying leisure hours, political
and cultural freedoms, and a sense of participation in community activities.
The objective of development is to create an enabling environment for
people to enjoy long, healthy and creative lives 4
Dr Haq argued that though economic growth is essential for reducing or eliminating poverty, the quality of economic growth is just as important as its quantity. People must have equitable access to existing economic and political opportunities. Productivity requires investment in people and an enabling macro-economic environment for them to fulfill their potentialities. Empowerment means that people are in a position to exercise choices of their own free will. He emphasized that a human development strategy must involve community participation and self-reliance.
Dr Haq played a key role in shifting the focus of development discourse from GDP-centred economic growth to people and their well-being. He initiated a global movement involving eminent economists, planners, policy makers and activists for pushing a people-centred agenda of development. His legacy continues to reverberate in development thinking across the world and, more importantly, in the UNDP’s Human Development Reports. At Dr Haq’s urging, a global compact was reached at the World Social Summit in Copenhagen in March 1995 to the effect that the developing nations will earmark 20 per cent of their national budgets for the furtherance of five priority concerns: universal basic education, primary healthcare for all, safe drinking water, adequate nutrition for severely malnourished children, and family planning services for all willing couples. Likewise, the donor nations from amongst the industrially advanced countries will pledge to earmark at least 20 per cent of their aid budgets for the attainment of these goals.
Dr Haq was highly critical of the rising costs of military expenditure, the futility of nuclear race and the lack of development cooperation among South Asian nations. He speculated that it would cost $34 billion dollars per year to build a world society where there would be adequate education, healthcare and nutrition for all people. This, he said, is less than a quarter of the $130 billion that the Third World countries spend on their military establishments. Similarly, he argued, the cost of a single military submarine was enough to provide safe drinking water to 600,000,000 people in the developing world, and the cost of a jet fighter could provide schooling to 3000,000 children in the developing world.
The Human Development Index, which has been used by the United Nations Development Programme in its annual Human Development Reports since 1990, combines a nation’s GDP with two core factors, namely, education, based on adult literacy and school-enrollment data, and health, based on life expectancy statistics. Since the publication of the first Report, three new composite indices for human development have been added: the Gender-related Development Index, the Gender Empowerment Measure, and the Human Poverty Index. Inspired by the Human Development Reports, over 600 regional and national human development reports at the country level have been published in more than 140 nations. Of particular importance is the series on Arab Human Development Reports, published in 2002, 2003, 2004, 2005 and 2009.
Development and Ethnic Conflicts
There is an inverse correlation between development and conflicts and violence. The 2011 World Development Report, the flagship publication of the World Bank, says that violence seems to be the primary cause of poverty and lack of development in poor countries. The report suggests that the main constraint on development today may not be a poverty trap but a violence trap. According to the report, over 1.5 billion people live in countries affected by political violence and organized crime. According to a 2015 report of the United Nations refugee agency UNCHR, more than 60 million people, mostly in developing countries, were forcibly displaced in 2014. People in strife –torn countries are twice as likely to be afflicted with malnutrition, illiteracy and high rates of infant mortality as people in other developing countries. Countries that are faced with large-scale and endemic violence lose almost one per cent in poverty reduction every year. Until 1990, Burundi and Burkina Faso had similar rates of economic growth and levels of income. But a civil war that broke out in Burundi in 1993 took a toll of over 300,000 lives over the next 10 years. On the other hand, Burkina Faso, which did not experience any large-scale violence and civil war is now two and a half times richer than Burundi. Millions of people, who have been devastated by years of civil war and armed conflict, are at the bottom of the Human Development Index.
The Democratic Republic of Congo has abundant deposits of copper, gold, cobalt, diamonds, uranium, coltan, rubber, cotton and oil. Had these vast and precious resources been harnessed, Congo would have been one of the richest countries in the world. But the country has been ravaged, in addition to the devastation wrong by colonial rule, slavery, corruption, civil war and ethnic conflict. The deadly civil war in the 1990s took a toll of over 6 million lives and brought in its wake widespread starvation, disease and malnutrition.
Development in India
Economic growth in India increased from around 4 per cent in the four decades before the early 1990s – when a programme of wide-ranging economic reforms and liberalization was launched – to more than 8 per cent in 2007-08. India is today the world’s fastest-growing economy and the third-largest economy in the world by purchasing power parity. Amartya Sen has convincingly shown that despite the push for economic growth in India, the country has not paid sufficient attention to basic public concerns such as food security, safe drinking water, education and healthcare. More than 30 per cent of the population still live below the poverty line. Over half of Indian children are undernourished. More than 50 per cent of the population has no access to toilets. About a quarter of men and one-third of women are illiterate. The quality of education in state schools is generally poor. The female-male ration in some parts of the country is among the lowest in the world. The state of public health in the country is pitiable. About one-third of all newborn deaths worldwide occur in India. Nearly 2 million children under five die every year, the highest number of child deaths anywhere in the world. More than half of them die in the month after birth and nearly 400,000 in the 24 hours after birth. More than 90 per cent of adolescent girls in India are anaemic. About 42 per cent of Indian mothers are underweight, compared to 16.5 per cent in sub-Saharan Africa. Though India is the world’s largest producer of generic medicine, the country’s health care system is in a mess. While China devotes 2.7 per cent of its GDP to government spending on health care, India spends only 1.2 per cent. According to World Health Organization figures, India ranks 171st out of 175 countries for public health spending. It has only 0.7 hospital beds per 1,000 people compared with the global average of 4. Income disparities between the rich and the poor are widening. Compared to Japan, South Korea, Singapore and China, India has paid much less attention to the enhancement of human capability as an intrinsic goal and as an integral part of economic growth. 5
Development: Rhetoric and Reality
India’s Prime Minister Narendra Modi and the Bharatiya Janata Party (BJP) won the 2014 parliamentary election largely on the plank of development (vikas). Amartya Sen has pointed out that Modi has a flawed understanding of development. One may think of development as a process with human beings at the centre, or, alternatively, one may see it as a process with financial and industrial leadership (at the centre). Sen says that Modi subscribes to the latter view of development. 6 Modi seems to identify development solely with economic growth. The constant refrain in his speeches is about reaching and sustaining the target of 7-8% growth rate. The Modi government seems to subscribe to what is known as ‘trickle-down economics,’ which holds that so long as the economy as a whole grows everyone benefits. This view has been discredited. 7
The Modi government’s economic policies draw sustenance from the power of the market and are tilted in favour of rich industrialists, corporate houses and the upper middle class. The much-trumpeted plans for smart cities and bullet trains are meant to cater to the convenience and aspirations of the urban-based upwardly mobile class. Modi forgets that over 67% of India’s population lives in villages and that more than 60% of the country’s population is dependent on agriculture. The problems of the rural population, such as shrinking farmlands, land alienation, sagging agricultural production and rural distress and poverty, do not seem to be in the central focus of official policies. There is a noticeable decline in the demand for fertilizers and tractors in rural areas. The social sector has been neglected in the economic policies of the central government. Funds for Sarva Shiksha Abhiyan and for school meals have been cut in the central budget.
The Modi government does not seem to take sufficient cognizance of the fact that high and sustainable growth rate is inextricably intertwined with the actualization and expansion of human capabilities and investment in the social sector. Amartya Sen has pointed out that every country that has been successful, including the European countries, USA, Japan, South Korea, Taiwan, Singapore, Hong Kong, China or Thailand, has concentrated on raising human capabilities along with the power of the market economy. Sen says that India is the only country in the world which is trying to become a global economic power with an uneducated and unhealthy labour force. He adds that one cannot separate the process of economic growth from the quality of the labour force.
Gujarat Model of Development
In the run-up to the 2014 parliamentary elections, Modi projected what he described as the Gujarat model of development and suggested that this model of development had the potential to transform the country. Undoubtedly, Gujarat’s annual GDP growth from 2001 to 2012 (when Modi was the chief minister), which averaged nearly 10%, was higher than that of the country as a whole. However, Gujarat is not alone in recording a high growth rate during the period. Other states, notably Maharashtra, Haryana and Tamil Nadu, also registered high growth rates. Secondly, Gujarat has recorded high economic growth for decades.
A glaring flaw of the so-called Gujarat model of development is that, despite high growth rate, the state has not paid sufficient attention to basic public concerns such as reduction of poverty, education, healthcare and the empowerment of women and children. Gujarat has one of the highest poverty rates among the Indian states. The Raghuram Rajan Committee was formed in 2013 to suggest ways to identify indicators of the relative backwardness of Indian states for equitable allocation of Central funds. The committee placed Gujarat somewhere in the middle of the pack – 14th among 28 states – and placed the state among the bottom six states in respect of education.
The report of the Comptroller and Auditor General of India on the socio-economic indicators of Gujarat, tabled in the state assembly on March 31, 2015, noted that the Gujarat government’s role in improving agricultural production, education, healthcare and the empowerment of women and children has been far from laudable. The report said that Gujarat could not be looked upon as a role model for other states.
The CAG report pointed out that while the sex ratio in the country improved from 933 to 943 between 2001 and 2011, the sex ratio in Gujarat during this period declined from 922 to 919. The report noted that the Gujarat government has not been particularly successful in checking child marriages, that the Right to Education Act was ineffectively implemented, that the mid-day meals scheme was poorly executed and that the state had a less-than-impressive pupil-teacher ratio.
Growth or Development: Which way is Gujarat going? (2014), edited by Indira Hirway, Amita Shah and Ghanshyam Shah, takes a critical look at the balance sheet of development in Gujarat. Leela Visaria found very slow progress in the immunisation of children, while under-nutrition and malnutrition, particularly among women and children, hardly improved over a decade till 2011. As far as nutrition indicators are concerned, Gujarat ranked 13 among 17 major Indian states, the lowest among all "high-income" states and below even Odisha and Uttar Pradesh. Visaria pointed out that nearly 45 per cent of children below five are undernourished in the state. The book highlights the lack of improvement in workers’ conditions in the state. Jeemol Unni and Ravikiran Naik show that during a period of rapid GDP growth, employment remained almost stagnant in Gujarat while the quality of jobs deteriorated because of "informalisation" of labour. Wage rates increased only marginally, much less than the increase in labour productivity.
Jayati Ghosh, an economist at Jawaharlal Nehru University, points out that Gujarat’s high growth rate has been fueled by big concessions to corporate houses. These concessions are in the form of land, mineral resources and fiscal subsidies. Key sectors of the economy, including infrastructure, power and forests, have been handed over to the corporate sector and private investors. Large swathes of land have been acquired by the state government and handed over to corporate houses for industrial plants. The report of the CAG, tabled in the Gujarat assembly in July 2014, highlighted how the state government granted "undue benefits" to the extent of Rs. 1,500 crore to companies like Reliance, Essar and Adani.
The appropriation of vast tracts of land by the Gujarat government has led to the displacement of hundreds of thousands of farmers, farm labourers, pastoralists and fisherfolk. Ghosh points out that the benefits of economic growth in the state have not accrued to the poor in any meaningful sense. Wages in Gujarat remain the second lowest among the states. The state is burdened with a huge, unsustainable debt. It is hardly an exaggeration to say that Gujarat has achieved high economic growth but suffers from a deficit of development. 8
Development: Beyond Growth
To view development through the lens of economic growth and to disembed it from its human and social prerequisites, implications and consequences is myopic and reductionistic. Development should be seen as lying at the intersection of three interrelated forms of capital: economic, human and social. Economic capital includes resources, labour, investments, technology, productivity and so on, while human capital includes longevity, food security, safe drinking water, health and nutrition, and education. Social capital includes equitable access to economic, political and social opportunities, inclusive political, economic and social policies, religious, political and cultural freedom, social harmony, protection of human rights, including minority rights, an effective legal and institutional apparatus to deal with discrimination on grounds of race, religion, caste or ethnicity, and social trust that binds people together.
In their book “Why Nations Fail” (2012), the Harvard political scientist James Robinson and the MIT economist Daron Acemogly argue that nations thrive and prosper when they develop inclusive economic and political institutions, and that they are doomed to failure when these institutions become exclusive and “extractive” and concentrate power and opportunity in the hands of a small minority. They suggest that the key to a nation’s progress lies in the building of political and economic institutions that seek to empower each and every citizen and to harness his or her potential. An authoritarian state with exclusive political institutions, like China, may make impressive economic gains in the short run, but such gains are unlikely to be sustainable.
The point made by Robinson and Acemogly makes abundant sense. I would like to supplement it by saying that multiethnic societies need to have, in addition to inclusive political and economic institutions, an inclusive, egalitarian and accommodative cultural policy and need to be sensitive to the identities and sensibilities of ethnic minorities. A nation’s economic progress is likely to remain uneven if its minorities experience discrimination, exclusion and alienation. Economic growth can be sustainable in the long run and can bear fruit only in a hospitable, enabling and accommodative social and political environment.
Though it is helpful to have a set of broad guiding principles or parametres to steer the course of development, it is imprudent to espouse a monolithic, straitjacketed, one-size-fits-all kind of model of development. In view of the evident variations in the economic, political and social structures of human societies around the world, we can envisage multiple models of development, which are informed and inspired by certain overarching principles but are at the same time attuned to the specific historical, social, economic and political context of various countries. In other words, we need to think in terms of a context-sensitive approach to development.
A reference has been made in the foregoing to social capital as a significant component or guiding principle of development. Robert Putnam, a distinguished political scientist at Harvard University, has spoken of social capital to describe the sense of connectedness and the formation of social networks. 9 The connotation and scope of this valuable idea, endorsed by such eminent economists as Joseph Stiglitz, Elinor Ostrom and Noreena Hertz, needs to be expanded, particularly in the context of multiethnic societies. I have used the term ‘multicommunitarian capital’ to refer to social connections, shared values and social and cultural spaces and bonds in culturally diverse societies which often transcend ethnic, religious and other primordial distinctions and affiliations and bind people from different ethnic and religious backgrounds together. The idea also emphasizes the recognition of and sensitivity towards cultural diversity and the accommodation of differences. The significance of such networks and bonds in multiethnic societies like India, which is fraught with growing societal fragmentation, communal polarization and religious discord, cannot be over-emphasized.
Economic growth is meaningless and counter-productive in the long run if the wider social and political environment in a country is suffused with mistrust and disharmony; if a sizeable section of society is faced with marginalization, demonization and alienation and feels vulnerable and helpless; if certain groups brazenly defy the rule of law (often with the connivance of the authorities) with impunity; if dissenting views (particularly those voiced by members of minority groups) are dubbed as unpatriotic and anti-national; if those in power and authority look the other way or are unwilling to control extremist groups that spew venomous utterances against minority groups; if aspersions are cast on the loyalty of certain communities; and if minority groups feel unsafe and insecure in the face of aggressive intolerance, intimidation and humiliation.
1. Joseph Stiglitz. Making Globalization Work. New York: W. W. Norton and Company, 2006, p. 45.
2. Jeffery Sachs, ‘The economics of happiness’ http://globalpublicsquare.blogs.cnn.com/2011/08/29/the-economics-of-happiness
3. ‘Development: Not by bread alone’ The Economist, 16 March 2013.
4. Mahbub Ul Haq. Reflections on Human Development. Delhi: Oxford University Press, 1996, p. 14.
5. Amartya Sen ‘Why India trails China’ The New York Times, 19 June 2013; Jean Dreze and Amartya Sen. An Uncertain Glory: India and Its Contradictions. London: Allen Lane, 2013.
6. ‘The government would have loved it if I had quietly slunk away, but that I was not willing to do: Amartya Sen’ The Indian Express, July 8, 2015.
7. Joseph Stiglitz. Making Globalization Work, p. 45.
8. ‘Gujarat’s growth for growth’s sake ‘ The Indian Express, April 3, 2014.
9. Robert Putnam. Bowling Alone: The Collapse and Revival of American Community. New York: Simon and Schuster, 2000.