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Summarizing reflections: Gabriel Palma – Deindustrialization

September 21, 2011

The conventional understanding of economic development assumes increase in agricultural surpluses fuelling (both capital and labor for) growth in manufacturing (essentially referred to as industrialisation) and surpluses in latter fuelling the growth of services; This is in essence being the classical interpretation of the trajectory of economic development. But really, is the world so simple? As notably as Weiss (2002) points out in relation to understanding economic growth over geographies, “Naturally one should not expect all countries to grow at equal rates, since factors like natural resources , endowments, current output levels, social systems, political and economic external links and economic policies will all influence growth that can be achieved in a specific period”. What it will not only influence is economic growth but kinds of economic activities being undertaken, livelihoods, production processes (choices), sectoral experiences and more as well. Economic phenomenons, as sociological phenomenons are inherently very complex and result into complex consequences.

Gabriel Palma’s (2007) is an attempt to bring in this complexity and study deindustrialization (the decline in share of manufacturing employment) as much more than merely a transition from manufacturing to services and its relevance in the real world across across geographies.De-industrialization as a phenomenon is unique post 1970s, and these being as well the times of tremendous economic and sociological changes in the world, across geographies, transitions from fordism to post-fordism, decline of modernism (very relevant to the developed world), rise of finance sector (which also comes to substitute to a large degree the dominance of public provisioning), ushering in of neo-liberalism, oil shocks and multiply more. In such turbulent times, deindustrialization certainly can not be a unique, untouched, natural, uncaused (by these incidents) phenomena; and as Palma argues is very relevant to and embedded into what all is going on around this period. He starts by complicating the Rowthorn’s hypothesis of inverted-U relationship between manufacturing employment and per-capita income; asserts that overtime, the levels of per-capita income and employment (both) at which the share of manufacturing employment starts to decline have been decreasing. And these declines being rooted in what all is going on around this period. Palma cites four hypothesis which have been majorly put in thesis for de-industrialization [i). Statistical illusion - reallocation of labor form manufacturing to services following a number of activities being contracted out by manufacturing firms to specialist service producers; ii). due to significant reduction in income elasticity for demand for manufactures; iii). consequence of rapid growth in productivity in manufacturing; iv). new inter National redistribution of labor]. And these thesis are again very relevant to the end of Fordism and Keynesianism and the rise of newer processes of production and Monetarism. This is very relevant to how Thatcher era leads to large scale decreases in manufacturing activities in Britain and the rise of service sector, especially of finance (and relevant to how this is also an era, where finance is tending to replace a lot of activities which were functions of the Welfare state, as Keynesianism sees its demise in face of monetarism) This is very relevant to how Weiss (2002) cites manufacturing activities are having tremendous geographic relocation and not specifically in some kind of production processes or commodities but overall (ranging diverse manufactures which can be classified along lines of labor intensity in production processes to the degree of sophistication in technology). Conclusively, policies being substantially important to the the incidence of deindustrialization and the overtime decreasing levels of saturation between per capita income and manufacturing employment.

Something beyond saturating levels of manufacturing in an economy in relevance to deindustrialization is the unique concept of ‘Dutch disease”. Such happens when, nations in order to generate trade surplus pre-maturely shift from manufacturing activities to either trade in primary commodities (for resource rich countries, also signalling a shift to Ricardian state of comparative advantage) or services [examples of the former being Latin American countries and of the latter, Netherlands itself, from where the name comes which made a marked shift to tourism and other service related activities].

Palma shows how deindustrialization while being a structural change is a very very complex phenomena in its incidence. And how structural compositions/transitions themselves are very complex, and how analyses cutting across sectors and activities are very important to understand relevant (long-term, short-term) impacts and causes; and what kind of activities and what sectors have what plausible for human beings in times to come [for e.g. what plausible to various manufacturing activities have in store for future, their sustainability, scales of growth, scope of R&D, increasing returns, forward-backward linkages etc. and similarly for other sectors/activities].

Rather of well known theses towards loss of manufacturing employment is of increasing capital intensification on account of reducing the labor costs and thus raising productivity; however Palma’s argument is strongly rooted in output led deindustrialization (noting that productivity growth overtime has declined as well). However what must be understood is that the phenomenon of deindustrialization is rooted in its pervasive contexts and not a phenomena in vacuum and thus it’s effects and implications should need to be looked in the larger framework of its existence. Some of the marked characteristics of capitalism post 1970s have also been the dismantling of notions of social democracy and autonomous individualism in the spheres of production and increasing class stratification in cities (Krier, 2010) . This also signifies the movement of capital to geographic regions where such would be rather easily feasible, and this can be substantially linked to Wiess’s and Palma’s observation of prevalent deindustrialization phenomena largely widespread in the Anglo-American north and the industrialisation phenomena notably substantial in Asian regions. And then one also sees theses on the growth and developmental experiences of relatively authoritarian countries, somehow also challenging the necessity of democracy in attaining socio-economic development (such as Bardhan, 2008). In stark contrast capitalism earlier would be thought of inconceivable in absence of democracy, and experiences of deindustrialization are strongly embedded into the diaspora of these politico-economic realities. These are plausible ways in which the incidence of industrialisation/deindustrialization are socially, politically and economically relevant for the involved geographies and involve substantial concerns, discourses on which are very substantial today.

Another substantial way in which the accompanying neo-liberal framework (and Palma makes a substantial note of it) impacts countries is by bringing them to a Ricardian state, where countries would find little political incentive to industrialise if rich in primary resources, despite plausible capacities to industrialise (e.g. Of Latin America). So there are instances of downward deindustrialization, loss of skills and capacities and even plausibly adverse terms of trade in store (see Prebish-Singer thesis) on account of extensive dependence on primary products for generation of trade surpluses.

Lastly, the incidence of deindustrialization has also been on account of tremendous rise of service sector, and that too, especially finance. And finance is of key note here; for deindustrialization on account of rise of financial activities, substantially leaves the question on the nature of these activities and plausible long-term scope in these activities. A substantial rise in finance activities is of nature far and wide not connected to any production of good and services, but based on mere speculation, derivatives for e.g. (see Chossudovsky, 2008) and both, the East Asian Crisis and the Global financial crisis of 2008 are outcomes of such. With highest salaries across the world being paid out to the trained in finance, sectoral and activity concerns in the economy become of substantial concern, and resultantly policy making should be extremely sensitive to the nature and impact of economic activities. I would also argue that there is an immanent need, especially post-financial crisis for seeking renewed ethical context to economic activities widely taking place all around us.

From ‘leaning to learn’ to ‘well you don’t have an iPhone’–Ethics in business and marketing

August 8, 2011

To begin with, I am no student of Business or Marketing so I have almost no idea of what I am writing stands in the established discourses of these subjects. However these are my reflections as an observer and a learner of how we are being, interacting and legitimizing ourselves and our actions [and shaping a public discourse or while being the subject of it].

I was thinking of, if I would come in to enterprising and if I would bring something into the field of education. What it would be, what idea would it entail. Something like ‘Leaning to Learn’ which is the tagline of ‘a Straight path’, was vainly and regularly clicking my head. That being actually vain though, not long ago was I working on the thought of holistic education, sound pedagogies and of course my mind seamlessly and comfortably was running into that direction. A branding/marketing in present context which would subtly entail these ideas and would as well be convenient to the concerns of the target class. However what was being central to me was the idea which was central in relation to thought on education and resultantly to life. Somehow the mind ran into how is branding done today and the spontaneous glimpses I could remember. And, “if you don’t have an iPhone, well, you don’t have an iPhone” catching my recent fascinations with the iPad, however going to versatilities like ‘kuch meetha ho jaaye’ for Cadbury and sundry likewise. However whaimaget is central is that the object itself is not central to the branding strategy, but rather the apparent marketing revolves around something else, to just sell the product, mostly a very graphic, catchy representation of something that is very basic and perhaps even irrelevant to the, what would be called sophistications in human creativity for design. Say, ‘Obey your thirst’ for Coca-Cola.

So where does it lead us? I find it potentially very problematic that the essence of human creativity and effort should revolve around the sundry, just anything and everything that can be grabbed to catch attention and/or bank balances. For the centrality of the idea of an enterprise not being governed by the learning or reflections of individual(s) as human beings but by creativity which can merely catch whims of people heralds something elementally, socially dangerous. This as in instance is not, but as an ethic plausibly is. And I through my random rumblings through the day stumbled upon multitude of such instances, deeply impacting and quite in relevance I think to our contemporary discourses on marketing and branding. Here is, ‘Rajita Chaudhuri’ who runs a blog ‘Business is marketing’ and she takes through how you can most definitely make a great brand and that this is at the essence of branding and marketing (Chaudhuri, 2011). What is at essence is technically; language, style, culture etc. and the understanding of all, in a way to help creatively capture the whims of people and product design for that matter to add to the same. Summarizing overarchingly, to be these at the epitome of human creativity; and thus ‘success’ finds a new definition, when not conventionally but academically and intellectually identified by its mere instance of economic success.

This may all sound to be very elemental to business practices, and Where I might be going with my strange, some kind of orthodox detour? But is it really necessarily elemental to business practices and something where creativity should find its erudite niche? For e.g. an iPhone or a sophisticated operating system is designed around multiple sophisticated lines of thought by its erudite designers, keeping central, productivity, comfort, convenience etc. and there is an ideological line to most, that is why perhaps windows would always be different than mac, and android than iOS, though all influence each another. Moreover is such empty marketing really socially benefiting in the long run, with unnecessary over production of the sundry, somehow tried to be pushed to consumption? Are the profit opportunities around ingenious, ideologically replete and plausibly socially benefiting ideas (production should mostly be benefiting, its symbolic of human activity)so done and non-existent that the sundry should be at the vitality of human creativity?

Again, to say, what is central is the ethic we form towards economic activities which is going to shape our socio-economic discourse and it is very essential the way we look at it. That said J J, the tagline for iPhone has changed from "If you don’t have an iPhone, well, you don’t have an iPhone" to something which tells the user of the features iPhone has and adds at the end, "just one more thing that makes an iPhone an iPhone" (Golson, 2011). But that said, the change is, I feel more needed. And ethic is at the root of human consequence.

Bibliography

Chaudhuri, R. (2011, June 16). Maine karoo to character dheela hai! Retrieved 08 08, 2011, from Business is marketing: http://rajitachaudhuri.blogspot.com/2011/06/maine-karoo-to-character-dheela-hai.html#more

Golson, J. (2011, August 02). Apple Revises "What Makes An iPhone An iPhone" Ads. Retrieved August 08, 2011, from MacRumors: http://www.macrumors.com/2011/08/02/apple-releases-two-new-tv-ads-what-makes-an-iphone-an-iphone/

Displacement Development and Disposession

October 27, 2009

The Story of
A Beautiful Delhi

Building Grandeur on a tomb that buries incredible loss and Despair.

by Syed Shoaib

The enchanting dreams for a vibrant Delhi, flourishing with parks, six to twelve lane expressways, hi-tech malls, residential complexes, verdant footpaths, Metro, Low Floor Buses Captureand every luxury present in the world, that one could realize. In our time these have quite been the benchmarks for development. Capitalism has always been quite obsessive with quantitative figures, be it in the realms of national income, economic development or poverty or any. Incomes, Losses, Costs, Profits, Wages can all be quantified, but unfortunately human happiness, loss, despair cannot be, although remain to be the most imminent part of human living. One of the questions in this relevance is, “when malls are built, gardens are laid, industries are moved, slums are swept away, how must the costs be decided and who must decide these costs? Who should have the authority to decide these costs, keeping or prevaricating upon the lives of millions of people? Should it be the Builders, the Government or whom? 

In our age, where the logic of market seems to keep everything gay and perfect with Adam Smith’s logic of “The Invisible Hand”, it is assumed that Builders will build, household would migrate (to wherever there is economic benefit) and the governments would heed to demands of people (since they are answerable to them). But what happens if the economic conditions are so poor that households have nowhere to migrate? What happens if the democracy has been totally nabbed of its meaning, where all political parties hearken to the large industrial houses, agricultural lobbies, and corporate houses which fund them? When the court has taken Socio-economic development to be synonymous to Neo-Liberal Capitalism, and thinks that bulldozing poor houses for supposed greater gains would bring the deprived masses into economic mainstream? Then who is going to care for the variables which can not be quantified and are of little or no interest to either corporate, governments or judiciary? Who is going to calculate the costs and the gains? Who is going to decide what is just and what is not?

The story of modern India is full with stories of demolitions of lives and livelihoods, people being displaced (with neither shelter, nor the assurance of it) while the heavily voluble nation marches into the pretense of being world’s superpower by 2020 (or who knows even before). In this precious and perspicuous spirit, the story of people of Narmada, or of the people of Bawana (a government allocated resettlement area for people displaced by slum demolitions) is the story of the Modern India.

The story of Bawana, for many, starts from a havoc in the lives of residents of Yamuna Pushta, in the cold January of 2004, as the tourism ministry of the Government of India announced its plan to develop a 100-acre strip of land on the banks of Yamuna into a riverside promenade which would be marketed as a major tourist attraction. For the remaining others there had been similar havocs which have left a deeply penetrating painful echo in their hearts. This is how Kalyani Menon-Sen and Gautam Bhan describe the awe of the new morning in the lives of people, part of this awful story:

“Our first sight of Bawana was horrifying. The hundreds of people sitting on the bare ground amidst whatever possessions they had been able to save seemed too stunned to even grasp the extent of their dispossession. We ourselves were still dazed by the failure of the campaign to stop or even delay the evictions, and by the insensitivity of the Supreme Court.”

And such was the plight of people who had managed to save something, or at least gain a vulnerable 12 sq. m roofless area for themselves as repose of security. A survey conducted by Delhi Development Authority before the evictions recorded only 16,000 genuine claimants’ for the plots , while newspapers reported around 35,000 families in residence, indicating that even less than 50% of the people of Pushta, were considered eligible for the 12sq. meter wretched anarchic life of Bawana, the rest of course were free, homeless, absolutely deprived, left.

One might imagine that the life of people of Bawana would have been restored back through the span of these five years. It surely has, at least according to many government circles. And the government is proud of it, JJ Colony (the Jhuggi Jhopri Cluster of Bawana), now has schools, roads and vital infrastructure. JJ Colony now has five primary schools, albeit none worthy for education. In our field discourses there, we have not come across a single parent, who didn’t complain of wastefulness of sending their children to school, since there was no effective education being provided. Even to this moribund education, seeking admission into it is nearly impossible. There are even a few pukka houses now, though economic destitution has forced residents to rent or even sell their houses. NGOs like Raina Prayas, have worked towards providing poor people with pukka housing. And rest, the drains are still rarely cleaned, drainage water is all spilt upon the roads, where people during rains have no option but to dip their feet in the stinking drains, and sleep in their houses filled up wholly with the same stinking water (which runs inside, when the drains overflow, the level of housing is lower than the drains). People who applied for ration cards have still neither been provided the cards nor any answer from the authorities. Bawana, being far from populous Delhi, has little or unworthy employment opportunities. Ensuing people resort prominently to gambling and trading in drugs and alcohol. There are still many families (one family even has up to 20 or more members) who had their houses surveyed by DDA in 2004 but still have not been allotted plots. Such people reside illegally in Jhuggi in empty spaces. The literature of injustice, cruelty, economic and social deprivation surfeits humane bearable capacity.

These are perhaps some of the most important questions to ask: If killing people, or terrorizing them through hijacking, holding hostages etc. is a crime, who decides, whether nabbing people of their livelihood, of their homes and of all their lifelong possessions is a crime or not? Or is it a way towards development? How does beautification matter to the society when majority of its individuals lose their lives under helm of it? If killing is a crime, then who decides whether pushing people to slow death and literally into the gambit of alcohols and drugs is a crime or not? The Supreme Court of India says, it (Destruction of lives in this pattern (the statement was reported in case of destruction of lives of people inhibiting the Narmada Valley)) would bring them, the people who are forced to move into city slums and jhuggis, into the “mainstream”.

It was of course not the style of Supreme Court since antiquity, Supreme Court often defended the right to housing and safe shelter under the fundamental right to livelihood. (as stated in its judgements in Shantistar builders vs. Narayan Khimalal Ghotame and others (1990)and in many likewise historical judgments).

The whole plan seems simple and that is to leave every stretch and every type of resource for corporate plunder and thus unravel the so called growth potential of our nation. Of course there would be tremendous spawn in the economic activity, when slums and housing of tribes are demolished, when malls and dams are built, when the village communities are deprived of their long held precious Common Property Resources and these are given to plunder for minerals and stones, when governments spend wastefully on economic infrastructure, while people struggle for living, while they take guns and grenades to protect their lands, homes and families. It seems today that corporate globalization, governance, judiciary and the media are all on a unanimous roller coaster ride, marching hand in hand, to create one of the most glistening tombs burying stories grave losses and despairs of Indian masses.

A Project on the Global Economic Crisis

September 15, 2009

The paper unravels the present Economic Crisis, scrutinizing its effect and impacts in two different parts. Part I deals with the fundamentals of the present Crisis taking an in depth look into its causes, and the agents who seek their vested interests through this Crisis. Part II places India under the lens of broader economic analysis and would at best be giving a dank time to those who have been complacent regarding the impact of Crisis and have been placating themselves with the notion of “Insulated India”. It’s time to delve deep and think reasonably about the tortuous paths which lie ahead.

View this document on Scribd

Indian Politics – The meaningless Youthful Propaganda.

May 16, 2009
DSC_0273 (2)Syed Shoaib

 

 

 

May 16, 2009. India’s Election Results are out. UPA swept the majority and is set forth to remake its government for another term.

The Day long news channels ran their repeated assessment of the elections. However one thing to be worth noting was that there was the propaganda that UPA did well to represent the youths in the country, that it did enough efforts to involve youths into the political arena. One of the major consensus which is being propagated through the media is that the big-wig white mustached politicians in India need to be replaced by young enthusiastic Indians. The hoo haa is such that as if this solution is the only and main solution to most of India’s problems.

One doesn’t need to use much of intellect or do deep research in order to understand the truth. The notion propagated in the name of “youthfulness” is chiefly  a foolish contention that easily seems to brainwash people’s mind and divert attention from real time agendas. Today only one of my friend’s called me and wished how good it were if Rahul Gandhi was to be the new Prime Minister, since he was a younger contender than Manmohan Singh (who is believed to be a honest man and is a Harward Economist). It is as if being younger is a passport to being more intelligent and dedicated towards better and effective policy making.

It is wonderful for people to believe there nation being led by young dedicated enthusiastic youths. It serves music to the ears.

However, side by side, it seems not only a political propaganda it can also serve as a boon for making the Indian culture more consumerist. It can very well be a corporate agenda as well. In today’s society youthfulness is also a representation towards being more westernized in the way of thought. Youthfulness has little to do with maturity of intellect, then it must have other realms which it has to do with. And these realms essentially represent the interests of  people who have been involved in creating this system of propaganda. These are the politicians themselves and may be some of the corporate conglomerates who envision this propaganda for their own gains.

image However one of the popular notions and a valid one against my contention can be that India strongly needs a change in the system of leadership in order to break free from the chains of corruption and narrow mindedness. However it must be kept in mind by every reasonable individual that the stream of young leaders in India have no weaker records in corruption and crime than the elder ones. In fact the younger ones are in some way or other are simply related to the white haired big wigs.

In a democracy it is fundamentally pressing for people to be heedful and make informed choices rather than falling for delusive practices which tend to manipulate the information on which the people exercise their choices. People’s lethargy in dedicating themselves to making right choices and then the ensuing vulnerability to fall to vicious propagandas (like this one) can create havoc in regard to channeling unlimited goodies towards the privileged who have the privilege of creating these propagandas and manipulating minds and wealth into their favor. Such heedlessness has chiefly been the reason for widespread failure of democracies.

It is the pressing need of time for Indian people to realize the truth and be focused toward more pressing issues (which are nearly uncountable) than the youthfulness of politicians.

One of successive articles, God willing, would focus on the need for being politically heedful in our times and how indispensable a necessity it is, if we are to secure our planet and secure the people and their rights in it.

The Rational Economist with irrational Models…

May 12, 2009

I remember once I asked one of my teachers, madam Apala Panda, regarding the use of pervasive models we study in economics most of which are based on imaginary world axioms and extended (beyond reasoning) assumptions of rationality of economic agents. It was then the beginning of my third year in economics honors and today whilst I pen this, it is almost the near end of the same year, with one examination paper remaining and due on 20th of May.

Economic models never fetched much of my interest mostly for their distance from reality and incompleteness they represented. When I asked my teacher the use of studying such incomplete models, she replied that these models were here for our understanding of basics of how economic mechanisms take place in society. However it had always been my contention since then and it is: most of macro economic mechanisms are not so complex in their complete sense that students would be required to learn them in years through the means of imaginary world scenarios.

Moreover these models over years have not been used solely for teaching economic fiction to students but it is conspicuous that they have been applied in the real world, they have been accepted as established economic theories and have brought overwhelming failure in regard to their application. For e.g. the case of rational expectations hypothesis; this exaggerated hypothesis which adds the notion of rationality to each economic agent and goes on predicting outcomes ensuing from this rationality has not only been present inside the classrooms but was one of the single most important reasons behind emergence of the present economic Crisis. The policy makers simply believed that individuals (economic agents of course comprise of individuals) are far too rational to let major price bubbles appear, let alone go out of control. One only needs an idiot to take such an assumption, or is there something severely different about the rationality of policy makers and economists?

Models of such vagueness can be found profoundly in the economic arena, both in literature and in practice. It is no doubt that these models can be completed and being directed in their completeness they can be put to successfully achieve well desired goals and objectives, but that is not the case often. Neo Classical and Classical literature in spite of its bizarre assumptions has been in the mainframe of economic practice since decades and has successfully made cases for elusion of government intervention in various ways.

In this theatre of rationally driven economics there is no reason behind carrying out errant and flawed concepts when there errors and flaws have been openly documented over years both in theory and in practice.

Rationality is not best explained by outcomes, but it is explained by intent. It is clear over years that unbridled classical capitalism has not been able to bring stable prosperity to the world, it has driven the world through bubbles, wars, crisis… But what if bringing stability and prosperity has not been one of its intent. As Prof. John Cozy argues in one of his articles,

But what if its intent has never been the promotion of the people’s prosperity? What, if any, result has it attained consistently? Well, it has consistently protected the wealth of the privileged; it has preserved the status quo. The wealthy privileged increase their wealth in good times and in bad. The system works for the privileged just as the market works for stock brokers who make money when prices are rising and when they are falling. If this is capitalism’s intent, and the evidence for it is overwhelming, understanding the Obama administration’s, and the developed world’s, response to the current economic downturn is easy. As the meager apparent wealth that the common people acquired during the better years now disappears, as they lose their jobs and homes, the wealthy institutions and the people who manage them and created the downturn are rewarded and prevented from failing by obligating the common people to someday repaying a growing colossal national debt incurred for the sake of those privileged. None of this makes sense unless capitalism’s intention is to preserve the status quo at the people’s expense.

This goes on explaining the rationality behind myriad irrational and unnecessary axioms of economics. Books are written, laurels are made, awards are given often to some of the most errant texts written. All this is facilitated primarily by a wealthy few in order to sustain their hegemony in the world.

Today we hear a lot about maintaining the strength of financial markets and maintaining the availability of cheap credit in order to reach higher levels of production and consumption. But it is so that businesses should be financed by investment and consumption by earning? What is the need to finance these by debt? One of the columnists at Global Research pens as under:

The answer is really very simple. The wealthy increase their wealth by lending and they do it without even having to use their own money by means of the Ponzi scheme known as fractional reserve banking. And when debtors cannot meet their obligations, their assets are acquired by the wealthy at fire sale prices who then become even wealthier. This is what capitalism does; it does it consistently and spectacularly. It really can have no other purpose. Credit is good only for creditors; debtors always lose.

I would just like to end with few important words from John Cozy:

What is there about this that economists cannot understand? Are they absolutely irrational or complicit? Each must answer for him/herself. But the economic system they advocate is nothing but an irrational tower of Babel that is based on principles derived from simplistic, imaginary situations and assumptions about rationality that are contradicted by hundreds of years of evidence, and is devoted to the worship of Mammon which benefits only the rich. Capitalism has been very successful; it has impeded the improvement of the human condition for two hundred years, and unless it is scrapped, it will continue to do so. No mere change in government can stop it.

It is complicated for a student today to understand these concepts. Specially in our age when even education is commercialized and what aspiring economics students aim for is degrees rather than pure knowledge amidst the realms their rational lives dominated by the motive of self centeredness. What the ongoing academia churns out is more and more economists walking the same deluded lines, sustaining the same unjust and corrupt system, gullible to believing that the self centered economic agents would contribute to the development of this world.

There are countless cases to justify the above points though i don’t think more are needed. What is needed is for people to realize the need for change and escape this virulent brainwashing and be heedful individuals.

Is percapita income suitaible indicator to measure Economic Development?

August 4, 2008

This question has many substantial and subtle aspects. These arise from the delusion among various economists, leading them to use GDP per capita as ultimate means and end towards economic development; to the scope of using GDP per capita as a means of signaling development and the signals it sends among policy makers in regard to the importance of GDP per capita as a statistic variable.

Before drawing conclusions from the table in favor of a placid yes or a placid no, one must comprehend the theory as to why GDP per capita can be effective or ineffective to signal development and to the extent to which it can serve a proxy, as well as the purpose, using GDP per capita serves. And it should also be compared with Human Development Index in regard to how much composite an index both serve in order to reflect upon economic development.

Increase in wealth and Economic Development

As Aristotle said, “Wealth is merely useful, and for the sake of something else”, it is precisely that ‘something else’, in which the signals and understanding of development issues should be sought.

As one of my friends says, “The definition of development is an ever evolving abstract” (noting the importance of innumerable parameters, and pervasive spheres of economic and social life and the dynamic kinetics involved with the ever evolving issue of economic development), in this light, the most abstract definition is ironically the most precise definition as well.

A precise way to see economic development is seeing in terms of the expansion of real freedoms that the citizens enjoy pursuing the objectives they have reason to value, and in this sense the expansion of human capability can be, broadly, seen as the central feature of the process of development. Human life can be seen as a sequence of things a person does, or states of being, he/she achieves, and those constitute a collection of functionings – doings and beings a person achieves. ‘Capability refers to the alternative combinations of functionings from which a person can choose. Thus the notion of capability is essentially one of freedom – the range of options a person has in deciding what kind of life to lead.[1]

Some of the most important freedoms people have high reason to value are education, health, right to justice, information, equality etc. It is very much possible and evident today that increase in income may not serve that purpose. For e.g. South Africa had a per capita GDP of US $ 11,192 PPP in 2004,managing an HDI rank of 121 from among 177 countries, while at the same time Sri Lanka which had a per capita GDP of US $ 4,390 PPP suffices with an HDI rank of 93.[2] Such variances are not scarcely found in the HDI report. However it is best to keep it for the later part of the essay, as to how much composite an indicator of economic development HDI, in itself is. HDI is one of the most widely used indicators inclusive of variables of primary importance in relation to comprehension of developmental issues and thus in that regard it merits our attention.

As was stated above, wealth in itself is of no use, what is of primary importance is the increase in economic and social opportunities it leads to and it is in this light that economic development should be seen.  The problem of poverty is the essentially a problem of capability deprivation. Thus in the process of development ways and actions of institutions and organizations must lead to augmentation of capabilities of masses (which is amply related to the broadening of sphere of economic and social opportunities prevailing) .  To list these capabilities and have a brief synopsis of each one would take innumerable pages, so in our quest for a composite index of chief indicators of development we land at HDI.[3]

Freedoms and Means and Freedoms as End:

It is very important to see freedoms and means and freedoms as ends to development and to view economic development as increase in human freedoms. The connection between freedom as means and freedom as end would have indeed been trivial had there been only one kind of freedom, but innumerable freedoms of people are  largely interlinked and at the root of this interlinking lies the ability to use one kind of freedom to boost another kind of freedoms. The integral nature of human lives leads to inescapable interrelation between different domains of living. For e.g. lack of freedom in the form of illiteracy can dampen severely a person’s economic opportunities. Apparently increase in wealth may or may not lead to desired objectives of development. At this point it would be useful to point, having sufficient understanding of the scope of development; to some examples (this would also lead to more clarity as to how expansion of freedom as a means of development almost invariably leads to a better and more suitable end):

  • When one looks at countries like Albania, Armenia and Philippines, having HDI ranks of 73, 80 and 84 respectively in contrast to their counterparts at respective positions, these countries with per capita income of less than US $ 5000 outlive them who have per capita incomes of the magnitude to US $ 13000 PPP as in case of Saudi Arabia (Albania has higher rank than Saudi Arabia). This tells us amply that using per capita income as a proxy can send quite elusive signals in terms of development issues.
  • Another most important point one should look at are the lack of substantial freedoms in many high income countries. For e.g. the lack of education in Saudi Arabia, Trinidad, Tobago, Oman, Turkey, Iran etc. (based on GER) severely hinders political voice of the deprived, a government in such situation may be immune to public pressure in many devastating cases in such a situation.
  • Another most important point is the lack of substantial political freedoms and basic human liberties such as the freedom of speech, right to equality to simply absence of a democracy which is profound in various high income countries like Saudi Arabia, Iran etc. Unfortunately these imperative freedoms do not get reflected either in per capita GDP nor in HDI.
  • There have been experiences in our near history, with favorable economic growth and unfavorable consequences. The example of USSR, which did favorably well in department of having a high GDP per capita, but witnessed severe unfreedoms.[4]

It should be now understood that seeing per capita income as a primary signal for development can send quite elusive signals. However focus on augmenting freedoms and capabilities and study of development issues in that light facilitates not only right signaling but also facilitates better policy making and better results. This is most importantly why countries like Sri Lanka etc, with per capita income lower than their corresponding counterparts in HDI index outlive them. As Debraj Ray points out:

Countries that pursue policies to broad based infrastructure and resources, such as health services and education, in all likelihood would find that economic growth is distributed relatively equally among various groups of society. Countries that neglect these features will show a greater tendency towards inequality

The above point is of critical importance because usage of a particular proxy for economic development also often signals developmental goals and objectives in that discrete direction Such an allocation of resources is often visible in India’s economic policies, which often show discrete obsession towards market liberalization and privatization.

In Terms of Concise Statistical Signals

Why a NO?

Human Development Index is a composite index of life expectancy, educational attainment and per capita income in an economy. The question is whether HDI in itself is a complete indicator of economic development? The answer is NO. The creation of composites from various fundamentally different indicators as life expectancy and literacy is like adding apples and oranges. It is arguable that these indicators should be read independently and interlinked according to context. This would obviously help in better understanding of how these relative capabilities are inter connected and the further impact they have on augmenting other freedoms people have, instead of creating a statistical index on first hand which assigns fixed weights to various variables in context. And inarguably HDI index can not act as a holistic indicator of substantial freedoms people have. For e.g. if people lack basic democratic rights, or right to justice or information, which are very important in themselves, it wont get reflected in a high HDI.

Why a YES? And in which CONTEXT?

However we also have to accept that there is consensus among development economists that per capita income is not the end to economic development. It is the quest for a precise variable to illustrate the multifaceted process of economic development. In words of Debraj Ray, “It is really about the view of the world – of the possibility of finding a smaller set of variables that correlates well with the multifaceted process of development. Note well that, saying too much is saying too little”[5]

In his study, Debraj Ray, plots scatter diagram of independent human development variables, taking per capita income on the x – axis and the development variables (life expectancy, adult literacy rate, Infant Mortality Rate) on the y – axis in 3 independent scatter plots. The result was found that the three variables did show high correlation and even higher rank correlation (rank correlation was done by Dasgupta (1993) Countries were ranked according to their GDP level and corresponding ranks in the three other variables).

The study positively asserts that there is high, albeit not perfect correlation between per capita GDP and economic development and per capita GDP can be used as a precise variable to show developmental discrepancies among various nations, but this use must always be done with caution and comprehension of context. Policy makers should always be heedful of proper objectives, which we have stated above as expansion of human freedoms and it is in that direction that decisions and assessments of policies should be made.


[1] Jean Dreze and Amartya Sen (2001)

[2] Human Development Report 2006.

[3] Always in development studies there has been a quest for a concise way of representing multitude of information, with a statistic variable, or a concise composite index; it is in this light that the use of Per capita income as a proxy should be seen and discussed, which we shall do at the end of the essay.

[4] Epoch Times Commentaries on the Communist Party – Part 8; December 26, 2004, The Epoch Times

[5] Chapter 2, Development Economics, Debraj Ray, OUP

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