Growth and Well-Being

Sta. Ana coordinates Action for Economic Reforms. This piece was published in the March 7, 2011 edition of the BusinessWorld, pages S1/4 to S1/5.

Development for poor and middle-income countries has been defined mainly and sometimes exclusively in terms of rapid high growth.

Economic growth is undeniably an essential component of development.  Growth that generates employment leads to poverty reduction and higher living standards.

Yet it is a mistake to hinge development simply on economic growth. Ultimately, peoples and societies desire all-round development—poverty eradication and higher quality of life; equity and solidarity; sustainable environment and food security; a just, democratic and peaceful society.

Growth then is but one of the means to achieve the values associated with all-round development. That is to say, policy and institutional intervention should not be limited to growth.  We must do away with a fixation on the type of growth that dismisses or degrades other development concerns and goals.

Take note of the limits of a purely growth strategy:

  1. Growth does not directly address equity and distribution.  Growth by itself can even exacerbate inequality.
  2. The tradeoff between rapid growth and sustainability in its different senses (i.e., long-term economic performance, inter-generational equity, impact on environment) is very real.
  3. Growth does not automatically translate into jobs and higher productivity (e.g., the phenomenon of jobless growth).

The implications are the following:

  1. Growth matters, but what is more important than growth per se is how economic growth is pursued.  Said another way, the strategy, the design, and the elements of growth must serve all-round development.
  2. A growth strategy therefore becomes subordinate to the broader development goals. Said differently, growth will be constrained by development goals. Development outcomes—such as education, health, quality of environment, justice and rights, etc.—deserve greater attention.   Output (Gross Domestic Product or GDP) and income remain relevant, but they should not trump sustainable human development.
  3. Equality or equity likewise matters. An old belief is that inequality is a natural outcome of growth. The argument goes that a high concentration of wealth leads to faster accumulation of resources that can be deployed for infrastructure and capital-intensive economic activities.  But more recent studies have refuted the old thinking, showing a negative relationship between income inequality and growth outcome.  More to the point, recent literature shows that a more equitable society contributes to the good type of growth.
  4. Sustainability is critical.  It is high time we put in place innovative ways of creating jobs and raising incomes of the poor without incurring tremendous costs on the environment and without abetting climate change.

In this regard, we welcome the multitude of measures or indices of development. Prominent among them is the United Nations’ Human Development Index (HDI). It is a composite index, consisting of three basic dimensions, namely, 1) a long and healthy life, 2) access to knowledge, and 3) a decent living standard.  Through the years, the HDI outcomes confirm that countries obtain development gains for the long term without hinging them on economic growth.

In the Philippines, the HDI has been localized.  This means that the HDI performance at the local level (e.g., at the provincial level) can be monitored. In doing so, specific features or problems at the local level, which are not visible nationally, surface and provide policymakers critical information. For example, one can discover that even though the Philippines is a middle-income country, some of its provinces have a level of human development that is the same as that of the poorest African countries.

Civil society groups have likewise developed their own indicators.  Social Watch International has adopted a quality of life index (QLI) introduced by Action for Economic Reforms in the Philippines.

QLI determines which variables are most significant in explaining poverty reduction or improved living standards. It is a capability-based method that uses outcome variables (unlike the HDI, which is a mix of means and outcome variables).

The empirical results validate the proposition that income (a mean variable) by itself does not predict improvement in the quality of life. For example, some provinces with low income do have a high quality of life. So even if families suffer from low income, they can still escape poverty if they obtain access to essential services like health, education, livelihood, electricity and roads. These are goods that government can provide; goods that are not dependent on the market.

In terms of methodology, QLI has the advantage of being cost-effective. Information can be obtained at the local level without depending on expensive household surveys.

For the QLI in the Philippines, the most robust variables are: 1) under-five nutrition, b) births attended by trained health personnel, and c) cohort survival rate in elementary school.

To be sure, the list of development indices is a long one. At this point, not one development indicator can claim to be the most comprehensive.  The HDI has expanded its indices to capture outcomes relating to equality and gender, but it does not have a measure for, say, climate change. For this, the Environmental Performance Index gains relevance.  It benchmarks the sustainability performance of countries.

Other development indicators might look strange or unique, like Bhutan’s Gross National Happiness and the Happy Planet Index, introduced by the New Economics Foundation.

But the point is that different indicators surface the many dimensions of development. Let a hundred flowers bloom then.

To reiterate, no development indicator—the HDI, the QLI or Bhutan’s Gross National Happiness—can fully capture the many complex facets of development. What must be appreciated is that the different indices, notwithstanding their limitations, contribute to shaping all-round development. Economic growth and income alone are not sufficient measures of the well-being of society and its citizens.

It is most appropriate to conclude with Paul Krugman’s insight into the popular Egyptian revolution that toppled Mubarak:  “Egypt had decent growth—but the gains weren’t trickling down, and youth unemployment was and is a huge problem. The moral is that GDP isn’t the whole story.”

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