GD

Defining Development Topic 2

Today's Goals

  • Understand the challenges inherent in defining poverty.
  • Discuss how economists have traditionally and currently define development.
  • Examine the purpose behind adopting multidimensional development goals.
  • Explore three specific examples of multidimensional goals:
    • The Happiness Index.
    • The Millennium Development Goals (MDGs) and Sustainable Development Goals (SDGs).
    • Sen’s Capability Approach.

Defining Development

  • Directly Tied to Poverty: The definition of development is intrinsically linked to how poverty is defined and understood.
  • Merriam-Webster's Definition: Defines "development" as "the act or process of growing or causing something to grow or become larger or more advanced."
    • Vague Terminology: Terms like "development" and "economic improvement" are inherently vague.
  • Concrete vs. Broad: People often more concretely define development as a country becoming wealthier or less poor.
    • However, previous discussions indicate that this depends on more than just individuals' incomes, pointing towards a broader understanding.

How Economists View Development

  • Broadening the Definition: Economists have broadened the definition beyond mere income.
    • Todaro and Smith (2015) Definition: "The process of improving the quality of all human lives and capabilities by raising people’s levels of living, self-esteem and freedom."
  • Evolution Over Time: Economists' views on development have significantly changed.
  • Two Main Perspectives:
    • Traditional View.
    • Modern View.

Traditional View

  • Focus: Almost exclusively centered on per capita income.
    • Emphasis on changes in total value-added, typically measured by Gross National Product (GNP) or Gross Domestic Product (GDP).
  • Macro-Level Variables: Primarily focused on macro-level variables and conditions, such as:
    • Capital Stock.
    • Monetary policy.
    • Fiscal policy.
    • Trade policies.
  • Motivation: Largely motivated by common characteristics observed in developing countries:
    • Anti-competitive economic policies.
    • Poor monetary policies.
    • Very low capital stocks.
  • Core Belief: The idea was that establishing the correct macro conditions would automatically lead to benefits for all.

Modern View

  • Critique of Previous Focus: The exclusive focus on per capita income was deemed too narrow.
    • While per capita income remains extremely important, other measures are also necessary.
  • Shift to Individual Level: Focus shifted towards individual-level variables, including:
    • Unemployment rates.
    • Income inequality.
    • Number of poor households.
    • Human capital (e.g., education, health).
  • Response to Experiences of the 1970s and 1980s:
    • Many developing countries, despite "fixing" economic policies and increasing per capita income, did not see corresponding reductions in poverty at the individual or household level.
    • This led to substantial economic inequality and a lack of improvement in many critical dimensions of human well-being.
  • "Multi-dimensional" Approach: This new, broader focus is often referred to as a "multi-dimensional" approach to development.

Towards Multi-Dimensionality

  • Beyond Per Capita Income: There is a recognized need to look beyond just per capita income.
    • Challenge: Determining which measures to include and how to combine them poses a logistical challenge.
  • Logistical Challenges of Multi-Dimensional Measures:
    • Uni-dimensional Measures: Provide a direct policy objective (e.g., maximize GDP).
    • Multi-dimensional Measures: Require trading off multiple objectives, as there is no single objective function to maximize.
  • Strategies for Moving Away from GDP:
    • Broader Uni-dimensional Measures: Many strategies aim to replace GDP with a single, broader uni-dimensional measure.
    • Focus on Several Measures Individually: Other strategies advocate for directly focusing on multiple measures without trying to combine them into one index.

Multi-Dimensional Strategies in Practice

  1. Reforming Gross Output Definition: Modifying the definition of gross output to better capture all economic costs and benefits.
    • More accurately valuing current "intangibles."
    • Accounting for the stock of environmental goods (e.g., natural capital).
    • Valuing home production (e.g., childcare, household chores).
  2. Substituting More Inclusive Uni-dimensional Measures:
    • Example: The Happiness Index, which aims to measure overall subjective well-being.
  3. Composite Indexes that Weight Multiple Measures:
    • Example: The Human Development Index (HDI), which combines life expectancy, education, and GNI per capita.
  4. Directly Focusing on Multiple Measures Individually for a Country:
    • Example: The Millennium Development Goals (MDGs) and Sustainable Development Goals (SDGs).

Examples of Multi-Dimensional Goals

Happiness Index

  • Champion: Advocated by Richard Layard.
  • Concept: A uni-dimensional index intended to measure overall subjective well-being.
    • Presumably includes various other factors like income, health, education, etc.
    • The importance of these factors is self-determined by the respondent.
  • Typical Implementation (Layard, Science, 2010): Respondents are asked: "Taking all things together, how happy are you?" on a scale from 0 (Extremely Unhappy) to 10 (Extremely Happy).
  • Country-Level Happiness: Key Observations (Referencing Todaro and Smith, 2015 chart):
    • Break Point: A significant break often occurs around ext{U.S. } ext{ extdollar}15,000 income per head per year.
      • Below this threshold, extreme poverty is more prevalent.
    • Variation: Below ext{U.S. } ext{ extdollar}15,000, there is much greater variation in reported happiness levels.
      • Being rich (above ext{U.S. } ext{ extdollar}15,000) seems to make individuals less likely to be unhappy, but not necessarily much happier.
    • Slope: The slope of the happiness-income relationship is positive and steeper below ext{U.S. } ext{ extdollar}15,000 and becomes much less positive above it.
      • Wealth is more likely to determine happiness for the poor but has diminishing returns for the rich. "Money only does so much!"
  • Summary of Research Findings:
    • The Happiness Index measures generally work much better than often anticipated.
    • Measures typically follow expected patterns, correlating with macro statistics (e.g., GDP), and direct measures of health.
    • At the individual level, changes in happiness are explained by variables widely expected to be important:
      1. Family Relationships.
      2. Financial Situation.
      3. Work.
      4. Community and Friends.
      5. Health.
      6. Personal Freedom.
      7. Personal Values.
  • Policy Implications: Potential to replace GDP as a primary measure? Bhutan's Gross National Happiness (GNH) is an example of a nation adopting such an approach.

Millennium Development Goals (MDGs) and Sustainable Development Goals (SDGs)

  • Millennium Development Goals (MDGs):
    • Adoption: Adopted by 189 UN member states in the year 2000.
    • Influence: UN frameworks, including the MDGs, often guide the actions of:
      • Individual countries.
      • Multi-lateral and uni-lateral donors.
      • International Non-Governmental Organizations (NGOs).
    • Purpose: A group of specific goals for global development, representing a dramatic departure from previous frameworks.
    • Key Characteristics:
      • Set in eight prioritized areas.
      • Each goal had measurable criteria.
      • All goals had a specific target deadline (initially 2015).
    • The Eight MDGs:
      1. Eradicate Extreme Poverty and Hunger:
        • Reduce by half the proportion of people living on less than ext{ extdollar}1 a day.
        • Reduce by half the proportion of people who suffer from hunger.
      2. Achieve Universal Primary Education.
      3. Promote Gender Equality and Empower Women:
        • Eliminate gender disparity in primary and secondary education, preferably by 2005, and at all levels by 2015.
      4. Reduce Child Mortality:
        • Reduce by two-thirds the mortality rate among children under 5.
      5. Improve Maternal Health:
        • Reduce by three-quarters the maternal mortality ratio.
      6. Combat HIV/AIDS, Malaria, and Other Diseases:
        • Halt and begin to reverse the spread of HIV/AIDS.
        • Halt and begin to reverse the incidence of malaria and other major diseases.
      7. Ensure Environmental Sustainability.
      8. Develop a Global Partnership for Development.
  • Controversies of the MDGs:
    • Not ambitious enough.
    • Overly ambitious and unlikely to be met.
    • Failed to look beyond the 2015 deadline.
    • Lacked prioritization among goals.
  • Sustainable Development Goals (SDGs):
    • Adoption: New goals adopted in 2016, building on the MDGs.
    • Targets: Sets out 17 goals to be met by 2030.
    • Specificity: Targets are still specified numerically.
    • Complexity: Significantly more comprehensive and complicated than the original MDG framework.
    • Goal 1: No Poverty (Example of an SDG breakdown):
      1. Eradicate extreme poverty for all people everywhere, currently measured as people living on less than ext{ extdollar}1.25 a day.
      2. Reduce at least by half the proportion of men, women, and children of all ages living in poverty in all its dimensions according to national definitions.
      3. Implement nationally appropriate social protection systems and measures for all, including floors, and by 2030 achieve substantial coverage of the poor and the vulnerable.
      4. Ensure that all men and women, in particular the poor and the vulnerable, have equal rights to economic resources, as well as access to basic services, ownership and control over land and other forms of property, inheritance, natural resources, appropriate new technology, and financial services, including microfinance.
      5. Build the resilience of the poor and those in vulnerable situations and reduce their exposure and vulnerability to climate-related extreme events and other economic, social, and environmental shocks and disasters.
        A. Ensure significant mobilization of resources from a variety of sources, including through enhanced development cooperation, in order to provide adequate and predictable means for developing countries, in particular least developed countries, to implement programmes and policies to end poverty in all its dimensions.
        B. Create sound policy frameworks at the national, regional, and international levels, based on pro-poor and gender-sensitive development strategies, to support accelerated investment in poverty eradication actions.

Sen’s Capability Approach

  • Developer: Developed by Nobel laureate Amartya Sen.
  • Focus: Moves beyond merely tabulating access to or possession of resources.
    • Central Concept: Focused on the concept of "Capabilities," which is central to Sen's notion of freedom and well-being.
  • Resources Alone Are Not Enough: The key point is that resources themselves are insufficient.
    • Example: "What is the use of having a bike if you can’t ride it?" Possessing a resource (bike) does not equate to the ability to use it (riding).
  • Development as Expanding Capabilities: The process of development should primarily focus on expanding the Capabilities of a country’s citizens.
  • Three Levels of Capabilities:
    1. Access: The ability to access resources.
      • Example: Need access to a bike.
    2. Functioning: The ability to make use of resources.
      • Possessing a bike is not the same as being able to ride it.
      • Functioning is influenced by a combination of factors:
        • Combination of resources (e.g., the bike itself, roads).
        • Social environment (e.g., safety, cultural norms).
        • Political environment (e.g., policies supporting cycling).
    3. Capability: The ability to choose over multiple functions.
      • Example: The ability to choose whether to ride the bike, walk, or take public transport, depending on one's preferences and circumstances.
  • Expanding Capabilities Encompasses:
    • Expanding Access to Resources: Wealth and income are key factors in expanding access.
    • Expanding Access to Services: Education and healthcare significantly expand an individual's functioning.
    • Expanding Access to Political Freedoms: Relates to specific functions (e.g., freedom of speech allows one to exercise political functioning) and to capabilities (the ability to choose among various political actions).
  • Basis for Sen's Concept of Freedom: This expansion of capabilities forms the fundamental basis for Sen's concept of freedom.
    • Development as a Process: Development, therefore, is viewed as a process of progressing to greater levels of freedom.
  • Other Perspectives and Criticisms:
    • Competence of Agency: What if individuals lack the capacity to choose in their own best interests?
      • Inconsistent Preferences: Making a large purchase and later regretting it.
      • Immaturity: Children might prioritize watching TV over attending school.
    • Community vs. Individual: Privileging individual freedom might threaten community cohesion.
      • Examples: Communities like Hasidic Jews or the Amish may shun those who leave, significantly raising the cost of opting out, which impinges on individual freedom but may be necessary to bind the community.
    • National Priorities: Individual freedoms can conflict with national priorities.
      • Examples: China prioritizes national unity and prosperity over certain individual freedoms. Theocracies (e.g., Afghanistan or Iran) prioritize religious identity and adherence to religious law.

What is Development? A Recap

  • Impossible to Define Precisely: Development is an inherently complex concept that resists a single, precise definition.
    • This complexity stems partly from the lack of a unified understanding of how all related factors (economic, social, political, environmental) interrelate.
  • Each Approach Emphasizes Important Elements: No single preceding approach provides a complete definition, but each highlights crucial aspects for an overall understanding:
    • Growth-focused View (Traditional): Emphasizes the importance of economic expansion and income.
    • Multi-dimensional View (Modern): Stresses the significance of considering multiple aspects of human well-being beyond just income.
    • Happiness Index: Highlights the importance of subjective well-being and personal satisfaction.
    • Sen's Capability Approach: Underscores the paramount importance of individual freedom and the ability to choose one's life path.