-Sebin Nidhri, Programme Officer
The year is 1949. Tensions had mounted between the Soviet Union and the United States of America. The US economy was shifting from a war economy to a peace time economy, battling high inflation. The war time had seen increased government intervention in prices, wages and production and the increased government role was sustained in the years following the war. This was strongly criticized by the opposition. It was a tough time for the government implementing economic policies. A frustrated US president Harry Truman remarked, “Give me one handed economist! All my economists say, ‘On the one hand.., on the other’.”
Cut to 2013.JagdishBhagwati and Arvind Panagariya release their book ‘Why Growth Matters: How Economic Growth in Indiareduced poverty and the lessons for Other Developing Countries’. As the title suggests, it praises India’s liberalization policies of 1991 and how it reduced poverty. The book advocates economic growth or increased output to be the thrust of governance. This came just before the release of Amartya Sen’s and Jean Dreze’s book ‘An Uncertain Glory: India and its contradictions’ where the authors advocate state-led redistributive efforts with a thrust on human development to be the focus of India’s governance. These were followed by a bitter public battle between two of India’s most famous economists, one a Gujarati born in Mumbai and an ardent supporter of the Gujarat model of development and the other a Bengali and the champion of the Kerala model of Development and both non-resident Indians offering guidance on how India should develop. For a change, academic discourse and debates grabbed headlines, thanks in part to the then upcoming elections being seen as a contest between two divergent economic theories too. It also drew attention to a larger conundrum.
The elusive dream that is Development
Development is a holy grail everyone wants a part of, but nobody knows precisely how to get there. You put two economists in a room to devise a solution to a problem and you are sure to end up with at least three solutions.There is no disagreement that a nation needs to develop and development will bring about the greater good of the people. But seldom is there agreement on how to develop.
Nevertheless, it is interesting to note that in a study called the ‘Public Affairs Index (PAI)’ released by Public Affairs Centre, a study that provided a comparative score to all states based on indicators of good governance, Kerala ranked first.The study takes 10 themes and 68 indicators therein. Mathew, Mukunthan and Divekar (2016), in the study argue that ‘different dimensions of good governance will impact economic growth in different ways.’ Also, the variablesused are equally good indicators of development in a state. Support to human development is one of the themes which looks at indicators of education and health. Kerala ranks first in this particular theme. The study is a good medium to analyse the effectiveness of the ‘Kerala model of development’. To understand whether states that do well in human development fare better in development.
Insights from PAI
The scores given to states in the theme ‘Support to Human Development (SHD)’ can act as a good proxy to identify states that focus on human development. Similarly, the scores of the themes ‘Economic Freedom’ and ‘Essential Infrastructure’ can be used to identify states that focus on economic growth and infrastructure development first. The correlation between PAI scores and SHD scores is very high at 0.83, whereas the correlation between score for economic freedom and PAI is 0.48. Scores of essential infrastructure had a better relation with PAI with a correlation of 0.66, but still not as good as Human Development scores. This proved that states that fared better in the theme ‘Suppor to Human Development’ did better in the overall PAI rankings than states which did well in economic freedom or essential infrastructure.
A further comparison with poverty rates and per capita income(PCI) shows that poverty is lower and per capita income higher in the states that fared better in human development, compared to states that did better in economic freedom. The correlation between SHD scores and poverty rates is -0.84 and with PCI is 0.77. This shows that there is strong negative relation between poverty rates and SHD scores and a strong positive correlation with PCI, implying that states with higher human development have low poverty levels and high income. States that did well in economic freedom or essential infrastructure did not fare as well in poverty or per capita income levels. The correlation of economic freedom with poverty rates is -0.29 and with PCI is 0.53. States that did well in economic freedom had high poverty levels and not much relation to PCI levels.
Essential infrastructure has a better correlation with poverty rate at -0.83 and PCI at 0.75, but not as good as the correlation between SHD scores and poverty rates and PCI levels.
The findings based on PAI seem to validate what Amartya Sen said in an interview that there is no nation that has developed with an unhealthy and uneducated workforce. The above analysis is definitely not conclusive evidence to say that focusing on human development will reduce poverty and increase income. But, the strong correlation between them cannot be dismissed. Like many theories in economics that need to be contextualised before application, the focus of governance should be decided by the policy makers considering a state’s individual requirements. But there can never be a case to ignore human development.