Economists, like seers and philosophers, were part of humanity’s quest for a better tomorrow. We’ve seen a number of concepts emerge from economic literature in this area, ranging from a simple and layman’s terms like ‘progress’ to technical terms like ‘growth,’ ‘development,’ and ‘human development.’
The world created enormous wealth in the postwar decades as it became more reliant on the concept of the “economic man.” Social scientists began finer studies in the area of mankind’s actions in the 1980s, eventually challenging the concept of the ‘economic man’ (‘rational man’). Thus begins humanity’s desire to reflect on its lives on the planet Earth. Meanwhile, humanity was confronted with a one-of-a-kind puzzle: climate change.
The World Happiness Report is now available, thanks to the United Nations. Experts frequently use the term “progress” to describe advancement or improvement in anything. The term has long been used in economics to describe positive movements in people’s lives and in an economy. It included both quantitative and qualitative elements. After a while, some economists began to interchangeably use all three terms—progress, growth, and development—to mean nearly the same thing.
However, it wasn’t until the 1960s, 1970s, and 1980s that clear definitions of these terms emerged. The term ‘progress’ has come to mean both growth and development and has no specific meaning in economics. However, growth and development were given distinct meanings.
In economics, the term ‘growth’ comes from the life sciences and refers to economic growth. Economic growth is defined as an increase in economic variables over time. The term can be applied to a single person, an entire economy, or the entire world. The most important feature of growth is that it is quantifiable, meaning that it can be measured in absolute terms.
Economic Variables
Depending on the economic variable being studied, any unit of measurement can be used. Here are some examples:
- An economy might have been able to see growth in food production during a decade which could be measured in tonnes.
- The growth of road networks in an economy might be measured for a decade or any period in miles or kilometers.
- Similarly, the value of the total production of an economy might be measured in currency terms which means the economy is growing.
- Per capita income for an economy might be measured in monetary terms over a period.
Economic growth can be defined as a quantitative advancement. The difference between the two periods is converted into percentage form to calculate the growth rate of an economic variable. For example, if a dairy farm owner produces 100 liters of milk one month and 105 liters the next, his dairy has grown by 5% in two months. Similarly, we can calculate an economy’s growth rate over any number of periods. The growth rate is an annual concept that can be used in other contexts with a clear reference to the time period in question.
Though growth is a value-neutral term, meaning it can be positive or negative for an economy over a given time period, we usually use it in the positive sense. When economists say an economy is growing, they are referring to positive growth; otherwise, they are referring to negative growth. Economic growth is a widely used term in economics that is useful not only for national-level economic analyses and policymaking but also for comparative economics research. The growth rate data available for the world’s economies is used by international financial and commercial institutions for policymaking and future financial planning.
Economic Development
Economists remained focused on aspects of expanding the quantity of production and income of a country’s economy for a comparatively longer period of time after the birth of economics. The main topic of discussion among economists was how to increase a country’s or nation-production states and income. It was thought that if an economy could increase its production, its income would increase as well, resulting in an automatic improvement (quality increase) in the lives of its citizens.
There was no conscious debate about the issue of quality expansion in people’s lives. Economic growth was viewed as a cause-and-effect relationship for improving people’s lives. This was the reason why, until the 1950s, economists couldn’t tell the difference between growth and development, even though they were aware of the distinction.
Economists encountered many countries in the 1960s and later decades where growth was comparatively higher but the quality of life was comparatively lower. It was past time to define economic development differently than the rest of the world did. For economists, development refers to the economy’s overall quality of life, which can be measured by a variety of factors including:
- The level of nutrition
- The expansion and reach of healthcare facilities—hospitals, medicines, safe drinking water, vaccination, sanitation, etc.
- The level of education
- Other variables on which the quality of life depends
One thing to keep in mind is that if the masses are to be guaranteed a basic minimum level of quality-enhancing inputs (above-given variables such as food, health, education, and so on) in their lives, they must also be guaranteed a basic minimum level of income. Produced income is generated through productive activities. It means that we must first ensure growth before we can ensure development. Higher economic growth is required for greater economic development. However, this does not imply that higher economic growth equals higher economic development—a misunderstanding that early economists failed to clarify.
To better understand the confusion, consider two families with similar income levels but spending different amounts on developmental aspects. One may pay little attention to health and education while focusing on saving, while the other may not be saving but focusing on health and education issues. In this case, the latter will almost certainly develop faster than the former.
Diverse cases of growth and development
Thus, we may have some diverse cases of growth and development:
- Higher growth and higher development
- Higher growth but lower development
- Lower growth but higher development
Though comparative in nature, the above-mentioned combinations demonstrate that, just as higher income and growth require conscious efforts, so does economic development and higher economic development.
Development has not been possible anywhere in the world without a conscious public policy. Similarly, we can say that development is impossible without growth. The Gulf countries were the first to experience growth without development, according to economists.
Even though these economies had significantly higher levels of income and growth, their levels of development were not comparable. This is where the field of economics known as ‘development economics’ was born. Following the arrival of the World Bank and the International Monetary Fund, deliberate economic policies were framed and prescribed for the growth and development of developing economies.
Economic development can be defined as quantitative and qualitative progress in an economy. It means that when we talk about growth, we’re talking about quantitative progress, and when we talk about development, we’re talking about both quantitative and qualitative progress. If economic growth is properly used for development, it will accelerate growth and eventually bring a larger and larger population into the development arena.
Similarly, high growth combined with poor development and care leads to a decline in growth. As a result, growth and development have a circular relationship. When the Great Depression hit, this circular relationship fell apart. Development became a major concern for governments around the world, policymakers, and economists once the concept of the “welfare state” was established. The concept of the welfare state and the immediacy of development gave rise to a new branch of economics called welfare economics.
Measuring development
Although economists were able to articulate the differences between growth and development (Mahbub ul Haq, a prominent Pakistani economist, had done so by the early 1970s), the right method of measuring development took longer to develop. It was common knowledge that the goal of progress is more than just an increase in income.
International organizations such as the United Nations, the International Monetary Fund, and the World Bank were concerned about the development of the world’s underdeveloped regions. Any attempt in this direction, however, could only be made once there was a tool for determining and measuring the level of development in an economy, as well as the determinants that could be considered development traits. The idea of creating a formula/method to measure development was met with two types of challenges:
- At one level it was difficult to define what constitutes development. Factors which could show development might be many, such as levels of income/consumption, quality of consumption, healthcare, nutrition, safe drinking water, literacy and education, social security, peaceful community life, availability of social prestige, entertainment, pollution-free environment, etc. It has been a really difficult task to achieve consensus among the experts on these determinants of development.
- At the second level, it looked highly difficult to quantify a concept as development constitutes quantitative as well as qualitative aspects. It is easy to compare qualitative aspects such as beauty, taste, etc., but to measure them we don’t have any measuring scale.