Chap1_Notes-in-Economic-Development.pdf

Mater Dei College Tubigon, Bohol College of Accountancy, Business and Management Compiled Notes in Economic Development 202...

Mater Dei College Tubigon, Bohol College of Accountancy, Business and Management Compiled Notes in Economic Development 2024 Edition Name of Student: ________________________________ Program and Year: _____________ Instructor: ______________________________________ Class Schedule: ________________ Source: Economic Development 11th Edition (Todaro & Smith, 2015, printed 2020).  Foreword These compiled notes in Economic Development serve as course manual intended for students and faculty use. This course manual presents the latest thinking in economic development with the clear and comprehensive approach that has been so well received in both the developed and developing worlds. The pace and scope of economic development in this course manual reveals its rapid, uneven, and sometimes unexpected evolution. This explains the unprecedented progress that has been made in many parts of the developing world but fully confronts the enormous problems and challenges that remain to be addressed in the years ahead. The course manual shows the wide diversity across the developing world in their extent of economic development and other characteristics; and the differing positions in the global economy that are held by developing countries. Thus, the compilation also underlines common features that are exhibited by a majority of developing nations, using the insights of the study of economic development. Edgardo C. Buhayang, Ph.D. Faculty, College of Accountancy, Business and Management This course manual is for the exclusive use of Mater Dei College students and faculty only and NOT FOR SALE OUTSIDE THE MDC COMMUNITY. Reproduction or photocopying of any part of this manual without the permission from the institution or from the author/contributors is strictly prohibited. Source: Economic Development 11th Edition (Todaro & Smith, 2015, printed 2020).  [Economic Development 2024] 1 CHAPTER 1 – INTRODUCING ECONOMIC DEVELOPMENT: A GLOBAL PERSPECTIVE Learning Objectives: 1) Determine some of the world’s biggest questions in the study of economic development. 2) Identify development policy by comparing living conditions commonly found across four strata. 3) Explain the differences between development economics and economic development. INTRODUCTION Two pictures of the developing world compete in the media for the public’s attention. The first is misery in places such as rural Africa or unsanitary and overcrowded urban slums in South Asia. The second is extraordinary dynamism in places such as coastal China. Both pictures convey important parts of the great development drama. Living conditions are improving significantly in most, though not all, parts of the globe—if sometimes all too slowly and unevenly. The cumulative effect is that economic development has been giving rise to unprecedented global transformations. In this book we gain perspective on how much is yet to be achieved, and will appreciate how we have already come so far in reducing human misery—indeed, that is where many lessons are to be found on how to continue the progress of recent decades. 1.1 Introduction to Some of the World’s Biggest Questions The study of economic development raises some of the world’s biggest questions. Why do living conditions differ so drastically for people across different countries and regions, with some so poor and others so rich? Why are there such disparities not only in income and wealth, but also in health, nutrition, education, freedom of choice, women’s autonomy, environmental quality, access to markets, security, and political voice? Why is output per worker many times higher in some countries than others? Why do workers in some countries have fairly secure, formal jobs with regular, predictable pay, while in other countries such jobs are extremely scarce and most work in informal settings with fluctuating and insecure earnings? Why are populations growing rapidly in some countries, while on the verge of shrinking in others? Why are public services so inefficient, insufficient, and corrupt in some countries and so effective in others? Why have some formerly poor countries made so much progress, and others so comparatively little? How have child illness and death rates fallen so much in the world, and what can be done in places where they remain far higher than average? How can we measure the impacts that government policies and nongovernmental organisation (NGO) programmes make in improving the well-being of the poor and vulnerable; and what lessons have we learned? And how did such great divergences across countries come about? How does history matter? These are among the fundamental questions of development economics. As Nobel Laureate Robert Lucas said of questions about disparities in income growth, “once one starts to think about them, it is hard to think about anything else.” Source: Economic Development 11th Edition (Todaro & Smith, 2015, printed 2020).  [Economic Development 2024] 2 1.2 How Living Levels Differ Around the World Common definition of Standard of Living states that “Standard of living is the level of income, comforts and services available to an individual, community or society” (https://en.wikipedia.org/wiki/Standard_of_living) Subsistence economy is an economy in which production is mainly for personal consumption and the standard of living yields little more than basic necessities of life—food, shelter, and clothing. A majority of the food is grown by the people who consume it; and shelter and furnishings are often made by those who use it—theirs is nearly a subsistence economy. As estimated, more than one billion people live in extreme income poverty, or suffer acute multidimensional deprivations in areas such as nutrition, health, and primary education, or both. The World Bank estimated in 2017 that 768.5 million—nearly three-quarters-of-a-billion people—subsist below the extreme poverty income line of $1.90 per day adjusted for purchasing power (so it is actually like living on this amount in the United States). Table 1: Development Policy: Comparing Living Conditions Commonly Found Across Four Strata Lowest Stratum: Extreme Poverty Cooking: Open fire, smoke exits through hole in the roof Food and nutrition: Food insecure, majority of food grown by family; often malnourished and among the 800 million people classified as hungry Clothing: Used, worn, may be inadequate; flip-flops or in many cases still bare feet Education: Majority now able to attend primary school, but may not complete it Housing: Self-constructed, natural or found materials, often mud; thatch roof, dirt floors with mats Furnishings: Any pallet or bed, table, chair, or shelf is self-constructed; no electricity Water: hand-carried in buckets from public, often unsanitary sources Sanitation: Pit latrine or open defecation Transportation: On foot Second-Lowest Stratum Cooking: Basic, but typically use kerosene or some other improved energy source Food and nutrition: May be food insecure or vulnerable to falling into food insecurity Clothing: Inexpensive, often used clothing, not well fitting, perhaps inadequate for the weather; worn shoes and rubber-soled shoes Education: Children finish primary school; on average attend a couple years longer Housing: Partly and perhaps fully self-constructed; improved floor, corrugated tin roof Furnishings: Basic tables and seating; fans if electricity; power connection may be illegal and improvised Water: From a tap, typically outdoors and perhaps a 50-metre-plus walk; needs self-treating with chlorine or boiling Sanitation: Latrine (no proper toilets, usually outdoor) Transportation: Bicycle Second-Highest Stratum Cooking: Manufactured burners with improved fuel if not electric plates Food and nutrition: Usually food secure; but many vulnerable to fall into food insecurity Clothing: Inexpensive, though new when purchased, and worn or less-expensive shoes and sneakers; expensive clothes as social expectations rise Education: Children finish primary school; some finish secondary school Housing: Modest but better constructed, if not comfortable Furnishings: Electricity, purchased tables, chairs, beds; fans or even a room AC, space heater, a television Water: Piped directly to house site; may need treating Sanitation: Toilets, but many lack what the top stratum considers full indoor plumbing Transportation: Motor bike Highest (“Rich”) Stratum Cooking: Modern appliances including modern range, microwave, dishwasher Food and nutrition: Rich and diverse diet, though obesity may bring other health risks Source: Economic Development 11th Edition (Todaro & Smith, 2015, printed 2020).  [Economic Development 2024] 3 Clothing: Well-fitting, perhaps designer clothing; multiple, relatively new, comfortable dress and sports shoes Education: Children complete high school; on average attend at least one year of post-secondary education Housing: Modern, manufactured, professionally constructed Furnishings: House filled with consumer goods and durables, wifi, home entertainment centres Water: Safe water at taps throughout the house Sanitation: Hygienic, modern bathroom plumbing Transportation: A car per each adult; or in high density each person is assured reliable transportation alternatives ---------------------------------------------------------------------------------------------------------------------------------------------------- A typical person living in such extreme income poverty subsists on about $1.40 per day. Taking account of whether a family has multiple simultaneous deprivations in health, nutrition, basic education, type of cooking fuel, sanitation, drinking water, housing materials, and a few very basic goods, in 2018 the United Nations estimated in its ‘Multidimensional Poverty Index’ that nearly 1.3 billion people live with acute deprivations. One of the poorest communities may live in a remote rural area in the eastern part of Africa, where many clusters of small houses contain groups of extended families. A majority of the food is grown by the people who consume it; and shelter and furnishings are often made by those who use it—theirs is nearly a subsistence economy. There are few passable roads, particularly in the rainy season. The younger children attend school irregularly and, all too often, then they do get to school, the teacher is absent from the classroom. Some children of primary-school age are still not even enrolled. Primary schools may be very difficult to access, and many children have never seen a high school, let alone thought of attending one. There are no hospitals, electric wires, or improved water supplies. Water is collected in reused commercial buckets from a source such as a spring or stream that is often contaminated; their walk to it in battered flip-flop sandals (if not bare feet) can be a kilometer or more, and it may take additional time waiting your turn. The children may be malnourished, suffering from conditions including kwashiorkor (protein deficiency). Food is cooked over an open fire in each mud house, the smoke escaping from a hole in the roof, and likely causing breathing problems. The food tends to be the same every meal, often lacking in protein and other vital nutrients. The floor may be rough mats over mud, on which the family sleeps. Parasites may gain entry to the house through the floor. When it rains, the roof may leak. It is a stark and difficult existence. In western Africa the geography, culture, and languages are different, but many of the conditions of poverty are strikingly similar. Such dire poverty can also still be found in areas of South Asia and elsewhere. More than three quarters of the extreme poor live in rural areas. A typical person in the second-lowest of the “strata” is not officially classified as extremely poor, though from the perspective of an average person in a rich country they would be viewed as very poor indeed. In fact, a typical family in this stratum may live on about twice that line, $3.80 per day per person. Close to 3 billion people may be thought of as living in this stratum. They are almost as likely to live in an urban area (or nearby lower-income peri- urban area) as in a rural area. However, their employment is probably informal, in companies not registered and without worker protections, or in their own small family enterprises. They get around with well-used but functioning bicycles. A majority of them no longer cook over open fires, but may use kerosene or some other improved energy source at least much of the time. They get their water from a tap, though it is typically outdoors and may be a considerable walk from their house; and in many cases the water is still unsafe without boiling and adding chlorine. The family usually has an improved floor, and often improved walls and roof, but the house is still somewhat subject to the elements. Their sleep is disrupted by seemingly constant noise. People in this strata likely suffer from one or more components of multidimensional poverty, though for at least 80% of them the number of their deprivations are not enough for them to be officially classified by the UN as “multidimensionally poor” (Chapter¦5). Some of the “voices of the poor” are reported in Box¦1.1. A typical family in the second-highest of the strata may live on about $15 per person per day. (More than three-quarters of the world lives on less than $15 a day; this family is considered solidly middle income by global standards.) More than two billion people may be thought of as living in this stratum. Such families typically live in urban areas. But their jobs are usually not very stable and are often informal. They cook on manufactured burners using kerosene if not electricity. They have a Source: Economic Development 11th Edition (Todaro & Smith, 2015, printed 2020).  [Economic Development 2024] 4 television in their house. They get around with a motorbike. The children are likely to survive early childhood. They probably attend some post-primary school, though they are unlikely to complete it. Most adults and many teenagers have a mobile phone, though there may be no smartphones. Their water is typically delivered through a tap to their house, though a majority do not have what people in the rich strata would consider full indoor plumbing. Their city is likely to exhibit very high inequality, with sharp contrasts in living conditions from one section of this sprawling metropolis to another. In a Latin American city, there would be a modern stretch of tall buildings and wide, tree-lined boulevards perhaps along the edge of a well-maintained beach; just a few hundred meters back and up the side of a steep hill, squalid slum dwellings are pressed together. There, a slum-dwelling family struggles to keep food on the table. Most employment opportunities are precarious. Government assistance has recently helped this family keep the children in school longer. But lessons learned on the streets, where violent drug gangs hold sway, seem to be making a deeper impression. In sharp contrast, a wealthy family lives in a multi- room complex in a modern building. Their children attend university, perhaps in North America, and they enjoy annual vacations abroad, luxury automobiles, and designer clothing, and may give little thought to the struggling, deprived family cramped tightly into a small self-built dwelling, perhaps living on a hill that they can see from their seafront building. Finally, close to a billion people live on the highest stratum, which most other people in the world consider rich. Most are certainly not millionaires, let alone ultra-rich; but they live very comfortably. A family in this stratum living in North America, Western Europe, or Japan might live on an income of perhaps $75 per person per day. They work in formal jobs, generally with at least some protections. They may have a comfortable suburban house that has a small yard with a garden, and two cars. The dwelling would have many comfortable features, including often a separate bedroom for each child. They enjoy central air conditioning and/or central heating, as prompted by the climate. Full indoor plumbing is taken for granted. The house would be filled with numerous consumer goods, including high-speed internet connections to go with their smartphones, laptops, and home entertainment centres, along with an array of appliances including stoves, refrigerators, dishwashers, and microwaves. They have access to fresh food year round (though they may eat fast foods instead). Both children would probably be healthy—except for a growing incidence of obesity and the problems it brings—and generally get good medical care if they need it. They would be attending school, where most would expect to complete their secondary education and, more likely than not, gain at least some post-secondary education; choose from a variety of careers to which they might be attracted; and live to an average age of close to 80 years. Many may feel their status is precarious, and are aware of the gulf between their life and that of the very rich; but most still work in formal jobs, generally with some protections. Although their lives would have ups and downs, and living standards do not always rise across generations, they face very little danger of falling below their stratum. Many times, people born on one of these strata spend their lives on it, albeit typically making some progress within that general level. People at the lowest or second-lowest strata probably have some awareness of what life is like on the higher strata, from TV at the village centre if not at home, and wistfully think of attaining it, but it is generally viewed as out of reach. Key terms: Development, on the other hand, refers to the process of improving the quality of all human lives and capabilities by raising people’s levels of living, self-esteem, and freedom. Living standards strata – Stylized sets of material living conditions; the 4-strata schema was created by Hans Rosling. Source: Economic Development 11th Edition (Todaro & Smith, 2015, printed 2020).  [Economic Development 2024] 5 Subsistence economy - An economy in which production is mainly for personal consumption and the standard of living yields little more than basic necessities of life—food, shelter, and clothing. 1.3 How Countries Are Classified by Their Average Levels of Development: A First Look Countries are often classified by levels of income and human development, as we examine in detail in the next chapter. They are also grouped by levels of poverty, quality of governance, and many other dimensions, as we will see later in the text. We introduce these comparisons with differences in countries’ average incomes—the most common way to do so (though income is usually an inadequate measure of well-being). The World Bank classifies countries according to four ranges of average national income: Low, Lower- Middle, Upper-Middle, and High. There has been strong income growth in average incomes in a majority of low- and middle-income countries over the last several decades, and many low-income countries have been reclassified as middle-income countries. But, once again, a typical country may have people living at very different income levels, or living standards strata. Of the world population of about 7.7 billion people in 2018, about 16% live in high-income countries (HICs). These countries have Gross national income (GNI) per capita of at least $12,056. This is less than would be thought of as “upper income” in many HICs such as Japan, the United Kingdom, and the United States, with average incomes several times this level. Some countries included on the World Bank HIC list had average income that was only barely enough to reach the HIC threshold, such as Chile, Equatorial Guinea, and Hungary. But the average person in an HIC lives very well by global standards. After unprecedented growth in China, India, and Indonesia—each formerly a Low-Income Country (LIC)—more than 60% of the world’s people now live in “middle-income countries.” To be classified as upper-middle income (UMCs) in 2018, a country needed GNI per capita between $3,896–$12,055. Lower-middle income countries (LMCs) have annual per capita GNI between $996–$3,895. About three-quarters-of-a-billion people—roughly 10% of the world’s population—live in LICs, with GNI per capita below $1,026. A majority of these countries are located in sub-Saharan Africa, where population is growing fastest. Keep in mind that many people who live in a LIC are not poor; many who live in a LMC are poor; and some who live in a UIC have incomes more typical of those in UMCs. The United Nation’s designation of “least-developed countries” is similar to LICs; for inclusion, a country has to meet criteria of low education and health, and high economic vulnerability, as well as low income. Just over a billion people live in these 49 countries. Conditions in some of them, such as Afghanistan, Congo, Somalia, South Sudan, and Yemen, are bleak. But in most countries in this group, great progress has been made, as life expectancy, school enrolments, and average incomes have risen substantially. At the opposite end are the highest-income developed countries that are members of the Organization for Economic Cooperation and Development (OECD), primarily in West Europe and North America, plus Australia, New Zealand, Japan, and South Korea. Source: Economic Development 11th Edition (Todaro & Smith, 2015, printed 2020).  [Economic Development 2024] 6 As recently as 1990, over half of the global population lived in low-income countries. The biggest factor in this sharp improvement is rapid income growth in China, which became a LMC in 1999, and India, which did so in 2007. China passed the next threshold to join the UMC group in 2010. Several other countries have also joined the middle-income country groups since the 1990s. Averages tell only part of the story. For example, each country has significant income inequality, though some are far more starkly unequal than others. We cover income inequality in depth in Chapter¦5. Recognizing that well-being cannot be measured by income alone, the United Nations Development Programme (UNDP) classifies countries taking account of their health and education attainments in addition to income, in its Human Development Index (HDI). We review how the HDI is calculated in the next chapter. For now, we note that average levels of human development have also been rising strongly in recent years, though the UNDP’s 2018 update found the average HDI in sub-Saharan Africa is low, in South Asia and Arab States Medium, and in Latin American and East Asia high, and the average OECD HDI level is rated very high. Access to health and education is also highly unequal in many countries, as we examine in Chapter¦8. A major theme of this text is understanding why incomes have grown so rapidly in some of the countries that, until only a few decades ago, were among the poorest in the world, including China. A closely related theme is why other countries have grown very slowly, and continue to have high rates of extreme poverty and deprivation. You will see there is great variation across even neighboring countries. We explore strategies for how countries can do better—whether they are performing above or below the average. The Federal World Bank has projected the poverty rate with a fall of 17.8% in 2021 to 13.7 percent in 2023, and 10.70 percent in 2024. The official poverty methodology in the Philippines uses pretax income to measure the current poverty stats through household welfare (Google search, Jun 6, 2024/ https://bitly.cx/bPfGe ). Based on the preliminary results of the Family Income and Expenditure Survey (FIES), which was conducted in July 2023 (collected income data from January to June 2023) and January 2024 (collected income data from July to December 2023), the poverty incidence among families was registered at 10.9 percent or equivalent to 3.0 million poor families in 2023. Poverty incidence is the proportion of Filipino families with incomes that are not sufficient to buy their minimum basic food and non-food needs as estimated by the poverty threshold. At individual level, 15.5 percent Filipinos or about 17.54 million Filipinos were poor in 2023 (PSA, July 22, 2024; Ref. No.: 2024-232). Key Terms: Gross national income (GNI) – The total domestic and foreign output claimed by residents of a country, consisting of gross domestic product (GDP) plus factor incomes earned by foreign residents, minus income earned in the domestic economy by nonresidents. Source: Economic Development 11th Edition (Todaro & Smith, 2015, printed 2020).  [Economic Development 2024] 7 High-income countries (HICs) – In the World Bank classification, countries with a GNI per capita above $12,055 in 2018. Low-Income Country (LIC) – In the World Bank classification, countries with a GNI per capita of less than $996 in 2018. Lower-middle income countries (LMCs) – In the World Bank classification, countries with a GNI per capita incomes between $996 and $3,895 in 2018. Upper-middle income countries (UMCs) – In the World Bank classification, countries with a GNI per capita between $3,896 and $12,055 in 2018. 1.4 Economics and Development Studies A. Wider Scope of Study. The scope of development economics and the work that development economists do is much broader than the name might suggest. Theory plays an essential role, but development economics is largely an empirical research discipline. It also uses formal models of topics ranging from decision making within households to problems of economy-wide transformation; models provide insights into findings, clarifications of the logic of arguments about development processes and policies, and new hypotheses to be confronted with ever-growing available data, often collected by development economists. Development economics incorporates research in political economy and institutional, behavioural and experimental economics; it overlaps and links with other subfields including labour, public, urban, agricultural, environmental, and international economics. And it draws extensively from other social science disciplines including history, political science, psychology, and sociology. The geographic scope of development studies is generally considered to be most of Asia; sub-Saharan Africa, the Middle East and North Africa; Latin America and the Caribbean; and often the formerly Communist transition economies of East and Southeast Europe. Many insights from development economics have been applied also to “lagging” areas of high-income countries, including indigenous peoples’ territories and other relatively deprived communities. Indeed, economic development is an ongoing, dynamic process. A dynamic field Because of the many differences in the severity of problems facing countries, and the complexity of the development process, development economics must be eclectic, attempting to combine relevant concepts and theories from traditional economic analysis with new models and broader multidisciplinary approaches, including studies of the historical and contemporary development experiences of countries throughout the world. Development economics is a field on the crest of a breaking wave, with new theories and new data constantly emerging. These theories and statistics sometimes confirm and sometimes challenge Source: Economic Development 11th Edition (Todaro & Smith, 2015, printed 2020).  [Economic Development 2024] 8 traditional ways of viewing the world. The ultimate purpose of development economics, however, remains unchanged: to help us understand how to improve the lives of the global population. B. The Central Role of Women Development scholars generally view women as playing a central role in the development drama, which must be the first thought rather than an “afterthought.” Globally, women tend to be poorer than men; they are also more deprived in health, education and in freedoms in all its forms. These facts alone lead to the special focus on women in development. Moreover, women in developing countries have primary responsibility for child rearing, and the resources that they are able to bring to this task will determine how readily the cycle of transmission of poverty from generation to generation can be broken. Children need better health and education, and studies from around the developing world confirm that mothers tend to spend a significantly higher fraction of income under their control for the benefit of their children than fathers do. Women also transmit values to the next generation. Today, most development specialists conceive of development as a multidimensional process involving major changes in social structures, popular attitudes, and national institutions, as well as acceleration of economic growth, reduction of inequality, and poverty eradication. Development, in its essence, represents the whole gamut of change by which a social system, tuned to the diverse basic needs and evolving aspirations of individuals and social groups within that system, moves away from a condition of life widely perceived as unsatisfactory toward a situation or condition of life regarded as materially and spiritually better. No one has identified the human goals, f economic development as well as the Nobel Laureate Amartya Sen, perhaps the leading thinker on the meaning of development. Key terms: Development economics – The study of how economies are transformed from stagnation to growth and from low- income to high-income status, and overcome problems of extreme poverty. Institutions – Constitutions, laws, regulations, social norms, rules of conduct, and generally accepted ways of doing things. Economic institutions are “humanly devised” constraints that shape human interactions, including both informal and formal “rules of the game” of economic life in the widely used framework of Douglass North. Social system – The organizational and institutional structure of a society, including its values, attitudes, power structure, and traditions. Source: Economic Development 11th Edition (Todaro & Smith, 2015, printed 2020).  [Economic Development 2024] 9 1.5 The Meaning of Development: Amartya Sen’s “Capability” Approach The view that income and wealth are not ends in themselves but instruments for other purposes goes back at least as far as Aristotle. Amartya Sen, winner of the 1998 Nobel Prize in economics, argues that “capability to function” is what really matters for status as a poor or non-poor person. As Sen puts it, “the expansion of commodity productions...are valued, ultimately, not for their own sake, but as means to human welfare and freedom.” In effect, Sen argues that poverty cannot be properly measured by income or even by utility as conventionally understood; what matters fundamentally is not the things a person has—or the feelings these provide—but what a person is, or can be, and does, or can do. What matters for well-being is not just the characteristics of commodities consumed, as in the utility approach, but what use the consumer can and does make of commodities. For example, a book is of little value to an illiterate person (except perhaps as cooking fuel or as a status symbol). Or, as Sen noted, a person with a parasitic disease will be less able to extract nourishment from a given quantity of food than someone without parasites. To make sense of the concept of human well- being in general, and poverty in particular, we need to think beyond the availability of commodities and consider their use: to address what Sen calls functionings—that is, what a person does (or can do) with the commodities of given characteristics that they come to possess or control. Freedom of choice, or control of one’s own life, is itself a central aspect of most understandings of well-being. A functioning is a valued “being or doing,” and, in Sen’s view, functionings that people have reason to value can range from being healthy, being well nourished, and well clothed, to being mobile, having self-esteem, and “taking part in the life of the community.” Sen identifies five sources of disparity between (measured) real incomes and actual advantages: (1) personal heterogeneities, such as those connected with disability, illness, age, or gender; (2) environmental diversities, such as heating and clothing requirements in the cold or infectious diseases in the tropics, or the impact of pollution; (3) variations in social climate, such as the prevalence of crime and violence, and “social capital”; (4) distribution within the family—economic statistics measure incomes received in a family because it is the basic unit of shared consumption, but family resources may be distributed unevenly, as when girls get less medical attention or education than boys do; and (5) differences in relational perspectives, meaning that some goods are essential because of local customs and conventions. For example, necessaries for being able, in Adam Smith’s phrase, “to appear in public without shame,” include higher-quality clothing (such as leather shoes) in high-income countries rather than in low- income countries. In a richer society, the ability to partake in community life would be extremely difficult without certain commodities, such as a telephone, a television, or an automobile; it is difficult to function socially in Singapore or South Korea without an e-mail address. And minimal housing standards to avoid social disgrace also rise strongly with the average wealth of the society. Source: Economic Development 11th Edition (Todaro & Smith, 2015, printed 2020).  [Economic Development 2024] 10 Thus, looking at real income levels or even the levels of consumption of specific commodities cannot suffice as a measure of well-being. One may have a lot of commodities, but these are of little value if they are not what consumers desire (as in the former Soviet Union). One may have income, but certain commodities essential for well-being, such as nutritious foods, may be unavailable. Even when providing an equal number of calories, the available staple foods in one country (cassava, bread, rice, cornmeal, potatoes, etc.) will differ in nutritional content from staple foods in other countries. Moreover, even some sub-varieties of, for example, rice, are much more nutritious than others. Finally, even when comparing absolutely identical commodities, one has to frame their consumption in a personal and social context. Sen provides an excellent example of bread, the most basic of commodities. It has product “characteristics” such as taste and nutrition such as protein; and it helps to meet conventions of social exchange in the sense of breaking bread together. But many of these benefits depend on the person and her circumstances, such as her activity level, metabolism, weight, whether she is pregnant or lactating, nutrition knowledge, whether she is infected with parasites, and her access to medical services. Sen goes on to note that functioning depends also on: (1) social conventions in force in the society in which the person lives, (2) the position of the person in the family and in the society, (3) the presence or absence of festivities such as marriages, seasonal festivals and other occasions such as funerals, (4) the physical distance from the homes of friends and relatives.¦.¦.” In part, because such factors, even on so basic a matter as nutrition, can vary so widely among individuals, measuring individual well-being by levels of consumption of goods and services obtained confuses the role of commodities by regarding them as ends in themselves rather than as means to an end. In the case of nutrition, the end is health and what one can do with good health, as well as personal enjoyment and social functioning. Indeed, the capacity to maintain valued social relationships and to network leads to what James Foster and Christopher Handy have termed external capabilities, which are “abilities to function that are conferred by direct connection or relationship with another person.” But measuring well-being using the concept of utility, in any of its standard definitions, does not offer enough of an improvement over measuring consumption to capture the meaning of development. As Sen stresses, a person’s own valuation of what kind of life would be worthwhile is not necessarily the same as what gives pleasure to that person. If we identify utility with happiness in a particular way, then very poor people can have very high utility. Sometimes even malnourished people either have a disposition that keeps them feeling rather blissful or have learned to appreciate greatly any small comforts they can find in life, such as a breeze on a very hot day, and to avoid disappointment by striving only for what seems attainable. (Indeed, it is only too human to tell yourself that you do not want the things you cannot have.) If there is really nothing to be done about a person’s deprivation, this attitude Source: Economic Development 11th Edition (Todaro & Smith, 2015, printed 2020).  [Economic Development 2024] 11 of subjective bliss would have undoubted advantages in a spiritual sense, but it does not change the objective reality of deprivation. In particular, such an attitude would not prevent the contented but homeless poor person from greatly valuing an opportunity to become freed of parasites or provided with basic shelter. In contrast, a person who is secure in their entitlement to full nourishment may decide to fast for non-material reasons: freely chosen fasting is fundamentally different from living with malnutrition or starvation. To clarify this point, in his acclaimed 2009 book, The Idea of Justice, Sen suggests that subjective well- being is a kind of psychological state of being—a functioning— that could be pursued alongside other functionings such as health and dignity. In the next section, we return to the meaning of happiness as a development outcome, in a sense that can be distinguished from conventional utility. Sen then defines capabilities as “the freedom that a person has in terms of the choice of functionings, given his personal features (conversion of characteristics into functionings) and his command over commodities.” Sen’s perspective helps explain why development economists have placed so much emphasis on health and education, and more recently on social inclusion and empowerment, and have referred to countries with high levels of income but poor health and education standards as cases of “growth without development.” Real income is essential, but to convert the characteristics of commodities into functionings, in most important cases, surely requires health and education as well as income. Sen’s framework is related to the idea that development is both a physical reality and a state of mind in which the means for obtaining a better life are secured, following at least three objectives: (1) increasing the availability and widening the distribution of life-sustaining goods such as food, shelter, health, and protection; (2) raising levels of living, including higher incomes, provision of jobs, better education, and greater attention to cultural and human values, to enhance material well-being and generate greater self-esteem; and (3) expanding the range of economic and social choices available to individuals and nations by freeing them from servitude and dependence both to other people and nation states, and to ignorance and human misery. Other perspectives. Dudley Seers addressed the meaning of development succinctly in 1969, asking rhetorically, “What has been happening to poverty? What has been happening to unemployment? What has been happening to inequality? If all three of these have declined from high levels, then beyond doubt this has been a period of development for the country concerned. If one or two of these central problems have been growing worse, especially if all three have, it would be strange to call the result “development” even if per capita income doubled. In 1971, Denis Goulet asserted, “Development is legitimised as a goal because it is an important, perhaps even an indispensable, way of gaining esteem.” Sen’s invaluable framework is also more systematic and builds on contributions of development thinkers who went before him. Nobel Laureate in economics W. Source: Economic Development 11th Edition (Todaro & Smith, 2015, printed 2020).  [Economic Development 2024] 12 Arthur Lewis stressed the relationship between economic growth and freedom from servitude when he concluded that “the advantage of economic growth is not that wealth increases happiness, but that it increases the range of human choice.” Lewis’s point is a caution against “fetishising” income growth or thinking of utility as depending only on income; of course this does not mean happiness is unimportant, or that people would refrain from making choices that improved their happiness. Happiness is a key concern for economic development. Key terms: Functionings – What people do or can do with the commodities of given characteristics that they come to possess or control. Capabilities – The freedoms that people have, given their personal features and their command over commodities. 1.6 Happiness and Development Happiness is part of human well-being, and greater happiness may in itself expand an individual’s capability to function. As Amartya Sen has argued, a person may well regard happiness as an important functioning for her well-being. Economists have explored the empirical relationship across countries and over time between subjectively reported satisfaction and happiness and factors such as income. However, there is wide variation in the relationship between income and happiness, especially across developing countries. One of the findings is that the average level of happiness or satisfaction increases with a country’s average income. Earlier research showed that roughly four times the percentage of people report that they are not happy or satisfied in Tanzania, Bangladesh, India, and Azerbaijan as in the United States and Sweden. The “happiness science” findings call into question the centrality of economic growth as an objective for high-income countries. But they also reaffirm the importance of economic development in the developing world, whether the objective is solely happiness or, more inclusively and persuasively, expanded human capabilities. Not surprisingly, studies show that financial security is only one factor affecting happiness. Happiness researcher Richard Layard identifies seven factors that surveys show affect average national happiness: family relationships, financial situation, work, community and friends, health, personal freedom, and personal values. In particular, aside from not being poor, the evidence says people are happier when they are not unemployed, not divorced or separated, and have high trust of others in society, as well as enjoy high government quality with democratic freedoms and have religious faith. The importance of these factors may shed light on why the percentage of people reporting that they are not happy or satisfied varies so widely among developing countries with similar incomes. Source: Economic Development 11th Edition (Todaro & Smith, 2015, printed 2020).  [Economic Development 2024] 13 1.7 The Sustainable Development Goals: A Shared Development Mission A. The Millennium Development Goals (MDGs), 2000–2015. In 2000, the member countries of the United Nations adopted eight MDGs, committing themselves to making substantial progress toward the eradication of poverty and achieving other human development goals by 2015. The eight MDG goals toward which progress was pledged were: 1. To eradicate extreme poverty and hunger; 2. Achieve universal primary education; 3. Promote gender equality and empower women; 4. Reduce child mortality; 5. Improve maternal health; 6. Combat HIV/AIDS, malaria, and other diseases; 7. Ensure environmental sustainability; and 8. Develop a global partnership for development. The goals were then assigned specific targets deemed achievable by 2015, based in part on the pace of previous international development achievements. B. Seventeen Goals In September 2015, the member countries of the United Nations adopted 17 Sustainable Development Goals (SDGs), to be achieved by 2030, thereby committing to substantial achievements in ending multidimensional poverty and improving the quality of life. The resolution affirmed: “We are determined to end poverty and hunger, in all their forms and dimensions, and to ensure that all human beings can fulfil their potential in dignity and equality and in a healthy environment.” The process of developing and adopting the SDGs was complex and took a long time to finalize, incorporating ideas from stakeholders around the world. The 17 goals span many, although not all, of the widely accepted goals of economic development. Goals were assigned 169 targets to be achieved by 2030; some were much more specific than others. There were also 304 indices to be used to track progress, of which 232 were agreed upon by the end of 2018. Along with the United Nations, the World Bank, the International Monetary Fund (IMF), OECD, and the World Trade Organization (WTO), NGOs from developing as well as developed countries had a voice in their formulation. The goals are officially used by most development agencies and many independent NGOs. Source: Economic Development 11th Edition (Todaro & Smith, 2015, printed 2020).  [Economic Development 2024] 14 Compared with previous SDGs, their three underlying principles are new: The universality principle: The SDGs apply to every nation (with action encouraged from every sector). The integration principle: All the goals must be achieved; to do so it is necessary to account for their interrelationships. The transformation principle: It is not sufficient to take “piecemeal” steps. The scope and expanded ambition of the SDGs would not have been possible without the Millennium Development Goals (MDGs) as a precedent. The MDGs were a milestone in thinking and policy about development, and were considered surprisingly successful, given other UN resolutions and programmes that were not. They managed to receive regular and sustained attention from their adoption in 2000 until their end date of 2015. The 17 Sustainable Development Goals: Goal 1. End poverty in all its forms everywhere Goal 2. End hunger, achieve food security and improved nutrition, and promote sustainable agriculture Goal 3. Ensure healthy lives and promote well-being for all at all ages Goal 4. Ensure inclusive and equitable quality education and promote lifelong learning opportunities for all Goal 5. Achieve gender equality and empower all women and girls Goal 6. Ensure availability and sustainable management of water and sanitation for all Goal 7. Ensure access to affordable, reliable, sustainable and modern energy for all Goal 8. Promote sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all Goal 9. Build resilient infrastructure, promote inclusive and sustainable industrialization and foster innovation Goal 10. Reduce inequality within and among countries Goal 11. Make cities and human settlements inclusive, safe, resilient and sustainable Goal 12. Ensure sustainable consumption and production patterns Goal 13. Take urgent action to combat climate change and its impacts Source: Economic Development 11th Edition (Todaro & Smith, 2015, printed 2020).  [Economic Development 2024] 15 Goal 14. Conserve and sustainably use the oceans, seas and marine resources for sustainable development Goal 15. Protect, restore and promote sustainable use of terrestrial ecosystems, sustainably manage forests, combat desertification, and halt and reverse land degradation and halt biodiversity loss Goal 16. Promote peaceful and inclusive societies for sustainable development, provide access to justice for all and build effective, accountable and inclusive institutions at all levels Goal 17. Strengthen the means of implementation and revitalize the global partnership for sustainable development The world did not quite halve the hunger rate; although the fraction hungry fell from about 23% in 1990 to about 12% in 2015, this still left close to 800 million people still hungry. There was significant progress on enrolments, but the universal goal was not met—57 million children were still not in primary school in 2015—generally among the poorest. Under-5 mortality dropped about 41%: progress, but not halved, let alone cut by the targeted two-thirds—a difference meaning nearly 3 million extra child deaths annually. Maternal deaths were about halved—but the target three-quarters was not reached. The clean drinking water target was met, but the sanitation goal was not. Notably, significant progress was made on reducing several diseases, including TB and malaria. Substantial progress would have been made even without official adoption and widespread use of the MDGs, but they made a significant difference. C. Implementing the Sustainable Development Goals Measurement is generally vital to the achievement of goals. In addition to the 17 SDGs and 169 targets, there are at least 232 indices intended to track progress, to be measured regularly. Challenges of measuring and achieving the SDGs are examined throughout this text; Box 1.3 provides a guide that matches the goals with their chapter coverage. D. Sustainable Development Goals: Progress and Challenges Progress reports toward achieving the SDGs The United Nations issues annual reports on progress and challenges toward achieving the SDGs. Each year, different sets of goals receive the primary focus. Some of the criticisms of the MDGs led to changes as the SDGs were designed and implemented. However, the SDGs have been criticised as were the earlier MDGs, though at times for somewhat different reasons. A common critique is that the goals are not prioritised; for example, reducing hunger may leverage the achievement of many of the other health and education targets. Further, Source: Economic Development 11th Edition (Todaro & Smith, 2015, printed 2020).  [Economic Development 2024] 16 when the SDGs measure the end of poverty as no one living on less than $1.90 per day, this avoids discussion about prioritising help for the poor. If attention to all the poor is equally merited, then those close to the poverty line will receive more attention than those far below it; this shows progress over time, but if the goals are not met, the poorest of the poor may have seen little improvement. Even more, some have criticised the sheer number of 17 goals and many targets, in that one cannot focus on everything, so in the end little if anything may get focused on at all. Nonetheless, the SDGs are the current global framework for assessing key aspects of development progress; and each are addressed, to varying degrees, in the coming chapters. ---------------------------------------------------------------------------------------------------------------------------------- Questions for Discussion 1. Why is economics central to an understanding of the problems of development? 2. Briefly describe the various definitions of the term ‘development’ encountered in the text. What are the strengths and weaknesses of each approach? Do you think that there are other dimensions of development not mentioned in the text? If so, describe them. If not, explain why you believe that the text description of development is adequate. 3. Why is an understanding of development crucial to policy formulation in developing nations? Do you think it is possible for a nation to agree on a rough definition of development and orient its strategies accordingly? 4. Why is a strictly economic definition of development inadequate? What do you understand economic development to mean? Can you give hypothetical or real examples of situations in which a country may be developing economically and even have reached high average incomes but may still not be developed? 5. It has been said that ending extreme poverty and achieving genuine development are possible but not inevitable and that this gives the study of economic development its moral and intellectual urgency. What is meant by this? Comment and evaluate. 6. What would achieving the vision of ending extreme income and multidimensional poverty “look like,” beyond raising minimum family income to above the poverty line to be able to buy basics? (To illustrate with an example to consider on childhood: children being well nourished, not stunted, not vulnerable to avoidable disease, not having to be doing child labour, going to school, with a trained teacher, who shows up, and teaches well, where students are able to really learn.) 7. How does the concept of “capabilities to function” help us gain insight into development goals and achievements? Is money enough? Why or why not? 8. Besides those discussed in the text, propose at least one other potential functioning (in the sense of Amartya Sen), and briefly justify in what way your suggested functioning is important. 9. In this chapter we have already been addressing some of the most basic questions for development economics. What is the real meaning of development? To what extent do the Sustainable Development Goals fit with these meanings? Describe the SDGs as an approach, and identify the types of information they span. 10. Briefly, what major relationships can you identify between Sen’s capabilities approach on one hand and SDGs on the other hand? To what extent is the SDG list close to Sen’s framework? How does it less-than-fully reflect Sen’s approach? Source: Economic Development 11th Edition (Todaro & Smith, 2015, printed 2020).