The Issue of Economic Development According to Amartya Sen

By the early 80s, it had become clear that the economic growth alone cannot be considered as a value. Many countries have experienced a slowdown in the economic growth and structural crisis. Structural adjustment and liberalization of the economy have increased attention to the previously proposed theory of human capital, demonstrating the economic feasibility of investment in education, health, and vocational training. This theory considers the human capital as the most important factor of production. However, this concept does not offer any concrete solutions to the problems of poverty or some new ways to develop a social subsystem of the economy, as a whole.

Theoretical developments of Amartya Sen have a tremendous impact on the modern understanding of human development. The basic idea of Sen on the relation of social policy and economic growth lies in the following fact. The implementation of social programs does not have to wait for an enormous increase of real income per capita. This process is due to the priority provision of social services (particularly, health care and basic education), thus reducing the mortality and improving the quality of life. The results of research show that the difference in life expectancy depends on a variety of social opportunities. These ones play a central role in the development (including epidemiological strategy, health, and education). Such point of view, positioning revenue growth as an only condition of increased life expectancy, needs serious amendments to better understand a process of development.

Freedom by Sen

The fact is that an important prerequisite for the transition to the market economy is the freedom of choice. However, there is no consensus among researchers concerning the question of creating conditions for the free development of personality. With a certain degree, freedom can be divided into the concept of positive and negative freedom, the freedom of aim, and the freedom of means (Vizard, 2005). Sen offers the following classification of this concept. Freedom as a means to achieve the goals is referred to as instrumental; and freedom being meaningful in it is true freedom. Self-confidence, self-esteem, a sense of usefulness to people, and the demand for the company are an integral prerequisite for the formation of a person. Therefore, the genesis of the market economy requires the development of freedom not only as a means, but as a goal being important in it. Degrees of freedom are important. The way how it is implemented on a personal level, the level of society and globally (in the international arena) is also essential. People live in the interconnected world, where abstracting from the international community is hardly possible. It is clear that the phenomenon of underdevelopment is necessary to examine not only domestically but also internationally.

Sen is characterized by a comprehensive understanding of freedom. The author believes that this concept occupies a central position in the development for two reasons (Lagarde, 2014):

1) The value of freedom: the development processes are evaluated primarily in such a way how human rights in society are expanded and strengthened;

2) The effectiveness of freedom: the level of development is directly related to free activities of the members of society.

Therefore, the scientist considers the rights and freedom not only as a main objective, but as a basic tool for development. In 1989, Sen introduced the approach referred to as capability approach (Panzironi & Gelber, 2012). Sen has considered the development as a process of enlarging people's choices and not only an increase in material or economic well-being. In his view, the standards of living within a community should be judged not by the average level of income and opportunities of people to lead the kind of life they consider worthy. He has seen the purpose of social development in creating opportunities of a greater choice for people but not in increasing the production. This great options means the choice to do more things, to live for a long time, to escape from diseases that can be avoided, and to have an access to knowledge. Sen has connected this flow with the expansion of freedoms in order to choose the most preferred selections from a wider range of those ones.

In 1989, Sen noted that, “One of the most important tasks of the evaluation system is to take into account human values” (Hill, 2003). The problem of human development cannot be realized without a conscious consideration of the problem and focusing on the expansion of freedoms and opportunities. The latter ones have the greatest importance for the people’s lives. Based on this earlier concept, Sen has defined five freedoms, i.e. political freedoms, economic facilities, social opportunities, transparency guarantees, and protective security (Sen, 1999). Subsequently, these and other ideas have been combined by a group of UNDP experts. They have formed the basis of a conceptual approach to human development, which have been now presented as the Human Development Index.

The concept of human development does not contradict with the traditional theories of economic development. However, it is rather in favor of growth and job creation. Economic development of society is a multidimensional process, encompassing the economic growth, structural changes in the economy, and improving the environment as well as quality of life. The idea of the human development relationship and economic growth has been seen in the first Human Development Report. There it has been clearly determined as “human development is the aim, and economic growth is only a means to achieve it” (UNDP, 1990). Of course, economic growth is an important factor in social progress. Increasing the wealth of the country, as a whole, expands its potential in the fight against poverty and solving other social problems.

However, much depends on the model of economic growth. Rapid economic growth can be achieved through an intensive use of natural resources or generating inflationary pressures. They will eventually lead to recession. In addition, the rapid growth does not necessarily imply a corresponding increase in employment. According to the concept of human development, economic growth can be enhancing human capacity when the growth not only provides an increased per capita income, but also allows having a sufficient level of public expenditure. The latter one is invested in a social sphere, but not, for example, in weapons. It is accompanied by equitable distribution of resources in the economy. Increased production in the concept of human development is seen not as an aim but as a means for a decent human existence. However, a higher level of production may be achieved through increasing the rate of human development. People are not the means of production growth. The practical objective is to ensure a relationship between economic growth and human development, in particular, the ways to turn the increased revenues to improve life abilities of people.

A distinctive feature of the concept of five freedoms and, hence, human development is the provision that people do not need a high income to ensure a decent standard of living. The higher income generally contributes to the expansion of human choice. However, this impact is weakened with an increasing income. Income, according to the concept of human development, is only one choice that a man would like to have, albeit a very significant one. However, it cannot determine the complexity and diversity of human life. Such factors as health, education, habitat, freedom of action, and speech are equally important. Therefore, the development should be more than just the growth of income and wealth. People should be its purpose.

The concept of human development considers two reasons why the concentration on the material income is erroneous. First, the accumulation of wealth is not a prerequisite for the fulfillment of all human desires. Society does not have to be rich to establish democracy, equality between men and women, preservation, and promotion of cultural heritage. Secondly, a person desires to extend a much wider economic welfare. People may seek to live a long and healthy life, to join the culture and science, to preserve nature and live in harmony with it. The principle of the contradiction between the maximization of wealth and human development being solved is formulated as follows. The national wealth can expand people's choices. However, it may not happen either. The wealth itself is not defined here; but the way how it is used by different countries is determined. As long as society does not realize that its main wealth is people, an excessive concern about the production of material goods will overshadow the ultimate goals of enriching people's lives.

HDI as Five Freedoms and Chinese, Indian Economics

There is an increasing importance of the social sphere. As a result, it becomes apparent the following fact. The GDP as well as other purely economic indicators being the measures to success or failure of any country in the world should be supplemented by indicators of social development and quality of life. HDI is precisely one of these indicators. It is calculated as the average number of the three indices. They involve such as: the GDP per capita calculated, in turn, at purchasing power parity (PPP) exchange, the index of average life expectancy once a child is born, and the index of education of the population (Stanton, 2007). The feature of the HDI is that this index goes beyond the assessment of the human condition only on a basis of GDP per capita. The HDI is a composite index that assesses the human development goals. These ones include such as the expansion of education, improved health and longevity, as well as an increase in income.

It is obvious that HDI is not free from drawbacks. As the indicator of GDP per capita, it says nothing about the extent of poverty or the rate of its decline. In addition, its value depends not only on the absolute performance of the country, but also on the world's minima and maxima of these indicators. Such ones are: the minimum and maximum expected to average life expectancy, the minimum and maximum average GDP per capita. This dependence means that any improvement in these indicators from other countries or the world, in general, deteriorates any country in the ranking. It, however, does not mean that the state will deteriorate and drift to a periphery of the world. Thus, in terms of the HDI, it should be remembered that it is only one of the tools of analysis reflecting only some of processes. Many events and flows are taking place in society and the economy of individual countries and regions.

In recent years, China and India have demonstrated a kind of historical record in terms of approximation to the level of economic development of the West. However, in fact, there is  a very complex and contradictory reality in their  HDIs hiding behind their huge economies. These countries against the background of the BRICS group should be considered. As noted above, two members of the BRICS countries, i.e. China and India, have less suffered the global financial and economic crisis in comparison with many other countries of the world (Bianconi, Yoshino, & Machado de Sousa, 2013). Russia has been less fortunate. Its economy experienced a severe recession during the crisis. The state’s coming out of the crisis has been not accompanied by a radical increase in efficiency. As the scale of the Brazilian economy is less compared to Chinese and Indian, the researcher’s attention is focused primarily on the couple mentioned above, i.e. China and India.

The experts’ estimates of the International Monetary Fund (IMF) show that China's economy in recent years has developed more rapidly than the economy of India. However, the difference is small (see Table. 1) (UNDP, 2014). India and China have shown their strong economic growth during the crisis when the world economy, in general, and the developed countries have experienced a decline in production. In 2010, the two countries were developing at the level being three times higher than that of developed countries (Fedec, 2015). Since 2011, these countries have entered a period of economic stagnation and slow growth. The gap has widened in 4-5 times; and with China it has become bigger almost in 6 times (Fedec, 2015). At the same time, the growth rate of China's GDP is clearly left in a double-digit area. However, this fact is not a negative one. The reason is that China needs to restructure its economic model, thus rearranging economic facilities. For India, the slowdown in the GDP growth is more alarming. Russia has showed a more rapid growth than the group of developed countries. However, it is smaller not only compared to China and India, but to a group of developing countries and those ones with economies in transition. Brazil also significantly has slowed down. It may be suggested, that BRICS has divided into two parts after the acute phase of the crisis. First ones there are China and India, which have managed to keep the high GDP growth. The second stage is occupied by Brazil and Russia, which, restoring economic growth after the recession in 2009, show a very modest growth of GDP. Nevertheless, the group is still growing faster than the developed countries.

In general, the economic and political establishment in India is satisfied with its macroeconomic situation. In the medium term, India could grow at an average rate of GDP growth of about 10%. However, there is an understanding that the too rapid growth may cause the imbalance (Banerjee & Vashisht, 2010). However, Amartya Sen’s speech was a certain discordant of the Indian elite moods. Speaking in Delhi in front of students and entrepreneurs, the scientist questioned a need to compete with China in terms of the GDP growth (Bunting, 2013). In his opinion, the usage of economic activity for the benefit of the general population is much more important. Hence, the Indian government should develop social opportunities and transparency guarantees. An indicator of dynamics in this area is, in particular, the human development index.

The Table 1 shows some indices for the BRIC countries. Rating is the place of countries in the world. The higher rate is a better relative position of the state. The index does not exceed 1.0. As it has been mentioned above, there is a split of the BRIC countries into two groups within the growth of GDP. HDI also has distinguished two groups. They are: Russia and Brazil with a relatively high level of HDI; and India and China with a low level. The causes are related to political freedoms and economic facilities of China; social opportunities and transparency guarantees for India. In general, all BRIC group is not among the leaders in the world, where the maximum points at the level above 0,900 are obtained by such countries as Norway, Australia, New Zealand, and the USA. Russia and Brazil belong to the category of the countries with a high index; China and India are being in the division of average (UNDP, 2014). India is an outsider on HDI in BRIC despite its impressive gains in growth and development of information technology and other high-tech sectors. The contrast is great for all positions: life expectancy, the number of years of education, and in terms of GDP. Rejecting the economic component of the index (see the last column of the Table 1), Russia, Brazil, and China form a very tight group, i.e. education and health are a bit different. India is still far behind. The gap between it and China has even increased, i.e. hap is large not only in the economic field, but also in the health and education of the population.

Table 1

Human Development Reports 2014

Another aspect, which attracted the attention of Sen, is a food situation in India. Malnutrition is a constant problem for the country. Progress has very limited prospects without the solution. Large population, especially in rural areas creates some conditions for a large-scale environmental crisis. Moreover, limited economic resources being insufficient for the implementation of large-scale programs to modernize the economy, in general, and agriculture, in particular are also affecting. Agrarian overpopulation has been growing for many decades in India. It leads to the destruction of the natural environment in province. Despite the dizzying success of economic growth in recent decades, modern India is experiencing the acute crisis which is called the pressure of population on land. It has a permanent character of social opportunities being not effectively implemented. The underlying cause of this crisis is too intense. It is not conformed to the mass of available natural resources and the population growth. The status of modern agriculture in India is characterized by the fact that the production of food grain per capita in the early twenty-first century was lower than in the end of the nineteenth one. Already now, the country has been burdened with so many excess, the poor, the illiterate, and the patient population. Therefore, it cannot even be included in the current economic process (inclusive growth). According to the Food and Agriculture Organization (FAO), there is a problem of malnutrition in three BRIC countries (FAO, n. d.). In all of them, the number of poor people and their share in the population is falling. The economic crisis in this sphere of social life is invisible. However, in India, the number of people who have been undernourished and the proportion of people in the population are still large.