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“Economic Growth and Human Development: India’s case”

maggio 19, 2011

Gustav Ranis’s reflection has led me to deepen the experience of India.

The purpose of Gustav Ranis’s paper is to show the two-way links between human development (HD) and economic growth (EG). This study permits us to examine the usual  assumption that EG must precede progress on HD. There are two distinct casual chains to be examined: one runs from EG to HD; the other runs from HD to EG.

We can start by analyzing the first chain: from EG to HD.

GDP is an important instrument for achieving a wide range of capabilities but the impact of economic growth on a nation’s human development level also depends on other conditions of the society. One important is the role of the distribution of income. The same level of GNP can lead to very different performance on HD according to the allocation of GNP among and within these institutions: household, government activity, civil society, community organizations and other nongovernmental organizations.

At the micro level, individual and household consumption can be an important element in increasing human development. Household’s propensity to spend in something that can contribute to the promotion of HD depends on level and distribution of income across households as well as on who controls the allocation of expenditure within households.In societies where women contribute more to family income and have more influence on household decision-making expenditures on human development-oriented goods ( such as food and education) are relatively higher.

At a macro level, the distribution of the increased income from economic growth will also have a strong impact on human development. Because poorer households spend a higher proportion of their income on goods which directly promote better health and education than those with higher incomes. But it is necessary to say that the way in which growth translates into income distribution and poverty reduction depends on “the nature of the growth process”: if growth generates employment and increases rural incomes there will be an improvement of income distribution and a poverty reduction than if growth is urban and capital intensive.

Anand and Ravallion find that most of the effects of economic growth on HD are led by government budgetary expenditures, central or local. The government must identify priority sectors such as primary education and health that have the highest potential for HD improvement. Government expenditures for HD should be distributed predominantly to low income groups and areas since it is here that we can obtain the highest marginal impact on promoting HD.

Now we can analyze the second chain: from HD to EG.

Higher levels of HD, in addition to being an end in themselves, have an influence on economy through increasing people’s capability and consequently their creativity and productivity. Each different components of human development have a distinct impact on economy growth. Think about education that has a strong effect on labour productivity. According to a survey: in Thailand, farmers with four or more years of schooling were three time more likely to adopt fertilizer and other modern inputs than less educated farmers.

The education also has an influence on technological improvements. In this sense human development may enter into an Uzawa-Lucas type endogenous growth model as a factor affecting growth rates through its effect on technological change: more educated are more likely to innovate and this affects everyone’s productivity. It is necessary to stress that education alone cannot transform an economy. Economic performance is determined by the quantity and quality of domestic and foreign investments, together with the choice of technology and policy environment. But the volume of both domestic and foreign investments will be higher when a system’s human capital level is higher.

Regarding to health, a large literature documents how improvements in health and nutrition improve productivity and incomes. Education and health may also have strong indirect impacts on economic growth through their effect on the distribution of income, and education even more so through its impact on health (for example, education, especially female, tends to improve infant survival and nutrition). When education and health improve, low income people are better able to seek out economic opportunities. Education has a strongest impact on income equality, and a more equal distribution of income favours growth. A more equal distribution of income implies better nutrition and a stronger demand for education and therefore increases labour productivity.

In Ranis’s paper country performance are classified into four categories, virtuous, vicious and two types of lop-sidedness: lopsided with strong HD and weak growth(called HD-lopsided); and lopsided with weak HD and strong growth (EG-lopsided). In the virtuous cycle case, good HD enhances growth, which in turn promotes HD, and so on. In the vicious cycle case, poor performance on HD tends to lead to poor growth performance which in turn depresses HD achievements, and so on.While HD-lopsidedness permits movement towards a virtuous cycle, in the case of EG-lopsidedness, all the cases reverted to a vicious cycle.

Ranis’s study suggests that to move from vicious to  HD-lopsided one are necessary some of the following policies: i) the allocation of  resource toward education and health services; ii) a more equitable income distribution (for example, through land and tax reform); iii) opportunities for the unemployed. While movement from the HD-lopsided to the virtuous category requires  for example: i) taking advantage of an improved HD to promote economic growth through policy reform; ii) increasing the investment rate; iii) improving the distribution of income.

Human development is a necessary prerequisite for long-term sustainable growth. Policy reforms which focus only on economic growth are unlikely to succeed. The crucial lesson that emerges is that the old view of “grow first and human development later” is not supported by the evidence. Improving levels of education and health should have priority or at least move together with efforts to directly enhance growth.

Ranis’s analysis is very interesting as well as his data about India and that allows me to deepen and contextualize his analysis. The starting point of my research is the  Ranis’s data and that show us that the Indian performance from 1960 to 1980 is characterized by a vicious cycle, and from 1980 to 1992 by a EG lop-sided. The Indian case allows us to understand that economic growth is not the necessary or sufficient condition for development. In addition, according to Ranis, what is important is the quality of this “growth”.

In the World Economic Outlook of April 2010, the IMF has expected an Indian GDP growth of 8,4%  in 2011. India does not stop surprising us with her breathtaking performance of gross domestic product. An Indian proverb says: “Whatever you say about India is always true also its opposite”. In the nineties, has emerged in the Western imagination clichés on India shining, India grows, the primacy of Indian GDP, the land of Bollywood stars and of super manager of information technology. A huge minority, more than one hundred million people, is admired around the World. But meanwhile, the other side of India, the one made ​​by millions of people living on less than two dollars a day (about 60% of the population), by female illiteracy just over 50%, by 200 million malnourished – mostly women and children – remain hidden.

You cannot just applaud the results of a breath-taking growth. The empirical experience has largely demonstrated that the increase in GDP alone is not sufficient condition to achieve the broader objectives of inclusive growth and human development.
India, in fact, the greatest democracy in the world, is still far from resolving the most basic issues of redistribution and social justice. In the eleventh Five-Year Plan, India has set out to achieve a GDP growth of 10%. Gandhi used to say that “without a vision the nation perishes”, he could ask: what India intends to achieve through this brilliant growth and in particular how she intends to achieve a just society?

I think examining the Indian workforce is very important to try to understand what development India is having.

The Indian workforce is made up of more than 400 million people, and of these, only 7% are “formal”. The word means having a formal contract with a regular wage or salary, in a company registered and have access to the welfare state. The rest of the workforce in India, supplying the so-called “informal sector”.
The informal sector is defined as: “a heterogeneous set of productive activities of goods and services that are conducted in illegal or irregular shapes and that, by not observing the rules governing labor relations, licensing, fiscal and quasi-fiscal , are beyond the statistical surveys”.

The informal employment  represents  93% of total employment. The high growth of the last fifteen years, in fact, is reflected in a jobless growth in which the informal sector is the main source of flexible workforce, low cost, both for national economic actors than for large foreign companies.
From being a means of survival, informality has become a competitive factor that allows to avoid any rule about quality product , working conditions and environmental protection. This is well evident in Indians clusters.
The form of production unit that supports the development of clusters in India is made up of small family workshops. The latter represents the final link of an articulated chain of subcontracting.

While exporting company must registered because her foreign trade, so she has to do bubbles accompanying, receipts; little family laboratory producing for example one, two carpets, must not be registered. It is a very small company does not have employees and using family labor. In this laboratory  all  members of the family work: older, disabled, children. In these workshops, the level of exploitation, well documented, it is likely that the English literature renamed them as “sweat shops”: no sanitation facilities, no electricity, no bathrooms. There are no predefined working hours, because the working time depends on demand.

The high level of exploitation which marks these laboratories is generated by a complex social balance. On the one hand, there is the practice of subcontracting that leads to the formation of very small laboratories that manage to escape from the public controls, allowing the exploitation of workers. Second, there is the Indian society with its inherent complex stratification.

They accept to work for wages that are little more than the poverty line, according to an ideology that goes back to the caste system and communitarianism. Communitarianism is the belief that individuals which belong to the same religion, they also share political and economic interests. In Tiruppur, South India, the level of exploitation in the production of clothes – girls work 17/18 hours with the chassis – is possible because the workers belong to the same caste of the owner and the caste solidarity goes against the conscience of class. The ideological use of religion explains the low level of unionization and social consensus toward a capitalism that makes profits on the exploitation of workers and the environment.

As Marx said: “The exploitation of live work becomes a poor basis for the development of general wealth”.

According to the Multidimensional Poverty Index, in 8 States of India there are more or less 421 million of poor, while in the 26 poorest African nations are just over 410 million. Multidimensional Poverty Index takes into account a wide range of factors, including lack of education, healthcare, services in general, employment, adequate nutrition. The UN Report on Human Development adopts the concept of  “ruthless “, indicating that growth does not reach the poor but rather uses the work of the latter to increase international competitiveness.
In this context, an underestimation of the role of the informal economy contributes to the formulation of inappropriate analysis and planning of wrong  policies. In fact, according to the Oxford Poverty and Human Development Initiative (whose intent is to go beyond the Human Development Index) among the selected missing dimensions of well-being, there is: employment, particularly informal employment and safety at work.

Through the Indian experience we can understand the need for a new strong political action characterized by a radical change of mentality, a new perspective that looks to the interests of labor and not just growth. A new perspective that  tries to ensure decent work for all.

Decent work is the key strategy to achieve sustainable development based on people.
The International Labor Organization (ILO) considers the “decent work” the turning point for achieving the eight Millennium Development Goals signed in September 2000 by 189 world leaders and with whom, they are firmly committed to free other human beings from the “abject and dehumanizing conditions of extreme poverty “.

While the work is a key to fight poverty, it is also true that only a decent work can guarantee the right to a dignified life. A dignified life must be objective and  paradigm of development.
Decent work is the basis for a just, equitable and inclusive  society based on the creation of jobs, respect for workers’ rights, on access to social protection and social dialogue.

According to the definition just given of decent work, we can say that the informal economy is organized so that work cannot be defined as “decent”.
How to get out of the trap of informality?

A concrete example is offered to us by the experience of the trade union of  SEWA – Self Employed Women’s Association – representing more than 700,000 women employed in the informal sector in India and has 530,000 members in the state of Gujarat.
Sewa, as trade union, aims to achieve autonomy and full employment of independent workers. Full employment guarantees a regular income, food security and social security, autonomy means independence and decision-making in the economic, social and individual sphere.

“We have learned that without the right to work, we cannot achieve freedom from poverty or what our sisters of SEWA called second freedom: that from poverty …” Namrata Bali, founder of Sewa.

“Education” is the keyword of the projects promoted by Sewa.

Amartya Kumar Sen, says: “Education is especially relevant in India as an instrument of social justice. The history of this country, in fact, is full of inequalities based on caste system of social regulation”.

Sewa not only operates as a trade union but also deals with micro-credit, home, health education (contraception, AIDS prevention), childhood, literacy, human resource development, communication.

Analyzing the work done by Sewa, we can see that any improvement in the lives of women, has had a positive impact on improving the entire household. You can talk about this natural inclination of women as the democratization of profit.
A concrete example is offered to us by the experience of Sewa regarding to traditional childbirth assistants (called Dai). The obstetrics is considered a ‘dirty profession ‘, and it is practiced mostly by women who come from lower social classes. Sewa is leading a battle against the tide: the last ten years, the national government does not finance the courses of Dai because according to him is more modern and secure shelter pregnant women in hospital. But the farmers who can get there are few. The true alternative is often the travail alone, or assisted by unskilled hands. So Sewa has created a project to revalue the Dais and make them a basic health experts on contraception, AIDS prevention and nutrition.

This project has produced an increased security for birth and motherhood: thanks to this project many Dai  have left some harmful practices, such as press on the uterus during travail and prohibit mothers to breastfeed their babies for the first three days after childbirth. Now Dai have a set of sterilized scalpel while before they usually cut the umbilical cord with a sickle. The experience of SEWA trade union is a social laboratory that can show us the way to rescue the subordinate position of women workers in India, focusing on empowerment and capacity building of vulnerable people to guarantee independence and a dignified life.

The growth is not a necessary or sufficient condition for development. Look at the case of India: its GDP is growing but continue to persist its known plagues: high rate of poverty, malnutrition, illiteracy.

According to Sen: ” Manmohan Singh did initiate some essential economic reform, and this is admired success. That success could have been even greater if the reforms were combined with a commitment to expand the development of social opportunities that had been neglected so persistently in India”.

Daniela Bernaschi





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