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Economic growth isn’t ‘development’

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I see no cause for anxiety about the slow-down in growth of our Gross Domestic Product, from 4.6 percent in the first quarter to 3.4 percent in the second quarter, according to the new national accounts figures released last Wednesday, because it didn’t mean that the Filipino people became economically worse off. In fact, the opposite happened: the people became economically better off in the second quarter.

Truly meaningful economic indicators pertain, not to production, but to people.  Among families nationwide, hunger dropped from 20.5 to 15.1 percent, and self-rated poverty dropped from 51 to 49 percent, between Quarter 1 and Quarter 2 of 2011, as was reported by Social Weather Stations last July 1 and July 8, respectively.

Thus, in the second quarter, the people’s economic deprivation lessened (or, their economic well-being improved), even though aggregate economic growth slowed down.

Therefore aggregate economic growth isn’t “development.”  So what is?

“Development” means progress in meaningful and sustainable human well-being.  This is the definition I gave in my talk on “Measuring Development” to the Council of Fellows of the Development Academy of the Philippines (DAP), last Thursday.  I have been doing theoretical and applied research on this subject since the 1970s.  This column is about five main points of my talk:

1. Human well-being is (a) multi-dimensional and (b) equitable.

The 1976 book “Measuring Philippine Development,” the report of the DAP’s social indicators project that I directed, listed the following dimensions of well-being: (1) health and nutrition, (2) learning, (3) income and consumption, (4) employment, (5) housing, utilities and the environment, (6) non-human productive resources, (7) public safety and justice, (8) political values, and (9) social mobility.  These are merely major dimensions, of course, with many sub-dimensions possible within each.

The 2009 report of the Sarkozy Commission on the Measurement of Economic Performance and Social  Progress (www.stiglitz-sen-fitoussi.fr/documents/rapport_anglais.pdf) had a similar list of dimensions of well-being: (1) material living standards (income, consumption and wealth), (2) health, (3) education, (4) personal activities including work, (5) political voice and governance, (6) social connections and relationships, (7) environment (present and future conditions), and (8) insecurity, of an economic as well as physical nature.

True development is shown by evidence of improvements along many dimensions, not only a few.  Measuring it adequately requires multiple indicators, which need not be combined in a single index.

Both the DAP and the Sarkozy reports criticize the concept of Gross National Product as a misleading indicator of well-being.  Firstly, it is one-dimensional, related only to income and consumption.  Secondly, it is silent about equitable sharing of the production among the people.

The four points below are also made by the DAP and Sarkozy reports:

2. Equitable means being fair: (a) fair to the poor (vertical equity), (b) non-discriminatory (horizontal equity), and (c) fair to future generations (sustainable).

The SWS statistics on hunger and poverty are measures of vertical equity.  Comparisons of the well-being of women versus men, of Moros versus Christians, of the old versus the young, or of the handicapped versus the able-bodied are all measures of horizontal equity.

3. Sustainability requires stocks of “capital,” i.e. the resources that assure continuity of streams of well-being into the future.

The basic types of capital are physical capital (factories, infrastructure), natural capital (forests, minerals, gene pools), human capital (education, scientific capacity), and social capital (social institutions that serve to get things done).  Each of these can be quantified.

Accounting for true development thus requires not only statements of inflows and outflows over time, but also balance sheets at a moment of time.

4. Measurement of well-being is related to advocacy.

What truly matters should be counted.  What isn’t counted won’t get to matter.

It is quite proper for anti-crime organizations to count kidnappings, for human rights groups to count desaparecidos, and for media groups to count the assassinations of journalists. They cannot take for granted that such statistics will be collected by government agencies.

Data do not grow on trees, merely waiting to be harvested.  They are not found in libraries unless someone deliberately collected them and stored them in the first place.  Private advocates of change in the status quo should take the initiative to nurture collection of data that bring their causes to public attention.  The powers-that-be cannot be expected to assist data-collecting that exposes their unfair advantages.

5. Objective and subjective indicators of well-being are equally important.

Often, surveying the people directly about their own personal conditions is the most practical way to measure aspects of their well-being.  It should be done periodically in order to discover when their conditions are improving or deteriorating, and thus contribute to learning why this happens.

Good governance, for instance, is part of true development.  People who are badly governed feel bad about it.  They generally tell the truth about their feelings.  And, ultimately, they are the Boss.

*  *  *

Contact SWS: www.sws.org.ph or mahar.mangahas@sws.org.ph.


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  • Anonymous

    Economic indicators are just telling how your country fare in terms of “productivity”. 

    Why there are no parity among the Philippine population? Some are lazy to produce or if not lazy, no power and tools to produce, while others produce more than the others. The rich population who owned businesses kept on producing more, thus increasing their wealth while others remained as jobless, stagnating their economic and financial growth.

    If there are increase in GDP or GNP, a portion of the population is doing a good job in terms of increasing their productivity. If more and more OFW’s are added annually, GNP will eventually go up because more and more people are productive, contributing to the economy.

    The real issue of development is in terms of productivity. The Philippines just got millions of jobless people doing less than they ought to do. In a communist or socialist nation, the producers will compelled to share their wealth to non producers. Then they call it distributive justice, redistribution of wealth, egalitarianism. 

    As long as millions of your population remained unproductive, you will never achieve, what you call development. Unless, if they protest to the government to feed and shelter them adequately. CCT is partially doing that job. The tax paid by the productive people will just go to the “development” of the unproductive ones.

    Are you complaining for lack of development? Give the people jobs, make them productive or more productive.

  • http://pulse.yahoo.com/_A4RWRA4RJXHMHEJKMU4BEVXTWY Boo BoonK

    While I agree with Mahar Mangahas that I economic growth isn’t development, I believe we should be worried about the slow-down in growth of GDP. Certainly economic growth, development and, if I may add transformation, are not one and the same. These are merely analytical matrixes that are use in measuring and understanding social processes. Having said so, we must remember that all these matrixes do have one common purpose i.e they are compared and evaluated in pursuit of policy objectives. I would go further to argue that these three matrixes indeed are elements of a continunm starting with growth and ending with tranformation. This being so, it is hard for me to imagine development as defined by Mahar continuing in an environment of declining GDP. The pursue of strategies that would enable the identifiable outcomes of a just and equitable society can only come from increased productivity and total output.

  • Anonymous

    This truly is a fare multidimensional and objective perspective and analysis of economic standing vis-a-vis economic growth. And I agree, Mahar, that development indeed is the real gauge that puts all economic measurements in their right perspectives, development being a holistic view and a reality. An economist mind will certainly be biased towards quantitative data, but economics is not really just all about figures, as you put it, but all about people, in the end. Economic growth measurements are limited and myopic at times. Many homes may be contributing to GNP growth by the increases in LCD/LEC flat screen TVs being bought by consumers, on a short-term basis, but fail to measure the long-term degrading/declining effect of people’s anxiety caused by their being neck deep in debt eventually leading to personal bankruptcy, ergo poverty. It’s like looking only at a company’s balance sheet showing profitable performance as a snap shot, but did not indicate that the company’s relationship with its labor union might bring the company down eventually. Long-term sustainability is indeed the final gauge to real development trends. It’s a back-burner economic chart, if you may, that even seasoned economists fail to look at.

  • Flor Lacanilao

    It is time to abandon GNP and GDP as the overriding measure of social development and economic health. “We could abandon GNP as an indicator of economic well-being; it suggests to the consumer that our economies need take no account of sustainability. In the United States, per capita GNP rose by 49% during 1976-98, whereas per capita ‘genuine progress’ (the economy’s output with environmental and social costs subtracted and added weight given to education, health, etc.) declined by 30%” (Myers N. 2000. Sustainable consumption. Science 287:2419). ”GDP is known to be flawed as an indicator. For example, a developing country can accelerate its GDP growth by over-logging its forests, even though this could destroy a sustainable resource.” “What we measure affects what we do. If we have the wrong measures, we will strive for the wrong things,” says economist Joseph Stiglitz of Columbia University, a Nobel laureate and former chief economist at the World Bank. (Nature 463, 849-850 (18 February 2010)

    • http://twitter.com/JohnTWTarrobal John TWT

      Abandoning GNP & GDP is a bit extreme. Still, they are fair economic indices that we need to monitor time and again lest we steer this country blind.

      But yes, taken against other factors such as the soundness of our social structures and environmental costs or sustainability, GNP & GDP are certainly not the gauges we should look at. Perhaps they were not designed that way in the first place.

      Of course GDP may be flawed, as are all systems. But it does give us at least a picture of how we’re faring in terms of our economy. Using the best features of GDP and GNP, together with a better system of assessing or measuring the country’s overall health should be the way to go.

      Of course, in my humble opinion.

      • http://jaoromero.wordpress.com Jao Romero

        there are already better statistics out there to use than GDP or GNP. these two are outdated.

      • http://pulse.yahoo.com/_35DZDJJ4ZHZM7JEDXECWULI2KM eric

        Jao, you sound like a broken record.

        You made me think of a person who went to the doctor, the doctor told him he has cold and fever, the person took the thermometer, and when he found out that he has indeed high fever, blamed the thermometer for his illness.

        If GDP is not important why does the malacanang and NEDA bother with it?

        GDP, GNP, etc, etc, etc  are all indicators of economic growth, they provide raw data that will serve as our guide for planning and monitoring our economy, having in mind, their methodological flaws. Even without GDP, HDI, hunger surveys, etc etc etc, we know that there is something wrong in our economy.

        Let us talk about our economy.

    • http://pulse.yahoo.com/_4TIJOGWL5B3KFS74TIK2AHYHEY Krayon

      yeah, and next abandon the peso as currency. it’s a standard, stop thinking like the philippines is the only country in the world. until the world adopts a better measure, doing this would be like paying for your food with rocks.

  • Anonymous

    Quite agree but not quite. Economic growth is almost always a prerequisite to development. In order for development to be ‘sustainable’, it must be distributed in three fronts – economic, environment and social equity/distribution of incomes. Take one out of the three and your ‘development’ is essentially a chair standing on just three legs instead of three.

    Also, ‘not to worry about low growth’ argument is misplaced! If growth is taking place in extended periods and population growth is faster than economic growth, you could actually experience an increase in people with stagnant or even lower incomes.

    If population growth is at 2% and real income growth is at 2%, people are essentially splitting the same amount of income – stagnant or unchanged incomes. Rule of thumb is that incomes should growth 2 times as fast as population if incomes were to rise.

    • http://jaoromero.wordpress.com Jao Romero

      don’t talk about population or the fundamentalists will crucify you.

      • Anonymous

        the population is neither good nor bad. it’s only bad if you are not growing fast enough to provide them jobs, food and shelter. ;-)

        crucifixion is torture and if i die it’s murder and i guess that’s not really christian right?

      • http://jaoromero.wordpress.com Jao Romero

        it’s Christian enough. Christ died on the cross.

  • Anonymous

    Thanks Mr. Mangahas for advocating consistent data collection as objective tool for measuring progress & formulating policies for progress. I hope our gov’t. & legislators will be objective & rational enough to use these powerful tools as well!



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