Growth and Development

Feb 18, 2010 Editorial

During the ongoing Budget debate, the words “economic growth” and “economic development” are being tossed about rather indiscriminatingly. This is regrettable since decades ago, the distinction between these terms were intensely debated in and out of the hallowed chambers of Parliament by our political elites.
In fact this debate refracted a worldwide concern about the focus on economic growth that had not been matched in a rise in the living conditions of much of the world’s poor.
“Growth” usually refers to the economic activity in the country and is usually measured by the expansion (or contraction) of the Gross National Product (GNP). Since 1990, with a view to shifting the focus from this traditional ‘income-centred’ accounting to ‘people-oriented’ programmes and policies, the United Nations Development Programme (UNDP) has been publishing the annual Human Development Report (HDR).
Stressing “development”, it focused on the conceptual issues and policy strategies to tackle poverty and deprivation. One important component of the HDR is the Human Development Index (HDI), which ranks countries on the basis of three basic capabilities: life expectancy (ability to live a long and healthy life), educational attainments (ability to acquire knowledge through literacy, basic and secondary education and so on) and economic standard of living (to have access to the resources needed for a decent living standard).
This index illustrates that the orthodox income-based GDP per capita measure is an imperfect indicator of human development and that the addition of capabilities-based indicators shows quite different results. When, for example, countries and regions such as Poland, Costa Rica, Brazil and the State of Kerala in India manage to achieve higher levels of growth but sometimes scandalous, disparity between “growth” and “human development” that is prevalent in many countries.
Such criticisms have convinced many policy makers to include notions of human development within their quest for growth. Against this background, most objective observers would have to accept that while Guyana’s growth rate might not be exactly stellar, its performance in the human development arena has been quite respectable. The government’s consistently high budgetary allocation to the social sectors – education, housing, health etc – and infrastructure – roads, bridges, etc. has had a very positive impact on overall well being of the citizenry.
All of this is however, not to downplay the need for an ever-expanding GDP. This is absolutely necessary since it is from the increased surpluses generated that the spending to increase the capabilities of the populace can be funded. So what then constitutes “economic development”?
We can say that increases in the GDP are integrally linked to reduction in absolute poverty, increased levels of literacy, improvement in the quality of life, development of physical and business infrastructure and environment, and a stable political system etc. We should begin to appreciate from this list that development is not solely the responsibility of the government of the day but is both a qualitative and quantitative process that involves the entire society.
The key to growth of GDP is investment or capital formation; this factor is a constraint not only in Guyana but characterises the poorer countries as a whole. The end of the 1990’s marked a drop in our growth rates, which had averaged some seven percent for several years, to an abysmal one percent that, not coincidently, was precipitated by intense political instability.
The tepid investment rate has forced the government to try to fill the gap. While some of their spending has been directed in producing capital goods – the GuySuCo expansion, for instance, – overall it is also positive since it creates demand for goods and services that is satisfied by businesses ramping up their production and hiring additional labour. The incomes generated goes into consumption and savings – creating increased demands in the economy— a virtuous circle generally
The problem, of course, is that increased governmental spending demands either printing money or increasing taxes – both of which have their downside risks. The answer, we believe, is for all involved to collaborate in increasing political stability so that private investment can feel safe and return to our fair land. We can then have growth with development.