Samuel Braithwaite | Economic development is human development

I am writing in response to Professor Don Robotham’s article, “Jamaica as a developmental state,” published in the Friday, April 14, edition of The Gleaner. Prof Robotham’s continued contribution to national discourse is welcome and needed in Jamaica. I note, too, that he has contributed immensely to the development of The University of the West Indies, Mona (UWI), the wider Caribbean, Africa, and the United States. We remain grateful.

This article is not a rebuttal of the core message of Prof Robotham’s piece. Rather, it offers a different perspective on what is meant by economic development, economic growth, and GDP growth. Brief comments are also provided on industrial policy and the proposed Fiscal Research Institute (FRI).

I do not support ideas that demonise market forces and the private sector or demonise government. The issue is finding the right balance between both sectors. In the United States, that bastion of capitalism, industrial policy is quite evident but in recent months has become fashionable in the press because of the Biden administration’s Inflation Reduction Act.

WHAT IS ECONOMIC DEVELOPMENT?

“Economic development” is quite simply “human development,” and “economic growth is necessary but not sufficient for realising “economic development”. Prof Robotham uses a traditional view of “economic development”, where “economic development” was used interchangeably with “economic growth”. He also conflates “economic growth” with growth in GDP (gross domestic product). In my view and definitions, one aspect of Robotham’s article is to distinguish between “economic growth” and “GDP growth.”

Economic growth can be defined as the sustainable expansion in the productive capacity of a country, where real per capita income (income per person) rises. As an example, if a country has 100 people and 10 factories, and 10 more factories are built, then the capacity of the country to produce more goods and services would have increased, and it is reasonable to expect, too, that GDP would increase. If the number of factories remained at 10 and the country has 100 more people, GDP is expected to increase, however, it is very likely that per capita income could remain the same; 100 people produce 1,000 cars and 200 people produce 2,000 cars, so in both cases, one person accounts for 10 cars. Here, GDP is higher but not in a per capita sense as is necessary for welfare improvements. On another note, if the number of people and factories do not change but the people in the country increase their levels of educational attainment, and there is a commensurate productivity increase, then that satisfies the definition of economic growth proffered here.

USE INTERCHANGEABLY

Traditionally, “economic development” and “economic growth”, while distinct, have been used interchangeably. The growth in per capita income is used as a proxy for the standard of living of a country, a proxy for welfare, a proxy for “human development”. In the decades following “World War II”, it became increasingly evident that economic development could not be fully captured by per capita income. Rather, it must directly consider the multidimensionality of human welfare; “economic development” is now “human development.” Todaro and Smith in their popular Economic Development textbook note that:

“Development must therefore be conceived of as a multidimensional process involving major changes in social structures, popular attitudes, and national institutions, as well as the acceleration of economic growth, the reduction of inequality, and the eradication of poverty. Development, in its essence, must represent the whole gamut of change by which an entire 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.”

In 1990, the UNDP produced its first Human Development Report and Human Development Index (HDI). The popular HDI consists of three dimensions: income, health, and education. Cuba’s 2020 HDI ranking vis-à-vis its level of income presents an interesting case. When countries are ranked based on per capita income as a proxy for standard of living, Cuba falls 45 places down from its HDI ranking. This is the highest adjustment of any country ranked on the HDI. Put differently, Cuba has educational and health outcomes that are much higher than its per capita income implies.

FISCAL RESEARCH INSTITUTE

A recent article in Finance & Development, an IMF publication, defines “industrial policy” as “government efforts to shape the economy by targeting specific industries, firms, or economic activities. This is achieved through a range of tools such as subsidies, tax incentives, infrastructure development, protective regulations, and research and development support.” Time and space do not allow for a detailed discussion of industrial policy. Industrial policy does not mean that the government should be the dominant force in an economy. Industrial policy initiatives can occur in areas such as research and development to give but one example.

Prof Robotham has argued for an industrial policy that focuses on enhancing the technological capacity of Jamaica and Jamaicans and to foster sustainable economic growth and increased productivity through innovation. This is all well and good. Critics of Prof Robotham’s views will parrot the view that governments are bad at picking winners and should take a back seat to economic growth. Equally, too, some supporters of Prof Robotham’s are likely to demonise the private sector and market forces. Where is the ying and yang of economic growth?

The money allocated to the Fiscal Research Institute is approximately US$1.3 million. Future funding is expected to come from the Government and the private sector. The FRI will offer support to the independent Fiscal Commission, an office similar to the bipartisan Congressional Budget Office of the United States.

Fiscal policy is concerned with issues of taxation and government spending, so the same FRI that Prof Robotham has effectively poured cold water on could very well explore the very type of industrial policy he is advocating. I note Prof Robotham’s concerns about the “spaghetti bowl” of national institutions created to solve issues of economic growth. As for Finance Minister Nigel Clarke’s analogy on finance being the lifeblood of the economy, I find no issue there. I am sure that Prof Robotham will agree that we also need organs such as the HEART/ NSTA Trust to keep us alive.

- Dr Samuel Braithwaite is a lecturer in the Department of Economics, at The University of the West Indies, Mona. The views in this article are not necessarily the views of the faculty or the Department of Economics, UWI, Mona. Send feedback to braithwaite.samuel@gmail.com.