Tuesday, 16 September 2014

Reading Dreze and Sen: 5 – Integrating Growth and Development

The impact that economic growth has on the lives of people depends on a) income distribution, but also on b) the use made of public revenue generated by economic growth.

For example, the fact that India spends only 1.2% of its GDP on healthcare and China devotes 2.7% is directly relevant to the greater health achievements of China vis-à-vis India. Because of low allocation to public healthcare, many poor people across India are forced to rely on private doctors. Why is that so wrong? First, many private doctors have little or no medical training. Second, patients know very little about diseases, medicines required or indeed why, the possibility of defrauding is huge [in absence of an alternative public healthcare to which they can go to for assistance or advice]. India has started to rely on private healthcare without developing solid public healthcare facilities. In doing this, India is proceeding on a path different from every country that has made a successful health transition [e.g. Britain, Japan, China, Brazil, South Korea, Costa Rica]. All these countries first developed a well-functioning public healthcare system and only then encouraged private health care facilities as auxiliaries. By allocating more of the public revenue generated by economic growth to promoting healthcare, India could more greatly enhance the living conditions of its citizens. Whether growth facilitates development in terms of enhancing the living conditions of people depends on what is done with the public revenue that is generated by growth.

Moreover, while we must recognize the role of growth in facilitating development (in the sense of improving human lives), we also need to recognize that the advancement of human capabilities (through healthcare, education etc) also, in turn, influences the growth possibilities of a country. The state can play a constructive role in developing these human capabilities.

Before the economic reforms in the 1990s, India faced two major failures. First, it was failing to tap the constructive role of the market (especially in terms of promoting initiative, efficiency and coordinating complex economic operations). India’s ‘Licence Raj’ system had made it necessary to take government permissions for private initiatives and this made economic enterprise very difficult; economic enterprise was put at the mercy of bureaucrats. This stifled initiative and nurtured corruption. This failure has been partially remedied in the post-reform period. Arbitrary controls have been removed and there is now a greater openness to international trade – both of which have helped India to achieve a solid basis for high rates of economic growth. Nevertheless, there is more to be done both in terms of removing/simplifying counterproductive regulations and ensuring that regulation, where necessary, is well-aimed.

But there was another, second failure that India needed to address i.e. its failure to tap the constructive role of the state. Government intervention in the pre-reform period was excessive and of a restricting kind. But there were huge areas of activity where it could have engaged in constructive public action which could have achieved a lot. For example, the state could’ve been used to remedy India’s under-developed physical (power, water, roads, rails) and social infrastructure (hospitals, schools etc) and to build a functioning system of accountable public services. The reforms of the '90s have done little to remedy this second failure.

Despite its post-reform increase in growth rates, the benefits of this growth are very unequally shared. Poverty rates have decreased, but a lot more could have been achieved had the distributional side (including provision of essential services) got more attention. India’s failures are huge in terms of widespread undernourishment in general and child nourishment in particular. Other big failures include the lack of provision of healthcare to the bulk of the population and a quarter of the population remaining effectively illiterate.

The two main problems facing the Indian economy are 1) removing the disparities that divide the country into the privileged and the rest while continuing economic growth and 2) bringing more accountability into the running of the economy, especially in the delivery of public services and the operation of the public sector. Both these problems stifle India’s social and economic progress and remain essential parts of the unfinished agenda of growth and development of India. 

[The purpose of the ‘Reading Dreze and Sen’ series of blogs is to briefly summarise some of the arguments given by Jean Dreze and Amartya Sen in their book ‘An Uncertain Glory: India and its Contradictions’. The arguments are of the authors alone and the blogs are merely a recapitulation of them in as simple a way possible (the style is deliberately informal). The aim is to help myself to remember the details of these arguments (writing always helps!) but more importantly to hopefully trigger conversation and provoke contestation regarding the issues raised, even if on small forums like facebook :)]