Not by Bread Alone
Growth in national income is a poor predictor of welfare
IF YOU look at countries’ social and economic progress since 1990, you will find that, in most cases, it is in line with their historic performance—with some important exceptions. According to the United Nations Development Programme (UNDP), over 40 countries have done much better than their recent history alone would have suggested. This large group, says the UNDP, really represents “the rise of the South”, not the BRICS, “Chindia” or some more exclusive club.
The distinctive feature of the calculations is that they are based on the UNDP’s “human development index”, (HDI) which includes social indicators (for example, health and education) and hence is a broader measure of welfare than gross domestic product (GDP), which is based on income. As measured by the HDI, some countries with a good but not outstanding record of GDP growth perform exceptionally well. Mexico, Algeria and Brazil, for example, saw their incomes per person rise at modest annual rates of 1-1.7% in 1990-2012. But measured by the rise in the HDI they were among the top 15 performers. Bangladesh did as well as India on HDI, even though its economic growth lagged behind that of its giant neighbour.
Booming economies (in the GDP-derived sense) still did well. China, where income per head rose by 9% a year from 1990 to 2012, came third by the HDI measure. But South Korea, where income per head rose less than half as quickly, came first. Four of the top ten HDI performers had annual income growth of less than 3% a head.
The lesson, says the UNDP, is that whereas GDP growth matters, countries cannot rely on it alone for broad-based development. The best performers by the HDI measure also have the most energetic social policies. Turkey, for example (number nine in the HDI top ten) almost trebled spending on anti-poverty programmes in 2002-10, introduced a conditional cash-transfer scheme in 2003 and cut the share of the population living below the official breadline from 30% in 2002 to 4% in 2010.
Perhaps the most telling lesson is that countries that did best according to the broad-based measure also integrated more into the world economy. All but five of the 45 countries that most improved their HDI scores also increased the share of trade in their economies, often dramatically. Cutting yourself off and spending lots of money on social protection (as Venezuela did) produces poor results.