Does Economic Growth Equate to Economic Development?

“People don’t eat statistics. We are told the economy is growing but, our eyes only see misery all around”

Ever since the turn of the 1990s, there has been great stress on raising the rate of economic growth. In Ghana, it has become the be all and end all for our various governments since 1992. It has been stated time and time again that, the only way to accomplish this task is by following the ten points that constitute the Washington consensus , which boil down to deregulation, trade liberalisation, privatisation, fiscal policy discipline, liberalized of inward foreign direct investment etc. For quite some time, the votaries of this thinking and their trumpeters in the academic world as well as the media have been announcing from the housetops that, the salvation of Ghana lies in this.

It is claimed that, by following the prescription of the Washington consensus, Ghana has been able to raise the annual rate of economic growth to 6.8 percent and very soon, it will reach 9 percent and the day is not far when it will be ahead of many economies in Africa. But here, an inconvenient question arises: will it take care of Ghana’s problems of unemployment in all its form and manifestations, illiteracy, life expectancy, poverty, ill health, regional economic imbalances and so on? Before I attempt to tackle this very pertinent question, let us be clear about the connotation of economic growth.

In common parlance, seldom any distinction is made between growth and economic development. They are generally taken to be synonyms. In development economics, however, they do not have the same connotations. Economic growth means only a sustained increase in the volume of goods and services produced annually by a nation, generally expressed in terms of GDP (Gross Domestic Product). The total volume of goods and services may increase by employing greater amounts of labour without any change in its productivity or by raising its productivity without any change or with even a decline in the quantum of labour or by increasing both the quantum of labour and its productivity. Obviously, there is a clear-cut possibility of “jobless growth”, i.e., GDP may increase without generating new employment opportunities or throwing workers out of jobs.

However, economic development on the other hand, is a much wider concept. It includes not only economic growth but, also technical and institutional changes. There can be no economic development without economic growth, while if a nation is having growth, it does not mean at least in the short run that, it will have economic development too. In other words, economic development implies economic growth along with changes in the distribution of GDP and in the economic structure. These changes, in turn, imply an improvement in the material well-being of the poorer segment of the population; a decline in the relative share of the primary sector in GDP and a corresponding increase in the share of secondary and tertiary sectors besides improvement in the level and quality of education and skills of the working population, with the result that, the country concerned is able to pioneer most of the technological advances.

Professor Dudley Seers was very candid in demarcating economic development from economic growth. He argues that, economic development is about outcomes, that is, economic development occurs with the reduction and elimination of poverty, inequality, and unemployment within a growing economy. If all three of these have become less severe, then beyond doubt this has been a period of development for the country concerned. If one or two of these central problems have been growing worse, especially if all three have, it would be strange to call the result development even if the per capita income has soared.

Decades ago, Amartya Sen argued that, neoclassical economics did not apply well to underdeveloped countries. With the emergence of development economics came the proposition of an activist state with the major strategic themes of industrialisation, rapid capital accumulation, mobilisation of underemployed labour, and planning. Sen went on to argue that, economic growth is not the same thing as economic development and what is at issue is the crucial role of labour mobilisation and use. Economic growth was no more than a means to some other objectives. If Ghana is keen to raise the level of health and the expectation of life, then it would be pretty suicidal to try to achieve this through raising income per head, rather than going directly for these objectives through public policy and social change, as China and Sri Lanka have both done. The process of economic development can be seen as a process of expanding the capabilities of people.

The economic development paradigm is a holistic development model. It encompasses every development issue, including economic growth, social investment, people’s empowerment provision of basic needs and social safety nets, political and cultural freedom and all other aspects of people’s lives. There is fairly broad agreement on certain aspects of economic development. Economic development put people at the centre of its concern and the purpose of economic development is to enlarge all human choices and not just income. It builds up human capabilities (through investment in people) and with using those human capabilities fully (through an enabling framework for growth and empowerment).

Ghana’s economic development cannot be simply modernising and upgrading what exists, although that is essential. We have to expand and upgrade our infrastructure, make our industry competitive, and build capacity of the state to direct and regulate the economy. This means developing the productive forces of the formal and informal economy. Economic development ultimately leads to a change in the values, outlook and attitudes of the people and in the society and polity. Far reaching changes occur in the organisation of business, production and finance.

Economic growth is essential for economic development, but to fully exploit the opportunities for improved well-being that growth offers, it needs to be properly managed. There are four ways to create the desirable links between economic growth and economic development.

There should an emphasis on investment in the education, health and skills of the people. There should be an equitable distribution of income and assets. There has to be an improvement in human development through a well-structured social expenditure by the government. Empowerment of people, particularly women.

A country can achieve high rates of economic growth without any appreciable economic development.