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Economic Growth Versus Human Development

By Prahlad Shekhawat

02 July, 2011

Conventional indicators of development are being seen as unsatisfactory. The need for higher GDP leads to productive systems and consumption patterns that are not in harmony with the carrying capacity of the environment and our planet. GDP does not measure indicators of well-being, fair and equal distribution, unpaid labor and social sector indicators which assess the provision of effective employment, health and education.

India has consistently achieved the second highest rates of GDP growth but moved down to 134 position in the Human Development Index in 2009, compared to 128 a year before. The 2010 report puts India far behind in terms of achievements in tackling multidimensional poverty. The report concludes that economic growth has not lead to human development or less inequality. Similarly India is lagging far behind in its meager efforts to fulfill the United Nations Millennium Development Goals. Since many years the composite Human Development Index has been combining income, health, education and gender equity. The 2010 report there is a proposal to enlarge the measures to include new indicators like equity, environmental sustainability and empowerment through people’s participation

Moving away from one sided focus on economic growth as a panacea and an end in itself developed is being redefined in terms of more meaningful, multidimensional and sustainable measures. According to the Research Group: Wellbeing in Developing Countries at the University of Bath, the concept of wellbeing examines three perspectives: ideas of human functioning, capabilities and needs, the analysis of livelihoods and resource use, and research on subjective wellbeing and happiness.

The National Accounts of Wellbeing in Europe divides well-being into personal and social. Personal well-being includes aspects like emotions, vitality, resilience, good functioning, and a satisfying life. The social aspects refer to relationships, social support, trust, and belongingness. These measures put Scandinavia in general and Denmark in particular at the top of the list of countries. The move towards alternative measures in Europe calls for the need to standardize and normalize the measures to understand changes over time, review and evaluate policy decisions, draw comparisons, and assess differences within nations.

Mindful of these concerns President Sarkozy of France decided to set up the Commission on Impact of Economic Performance on Social Progress, which according to the Commission’s Chairman Nobel prize winning economist Joseph Siglitz, aimed to achieve 3 goals. Firstly to identify the limits of GDP as an indicator of progress. Secondly there was a need to consider additional information required for the production of a more relevant picture and to discuss how to present this information in the most appropriate way. Finally the purpose was to check the feasibility of measurement tools proposed by the Commission. The Commission includes three Nobel Prize winning economists

After the recent meeting of the Commission in Paris, Amartya Sen who is adviser to the Chairman of the Commission explained that it is imperative to focus on wellbeing rather than on economic growth and other mainstream economic indicators. He pointed out that when we meet someone we ask; how are you, which denotes a concern and wish for the others wellbeing and health rather than signifying the other persons income and material wealth. In his recent book ‘Idea of Social Justice’ Sen has advocated that more than happiness it is wellbeing and capabilities to choose a valuable life that is worth living, which are a better measure of human development and social progress

The Commission is of the view that alternative indicators which may provide a better description of economic performance and social progress are called for and we have to be prepared for trade-offs. Many indicators can better reflect the diversity of issues and individual situations, but an unduly large number of them may create a confused picture of the overall situation. The Commission maintains that a single figure or index mixing a large number of socio-economic phenomena provides an inadequate basis for appropriate policy measures.

Stiglitz points out that any statistical indicator has to aggregate variables that are, in some sense, incommensurate. In estimating GDP, we add up apples and oranges; and we aggregate them together using relative prices. While extending GDP to areas where there are few market transactions, the relevance of a monetary metrics becomes doubtful. The choice of alternative metrics has to be evaluated both from a conceptual and practical point of view.

In order to give shape and focus to its work the Commission has selected three main directions of study. Firstly limits of GDP as an indicator of socio-economic progress or economic performance need to be addressed by investigating possible extensions or modifications of the current conceptual framework. Secondly Quality of life approach is significant because it measures social progress from a broader perspective. Well-being and happiness or subjective well-being takes into account metrics derived from asking people about how they themselves feel about satisfaction with life. Finally sustainable development and environment are one of the biggest concerns about the inadequacy of the current measures of economic performance and social progress

The recent report of the Commission points out that there is no consensus yet as to which indicators provide the greatest value, and how they should be applied in guiding public policy. The Commission’s most significant finding seems to be the need to track three distinct policy goals separately: economic, performance, quality of life, and environmental sustainability. Combining many dimensions of well-being would dilute clarity and provide numerical results with little practical utility.

Can the Indian Government respond by setting up a similar and much needed commission in India on the Impact of Economic Growth on Human Development, under the Chairmanship of Amartya Sen. India and its government celebrates Amartya Sen as a matter of Indian pride because he won the Nobel prize, yet completely ignores his advice that economic growth is a means for human development and not an end in itself

Prahlad Shekhawat is Director, Alternative Development and Research Center,Jaipur, India



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