Beyond economic growth

Jean Dreze and Amartya Sen, writing in Outlook India (“Putting Growth In Its Place“) argue that India should see economic growth as a means to an end and not the end in and of itself. Whether you see GDP growth or human development as an end will shape whether India’s recent history is an extraordinary history or something much more grim:

So which of the two stories—unprecedented success or extraordinary failure—is correct? The answer is both, for they are both valid, and they are entirely compatible with each other… Indeed, economic growth is not constitutively the same thing as development, in the sense of a general improvement in living standards and enhancement of people’s well-being and freedom. Growth, of course, can be very helpful in achieving development, but this requires active public policies to ensure that the fruits of economic growth are widely shared, and also requires—and this is very important—making good use of the public revenue generated by fast economic growth for social services, especially for public healthcare and public education.

On a more specific social policy, they comment on how conditional cash transfers — the hot social policy of the moment (of the decade?) — worked in Latin America precisely because some level of public social services were already in place, and the condition of receiving the transfer was often utilizing those services. They argue that India can’t shortcut around investing in social services, skipping straight to the transfers and waiting for things to get better.

In Latin America, conditional cash transfers usually act as a complement, not a substitute, for public provision of health, education and other basic services. The incentives work for their supplementing purpose because the basic public services are there in the first place. In Brazil, for instance, basic health services such as immunisation, antenatal care and skilled attendance at birth are virtually universal. The state has done its homework—almost half of all health expenditure in Brazil is public expenditure, compared with barely one quarter (of a much lower total of health expenditure) in India. In this situation, providing incentives to complete the universalisation of healthcare may be quite sensible. In India, however, these basic services are still largely missing, and conditional cash transfers cannot fill the gap.

Cash transfers are increasingly seen as a potential cornerstone of social policy in India, often based on a distorted reading of the Latin American experience in this respect. There are, of course, strong arguments for cash transfers (conditional or unconditional) in some circumstances, just as there are good arguments for transfers in kind (such as midday meals for school children). What is remarkably dangerous, however, is the illusion that cash transfers (more precisely, “conditional cash transfers”) can replace public services by inducing recipients to buy health and education services from private providers. This is not only hard to substantiate on the basis of realistic empirical reading; it is, in fact, entirely contrary to the historical experience of Europe, America, Japan and East Asia in their respective transformation of living standards. Also, it is not how conditional cash transfers work in Brazil or Mexico or other successful cases today.

Here’s the rest of the article.

07

11 2011

Your Comment