Human Development vs. Economic Development

Shortly after the second World War, the concept of ‘International Development’ took the centre stage of the international community. Historically, the concept was mainly synonymous with economic growth but in recent times, the argument has shifted away from economic development, towards the concept of human development. This was largely depicted with the founding of the Millennium Development Goals in 2000 and the Sustainable Development Goals in 2016.

While both human and economic development focus on raising the standards of living of people around the world, the latter does so by the promotion of economic growth in order to enhance the economic well being of the citizens of a nation. However, human development scholars argue that simply increasing the national income of a country does not translate to better livelihoods. This idea was championed by Amartya Sen, who later inspired the creation of the Human Development Index (HDI). According to Sen and Nussbaum’s (2011) “capability approach”, what really drives a nation forward is the increase in ‘capabilities’ and ‘personal freedoms’ of it’s citizens. They tie the concept of capabilities and freedoms to that of basic human rights and social justice, the provision of which should be the main responsibility of the state, and the deprivation of which would ultimately result in underdevelopment. According to capability approach, economic development is simply “potential for continued business-centred expansion” and many governments would not hesitate to deny fundamental human rights to its citizens in order to achieve economic prosperity. Thus, according to Sen and Nussbaum, in order to achieve prosperity for the populations at hand, states and policymakers need to prioritize human development over economic development.

We can examine the outcomes of prioritizing human over economic development and vice versa by an analysis conducted by Ranis, Stewart and Ramirez (2000) in which they found that out of the eight countries that had prioritized economic development back in 1960–1970, all eight ended up in a ‘vicious cycle’ of low economic growth and low human development, also known as the ‘poverty trap’. On the contrary, out of all the other eight countries that had prioritized human development in the same period of 1960–1970, 50% of them ended up moving into ‘virtuous cycles’ of high economic development and high human development. According to Ranis, the success of those four countries was due to the fact that early investments in human development ensured that citizens were better able to take advantage of the future policy reforms to generate growth. For example, Imran Khan, the current Prime Minister, has made a dramatic policy shift towards human development. Since taking charge, he has made major contributions to the development of institutions such education and healthcare. This is seen as a much needed change considering the failures of the past administrations and economic growth focused policies (mainly financed by loans from IMF etc), paired with high levels of corruption, that left the country heavily indebted, and with low levels of human development. As a result of this, media outcry and mass protests due to the inflation in fuel, food, gas and electricity prices caused by huge debt servicing, further brought to light the deep-rooted systemic poverty that was prevalent in the country.

These findings create crucial considerations for policy-makers as it brings to light the fact that despite the differences between human development and economic development in theoretical terms, they are very much interlinked and interdependent in practical terms. As put by Ranis (2004), both the concepts are “mutually reinforcing”. This further strengthens Sen’s argument of capabilities, in the sense that economic development is crucial for the provision of human development, and human development is crucial to enable people to enjoy the rewards reaped by economic growth. For instance, even though all US citizens have the right to vote, lacking the ability to read the literature or the ability to get to the ballots, inevitably results in some citizens still not voting.

A helpful tool that furthers illustrates these arguments is the ‘Human Development Index’ (HDI), which was created in order to quantitatively measure the levels of living standards of people when compared to other nations. It was created in order to depict a true picture of the level of impact that a countries’ policies were having on it’s society and the gaps between the GDP figures and HDI figures. It does so by measuring three different categories including life expectancy, the level of literacy, and finally the basic standard of living.

The development of the HDI was a crucial step in the right direction because, as stated above, it brought to light the gaps between GDP figures and HDI figures and offered new insights into the wellbeing of a country. One such example is that of Mozambique, a country that, according to World Bank and IMF, has achieved one of the highest levels of economic growth in Africa since the 1990s. However, according to UNDP, Mozambique is also the country that ranks poorly on the HDI, standing at 180 out of 189 countries in 2019. However, observing the trend line between HDI and economic growth of Mozambique since the 1990s (provided by UNDP Statistics), the relationship is a positive one, yet the gap remains. This shows us that increases in economic development do lead to minor increases in human development, but unless policy-makers take into account human development, economic rewards can not be utilized by the masses.

To conclude the above arguments, the presented evidence clearly emphasizes that although economic development and human development were originated as two conceptual rivals, the two concepts are inevitably interlinked. Economic development is dependent on the capabilities and freedoms of the population and human development is dependent on the availability of resources and opportunities that economic growth creates. Yet, the two concepts remain inherently different in their approaches to poverty reduction, especially with regards to economic and social policies. It is thus of crucial importance for policy-makers to focus not on the differences, but on the shared elements of the two concepts, as sticking to the former can create numerous obstacles that can hinder both economic and human development, thus not satisfying either of the two paradigms.

BSc. International Development, University of London