GNP per capita has been treated as an indicator of economic development and social welfare. For quite some time, a high GNP per capita has implied a high level of social welfare and economic development particularly in respect of some advanced countries.
No wonder developing nations like India have begun to show signs of impatience about their chronically low growth rate of GNP. The obsession of realizing a higher growth of GNP is so high that a number of developing countries have prepared themselves to give up the very social objectives to fulfil which a high growth of GNP, they believe, is essential.
Creation of employment opportunities, for instance, is a social objective of such economies. It is to achieve such objectives only that a high GNP growth has been and also is targeted by them. What if they turn to capital intensive methods in their desperation to achieve a high GNP growth? No doubt a high GNP, coupled with its equitable distribution, may help the nation-states in improving the standard of living of the people provided it leads to quality changes in the economy. Let us see what these quality changes are that make GNP growth imply economic development of a nation.
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Development refers to increase in availability of life-sustaining goods such as food, shelter, protection from epidemics; enhancement of facilities of education for improvement of cultural and humanistic values as also for freedom from servitude and dependence not only in relation to other people and nation-states but also to forces of ignorance and human misery; and, generation of material well being along with individual and national self-esteem.
Development in simple terms, means reduction in the incidence of hunger, disease, poverty, illiteracy, epidemics and superstitious beliefs and a steady rise in standard of living. In sum, development implies improvement in the quality of life of people.
Evidently, a high GNP per capita may ensure development if it percolates among the masses equitably. Kuwait has a very high GNP per capita but lacks in equitability of its distribution as also in general level of education, balanced growth of agriculture and industry and in health and medical facilities. It can’t be treated as a developed country so long as it lacks in diversification of its GNP on improvement of the living conditions of people.
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Observations such as those about countries like Kuwait, have led to widespread disillusionment of the economists about GNP per capita as a measure of economic development and social welfare. The hunt for alternative yardsticks for measurement of economic development has led to evolution of a wide range of socio-economic indicators for the purpose.
William Nordhaus and James Tobin developed a Measure of Economic Welfare (MEW) which was adopted by Samuelson and reshaped into what is known as the Net Economic Welfare (NEW). Samuelson’s NEW can be calculated by subtracting from GNP the hidden costs of disamenities of industrialization and by adding to it the values of such items as leisure and housewife’s services.
One well-known indicator in this regard is the Physical Quality of Life Index (PQLI) undertaken by Morris. It blends together the indices of life expectancy at age one, literacy rate and of infant mortality rate. Each of the three is rated on a scale of 1 to 100, where 1 represents the lowest and 100 the highest.
The composite index for a country is calculated by averaging the three indicators, giving appropriate weight-age to each. GNP per capita and the Physical Quality of Life Index for selected underdeveloped nations are given in Table 2.43.
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A few observations from the Table:
1. There is no direct correlation between high GNP per capita and high PQLI. Had it been so, Qatar and Saudi Arabia with per capita GNP of $27,790 and $12, 720 respectively would have had highest PQLI.
2. Countries with very low GNP per capita have relatively very high PQLI. For instance, Sri Lanka with very low GNP per capita of $302 has a PQLI as high as 82, China with that of $304 has a PQLI of 75, Tanzania with that of $299 has a PQLI of 58 and India with a GNP per capita of $253 has a PQLI of 42 while Pakistan and Sudan with GNP per capita higher than that of India, have each a PQLI lower than that of India.
At least from the trends in respect of the Less Developed Countries (LDCs), it is clear that a country like Sri Lanka can be much happier with a low GNP per capita than a number of others with very high GNP per capita just because it has a high life expectancy, a low infant mortality and high literacy.
This provides sufficient evidence against GNP per capita as an indicator of economic development and social welfare. Why then strive for a high GNP per capita at the cost of social welfare? Subsidization of health, education, shelter, food and clothing for the poor along with eradication of epidemics, generation of employment opportunities and a trickle-down of national income (large or small, achieved without sacrificing the cause of the downtrodden) to the lower strata of society can substantially improve the plight of the general lot of the people as in Sri Lanka and China! Why then countries like India are getting wary of the persistent low growth of GNP?
The questions are left for the young readers to ponder upon. It will be in order to quote some of the economists for the reader’s assistance in this regard. According to Schumacher, “The common criterion of success, namely, the growth of GNP, is utterly misleading and, in fact, must of necessity lead to phenomena which can only be described as neo-colonialism.”
According to J.R. Hicks, “The purpose of income calculation is to give people an indication of the amount they can consume without impoverishing themselves.”