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An analysis of causal flow between social development and economic growth: the social developement index
American Journal of Economics and Sociology, The, July, 1996 by Krishna Mazumdar
I
The Literature on Causality
Most of the developing countries emphasize social well-being of the masses nowadays. Consequently, the problem faced by their policy makers is to increase the social benefit of the masses without hindering the economic growth of the country. This raises the question whether a country should try to improve social development, as it is measured by social indicators, or concentrate solely on economic growth and leave the question of basic needs of the public to take care of themselves.
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The literature on development economics evidences that the research on the relationship between social development and economic growth has taken at least four different strands: (i) that social development is a product of economic growth; (ii) that economic growth and social development are two unrelated events; (iii) that neither social development nor economic growth is a primary cause of the other, but they are inter dependent; (iv) that social development precedes economic growth.
The first view, that social development is a product of economic growth has been adopted generally in the development policy. These policies tend to place a heavy emphasis on economic programs and assume that economic growth would tend to produce social development. This "trickle-down" was adopted by the United States towards third world development in the early post-war period. This approach is based implicitly on the Rostovian model, where economic growth is the impetus for passage through the various stages of development to a fully modernized society (Rostow, 1960). Okun and Richardson (1962) defined economic growth as "a sustained, secular improvement in material well-being . . . as reflected in an increasing flow of goods and services." This view regarding economic growth was not changed until the early 1970s when MacNamara (1971) asserted that "Development has for too long been expressed simply in terms of growth of output. There is now emerging the awareness that the availability of work, the distribution of income, and the quality of life are equally important measures of development."
Although this trickle-down approach has been criticized since 1970 for being ineffective for meeting basic needs, studies still appear which follow this approach. For example, Hagen (1980) in his 'the Economics of Development' opines that economic growth, which he defines as the increase in production per capita or income per capita, will improve the distribution of material welfare.
More recent researches in this respect has been performed by Ram (1985) and Goldstein (1985). Ram suggests that increase in average per capita income should, in turn, improve the level of basic needs fulfillment. Goldstein posits a causal model based on the assumption that economic factors will strongly affect at least one component of basic needs, infant mortality rates, and that this basic needs indicator will only weakly affect the economic indicator, if at all.
The second view that social development and economic growth are unrelated is illustrated by Zuvekas (1979). He is of the opinion that economic growth can occur without social welfare development and expresses the views that the countries could limit the distribution of domestic benefits of growth to a privileged elite at the expense of widespread social welfare development. He states that without specifically targetting the poorer sections of the population for assistance in meeting basic needs, economic growth could produce an ever widening gap between the wealthy and the poor.
Grants' (1973) analysis of the empirical evidence also lends support to these contentions. Finally, London and Williams' (1988) correlational analysis suggests that basic needs measures are both analytically and empirically distinct from economic growth measures.
There are some studies in economic development which express the third view, that economic growth and social development are highly interdependent. For example, Srinivasan (1977) is of the opinion that the policies for economic growth and the policies towards basic needs development are interwoven. He suggests that too much emphasis on basic needs would, at least in the short run, hurt economic growth which, in turn, would damage future improvement in the basic needs fulfillment.
Streeten (1977, 1981) has expressed the fourth possibility that economic growth is the result of social development. He has been a strong proponent of the basic needs approach. He provides a critique of the income approach to poverty alleviation by noting that the extra income would not always be spent on items basic to the individual's welfare. In addition, he notes that some basic needs may be satisfied more effectively through public services (including access to clean drinking water, schools and health services), and therefore, are not directly linked to individual income. In fact, Streeten suggests a "trickle-up" effects when he states "basic needs is not primarily a welfare concept; improved education and health can make a major contribution to increased productivity." (1981).
