Transcript Document

LECTURE 2
The nexus between the growth of GDP
and development
Growth and development: 3 views
Development > growth (GDP): also individual, social, environmental,
institutional indexes
Different views of the relation growth ↔ development:
A) ↑ growth → ↑ development: unjustified assimilation
the means becomes an end in itself → main goal of economic policy
B) ↑ growth ≠> ↑ development: must be also sustainable
main goal of economic policy: sustainable development
C)
↓ growth → ↑ development: theory of downscaling (Latouche)
A) assimilation of development to growth
Based on the following arguments:
•
Per capita GDP: reliable indicator of individual well-being
↑ well-being (utility)
↑ growth → ↑ development {
↑ health
•
Growth GDP necessary condition to conquer poverty
•
Kuznets curve: growth increases inequality after the industrial take-off
but then reduces it
•
Environmental Kuznets curve: growth deteriorates the environment after
the industrial take-off but then improves its quality
A) Evolution of per capita income
Fonte: Lomborg (2001)
UK per capita GDP
Per capita GDP thousands £
Per capita GDP thousands $
US per capita GDP
Happiness and GDP in the USA
Happiness and GDP in Japan
Happiness in Italy (1975-2007)
Source: Nicola Lucia, 2008
Relationship between per capita GDP and happiness
Cross-country relationship between GDP and health
(2000)
life expectancy at birth (years)
80
70
60
50
40
0
10000
Source: World Bank
20000
30000
40000
GDP per capita (costant '95 US$)
50000
The first happiness paradox 1
1st paradox: ↑p.c. Y does not → ↑happiness
We know since long that the GDP index is a strongly distorted and
misleading index of well-being
Not registered {
Unduly registered:
- exhaustion of natural resources
- deterioration of natural and social capital
- social and environmental negative externalities
- relational goods
- defensive expenditures (e.g. conditioning)
The first happiness paradox 2
Alternative measures to correct the shortcomings of the GDP:
•
NEW (Net Economic Welfare) suggested by Nordhaus and Tobin (1973)
grew les than the GP in the post-war period in industrialized countries
•
ISEW (Index of Sustainable Economic Welfare) by Daly and Cobb (1989):
while the US GDP grew from 1951 to 1986 at an average rate of 1.90%,
the ISEW grew much less (0.53%) and became negative since early 1970s
→ the alternative indexes focus on the same neglected factors
stressed by the happiness literature
The second happiness paradox
2nd paradox: ↑p.c. Y does not → ↑ health
Inadequacy of the general health indexes
The health of individuals depends on life length but also on its quality:
- ↑ frequency of depression and suicides
- a long life is not necessarily a happy life
- well known since long: the immortals (“struldbrugs”) are unhappy
(Gulliver travels, Swift, 1726)
Also the general indexes of health should be corrected by taking into account
the quality of life
→ this would further enhance the decoupling between growth and health
The two happiness paradoxes and
economic policy
1st paradox: ↑p.c. Y does not → ↑happiness
Twin happiness paradoxes {
2nd paradox: ↑p.c. Y does not → ↑ health
Not true paradoxes: long list of explanatory factors
to measure development with GDP
The real paradox is the obstinacy {
to assume growth as the main policy goal
neoliberal camp (Bhagwati, 2004)
Bipartisan consensus reasserted {
Keynesian camp (Benjamin Friedman, 2006)
Extremely misleading position: to be rejected
KUZNETS curve
Inequality
Social carrying
capacity
Per capita income
Fig. 9
KUZNETS CURVE (1955)
Plausibility → take-off (triggered by the adoption of outward-oriented policies):
-diffusion takes time
-urbanisation
-growing pressure in favour of redistribution
(progressive taxation, transfers, welfare state)
Optimist message; the problem tends to disappear “spontaneously”
Kuznets conjecture corroborated by econometric studies up to the 1970s
since the early 1980s new econometric studies have progressively weakened the
empirical support (emergence of the U-pattern in OECD countries)
historical explanation: the KC described a specific historical process and not general
tendencies intrinsic in the process of globalisation→ policy is needed
Inequality in the U.K., 1939-1996 (%)
56
52
48
44
Gini index
40
36
32
28
24
20
16
1985
1945
1955
1965
1975
1935
1995
1970
1990
1940
1950
1960
1980
2000
Fig. 5
Source: Brandolini (2002)
Inequality in the USA, 1929-1996
56
52
48
44
Gini index
40
36
32
28
24
20
16
1915 1925
1985 1995
1955
1965 1975
1935 1945
1970
1990 2000
1920 1930
1940 1950 1960
1980
Source: Brandolini (2002)
Fig. 6
Impact of globalisation on
the social conditions of sustainability: 2) poverty
we have to reject the optimist message of the Kuznets curve
however, according to many economists, in order to study the social
effects of globalisation we should focus
not on inequality but on poverty
Conviction based on the “Bhagwati hypothesis and prescription”:
Countries have similar distribution of income → we can only
reduce poverty by increasing the rate of growth of income
(Bhagwati, 2004, p.66)
Impact of globalisation on
the social conditions of sustainability: 2) poverty
misleading hypothesis: Bourguignon and Morisson (p.733)
calculated that:
“had the world distribution of income remained unchanged
since 1820, the number of poor people would be less than
1/4th than it is today and the number of extremely poor
people would be less than 1/8th of what is today”
→ we should try hard to realize a more egalitarian growth
Poverty trends (< $2 per diem)
POVERTY
3000.0
100.0%
90.0%
2500.0
80.0%
60.0%
1500.0
50.0%
40.0%
1000.0
30.0%
20.0%
500.0
10.0%
0.0
0.0%
1820
1850
1870
1890
1910
1929
poverty
1950
1960
1970
1980
poverty %
Source: Bourguignon and Morisson (2002)
1992
headcount (percents)
headcount (millions)
70.0%
2000.0
Environmental KUZNETS curve
Environmental deterioration
Environmental
carrying capacity
Per capita income
Fig. 11
Environmental KUZNETS curve
(Panayotou, 1993)
No historical series of comprehensive indexes of environmental deterioration
→ correlation with specific indexes of environmental deterioration
Some of them behave as in the KC → “environmental Kuznets curve”
Plausibility:
-take-off: shift of labour from agriculture to heavy industry
then increase of light industry and services
-growing pressure of final users and electorate
Econometric studies seemed to corroborate the hypothesis but then it was
falsified in many cases:
- it works only when the environmental effects are local
- recently N-shaped curves
Environmental KUZNETS curve
(sulfur dioxide)
Sulfur Dioxide g/m3
1972
1986
Per capita income (PPP$)
DEVELOPMENT
Source: Shafik (1994)
Fig. 12
Thousands coliforms per 100ml
Environmental KUZNETS curve
(coliform bacteria)
1986
1979
Per capita income (PPP$)
DEVELOPMENT
Source: Shafik (1994)
Fig. 14
Conclusions on A) growth = development
Not always postwar growth translated in ↑ quality of life:
- the well-being of citizens (measured in terms of subjective happiness) did
not increase in industrialized countries
- health in terms of quality of life often did not improve
- poverty in absolute terms increased and in the near future is likely to grow
also in relative terms
- inequality resumed growth since the late 1970s
- environmental deterioration grows with limited exceptions
Sustainable development: definitions
Development:
process of expansion of individual economic freedom (Sen, 1999)
Sustainable development:
“Development is sustainable if it satisfies present-day needs
without compromising the capacity of future generations to satisfy
their needs” (Brundtland Report, 1987)
Sustainable development
Foundations
• Income
DISTRIBUTIVE EQUITY • Wealth
• Resources
CHOICE FREEDOM
2 CONDITIONS
INTER-GENERATIONAL
INTRA-GENERATIONAL
ENVIRONMENTAL
CRITERION
SOCIAL
CRITERION
Ethical and economic foundations:
the social condition
equal access to the basic economic opportunities: ethical foundations
this is also a fundamental condition of economic efficiency
-prerequisite for a well-functioning competitive market: guarantees that the
winners of the economic competition are actually the best participants as
each of them plays on a “level playing field”
-poverty (malnutrition) implies a restriction of the option set reducing the
potential contribution of poor people to economic efficiency and wealth:
among poor people who cannot afford a good education there are
potentially good scientists, engineers, physicians, managers and so on
-social and political tensions that have negative effects on income growth
(Alesina and Perotti, 1996; Benhabib and Rustichini, 1996)
Ethical and economic foundations:
the environmental condition
similarly environmental degradation has adverse economic effects:
• ↓ health of people → ↓ productivity
• ↓ land productivity
• poverty-environment trap: the poor rely heavily on the direct exploitation of
natural resources:
↑ environmental degradation →↑ poverty →↑ environmental degradation
Crucial requisite of sustainabilty
Development is sustainable only if:
Reduction rate of ED
intensity
>
Rate of growth of
population
More likely in developed countries
Calls for:
• Technologic change
• Consumption
Increasingly
eco-compatible
The sustainability gap in the current model of
energy production and consumption
sustainability gap
3.0
2.5
rate of growth
2.0
1.5
1.0
0.5
0.0
1971-1980
1981-1990
1991-2000
gap
Average observed values for each decade (projection 2001-2005)
Source: Energy Information Administration
2001-2025
C) Point of view of de-growth
The concept of sustainable development is considered as an oxymoron (Latouche)
This assertion is based on the misleading assimilation of development and growth
and thus on the confusion between the two preceding points of view
-literal: de-growth as necessary condition of sustainability
Two versions
{
-provocation to change paradigm
- development depends on the quality of (de-)growth, not on the sign
Critique{
- focus on the quantitative features
De-growth does not help within the current model of development (recession…)
we have to focus on the qualitative features of growth:
this is what the conditions of sustainability of development invite us to do
Models of development
two phases
WITHIN-COUNTRY
INEQUALITY
ENVIRONMENTAL
DETERIORATION
1945-1971
MODERATE
IMPROVEMENT
WORSENING
1980-2010
WORSENING
PARTIAL
IMPROVEMENT
NEITHER OF THE PHASES OF POSTWAR DEVELOPMENT
MAY BE CONSIDERED AS FULLY SUSTAINABLE
ALTHOUGH FOR DIFFERENT REASONS
Sustainable development and the crisis
The crisis undermines the transition to sustainable development:
↑ short-termism
↓ oil price → ↓ investment in renewable energy sources
↑ variability oil price → ↓ investment in renewable energy sources
↑ trend oil price → obstacle to recovery
↓ attention on the environmental quality when it involves higher costs
↓ concern for ethics if it involves a monetary cost
We should try hard to avoid all these destructive effects:
it is during a crisis that the seeds of future development are planted
Unep report “A Global Green New Deal”
stimulate the recovery
GGND{
strengthen the sustainability of the world economy
Governments invited to invest 1/3 of $2500 Mld anti-crisis
environmental (energy-climate, water, ecosystems)
in sustainability{
social (inequality and poverty)
A study of HSBC shows that some countries move in this direction:
South Korea 81%, China 38%,
but:
France 21%, Germany 13%, USA 12%, UK 7%, Spain 6%
Italy is last in this list : 1,3%
The future development cycle
Each development cycle is pulled by a strategic sector{
-railways: 1840→
-electrification: 1900→
-auto, domestic appliances: 1950→
the new cycle is incubated during the great crises:
e.g. SME “made in Italy” (1970→)
-renewable energy sources
The next cycle: ecologic conversion { -social and environmental consumption
-SRI
It is important to catch the bus on time:
e.g. automotive industry in the US spoiled by the law price of gasoline and lax
environmental constraints