Friday, December 07, 2012

The meaning of development

Michael Todaro, a leading economist on economic development issues , asked in his lectures: What is the meaning of development? .Most of us wondered about the meaning of the question, because the mainstream approach to it, was to focus on GDP per capita gains as the key variable for development .- These days Latin American economies, are on top of the expectations because of its outstanding achievements in unemployment (6,5 % , below 11% a decade ago), poverty reduction(28%), economic Growth(average 2009-2012 , 4-4,5%) and inflation rates (average 2009-2011, 6,3%). Government spending (share of GDP) for the whole region, has been in the moderate territory(average 31%).Public debt is not at a risky level (the highest is at 70% of GDP). The implication of this trend, whether it goes on, are quite interesting: Increase middle class segment , higher purchasing power because lower inflation , higher sales on consumer goods markets, and better opportunities for investment. In other word , the virtuous circle of prosperity seem to be working in Latin America, although there is a long way to go before matching for instance east Asian economies performance. Thus, it look feasible to ask for more anyway : the development status. Chances diverge among Latin America countries to get that outcome, but Chile is a leading position to get it through. However, we go back to the initial question . Clearly, GDP gains are not enough. In many Latin American economies, high prices of raw material and commodities, have increased its share on GDP ,which has boosted economic growth rates. For instance ,In Chile mining had 5% share of GDP in 2001, while it has become 15% in 2012.Therefore, there are important GDP gains, but not substantial improvement on what really matter for development such as education (85% of Chilean has level 1 in comprehensive abilities),innovation and knowledge creation . Besides, GDP per capita has important flaws. It does not measure inequality reduction. Professor Todaro, proposed instead a weighted poverty index ,as a better and reliable indicator of welfare improvements. The real meaning of development goes beyond per capita GDP. It should be perceived , as a multidimensional process involving the reorganization and reorientation of entire economic and social system .In addition to improvements in incomes and output, it typically involves radical changes in institutional, social administrative structures ,as well as in popular attitudes and in many cases even custom and belief. (Todaro page 57.Third world development.1983).Chile is undoubtedly in the right track, but it still has key issues pending.-