Macroeconomics and human development

Human Development Defined

How do we judge whether a particular kind of society, economic structure, or policy helps people or harms people? Nobel laureate economist Amartya Sen has argued that our evaluations should be based on the notion of capabilities, that is, on the opportunities that people have to be well-nourished, decently housed, and in many other ways live lives that they find worthwhile. The capability approach evaluates institutions, policies, and actions according to the opportunities (or freedoms) they give people for valuable ways of living. In a very broad way, the capability approach tries to answer the question “What do we really want from development?” The capabilities view shifts attention away from measures of income or wealth, and focuses instead on issues like opportunities for health and participation in society.

In 1990 the United Nations Development Programme (UNDP) issued its first Human Development Report, influenced by the work of Sen and under the direction of economist Mahbub ul Haq. The UNDP defined human development as being about expanding people’s choices, so that they can develop their full potential and lead productive, creative lives.

Some have suggested that development should be primarily geared to meeting basic needs for food, shelter, and health care. The human development approach includes attention to such basic needs, but goes further to encompass other dimensions of a worthwhile life. Recent UNDP reports have, for example, examined how rampant domestic violence limits the human development of women in many regions, and how human development may be limited by political oppression along ethnic or other lines. Such issues affect countries with high material standards of living, as well as those still unable to supply basic goods.

The Relationship between Human Development and Economic Development

caption '''Figure 1: The Relationship between Average Life Expectancy and GDP per Capita, with Area Proportional to Population.''' At very low levels of income per capita, increases in per-capita income are associated with steep increases in life expectancy. Once a middle-income level of gross domestic product (GDP) per capita is reached, however, increases in income are associated with much more modest increases in life expectancy, and at high incomes the curve flattens out. (Source: "Health in an age of globalization,” Angus Deaton, Research Program in Development Studies, Princeton University, July 2004, p. 37.

The Human Development Index combines measures of life expectancy and literacy with a measure of gross domestic product (GDP). While very simple, a shift from looking at only well-being “input” measures (such as GDP per capita) to including even a single “outcome” measure (such as life expectancy) can be revealing.

As an example, Figure 1 plots average life expectancies for various countries against GDP per capita, with spheres proportional to the population of the country represented. A curve is drawn to fit the general pattern made by the data points. Looking at the far left side of the figure, it is clear that living in a very poor country dramatically increases the chance that one will die prematurely. In nations with very low per capita incomes, many people do not have access to adequate food, clean water, or basic knowledge of health and sanitation. It is clear that substantial increases in the provision of at least some goods and services are necessary to increase human well-being in such countries.

In the middle section of the graph, moving from left to right, there appears to be some relationship between income and life expectancy, but the relationship is less clear than for the lowest-income countries. Countries such as Mexico and Argentina have achieved average life expectancies that are fairly close to those of the richest countries, even though their average incomes per capita are not even half as high. The spheres that lie far below the line in the middle region represent sub-Saharan African countries hard-hit by HIV/AIDS. Life expectancy in Botswana is currently less than 35 years. The situation in these countries illustrates how factors other than GDP can have dramatic implications for human development.

Looking at the spheres representing Western Europe, Japan, and the United States at the right of the figure, yet a different story emerges. The positive relationship between income and life expectancy essentially disappears. At high incomes, further increases in GDP per capita are associated with little or no gain in average life expectancy. In the industrialized countries access to basic foodstuffs, clean water, and basic health and sanitation are not generally a problem (though they remain a problem within some poorer groups and regions). While highly sophisticated medical care can extend the lives of some ill individuals, the effect on average life expectancy of these gains is quite small relative to the gains from more basic kinds of provisioning.

To summarize, “more” – at least more of key goods and services that make for a healthy life – is clearly needed in very poor countries, for human development to occur. Specifically health-related interventions are needed in some countries, particularly in Africa. At high incomes, as we will see below, more material wealth does not necessarily bring more of all the other things that constitute well-being.

Human Development When There is Already “Enough”

In rich countries it has become increasingly important to recognize that “too much” can be a problem as well as “too little.” Increasing consumption can actually be worse for individuals who may suffer ill health from overeating, psychological disturbances from certain kinds of overstimulation, and (some say) spiritual malaise from exclusive or excessive attention to material things. For example, diets high in sugars and fats can lead to people becoming overweight. Obesity, in turn, is a risk factor for all four leading causes of death in the industrialized world – stroke, heart disease, cancer, and diabetes. In the U.S. about 300,000 people a year die from health problems related to obesity. Obesity is a growing problem among the more affluent classes in less developed countries as well, even as hunger remains a serious problem for the very poor.

Does having “more” make people feel that their lives are more satisfactory and valuable? Psychological research indicates that people’s feelings of well-being adapt over time to their situation, and that they pay attention to how what they have compares to what people around them have. To the extent that a society emphasizes the consumption of material goods, this means that subjective feelings of happiness and satisfaction can be maintained only by continually ratcheting up consumption levels. A long line of distinguished economists has pointed out this ratcheting-up effect, and the great degree to which consumption in affluent societies tends to be less about staying alive and healthy than about achieving status or “keeping up with the Joneses.”

Over time, and on a society-wide scale, more income does not seem to be related to more happiness in already affluent societies. In 1957, for example, 35 percent of respondents to a U.S. survey indicated that they were “very happy.” Between 1957 and 1998 the purchasing power of the average citizen of the U.S. roughly doubled. In 1998, the proportion saying they were “very happy” was a little lower, at 32 percent. The situation of rising consumption levels has been compared to one in which the front row of a crowd of spectators stands on tiptoe to see better. Everyone else has to stand on tiptoe also, just to see as well as before. All are more uncomfortable, but none except those in the front row are better off. There is probably no net gain.

At high income levels, other dimensions of human development, such as freedom from violence, closer and more peaceful families and communities, investments in the productive and creative capacities of the next generation, or the opportunity to have a satisfying work life (whether paid or unpaid) may be more important than having more marketed goods and services.

A large portion of every country’s social and individual well-being depends on the maintenance of homes and families, including care of sick and elderly people, and other productive activities that go on in homes and communities but are not bought and sold in formal markets. Many adults today feel squeezed between the demands of conventional, 40-hour (or more) per week paid employment, and the time requirements of their families. Full-time employment in Europe, in contrast, requires the equivalent of 5 fewer weeks of work, annually, on average, than full-time employment in the U.S. It is commonly believed that Europeans have chosen to translate part of their increased labor productivity into increased leisure, instead of using it all to increase earnings and consumption.

Economic practices that make people “rich” as consumers but “poor” as family and community members is not consistent with the human development goal of having the freedom to live a valuable life. Supporting people in their roles as parents, friends, community builders and citizens has often been overlooked in macroeconomics, with its emphasis on paid employment. But providing such a broader base for human development is an important challenge for the 21st century. Public support for essential tasks of caring can help both care receivers and caregivers “participate in the life of the community” (as outlined in the UNDP human development goals).

Human Development Goals and Policies

In September 2000 the member states of the United Nations unanimously declared their intention to try to reach a set of development objectives called the Millennium Development Goals (MDGs). These goals focus on improvements in the life of the very poorest people in the world, emphasizing food security, education, gender equity, and health care. The MDGs include mention of environmental sustainability. Most of the goals set a deadline of 2015 for achievement.

Each of the eight main goals, such as “reduce child mortality,” is accompanied by one or more specific targets, such as “reduce by two-thirds, between 1990 and 2015, the under-five mortality rate.” These targets in turn may relate to a number of policy actions, such as increasing education for mothers, vaccinating against measles, and distributing malaria-fighting mosquito nets. The eighth goal, “develop a global partnership for development,” points to some policies the richer countries should enact. These include eliminating tariff barriers to poor country products, canceling and/or restructuring debts, increasing foreign aid, easing the flow of essential drugs, and sharing technology.

The MDGs have been criticized by some who believe the goals do not go far enough in addressing inequalities and injustices between rich and poor countries. The 2005 Human Development Report, for example, points out that “The $7 billion needed annually over the next decade to provide 2.6 billion people with access to clean water is less than Europeans spend on perfume and less than Americans spend on elective corrective surgery. This is for an investment that would save an estimated 4,000 lives each day.” As a high profile, specific commitment of United Nations members, however, the MDG declaration has served to increase the attention paid to the promotion of human development.

Regarding human development in richer countries, advocacy has largely been led by non-profit organizations. In the United States, non-profits such as Redefining Progress and the Center for a New American Dream are encouraging people to examine what they really want from their economic life. Throughout the United States and other industrialized countries, groups are experimenting with ways of getting off the consumer treadmill, both through personal changes in patterns of work and consumption, and community changes such as co-housing (community-oriented housing) and bicycle-friendly urban environments. In some cases, private companies and local governments are aiding experiments in new kinds of work-life patterns and community life.

Whither Human Development?

While the Millennium Development Goals are a noble statement of intent, the follow through on them since their declaration in 2000 has been disappointing. If current trends continue, the United Nations estimates that the goals regarding hunger, child and maternal health, sanitation, and gender equity will not be met. The United Nations currently projects that the MDG of halving the proportion of people in developing countries living on less than $1/day between 1990 and 2015 will be met by 2015, but primarily as a result of poverty reductions in China and India. In Africa, in contrast, the number of people living in extreme poverty increased by 140 million between 1990 and 2002.

New HIV/AIDS infections continue to increase, although the prices of drugs to treat it have been brought down. Debts are being cancelled for 19 of the very poorest highly indebted countries, but debts remain a burden for many others. Only five countries (all European) have met the United Nations target for international aid of 0.7% of gross national income, and the Doha Round of World Trade Organization (WTO) trade negotiations failed to make substantial progress in opening up rich country markets to the products of poorer countries. The spread of some kinds of technology (particularly cell phones), has been rapid in some areas, but a technological gulf between rich and poor countries persists. As stated in the 2005 Human Development Report, “the promise to the world’s poor is being broken.”

Real human development is still an unattained goal for many, in both rich and poor countries. Consideration of the environmental impact of growth makes this issue even more complicated.

Further Reading



Disclaimer: This article is taken wholly from, or contains information that was originally published by, the Global Development And Environment Institute. Topic editors and authors for the Encyclopedia of Earth may have edited its content or added new information. The use of information from the Global Development And Environment Institute should not be construed as support for or endorsement by that organization for any new information added by EoE personnel, or for any editing of the original content.

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Goodwin, N., & Institute, G. (2007). Macroeconomics and human development. Retrieved from http://www.eoearth.org/view/article/154334

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