Module 3 in AE 12

(Economic Development)

Module 3: Week 3 (6 hours)

Measurements of Economic Growth

At the end of Module 3, learners are expected to:

1. Describe the different policy instruments.

2. Classify the interventions in goods and factor markets.
3. Compare and contrast price ceiling and price floor.
4. Criticize the price stabilization policy.
6. Articulate the difference between capital intensive versus labor intensive techniques.
7.Appraise shadow pricing.

Economic development is not purely an economic process. It constitutes several other elements
like social, cultural, political, religion, among other things. In view of its complexity, it is not easy
to measure economic growth which is the product of economic development. In fact, no single
measurement can show the actual progress of a country. The various traditional measurements
of economic growths are not really adequate, and they are misleading.
Generally, the economic growths of less developed nations are measured by comparing their
gross national product (GNP) or per capita incomes (PCI) with those of the United States. In
case the GNP or PCI of a particular country is far below that of the United States, such country
is classified less developed. Using products or incomes as the bases of measuring economic
growth is not always accurate. It may not reflect the social, political, or cultural growth of a
country. Moreover, the equitable distribution of income and wealth among the members of
society is not likely indicated.
There are not a few countries which have attained high growth rate in their GNP. But still most
of their peoples live in extreme poverty, disease and squalor. Such kind of economic
development is not real. It is only a development for the few privileged members of society.

Shortcomings of GNP/PCI
National income accounting in less developed countries is understated. For instance, the value
of the services of the housewives is not computed. Likewise, many products which have been
produced and consumed, especially in the rural areas, are excluded. For example, backyard,
gardening, poultry, piggery, and other small-scale projects whose products are only used for
family consumption. Furthermore, there are various trade transactions which are not placed in
the markets. There is no way of having these reflected in the national income accounting.
Considering that many rural communities in the underdeveloped countries are self-supporting –
that is, they produce most of their consumption needs – it is evident that a substantial portion of
their gross national product is undervalued.
Another limitation is the inadequacy of statistics. The gathering and analysis of data encounter
several problems, such as obtaining the real count of the products, the real value of the
products, the biases of the researchers, and other statistical errors. Such problems in statistics
can not be completely eliminated. However, among less developed countries, such
shortcomings are more rampant. Due to the absence of transportation and communication
facilities in some places researchers are forced to depend only on secondary data. Others just
make estimated, especially in places where government field-men are afraid to go. Some just
write the key village leaders to furnish them the data. Under such circumstances, biases and
inaccuracies are likely included in the statistics.
Also, comparing the GNP or PCI of less developed countries with that of the United States or
using the U.S. dollars as the basis of comparison has many weaknesses. In countries where
they do not allow their local currencies to have corresponding conversion in foreign currency or
exchange rate, international comparison or comparison with that of the United States become a
problem. Another, there were local currencies that are overvalued or undervalued in relation to
the U.S. dollar. In case the money of the country is overvalued, then the GNP or PCI is lower.

Measuring Economic Growth

Despite the limitations of the conventional methods of measuring economic growth, they have to
be used since no perfect system of measurement has yet been designed. Quantifying the value
of all goods and services produced every year by the citizens of a country is still the most
possible and practical way of determining the rate of economic growth. For instance, it is difficult
to measure the value of honesty, good management, hard work or group cooperation. However,
the results of these virtues can be measured. For example, the number of projects they have
completed or the value of the services they have performed. In case of regular employees, their
yearly salaries can be obtained.

Activity
https://www.thebalance.com/what-is-economic-
growth-3306014

Gross national product

One way of measuring the performance of an economy is through its GNP. This is the total
market value of all final goods and services produced by the citizens of a society in one year.
GNP does not only indicate the growth of the economy but also it serves a data for planning and
policy formulation for both government and business sectors.
However, using the GNP as a measurement of economic growth may not be always accurate in
reflecting the welfare of the different groups in society.
It is not unusual to equate progress with impressive physical structures like high-rise buildings,
modern cars, beautiful houses, super highways, and other conspicuous symbols of affluence
and splendor. Such magnificent products of development are only meaningful and substantial if
they belong to the citizens – and if the lives of the masses are positively affected. Not a few less
developed countries have dual economies. That is both extremes of wealth and poverty exist
side by side. Behind the façade of prosperity is a dismal spectacle of extreme poverty and
squalor. Just behind the beautiful modern buildings are communities of squatters, and slums.
Such situation is more unfortunate if the physical symbols of progress are owned and managed
by foreigners. Thus, the local citizens only get the “crumbs in the feast.”
The Case of Sao Paulo
Sao Paulo is Brazil’s largest city. Like many other cities, it suffers from congestion and pollution,
It is not famous like the great cities of the world. But Sao Paulo is the largest and fastest
growing sprawl in the Western Hemisphere. It is Brazil’s industrial powerhouse.
The Brazilian city was once a small coffee producing village. Now, it is the biggest industrial
complex in South America and one of the largest concentration of multinationals among the
Third World countries. Sao Paulo pays half of Brazil’s tax revenues. It contributes two-thirds of
the nation’s manufactured exports. It houses hundreds of multinational corporations. The
biggest foreign investors are the US, Germany and Japan. In the case of Japan, which is the
third largest investor, it has increased the number of Japanese companies in the country.
The opulence of the city
Despite the shortcomings of Sao Paulo – population and population problem – its residents take
pride in their city as a place where the largest shopping malls in South America, the trendiest
boutiques in Brazil, and the largest in the southern hemisphere are located. An American bank
economist observed that Sao Paulo provides all the neighborly amenities of a developing
country, and all conveniences of modern living.
The Darkest Side of the City
The tremendous economic growth of Sao Paulo has not improved the social and economic
conditions of the masses. The rich became richer, and the poor barely exist. Only 30 percent of
the residents of Sao Paulo have access to sewage system. Infant mortality rate is high.
Thousands of hungry children roam in the streets. The slum community is infested with rats and
mosquitoes. The city is over populated with 9 million people, and another 8 million in the
suburbs. Such population pressure is further aggravated by the arrivals of 1,000 new migrants
every day. The problem of the city is not only population explosion but also pollution,
unemployment, disease and squalor. In addition, Sao Paulo has more abortion clinics than
anywhere else in the Catholic Brazil.
The darkest side of Sao Paulo is found in the favelas. These are the squatters’ slums located in
the periphery of the city. Many of the squatters are jobless. They migrated to the city in the hope
of finding jobs.
Poverty in the countryside
Extreme poverty in the rural areas of Brazil have forced the people to move to the city and
gamble their future. Despite the hardships in the city, they keep on migrating to Sao Paulo. To
contain great influx of rural poor, government officials have tried to encourage business firms to
set up their shops in the rural areas. They even announced to transfer the state capital to the
interior. But jobless Brazilians have not been discouraged from going to the city. The city mayor
stated that no law or decree can really prevent the growth of the city. Moreover, he claimed that
the city government lack funds to improve the social and economic conditions of the poor in the
city.
The Real Indicators of Economic Growth
As stated earlier, the GNP or the PCI is not an accurate yardstick of economic growth. GNP
only indicates the total market value of final goods and services produced by the citizens while
PCI shows the income of the citizen per head. It does not reflect the distribution of income
among members of society.
Thus, in a society where there is a great disparity in the distribution of income and wealth, the
use of GNP as a measurement of economic growth is misleading. If only 10 percent are rich and
the rest are poor, then the GNP is only for the rich. Under such conditions, it is not really true
that the economy is improving, because only the economic position of the rich is improving.
Development economist Todaro and Seers have suggested the elimination of the GNP as a
yardstick. Instead, they proposed to measure economic growth in terms of poverty, inequality
and unemployment.

Reduction or elimination of poverty

When most people in a country are poor – although it has achieved a very high GNP – said
country can not be called a truly developed economy or society. Not a few political
administrators of many less developed countries brag about the impressive increase in their
GNP. And yet thousands of their peoples are starving.
A better approach in determining the economic growth of a country is to measure the conditions
of poverty. Is there reduction of poverty? There are several indicators like food, clothing, shelter,
health, and education. If the great masses have more of these basic goods and services than
the previous years, then it can be said that the social and economic well-being of the poor has
been improved. These means the growth in the GNP has benefited the poor.

Eradication of inequality
Inequality does not only mean differences in income and wealth but also social, political and
educational disparities among the members of society. Such conditions can also be applied to
rich countries. For instance, there is an existing inequality between the rich and the poor
countries.
The products of inequality have been created by religion, culture, political power, and education.
During the ancient times, the strong and the brave ones became rulers. Some of them were
even considered gods. They became powerful and wealthy. The elite of the vast Roman Empire
wallowed in luxuries at the expense of the peasants. Inequalities were more rampant at the
height of feudalism. The feudal lords were the masters and the peasants were the slaves. The
caste system in India and the racial discriminations in South Africa are also examples of
inequalities. Even in the United States, the Blacks and the cultural minorities like Filipinos do not
receive proper treatment from the Whites.
To remove inequalities, there should be institutional reforms in economic, social, and political
areas. Every member of society should have equal opportunities in job, education, public health,
government service, and other fields of human endeavors. There are government programs that
are social equalizers like the agrarian reform, cooperatives, and taxation.

Minimizing unemployment
The problems of unemployment and underemployment are critical in less developed countries.
Millions of their human resources who are willing to work can not find jobs. Such problems are
further aggravated by the rapid increase in population. Every year more and more people are
looking for jobs. According to Myral, the problem of unemployment and underemployment have
been the principal cause of poverty in Southeast Asia.
Employment is a major source of income among the poor. Without it, it creates many serious
implications. It does not only mean hunger, but also, denial of other basic needs like shelter,
clothes, health, and education. Moreover, jobless people are likely to be involved in the social
crimes. /the proliferation of illegal economic activities is a reflection of the lack of decent and
legitimate employment opportunities.
Some poor countries have wrong priorities in their economic development programs. They insist
on building projects which bolster their political and military strengths. Their precious scarce
financial resources have been often used for consumption of luxuries. Still other countries prefer
big projects which are capital-intensive. Many noted development economists proposed the
creation of labor-intensive industries, especially in the rural areas. These provide more
employments to the idle rural population. In addition, their own raw materials can be utilized in
the manufacturing of products. This stimulates more production on the part of those who supply
the inputs of the small-scale industries. Thus, such projects do not only create jobs for the
jobless, but also incomes for the suppliers of raw materials.
The Real Products of Development
The real products of development are the people. A country is only as progressive as its people.
Its pervading institutions, attitudes and values reflect the quality of its people. Some countries
are developed while most are not because of the human factor.
Hence, it is most important to focus development programs on the development of people or
human resources. People are the true key factors in improving the conditions of their own
nations. The mere presence of abundant raw materials and financial resources are useless if
the people do not know how to use them properly.
Development is not only an improvement in material conditions. A decent house and a good job
for individuals are not enough. These are only the basic needs of people to sustain their
physical existence. There are higher needs of people to sustain their physical existence. There
are higher needs which people naturally crave for as human beings – freedom and dignity.
The freedom of choice
It is inherent among people to yearn for freedom of choice. They like to be free in choosing their
foods, clothes, houses, and other personal needs and aspirations. Man should be free to
choose his job, to put up his business or to travel. Of course, such freedoms are conditioned by
cultural traditions and customs. The interests of society, and the many members are protected.
People who live in an environment of abundance but have no freedoms are not happy because
this is contrary to human nature. They like to live as human beings and not simply exist. Any
society which limits the freedoms of its members is an unjust society. It therefore discourages
development – especially development of people.
There are some countries which have attained very impressive economic growths. However, the
development strategies which they used were based on force or command. There are no
economic freedoms for the consumers, businessmen, laborers. And other groups. Everything is
being planned, decided, and implemented by the state. The role of people is to obey and follow.
Freedom and poverty
Freedom of choice can exist in a democracy. But in democratic society where there is absolute
poverty, freedom of choice is useless. It is true that the poor have economic freedoms, but they
have no opportunities to use such freedoms.
The lack of choice applies also to poor nations. Their political independence is a farce. Their
former colonial administrators and other rich countries still interfere in their political, economic,
educational, and military affairs. This has been made possible because of the poor nation’s
economic and military dependence on the rice nations. They owe the rich countries huge debts,
including technical and military assistance.
For every form of foreign aid and loans, there are strings attached. However, there are a few
less developed countries which have courageously defied the powers of the rich countries. They
nationalized foreign investments and drove away all foreign businessmen and industrialists.
They make their own economic plans, decisions, and programs. Indeed, the freedom of choice
belong to them. But such action is rather extreme. It is still possible to strike a happy balance
between interests of the citizens and those of the foreign investors.
The existence of human dignity
Human dignity is inherent in man. It is a priceless gift of God to man. Without it, man is a
useless human being. He simply exists without much difference from the lower animals.
Religious leaders and philosophers of ancient times stressed the dignity of man, and the respect
for it. A man, whether he is rich or poor, has an alienable right to human dignity. His worth
depends on it.
Unfortunately, however, people have a distorted concept of human dignity. They often equate
dignity with material possessions. They respect people who are rich and look down on those
who are poor. Such negative cultural values make the poor even more miserable in the society
where they live.
Slaves, and even tenants, servants and laborers, are not treated properly. That is, they are not
treated as human beings. Their lords and masters do not respect them. In fact, in not few
instances, they are exploited, and even maltreated. Where is their human dignity? Poor people
lose their human dignity; they become meek and submissive. Physical survival has become
their main concern.
A nation where human dignity been reserved for the privilege of the few rich and powerful has
no right to claim economic growth in its real sense. Even among nations, Professor Todaro said
the poor ones are not respected by the rich nations. They have been exploited. They become
the tools of economic interest of the rich nations.
 References:

 Babatunde, M. A. and Busari, D.T. “Global economic slowdown and the African
continent: rethinking export-led growth,” International Journal of African Studies,
2009.
 Hirschman, A. “The Strategy of Economic Development.” Paperback – January 1, 1978

 Roland, G. “Economic Development.” Pearson. 2014

 Todaro, Michael P. & Smith, Stephen C. “Economic Development”, 11th ed.

Addison-Wesley. 2011.