Safeguarding and improving country’s social development imperatives

By the Economist

Controversy abounds on the economic growth rate achieved in recent years, particularly the growth rate for 2006. This is quite apart from the differences of 7.2, 7.4 and 7.7 that the three government institutions, the Department of Census and Statistics, the Central Bank of Sri Lanka and the Ministry of Finance have come up with for last year. These are minor differences of no real consequence as one is aware of the wide margins of error in national accounting. The more salient issue is that some have questioned the statistical methods, others their veracity and some the quality and real value of the growth.

While the rate of economic growth reflects the year-to-year changes, social indicators relating to literacy, education, life expectancy and mortality rates give a better indication of a country’s real improvements over a longer period of time. This is the distinction between economic growth and development. While economic growth measures the increase in the goods and services produced in an economy, the social indicators measure the welfare and quality of living of a country.

Many economists like Nobel Prize winner Amartaya Sen, the late James P. Grant of UNICEF, Sir Richard Jolly, the late Mahbubul Ul Haq of Pakistan, Dudley Seers and other eminent economists and social scientists place a greater emphasis of social indicators rather than levels of GDP, per capita income and annual rates of economic growth. Hence the development of the Human Development Index by the United Nations that takes into account other indicators besides per capita income. These include life expectancy, literacy levels and mortality rates.

On the basis of these, despite Sri Lanka’s modest per capita income of just over US$ 1200, the country has achieved considerable progress in social development during the post independent years. Life expectancy is 74 years; adult literacy is 92 per cent and there have been significant improvements in maternal mortality, infant mortality and under 5 mortality. Maternal mortality rate has decreased from 560 to 100 per one hundred thousand live births, while infant mortality declined from 82 to 11.1 per thousand and under 5 year old child mortality has declined to less than 19 per thousand. These are significant achievements over the last six decades.

The Human Development Index (HDI) for Sri Lanka is at 0.71 and the country ranks 93 of 177 countries. This ranking is above those of most countries at similar levels of income and higher than other South Asian countries with the exception of the Maldives. It is also noteworthy that the country has also already achieved most of the Millennium Development Goals (MDG) set for 2015. Nevertheless it must be mentioned that several countries in East Asia and South East Asia, such as Singapore, Malaysia and the Republic of Korea that were behind the achievements of Sri Lanka in the 1950s and 1960s, have overtaken the country.

Although these attainments over the entire period are quite impressive, the economic strains of the 1970’s were responsible for a deceleration in their improvement. For instance a literacy level of 87.2 per cent that was attained in 1981 declined to 86.9 per cent in 1991 and has now risen to 92.5 per cent. Similarly school enrolment that rose sharply to reach 70 per cent by 1981 increased only marginally to 73.4 per cent in 1991 and is now around 95 per cent. With the initial growth in school enrolment the expectation was that near full school enrolment would be achieved. This remains a goal owing to pockets of acute poverty.

Although health indicators have improved, the morbidity pattern still discloses a high incidence of illnesses associated with poverty, poor housing and malnutrition. An interesting paradoxical development in the morbidity pattern is its bi-polar distribution of increased illnesses associated with high incomes and stress conditions, together with a simultaneous increase in morbidity conditions associated with low incomes and poor nutrition. This bi-polar morbidity pattern is consistent with recent developments of income distribution, removal of food subsidies, high cost of basic food, and a continued high rate of unemployment.

There is some concern expressed about the country’s income distribution and a widely held view is that the rich have grown richer and the poor have grown poorer. Yet Sri Lanka’s income distribution is one of the best in Asia. Since 1973, and particularly since 1981/82, the highest decile of income receivers has received an increased share of incomes, while the lowest deciles have decreased their proportion of income. In 1985/86, the top most decile obtained 39 per cent of incomes, while the bottom 40 per cent received only 11 per cent. The distribution of income was hardly any better in 1996/97, when the top decile got 34.2 per cent of incomes, while the bottom 40 per cent obtained only 13 per cent. The latest survey in 2003/2004 confirms the same pattern with the top most decile obtaining 39.7 per cent of incomes, while the bottom 40 per cent received only 11.9 per cent. The distribution of income has hardly improved over the entire period as the Gini Coefficient that measures income distribution improved somewhat between 1953 and 1973, has deteriorated from then onwards and is 0.46.

Sri Lanka’s social development experience has been a subject of controversy among social scientists, particularly economists. The trade-off between growth and welfare in Sri Lanka has been a much-debated issue. Prominent among economists who have argued that the Sri Lankan experience illustrates how a poor country could achieve a high level of human development is Nobel Prize Laureate Amartya Sen. Those in this school of thought have argued that Sri Lanka achieved a satisfactory rate of growth with equity. Other economists have challenged this view and asserted that the country has had low rates of economic growth owing to its social welfare policies. They have pointed out that the high achievements in human development indicators came at a cost to economic growth. They would argue that the slow economic growth and the persistence of poverty and unemployment have been due to the country’s high welfare expenditure.

There is no doubt that some of the welfare expenditure and the resultant taxation as well as the welfare dependency retarded economic growth. Yet, a counterpoint in Sen’s argument that the objective of economic growth and increases in per capita incomes is to achieve human development and therefore if a country has achieved that objective even before attaining high levels of per capita income, then it is a short cut to the ends of economic development. This is a justification for the path of progress that the country chose after independence.

What is significant at this moment in the history of the country is that it must not fritter away the advantages of the human development so far achieved. This it has failed to do in recent decades. Equally important is that the policy makers must realise the connectivity between economic progress and social development. If economic growth is slow as well as fails to reach the people at large, then the progress of the country’s human development could be at risk.