TOWARDS A HUMAN DEVELOPMENT STRATEGY

The purposes of this short monograph are, first, to introduce the general reader to the basic concepts of human development, seen as an all-embracing strategy of development, and, second, to devise guidelines for use by national policy makers, development specialists and international advisors in constructing development strategies which give high priority to human development. The intention is not to present a blueprint for human development that can be applied mechanically in every country but to raise the issues that must be addressed and to offer suggestions as to how these issues can be resolved. The point of departure for each country necessarily is distinct and reflects its history, culture, resource endowment and political institutions. Thus each country faces a unique set of problems, but also a unique set of opportunities and a unique set of feasible policies. There is more than one path to human development, and hence the need to consider alternative strategies, but any successful strategy will have to pay careful attention to the structure of incentives that guides economic activity, the allocation of public expenditure and the institutional arrangements that determine the distribution of wealth and income and the vulnerability of various sections of the population to events which can threaten their livelihood and perhaps even their life.

Section 1 begins with an analysis of the essential features of a human development strategy which regards human development as the end or objective of development. It is a way to fulfil the potential of people by enlarging their capabilities, and this necessarily implies empowerment of people, enabling them to participate actively in their own development. Human development is also a means since it enhances the skills, knowledge, productivity and inventiveness of people through a process of human capital formation broadly conceived. Human development is thus a people centred strategy, not a goods centred or production centred strategy of development.

A people centred strategy of development has implications for the role of the state. Often the discussion is couched in terms of the degree of centralisation of the public administration, with most analysts favouring a highly decentralised system of governance. The appropriate degree of administrative decentralisation is a secondary issue. What really matters is the empowerment of local people to identify their own priorities and to implement programmes and projects of direct benefit to them. That is, development should be seen as a process that is not just for people but a process organized, guided and undertaken by people. This in turn implies the active participation of people in the development process and the consequent need to construct institutions that permit and indeed encourage that participation. A vigorous civil society, in other words, is an essential component of a successful human development strategy.

The strengthening of civil society need not imply a smaller role for government. Indeed we argue that the volume of public expenditure is less important than its composition. Human development is partly about changing spending priorities not between the private and public sectors but within the public sector itself. What matters, in other words, is what government does, not how big it is. In most developing countries much can be done to promote human development by reallocating government expenditure without the need to raise additional revenue through taxation. Of course if government does more in some areas without raising taxes, it will have to do less in other areas. This in turn means that the distribution of the benefits and burdens of public sector activities will alter -- some groups will gain and others will lose -- and hence it will be necessary to build political support for human development by creating effective coalitions of potential beneficiaries. Human development is not politically neutral; it is not a technocratic solution to development problems; it requires broadly based popular support.

Some policies however are likely to be politically more controversial than others and consequently more difficult to implement. Section 2 discusses the set of incentives faced by producers and consumers. In principle policies affecting incentives -- essentially changes in relative prices and barriers to access -- may often be less difficult to implement since they require neither a higher overall tax burden nor a major reallocation of public expenditure nor the creation of new institutions nor the mounting of new programmes. Even so, changes in the set of incentives can be expected to encounter resistance because any change in relative prices or in access will alter not only the allocation of resources but also the distribution of income, and in some instances the changes in the distribution of income can be considerable.

The analysis in section 2 focuses on two things. First, it is important that the set of relative prices prevailing in the economy encourages the efficient use of the existing stock of human resources. People are assets -- in fact a country's most valuable assets -- and it is essential for human development that these assets be deployed sensibly. A defective incentive system can result in a waste of human resources and often, too, in a higher incidence of poverty and greater inequality in the distribution of income. Second, it is equally important that the set of relative prices encourage the growth of the stock of human resources. It is not enough to use existing resources wisely, we must also add to the existing resources through human capital formation. The set of incentives should thus be examined to determine whether or not it encourages the acquisition of skills and knowledge by all members of society, male and female, and whether it encourages the discovery and dissemination of new knowledge, for example by rewarding research and innovation.

The focus shifts in section 3 from prices, incentives and opportunities to the allocation of public expenditure. It is argued that in many countries human development requires a radical change in the way government spending is viewed. The conventional classification of expenditure into capital construction and recurrent items is more than misleading; it is positively harmful. According to the conventional view the purchase of a physical asset, e.g. a school building, is regarded as capital accumulation which ipso facto contributes to growth and development whereas the payment of salaries, e.g. to teachers, is regarded as recurrent expenditure which has no impact on growth and development. In fact of course, depending on circumstances, the hiring of additional teachers may contribute more to development than the construction of additional school buildings. Thus governments which pursue a human development strategy will have to abandon old ways of thinking (which divide expenditure into public investment and public consumption) and adopt new ways based on new categories.

A human development strategy frequently will entail a change in the sectoral composition of government expenditure and in particular a reallocation away from ministries concerned with "production" (industry, agriculture, commerce) and "law and order" (interior, defence) in favour of ministries concerned with the "social services" (education, health, labour). Again it is misleading to think of spending on education, health, occupational safety, maternal care, etc., as social services; rather they should be seen as contributing to human capital formation. Similarly, much spending by the so-called production ministries has relatively little to do with increasing output but instead, through subsidy policies, affects the distribution of income, often to the disadvantage of the poor.

Finally, it is argued that in many countries the process of human development would be accelerated by a reallocation of spending within the ministries concerned with human capital formation. Most of the available evidence indicates that when all costs and benefits are taken into account, the return on investment particularly in countries at a lower level of human development, is higher at the base of a "pyramid of expenditure" than at the summit. Thus the return on primary education is higher than the return on secondary education, which in turn is higher than the return on university education. Similarly, the return on expenditure on primary health care and preventive medicine is higher than the return on investments in hospitals and curative medicine. Again, the return on basic vocational training and apprenticeship programmes is higher than the return on expenditures intended to produce lawyers, highly qualified business managers and certified public accountants.

There is thus a predisposition within a human development strategy to spread government spending evenly at the base of a pyramid of expenditure, to favour small projects rather than large, to disperse expenditure widely over a geographical area and to encourage local participation in programme implementation. These features of a human development strategy have the added advantages of tackling poverty directly (rather than relying on the benefits of growth to trickle down) and of confronting head on major inequalities in education, health and training opportunities. Unfortunately, however, the actual pattern of public expenditure often is the opposite of that required by a human development strategy -- spending is concentrated at the summit of an expenditure pyramid, large and prestigious projects are favoured, investment is geographically centralised (often in the capital) and popular participation is discouraged, obstructed and even suppressed.

In section 4 structural reforms are discussed, in particular changes in institutions, property rights and entitlements that can have major effects on human development, the incidence of poverty and the distribution of wealth and income. Precisely because their effects are so penetrating, however, structural reforms usually are politically highly controversial and often are resisted by those who gain most from the status quo. None the less, in many countries structural reforms are fundamental to the success of a human development strategy. It is not enough to improve the set of incentives and alter the allocation of public sector resources, it is also necessary to create an institutional framework which guarantees to everyone gainful employment, access to productive assets and sufficient food to lead a healthy and nutritious life. The poor should also be guaranteed a minimum of economic security.

There are of course several ways these objectives can be achieved and the specific programmes presented in section 4 are intended to be illustrative: to show what has been tried, what works and what problems have been encountered. As in section 3, the reader is asked in this section to abandon old ways of thinking. The "welfare" programmes as found in the welfare states of western Europe and North America are not the concern of this discussion, nor are the "relief" programmes intended to alleviate temporary distress, as in the poor relief programmes of nineteenth century Europe, the Civilian Conservation Corps of the 1930s depression in the United States and the famine relief employment schemes of South Asia; nor, finally, are the purely redistributive measures intended to reduce inequality, such as progressive income taxation or means tested benefits. Instead the focus is a reforms that promote human development, that is, structural reforms that increase the capabilities of people directly or that increase the pace of human capital formation and hence the capabilities of people in future. Old policies and programmes may look rather different when seen in this new light.

Lastly, in section 5, the question of financing human development is revisited. As should by now be clear, human development should not be used by the state as a justification for adding more to an existing framework, that is, for spending more and taxing more. Rather human development should be interpreted as requiring the state to do something different. The reallocation of public sector resources implicit in this approach need not be accompanied by an expansion in the general level of government expenditure, although in some cases this may well be desirable. By and large, however, human development puts no higher a burden on the public exchequer than alternative strategies of development. Moreover, the productivity of development expenditure is likely to be higher under a human development strategy than under other alternatives. The reason for this is that human development strategies channel resources to investment activities that are relatively neglected by other strategies but which enjoy above average rates of return when all costs and benefits are properly measured. Thus a well designed human development strategy should result in rates of growth of average income that are at least as high as could be achieved under a different strategy, and it should also result in a lower incidence of poverty and a greater degree of equality.

Under the circumstances in which large numbers of developing countries find themselves there is unlikely to be a conflict between faster growth and greater equity in the distribution of the benefits of growth. This may not be true in all countries, however, or in all periods of history, and hence a brief word or two on possible "trade-offs" may be useful. First, there may be a conflict between increasing output or the rate of growth as conventionally measured and increasing human development, i.e., raising the capabilities of people. Since conventional growth of output is solely a means to development whereas increasing capabilities is the objective of development, if a conflict were to arise, the obvious choice is to sacrifice conventional growth in favour of human development. Second, there may be a conflict between raising the average level of human development (say, as measured by the human development index)1 and achieving a more equal distribution of capabilities among the entire population. Here the conflict would have to be resolved by introducing value judgements about the degree of equality to which the society in question aspires. In principle the human development index can be adjusted to reflect these normative preferences by incorporating distributional weights (e.g., for gender, ethnic groups, regions or the distribution of personal income), but it would be foolish to pretend that in practice it will be easy or even possible for policy makers to discover or create a consensus about the desired degree of equality. Finally, there may be a conflict between raising the average level of human development and reducing poverty, where the latter is regarded as an absolute concept. If such a conflict were to arise, then here again, value judgements would have to be introduced to resolve it. The interests of the poor, however, would almost always be better served by favouring a direct attack on poverty, even if this resulted in slower growth of conventional output or a slower average pace of human development or even, in some cases, in a fall in the average level of income per head. The indirect effects on poverty from a trickle-down of the benefits of growth seldom are sufficiently large or occur sufficiently fast to outweigh the direct benefits of redistributive policies. These three potential trade-offs, however, are rather hypothetical and in most countries one can be fairly confident that a human development strategy would not be in conflict with diminished poverty, greater equity or growth as conventionally measured.

Finally, human development strategies are likely to be less intensive in the use of foreign aid than more conventional alternatives. The reason for this is that human development strategies require less imported capital equipment than alternative strategies and in general have lower demands for foreign exchange. Given that foreign finance is likely to be less readily available in future than in the past, this characteristic of human development is to be welcomed. Developing countries, whether they like it or not, will be forced by circumstances to become more self-reliant, less dependent on foreign assistance. Those countries that choose a human development strategy will find themselves in the happy situation of having changed a necessity into a virtue and they will thereby enjoy an added bonus.

The strategy also has implications for foreign trade. Developing countries which adopt a human development strategy are likely to find that the basis of their comparative advantage in international trade shifts in favour of economic activities which use human capital relatively more intensively. Such countries will become inserted into the rapidly evolving global economy in a highly advantageous way, able to compete on equal terms with other nations while avoiding both the welfare reducing protectionism of import substituting industrialization and the vulnerability to external shocks associated with specialization on primary commodity exports.

NOTES

1. See, for example, UNDP, Human Development Report 1990, New York: Oxford University Press, 1990, chapter 1. Also see Appendix 1.