Learning Objectives

After reading this chapter students will be able to:

• Identify the benefits and costs of economic development
• Describe trends in economic inequality
• Analyze relationships between economic development and inequality
• Analyze relationships between economic development and environment
• Analyze relationships between economic development and happiness

Chapter Summary

As illustrated by the story about Li in China, economic development has benefits and costs. Li is able to find a job and live comfortable and even provide for her ailing father by working in a factory in the city; but she misses her rural family, finds little fulfillment in her work and pollution and her city lifestyle threaten her own health. This chapter considers the costs and benefits that economic development presents to the global south.

One aspect of the cost of economic development is the impact on culture. Post-development theory posits that the idea of development is itself a Western invention which is imposed on LDCs perpetuating an attitude of Western cultural superiority. In the process of developing LDCs economically, they become more Western culturally and abandon many local traditions as well as local languages. A second cost is that individuals become less socially integrated with others (because pre-existing social networks are disrupted) but also less autonomous because they perform specialized work and cannot produce everything they need. Consumerism, where people are obsessed with acquiring things, is encouraged which is often in conflict with cultural values that emphasize sharing.

Some of the responses to these criticisms are considered. For example, many countries have become economically developed while retaining large aspects of non-Western culture. In addition, some negative aspects of traditional culture, such as discrimination, are hard to justify in the modern world and many would argue should not be preserved.

Another set of criticisms concern the issue of equity. The text has previously discussed that economic development has increased intercountry inequality; likewise, economic development seems to frequently increase domestic inequality. The Gini coefficient is a common measure of inequality. It is expressed as a number between 0 and 1, with 1 higher values meaning there is a great deal of inequality and lower values meaning there is a great deal of equality in a society. Intercountry inequality, as measured by the Gini coefficient, rose from about .15 in 1820 to .55 today. If we treat everyone in the world as belonging to one society, the global Gini coefficient rose from about .45 to .65. Overall, what this means is that today much of a person’s financial situation is attributable to where they are born.

Economic development also seems to worsen domestic inequality. While some level of inequality may provide incentive for hard work and innovation, higher levels of inequality become obstacles for further development by interfering with market mechanisms and creating unrest. Further, on the individual level, poor individuals in environments of extreme inequality can suffer from an array of psychological stresses and disorders that can have anti-social consequences.

Analysts have three sets of responses to these criticisms. The first is that while relative poverty (inequality) has increased, absolute poverty has decreased. People, even in LDCs are better able to meet their basic material needs today than in the past. A second argument is that future economic development will likely decrease global inequality, especially as countries like India and China become economic superpowers.

Third, it can be argued that the relationship between economic development and inequality is not linear and that the Kuznets curve suggests that economic development only initially increases inequality but that continued development increases equality. At the same time, other data suggests that there is at least a weak relationship between economic growth and a decline in inequality.

Economic development also has environmental costs. It can create pollution which not only destroys natural beauty but creates health problems for people. Development can also deplete natural resources such as coal, or impact the productivity of land. Finally, there is the issue of anthropogenic climate change, which may result in more violent weather events and disruption of traditional climate patterns as well as rising ocean levels. While this is a global threat, LDCs are likely to face the majority of the costs of climate change.

Economic development may also have some environmental benefits. There may be an environmental Kuznets curve as wealthier countries can introduce cleaner technologies and more responsive governments can introduce stricter environmental policies. And economic prosperity will likely slow the population growth which is often a contributor to environmental destruction.

As far as climate change, some analysts contend that economic development improves a society’s ability to respond to the harmful effects of climate change.

Economic development may also interfere with psychological and emotional aspects of life. For example, development changes methods of economic production, often requiring people to find new means of livelihood. This leads to feelings of economic insecurity even for people who have jobs.

Second, development can create alienation for workers as they become more distant from the natural world, from the end products of manufacture and, socially, from each other. Urbanization, competition and specialization lead to reduced feelings of fulfillment. Consumerism can result in an unending expansion of material desires. Pursuing these desires can lead to increased fear of domestic crime or international conflict.

The Easterlin paradox seems to show that there is no relationship between a country’s GDP per capita and the level of happiness people report in the society. The explanation offered is that making people wealthier is not necessarily related to their acquisition of wealth but more to their calculation of how wealthy they are in relation to others.

Proponents of development respond to these psychological critiques with three arguments. First, while development may come with economic insecurity for some, this can be considered outweighed by the benefits of development which could include increased economic opportunities, and cheaper and better products. Second, data for the Easterlin paradox comes from subjective survey responses which may be influences by adaptive preferences in poorer countries. Thus these surveys make poor people seem happier than they actually are because they come to accept the misery and oppression that are their lot in life; preserving such happiness seems like a poor reason to forego development. Third, other methods of measuring the relationship between happiness and wealth seem to indicate a more positive picture: increasing per capita GDP seems linked to increased perceptions of personal satisfaction.

All these issues are examined in the context of the case study for China, where some support is found for both the criticism and the defense of development.