Difference between development and growth

New apartment targeting Kenya's growing middle class. The debate on the benefit of the new economic status to the common man is misplaced because all what the economists told us is that our economy is bigger than previously thought. PHOTO | FILE  NATION MEDIA GROUP

In Summary

• The debate on the benefit of the new economic status to the common man is misplaced because all what the economists told us is that our economy is bigger than previously thought. 
• Growth is the quantitative increase in wealth. It is mostly about dry figures. It is possible to have a high GDP while the majority of the population remains poor. 
• ome Gulf countries, for example, accumulated great wealth from oil. The sheikhs who controlled the oil led profligate lifestyles, while the majority of the people could hardly afford a meal.

By PATRICK MBATARU
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To understand Kenya’s new status as a middle income country, imagine a man who has all along underestimated his wealth. He never educated his children. Then he discovers he is not at all poor.

The new information does not immediately put his children back to school or restore health to his malnourished family. Used to the old ways, the man is unlikely to start using his wealth for the benefit of his family. At best he goes bragging about it.

The debate on the benefit of the new economic status to the common man is misplaced because all what the economists told us is that our economy is bigger than previously thought. They were not telling us about the distribution of wealth. That is a function of policy.

Gross Domestic Product is about the wealth generated in a country from services and goods in a year, regardless of who controls or owns it. And there is a difference between economic growth and development. It was all about growth.

Growth is the quantitative increase in wealth. It is mostly about dry figures. It is possible to have a high GDP while the majority of the population remains poor. This is because GDP is not concerned with how the economy affects individuals. We may have industries that contribute greatly to the GDP but are killing people with pollution.

Economic development is, on the other hand, about the qualitative impact of the economy on the population. Growth is a necessary but insufficient condition for economic development. Policies and strategies are needed for the distribution of accumulated wealth.

Up to the 1970s, development agencies emphasised wealth creation, believing that the benefits will trickle down to the poor. By the 1980s, there was rising concern that preoccupation with wealth creation created countries with impressive GDPs but with large numbers of their population living in deplorable conditions.

PROFLIGATE LIVES

Some Gulf countries, for example, accumulated great wealth from oil. The sheikhs who controlled the oil led profligate lifestyles, while the majority of the people could hardly afford a meal.

This is the danger facing Kenya. To help countries distribute wealth, economists devised the Human Development Index (HDI). It is commonly used as a method of measuring the impact of development on people.

HDI focuses on three dimensions of human welfare – longevity (life expectancy), knowledge (access to education, literacy rates), standard of living (GDP per capita: purchasing power parity.

Other indicators of development are gender rights, freedom of choice, sustainable development, media freedom etc. All these variously affect productivity and could lead to economic growth because they facilitate the creation of more opportunities in the respective sectors, leading to more money in individual pockets (per capita incomes).

Kenya’s HDI in 2013 was 0.535 out of 1,000 and was rated number 147 out of 187 countries. This is unlikely to change in 2014. Interestingly, we were number 88 in 1980!

What happened? Corruption! The culture of greed took root in the 1980s. The government abandoned welfare measures and followed blindly the structural adjustment measures that led to more poverty. 

President Kibaki emphasised on trickle-down development with massive infrastructure spending, but the cumulative benefit on welfare of the people is doubtful. President Kenyatta is following the same route.

The inequality in Kenya is worrying. Very hard questions are required to address the distributive issues. We have the rudiments of economic equity in the devolved government and strategies such as youth, women, economic stimulus, and cash transfers. 

Dr Mbataru teaches at Kenyatta University (pmbataru@gmail.com)