A friend of mine at the World Bank recently forwarded news of a seminar held at the IMF under the title of “Enlightening Economics.” I was not able to attend but saw the Powerpoint presentation and was much encouraged by its contents. It reminded me of a time, perhaps starting sometime in the late 1980s when there was a tangible shift in the development community to recognizing the importance of what Amartya Sen called “soft-headed” concerns, such as the role of safety nets to protect the very poor, issues of equity and income distribution, gender equality and, of course, the environment. While at the IMF we continued to recognize the importance of macroeconomic stability for economic growth we could also sense a growing awareness that it was necessary to create the conditions for so-called “high quality growth,” a term that, at least in theory, explicitly recognized the importance of policies aimed at reducing poverty, improving opportunity, and protecting the environment.
The question of what constitutes “economic success” (and how to measure it) is central to the debate about the role of economics in the emerging global community. During much of the post-war period economic policy has been geared to encouraging the growth of the gross national product (GNP) and the efficacy of any given policy has tended to be judged by the extent to which it contributed to boosting this aggregate measure of the monetary value of goods and services produced by the economy. GNP figures are used by the international financial institutions to assess the relative merits of particular approaches to development and their policies are shaped by close monitoring of the evolution over time of this indicator. It is not unfair to say that, as perceived by the professional economic establishment, “successful” economic development essentially is taken to mean an adequate growth of GNP per capita.
Indeed, the drive to expand the scale of the global economy is so strong that, from the point of view of political leaders, their economic advisors and the peoples whose material interests they have been elected to protect, no economic policy which failed to deliver continued growth would ever be considered a “success.” The adequacy of this approach, however, is increasingly coming into question, partly stemming from concerns about the burdens on the environment associated with growth beyond the present scale and, more fundamentally, from new insights from behavioural economics about the relationship between growth in the economy and communities’ well-being. There are at least two aspects to this issue. The first pertains to certain serious shortcomings in the indicator itself and the implications that disregard for these, in the development debate, has had for human welfare during the last several decades. The second, more general one, concerns the role of economics in the development process and in enhancing well-being.
Any income accounting system which treats the depletion of natural resources as current income and thus as a positive contribution to the growth of GNP is obviously one which provides perverse incentives. Countries engaged in policies which result in the rapid exhaustion of their non-renewable natural resource base may experience high rates of economic growth in the short-term although persistent implementation of these policies will imply that future generations may no longer have access to those resources and would thus see their standard of living correspondingly reduced. The pollution and environmental degradation that may come as a result of these policies will also be accounted with a positive sign on the GNP balance because they are likely to be accompanied by a high rate of growth of industry in the intervening period. The economic activity associated with the medical bills that would accumulate as the result of the public health implications of environmental problems also contribute positively to the growth of GNP. Indeed, these particular shortcomings in the measurement of economic growth (and hence in public perceptions of the validity of a given policy) have led to the emergence of a false dichotomy, where protection of natural resources in many countries is tragically seen as a constraint on growth rather than as a means to safeguard its sustainability.
Other “GNP friendly” activities include: citizens spending vast sums of money to buy elaborate security systems for their homes to protect themselves against rising crime; overeating, as a result of which a thriving diet industry is born to help people fight against its ill effects. There are also many activities which might be regarded as welfare-creating which actually are entered as “negatives” in the elaboration of GNP accounts. For instance, when mothers decide to stay temporarily at home to take care of their children rather than go out into the labor force, when parents turn off the television set at dinner time to talk to their children, and when countries decide to close down weapons facilities and factories. The focus here is not a critique of the system of national accounts. Nevertheless, while these weaknesses are well known and even acknowledged by policy makers, they find little echo in the debate over what constitutes successful economic development and very little has been done, in fact, to shift the focus of debate to the development of alternative measures of economic success.
It is of course the case that GNP can grow rapidly and income distribution worsen simultaneously, as has happened in many countries during the last quarter century. High GNP growth is also not inconsistent with scant regard for and lack of respect for basic human and civil rights, as the experience of a number of “high performing” countries (in GNP terms) during the last forty years clearly demonstrates.
This is not to say that no attempts have been made to construct alternative measures. A good example of efforts in this area is the Human Development Index (HDI) compiled by the UNDP which, by using measures of life expectancy, education, and per capita income, tries to capture broader aspects of socio-economic development. An even more sophisticated example is the Index of Sustainable Economic Welfare (ISEW) developed by Herman Daly and John Cobb in the 1990s which incorporates the negative effects of such factors as long-term environmental damage, depletion of non-renewable resources, costs of pollution and other welfare-destroying phenomena. Daley and Cobb demonstrated that in the United States inflation-adjusted income per capita using the ISEW was some 4% lowerin 1990 than in 1966; over the same period traditionally-measured GNP per capita rose by 55%. Important as these initiatives have been, by and large, they have had no practical implications for the lending operations of the main international development organizations whose work is overwhelmingly guided by traditional measures of GNP growth, nor have they had much of an impact on the development discourse, either at the political level or in the mass media.
A broader outlook
As a Bahá’í I would argue that the above observations suggest the need to broaden the definition of what constitutes “well-being” and investigate more closely the relationship between increasing market activity and the welfare of the people participating in the economic system. One starting point is to establish a clearer mental demarcation between the concepts of “growth” and “development.” The first is essentially a quantitative concept which captures the expansion in the scale of the economic system, while the latter refers to qualitative changes in this system and in its relationships with the environment and other aspects of life in the community. Properly understood, economics should concern itself less with how to add to the physical dimension of the economic system and more with the long-term welfare of the community whose interests the “system” is ultimately intended to serve. This distinction is quite fundamental, given what we have learned in the past couple of decades, for instance, about the likely impact of climate change and associated environmental disasters.
In a contribution to the Financial Times in the aftermath of the 2008-09 global financial crisis, Sen reminded its readers that in The Wealth of Nations Adam Smith had “talked about the important role of broader values for the choice of behavior, as well as the importance of institutions,” but that it was in his first book—The Theory of Moral Sentiments—that Smith “extensively investigated the powerful role of non-profit values,” such as “humanity, justice, generosity and public spirit,” as being the qualities that were most useful to others.[]
Sen has long argued that poverty robs people of the freedom to satisfy hunger, to achieve adequate levels of nutrition, to acquire remedies for treatable illnesses, to enjoy clean water, to be adequately clothed, and so on. He thus sees poverty not merely as being characterized by low levels of income, but more broadly as involving the deprivation of basic capabilities that would allow the poor to more actively participate in the economy and the life of the nation. Tyranny, intolerance, the absence of economic opportunities, the misplaced spending priorities of governments which lead them to neglect the role of public services, and what Sen calls the “overactivity of repressive states” represent all, in some form or other, obstacles to freedom and thus barriers to successful development.
The challenges posed by the above are further elucidated in the Prosperity of Humankind statement issued by the Bahá’í International Community in 1995: “A culture which attaches absolute value to expansion, to acquisition, and to the satisfaction of people’s wants is being compelled to recognize that such goals are not, by themselves, realistic guides to policy. As the experience of recent decades has demonstrated, material benefits and endeavors cannot be regarded as ends in themselves. Their value consists not only in providing for humanity’s basic needs in housing, food, health care, and the like, but in extending the reach of human abilities. The most important role that economics must play in development lies, therefore, in equipping people and institutions with the means through which they can achieve the real purpose of development: that is, laying foundations for a new social order that can cultivate the limitless potentialities latent in human consciousness.”
The spiritual dimension
So Bahá’ís argue that there is a central spiritual dimension to life and that economics should incorporate this reality into its very foundations.[] Indeed, the Bahá’í teachings argue that solutions to many economic problems will be found in the application of spiritual principles, a key message of Prosperity of Humankind: “For the vast majority of the world’s population, the idea that human nature has a spiritual dimension—indeed that its fundamental identity is spiritual—is a truth requiring no demonstration. It is a perception of reality that can be discovered in the earliest records of civilization and that has been cultivated for several millennia by every one of the great religious traditions of humanity’s past. Its enduring achievements in law, the fine arts, and the civilizing of human intercourse are what give substance and meaning to history. In one form or another its promptings are a daily influence in the lives of most people on earth and, as events around the world today dramatically show, the longings it awakens are both inextinguishable and incalculably potent.”
Bahá’í teachings view man as having both a material and a spiritual nature. They suggest that the purpose of life on this material plane is to acquire virtues and that our ultimate fulfilment as human beings depends on our ability to transcend the purely material and aspire to the spiritual. So Bahá’ís would turn away from an approach to development which was based on an exclusive concern with purely material aspects of life. Regrettably, this is generally the approach followed by development practitioners and academic economists, which have tended to view man as a rational being pursuing his own self-interest, usually defined in strictly material terms and have, therefore, tended to assess the value of development strategies in terms of the extent to which these have contributed to tangible improvements in material well-being, usually identified with narrowly defined indicators.
What Bahá’ís would propose is that rather than taking observed human behaviour as given and deducing economic principles from these observations, a vision must be offered of what people can be and then ask what sort of institutions, systems, and laws are needed to help people develop their latent capacities. The Bahá’í writings say that “legal standards, political and economic theories are solely designed to safeguard the interests of humanity as a whole, and not humanity to be crucified for the preservation of the integrity of any particular law or doctrine.” So, we should look at the end objectives and goals—against the background of a passionate commitment to justice and a concern for the interests of the community—and then devise and adopt institutions to achieve those ends. Regrettably, the approach actually followed during much of the past century has been to come up with the theory or the system first and then fit it to society, by brute force if necessary. This approach to development has been especially destructive in totalitarian societies where, notwithstanding the rapidly accumulating body of evidence suggesting that allegiance to certain ideological postulates was not leading to increased prosperity and well-being for the population, governments, nevertheless, intensified their efforts to achieve those very aims, as though having lost sight of their primary objectives the response was to redouble their efforts.
The material world is a reflection of spiritual realities. Spiritual teachings and principles cannot be totally divorced from daily material life. The spiritual progress that such teachings are supposed to unleash is not to be identified with a life of isolation and contemplation but rather should be seen in the context of the active participation of the individual in the life of the community. This, in turn, highlights the importance of such things as: service to others, trustworthiness and truthfulness, integrity and honesty as the basis for all human interaction.
A new concept of solidarity
I was working in the financial sector in London in 2000 and was part of my bank’s delegation to the annual meetings of the World Bank and the IMF in Prague. Vaclav Havel, the then president of the Czech Republic and one of Europe’s most enlightened political leaders said that the time had come “to address another restructuring, concerning the system of values on which contemporary civilization rests.” In practice this would mean adopting a system of values which are consistent with the emergence of a fully integrated and unified community of nations. The writings of the founder of the Bahá’í Faith, which clearly anticipated the twentieth century’s relentless drive towards greater interdependence and integration, make this need explicit in stating that “The earth is but one country and mankind its citizens.” Against the violent background and excesses of the past century readers of these words might be excused for seeing them more as the expression of a noble ideal rather than as an accurate statement of human reality.
And yet for quite some time anthropologists have talked about the “psychic unity of mankind.” George Murdock claimed that “all peoples now living or of whom we possess substantial historical records, irrespective of differences in geography and physique, are essentially alike in their basic psychological equipment and mechanism, and the cultural differences between them reflect only the differential responses of essentially similar organisms to unlike stimuli or conditions.”[] And, of course, many of us will have read the declaration of Craig Venter, one of the scientists that led the effort to map the human genome, to the effect that “there is only one race—the human race,” and that if one asks what percentage of our genes is reflected in our external appearance, the basis by which we talk about race, the answer seems to be in the range of 0.01%.
It may yet be many years before the generality of mankind becomes conscious of the scientific basis of its oneness, suggesting that “The earth is but one country and mankind its citizens” was intended to be both a noble vision and a literal fact. All of this would seem to imply that we need to develop broader loyalties, consistent with this vision of oneness. For the benefits of globalization to be realized we need to acquire a sense of solidarity that extends to the whole human family, not just the members of our own particular tribe. The English mathematician and philosopher Bertrand Russell spoke of the need to “expand our mental universe” to match the increasingly global vision provided by scientific advancement and discovery. He said that our sense of collective well-being would have to extend to the whole of humanity as it was evident that human society was increasingly behaving as a single organic entity. These observations, made well-over half a century ago, are self-evident in the age of globalization. Failure to imbue our approaches to social and economic development (and, more generally, to gradually bring into being the necessary supporting architecture of global governance) with a sense of humanity’s oneness will only delay that time when the fruits of development are seen to tangibly improve the lives of all the peoples of the world.
Sen, A. 2009. “Adam Smith’s Market Never Stood Alone.” Financial Times, March 11.
I am indebted for many of these insights to my friend and colleague Greg Dahl, who has thought long and hard about these issues and with whom I have enjoyed many a conversation.
Murdock, George. 1965. Culture and Society. University of Pittsburg Press.