3. Some Fundamentals of Very High Human Development

At the very outset, it has to be acknowledged that the 49  countries in the VHHD category present a very wide variety and diversity of VHHD conditions. The paths that they have taken to arrive at the VHHD condition are equally diverse and varied.

Table 2 of the 2014 Human Development Report dealing with the trends in human development 1980-2013 provides us with some insights. There is first the group of countries which were the leaders of industrialization and were already in the VVHD category in 1990 – countries of North-Western Europe North America, Australia, New Zealand Japan; next, there are the countries in Southern Europe Italy, Greece, Spain and, Portugal (as well as Ireland) which were still below the cut-off point for VVHD in 1990; third, there are the oil-rich countries Saudi Arabia, Brunei, UAE, Bahrain, Qatar; fourth there are the two Asian economies South Korea and Singapore; fifth there is a group of “transitional economies” in Eastern Europe – Estonia, Poland, Latvia, Lithuania Hungary who have arrived from a socialist base which had already resulted in a relatively high standard of living and high social indicators with non-democratic systems. Cuba is an outlier with a fully socialist state. Then there are the two fast-growing Asian economies-Singapore and South Korea-with a mix of the state and the market which give them an identity of their own. Finally, there are two countries from South America, Chile and Argentina with socio-political and economic legacies very different from the rest.

This heterogeneity of development situations lead to the obvious conclusion  that there has been no single path to the VVHD condition and there is no single country in the VVHD category that can be selected by Sri Lanka as a model for its own development

As it would become clear in the discussion that follows most of these countries end up in the VHHD condition only to face new problems of a persisting intractable character – high youth unemployment alongside shortages of labour, high levels of household indebtedness, over nutrition and obesity, a heavy burden of psychiatric ill health, the high prevalence of substance abuse and drug addiction and the inevitable decline in the quality of life among the aged who now form more than 20% of their population.  Sri Lanka is at a stage when it still has the opportunity to choose from among a range of viable options and reach a VHHD condition that can adjust better and avoid or mitigate these negatives.

 

For Sri Lanka’s progress to the category of Very High Human Development (VHHD), the present exercise sets two goalposts – 2025 and 2035- and examines the state of very high human development in relation to the indicators of countries that are present in the VVHD category. Given the capacity to achieve the goals set for per capita income, it selects six sets of issues and related indicators which appear to be fundamentally important for defining the capability for VVHD. These are:

  • The role of government – total government expenditure and revenue as a % of GDP and the state’s capability for the provision of a wide range of public goods and services, including economic infrastructure, health and education, social security, law and order and defence.

 

  • Distribution of income and wealth and society-wide distribution of capability (as defined by Amartya Sen) These indicators would represent the value system and norms of equity and justice that govern social relationships and the dimension of sharing and caring in a society, arguably the Scandinavian countries offering the best model.

 

  • Human capital – the educational attainment of the population and the capacity to develop a knowledge-based society
  • The structure of the workforce – participation rates male and female educational levels, international mobility, and global competitiveness.
  • Population dynamics – patterns of urbanization migration and the characteristics of very high human development in ageing societies.
  • Growth, consumption, savings and lifestyles, and a desirable state of equilibrium producing stability and contentment.

The indicators that are selected in examining these six sets of issues are what might be regarded as primary indicators of VHHD, over and above the HDI. They are  “constants” in VHHD and have a long term structural character. Performance indicators such as public debt, fiscal deficits, foreign direct investment (FDI) flows have not been included. They are at a secondary level with the short-term application. They are essentially indicators on aspects of macro-economic management that are relevant to at all levels of human development. They can have different meanings in different contexts, for example in many of the VHHD countries the share of public debt as a % of GDP is quite high – Singapore, Portugal, Greece, Italy. But the vulnerability of the economy in terms of the public debt has to be assessed not only in terms of its size but also in terms of the capacity for adjustment. In the case of Singapore, the public assets outweigh by far the public debt. Similarly, the importance of FDI for growth and the dependence on FDI can vary greatly. FDI has played only a minor role in the growth of South Korea and Japan. So far Sri Lanka has sustained its relatively high growth rates without any large flows of FDI Levels of FDI and foreign ownership may have an impact on the self –reliant and autonomous character of the development.  The performance indicators, therefore, have to be examined in each country context before we come to conclusions regarding the policies that need to be pursued.

The paper also does not deal with the political dimension of human development. The HDR excludes the political dimension in its design of the human development index owing to problems of quantifying political goods for the purpose of measurement. Nevertheless, issues of democracy and freedom of choice have been singled out as essential pre-conditions of development. Amartya Sen assigns a central place to democracy in the process of development and one of his books is entitled  “Development as Freedom”.  Several non-democratic countries such as the oil countries and Cuba have reached the state of very high human development when assessed on the non-political  Human Development Index of the  HDR, Even so,  the values of democracy – the freedom of choice, liberty of the individual, consent of the governed, enjoyment of full human rights, and sound effective systems of accountability  -should unquestionably remain a fundamental of the model of “very high human development”   to which Sri Lanka aspires. These issues however have not been brought within the scope of this paper and would require examination and analysis in a  separate exercise.

 

  1. The Role of Government in Very High Human Development

The first set of issues – the role of government-takes us directly into a very controversial and challenging area which may have far-reaching significance for the human development strategy as a whole. The analytical approach taken in this paper is based on the premise that the state of VHHD requires a strong pro-active state, capable of assuming public and collective responsibility for a large and essential component of the well-being of its citizens. Along with it, they possess the capability to mobilize a substantial volume of resources for public spending. When government expenditure is efficiently managed and equitably allocated, the size of government becomes a useful indicator of the partnership between government and the people, the foundation of social and political stability and the inclusiveness of society.

Table 3 (annexed) provides data on government expenditures and revenues for the VHHD countries.  A full analysis of the role of government in very high human development is hindered by the paucity of data on all aspects of government in the international databases that are available. Scholars have complained of the lack of adequate data on government expenditures and the composition of government expenditures. Table 4.13 and 4.14  in the World Development Indicators  2014 provide information on Central Government expenses and revenues. The World Bank’s World Development Report and the Human Development Report also give the data for final government consumption. These do not cover government expenditure at sub-national levels. The figures for total public expenditure which will include public spending at state, provincial, and local level are available from various sources such as the Economic Freedom Index of the Heritage Foundation. Column 1 of Table 3 provides the data for total public expenditure. What is relevant for our analysis would be the total public expenditure. As was mentioned Government expenditure includes military expenditure and the maintenance of armed forces; expenditure on law and order, justice, and a vast range of regulatory services; substantial outlay on the development and maintenance of the economic infrastructure; the public provision of educational services and health care;, social protection in the form of unemployment relief old-age pensions, income after retirement and various forms of public assistance to the vulnerable and disadvantaged groups of society.

The large majority of countries in the VHHD category have public expenditures of over 35 % of GDP. Government spending as a percentage of GDP has been increasing rapidly with economic growth and an increase in GDP. The tables below show the historical trends for a few of the advanced countries.

Table: Government Expenditure as a Percentage of GDP
France Germany Sweden Japan United Kingdom United States
Circa 1870 12.6 10.0 8.8 9.4 7.3
1913 17.0 14.8 10.4 8.3 12.7 7.5
1920 27.6 25.0 10.9 14.8 26.2 12.1
1937 29.0 34.1 16.5 25.4 30.0 19.7
1960 34.6 32.4 31.0 17.5 32.2 27.0
1980 46.1 47.9 60.1 32.0 43.0 31.4
1990 49.8 45.1 59.1 31.3 39.9 32.8
1996 55.0 49.1 64.1 35.9 43.0 32.4

Source:  Robert Higgs Government Growth.

The countries with a style of development that offers a possible model that could be suitably adapted to Sri Lanka would be the Scandinavian countries with their social welfare orientation. These are among the countries with the highest scores on the HDI – Sweden, Denmark, Norway, and Finland. The government expenditure as a percentage of GDP in these countries ranges from 43.9% (Norway) to 57.6 % (Denmark). The tax burden ranges from 43.2 % of GDP (Norway) to 48.1% of GDP (Denmark). The second group of countries with high proportions of public expenditure (above 40% of GDP) and tax burden include Belgium Netherlands,  USA, UK, Italy, Germany, France, Greece, Canada, Japan, Argentina and most of the East European states which had developed within socialist systems. In a middle range (between 30% and 40% of GDP) are Australia, Spain, Chile, and South Korea. South Korea has the lowest proportion in this category (30.2% and 25.9 % of GDP for expenditure and revenue respectively).

Singapore stands by itself offering a model of low government expenditure and revenue -17.1% GDP and 13.8% of GDP respectively. The data indicate a large range of options for the management of the balance between state and market.

To begin with, we need to take note of the fact that in the case of Singapore the small size of government as reflected in the government expenditure and revenue does not fully reflect the role that the government plays in the macroeconomic and socio-political management of Singaporean society. The decision-making capacity of the government in Singapore is derived from other sources including the political processes which enabled it to function virtually as a one-party state, capable of mobilizing its citizens to move in the direction of clearly articulated development goals. Furthermore, the state ownership in sectors such as the economic infrastructure (transportation telecommunication power water), helps the government to play a commanding role in the framing of policies governing growth and investment. Nevertheless, Singapore could be held up a model for its small size of government expenditure and revenue. It exemplifies “limited government” to the extent that government consumption remains small and the major parts of the resources are available to the private sector and households. We can come back to the Singapore “model” and its relevance for Sri Lanka after we have further analyzed the role of government in the majority of countries who have opted for a much larger role for government in sustaining the condition of very high human development in their societies. The data for these countries sharply contradict the assumptions that are implicit in the approach that selects “limited government” as a positive indicator of macro-economic management and development strategy.

The government expenditures in the countries in the VHHD category include a high proportion of public social expenditure. The data in Table 3 on public social expenditure confirms this observation. Public social expenditure accounts for almost half of the total public expenditure. In these countries, the balance of social and political forces appears to have created a value system in which society assumes collective responsibility for the provision of a whole range of public goods and services to its citizens The majority of the countries in the VHHD category have national health care systems with universal coverage. The private sector in health is a very small component. The average public expenditure on education is in the region of 6 % of GDP for the OECD countries and the public sector caters to the needs of the preponderant majority of their student populations. The social security of the non-working, aged population is the responsibility of the state, these systems and their institutions are driven by a value system closer to the value system that has underpinned the development process in Sri Lanka than those of the Asian societies such as Singapore and South Korea. This becomes evident in the system for social protection adopted in Singapore. The ruling People’s Action Party in its 1998 Budget stated: “We believe that extensive welfare programmes damage the fabric of our society as they discourage individual responsibility, self-reliance, community support and the work ethic”

The alternative that Singapore offers is one based on a high level of individual savings capable of promoting home-ownership and, supporting households after retirement, meeting all the health care costs and living requirements. To achieve this Singapore was able to adopt a scheme of compulsory savings averaging around 40% of income sustained over the entire working life. By 1988 the Central Provident Fund had accumulated savings which were as much as 86% of GDP and had become a major source for its housing programme and the development of its economic infrastructure. This system relieved the state of the burden of financing a social welfare system on the lines of the western democracies. Government expenditure was confined to the essential functions of defence, law and order and the development and maintenance of the economic infrastructure.

In this context, the observations made by scholars who have studied the Singaporean system are relevant when we evaluate the viability of the Singaporean model  for replication outside the unique and special Singaporean context :

This anti-welfare philosophy appears to be explicitly reflected in the everyday activities of government and non-government welfare services. Service users are given temporary assistance but are strongly encouraged to move towards self-reliance through workfare programs. Longer-term dependency on welfare assistance is considered unacceptable (Aspalter 2001, 52). For example, the introduction of the new ComCare fund was accompanied by an emphasis on “mutual obligation, not an entitlement. Individuals should be prepared to help themselves. Provide assistance, not welfare” (CDC 2006).

To the superficial observer, the Singaporean antagonism towards the welfare state appears to be based on ideological dogmatism rather than evidence-based analysis and research. In particular, the use of loaded terms such as welfare dependency and mutual obligation seems to be sourced directly from western neo-liberal ideology. These terms imply that many poor and disadvantaged people are to blame for their own plight, and are not deserving of assistance (Chee 1994, 80).

There seems to be little recognition that the free market often fails to provide for all, and that a welfare state is needed to compensate those who are poor and unemployed. Left/liberal critics of neo-liberalism would argue that increased reliance on income support payments reflects the growth of poverty and inequality in the community, rather than any individual characteristics. They believe most welfare recipients receive payments because they are poor and disadvantaged, and have little or no other income (Fraser and Gordon 1994; Mendes 2004). There is also considerable evidence that welfare states do not undermine economic growth and prosperity, and in fact, play a key role in promoting social cohesion and solidarity (Goodin et al 1999; Lindert 2004).”

It would be seen that the alternative approaches that societies adopt to provide social protection and ensure the well-being of its citizens throughout the entire life cycle have far-reaching implications for the management of the economy and the development process as a whole. In contrast to the Singaporean ideology, the value system that underpins social protection in countries which opted for systems that accepted public responsibility for the social welfare of its citizens is based on rights and entitlements. It could be argued that on all counts, social economic and political, such a system is better attuned to the values of “very high human development”.

The first row of the Table gives the comparable indicators for  Sri Lanka in regard to the role of government. Public spending as a % of GDP  stands at 21.4  and government revenue as a % of GDP at 12.4 The capacity to mobilize public resources and to provide the public goods and services to its citizens is very far below that of the countries in the VHHD category, The goalposts set for 2025 and 2035 bring Sri Lanka to two levels of VHHD – 2025 brings it to the lower half where countries have higher government spending than Sri Lanka with the exception of Chile. 2035 brings Sri Lanka to the higher half where government expenditure and taxation would appear to require a  further significant increase in the size of government as a  share of GDP, with the exception of South Korea and Singapore. Korea, Chile and in particular Singapore have substituted individual savings for public welfare systems. Singapore has succeeded in developing the system to provide comprehensive coverage on a scale that approximates to the public welfare systems of the majority of countries in the VHHD category.

The comparative data indicate that Sri Lanka has to travel a great distance before its government acquires the capacity for resource mobilization and provision of public goods and services to its citizens at levels achieved in the countries in the VHHD category. The choice between various alternatives regarding the role of government is not one which can be made freely. The choice will be determined to a large extent by country-specific conditions. A regime of mandatory savings at the very high level which Singapore was able to impose is not an option which is politically and socially feasible for most countries. Sri Lanka which is at the mid-point of high human development starts with a level of household savings that is relatively low and tax revenues which are among the lowest in the high human development category. The initial conditions in Sri Lanka indicate that social arrangements of the type made in Singapore are beyond its reach – quite apart from the issue as to whether such arrangements are desirable in terms of their human development outcome. If Sri Lanka is to go in the direction of the Scandinavian model the challenges are formidable. There has to be a radical re-examination of the concept of “limited government” which has been a part of the prescriptions for development policy in Sri Lanka. The capacity of Government has to be increased to around 30% of GDP in 2025 and 40% in 2035. Its functions should include all those which are undertaken by governments in the VHHD category ranging from economic infrastructure to social protection. The tax structure must undergo far-reaching reforms to enable the government to mobilize the required resources. The tax system would need to be rendered more equitable and a much larger share of the burden should fall on the wealthy than at present. Consequently, the distribution of income and wealth should move in the direction of greater equality. We could proceed to examine these attributes of VHHD in our next section.

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