Human development needs action

The following article is based on a paper presented by Emil Salim, a former cabinet minister, at a symposium on human development organized by the UNDP and the government of Japan in Tokyo from July 15 to July 17.

TOKYO: The Human Development Report 1996 has the following major points. First, a Composite Human Development Index revealing achievement in basic human capabilities in three fundamental dimensions:

(1) a long and healthy life as indicated by life expectancy, with an ideal goal a life span of 85 years;

(2) knowledge by educational attainment, with an ideal goal of access to education for all;

(3) a decent standard of living as indicated by income.

Of 174 countries in the world, 57 countries are in the high Human Development Countries group. From these countries, 26 (45 percent) are in the South; 69 countries are in the medium Human Development Countries group, of which 53 countries (77 percent) are in the South; and 48 countries are in the low Human Development Countries group, all of which are in the South.

If growth continues as it has in the last 15 years and is extrapolated into the future to the year of 2030, it will take countries in the medium Human Development countries group 17 years to be elevated to the category of high Human Development. It will take countries in the low Human Development countries more than 200 years to move into high Human Development countries.

China needs 25 years, while India needs more than a century to reach the high Human Development countries group.

With a "more of the same" growth pattern of the last 15 years projected into the future, we will have a world with increased income inequality and increased human development inequality.

The second point raised in the report is that economic growth is not automatically linked with human development, but human development should be actively pursued together with high economic growth.

The link between economic growth and human development can be strengthened through sensible policy, which emphasizes:

(1) the public expenditure ratio, i.e. the percentage of national income that goes to public expenditure;

(2) the social allocation ratio, i.e. the percentage of public expenditure earmarked for social sectors;

(3) the social priority ratio, i.e. the percentage of social expenditure devoted to basic social services.

The third point in the report is the notion that the expansion of employment opportunities that meet people's aspirations is required to become the top policy objectives in all countries to ensure that economic growth enlarges human capabilities and the people's choices.

Based on these findings and looking into the future, the crucial question arises: How can we have both economic growth and human development through international action?

This challenge is especially true for developing countries in the low and medium human development category in an international setting where globalization is taking place.

The world is getting smaller due to technological revolutions in transportation, information and communication, which have induced a large flow of trade, capital, services, information and people between countries.

But the growth in the world is asymmetric and divided into the developed countries of the North and developing countries of the South, and Human Development Report 1996 warns that inequality in income and human development will increase unless we are able to change the development course pursued in the last 15 years.

This requires international action that makes possible bigger resource flows from the North to the South and from the South among the South.

Strategic international actions include:

(1) the promotion of trade;

(2) the transfer of technology and increased capacity building;

(3) the increased flow of investment;

(4) debt relief;

(5) the restructuring of aid flow

The globalization of trade requires developing countries to open up their economies. Trade becomes the engine of growth. More specifically, export-led growth is the name of the game.

But this requires liberalization of trade in the developed countries, the elimination of non-tariff barriers, subsidies, and de-linking trade with non-trade measures such as human rights, democracy, etc.

A time frame must be set between the North and the South to liberalize trade with time differentials, like 2010 for the industrialized countries and 2020 for the developing countries in the Asia-Pacific Economic Cooperation region.

Trade will raise economic growth that allows higher human development.

Transfer of technology to the South needs to be fully implemented in parallel with the growth of human capabilities. The time frame currently considered within the Intellectual Property Right is 60 years before the rights can be made available. The rationale is that research and development here is expensive for the private sector. The solution for speeding up technology transfer is by involving the governments, especially from the developed countries, to subsidize such a transfer. An international action to make this transfer possible is urgently called for.

An increased flow of investment will be induced by profit opportunities. In most developing countries development potential exists in the resources-based sector, in particular the agriculture sector. The world market for agricultural products is, however, distorted by high agricultural subsidies in the development countries.

This requires structural change in developed countries moving away from subsidy agriculture into a more realistic agricultural development. In this connection a kind of a "structural adjustment program" for the developed countries is necessary as part of the international action.

Debt relief must be implemented, especially to the Severely Indebted Low Income Countries. Countries have already been identified in the categories: "unsustainable debt profiles", "possibly stressed countries" and "sustainable debt profiles". The major threshold distinguishing these countries are the following debt indicators:

(a) the ratio of debt service to export, between 20-25 percent

(b) the ratio of Net Present Value of debt to export of 200-250 percent

If this threshold indicator is crossed in five years, then the country has a "sustainable debt profile". If the country's debt indicator is above these thresholds after 10 years, then the country has an "unsustainable debt profile". If the country's debt is between these two, then the country has a "possibly stressed debt profile".

Countries with unsustainable debt profiles and possibly stressed debt profile require urgent relief.

The experience of Mozambique shows a debt service ratio of above 90 percent and a Net Present Value debt export ratio of 1000 percent, with a small prospect for improvement in the next 10 years.

Under these circumstances it is impossible for Mozambique to be engaged in its survival, let alone economic growth with human development.

While the creditor countries in the Paris Club are willing to consider the notion of bilateral debt relief, it is unfortunate that the G-7 has not endorsed the World Bank-IMF proposal for multilateral debt relief.

Debt relief needs to be part of the priority program of international action. The aid flow must be restructured by reallocating the direction from economic into social infrastructure. With a possible economic rate of return, it is feasible to engage the private sector into economic infrastructure development, and leave the social infrastructures to be financed through aid.

This follows the line of thought in the report's finding that development policies should emphasize the public expenditure ratio, the social allocation ratio and the social priority ratio.

These are the five pillars of international transaction that make possible the resource transfers urgently needed for economic growth, though they should be combined with a deliberate policy of human development.

It is in the context that we need to evaluate the restructuring of UN agencies, the Bretton Wood's institution, the World Trade Organization and the development of civil society in our endeavor to meet the challenges of economic growth and human development.