Per Capita Income Not So Good An Indicator To Development

As I’ve tried to comprehend the meaning of development and poverty, I’ve come to realize that they are virtually distinct concepts. Yet, I can’t help noticing how both are heavily dependent on the other. Poverty means lack of development, where as development implies moving towards getting rid of poverty.

However development, over the long-term, implies increased living standards, improved health and well-being for all; and the achievement of whatever is regarded as a general good for the society at large.

In a nutshell, development is the movement towards the “good society.” And, although, it may be a little complicated to comprehend the actual meaning of development, just as it is difficult defining the good society, one fact I can be sure of is that people are prevented from starvation and are, thus, presumably content.

Moreover, I’ve been reading about ways in which most economists define economic development, and I’ve come to learn that performance in many countries are measured in terms of change in growth, or increase in the per capita production of an economy, which leads to generalized and sustainable increases in income. Particularly, it leads to increases in the income and welfare of the poorer people.

However, being the devil’s advocate here, I have to say that I disagree with the notion that per capita income is a fully adequate indicator of the process of development, and my reasons are the following:

  1. It does not show how equitably a country’s income is distributed
  2. It does do not account for improving the longevity of human life nor the quality of the environment, such as pollution, environmental degradation, health, education, etc.;  particularly in underdeveloped countries
  3. And finally, I feel that despite the fact that per capita income affects material welfare, it is wealth that determines economic welfare and not current income as such.

So, when it comes to an underdeveloped country, I think it is very difficult to eradicate poverty only through income distribution.  And why, you may ask? Well, the reason is because the poorer the country is, the more people are below the poverty line, which in turn means if your income or spending is below this amount, then you are living in poverty.  Hence, I believe it is important to make sure that the poor have enough income to rise above the poverty line, and in turn have enough food to consume, as it is obviously necessary for survival. If relative consumption is a key element of the basic definition of poverty then it can be said that consumption is the central determinant of well-being in industrial countries; and changes in distribution are likely to be the main source of changes in poverty occurrence.

Many economists argue that it’s better if a poor country starts off with a high level of inequality, because this way the rich and more industrialized countries, i.e. United States, have enough surpluses to spend on consumption and perform a lot of investing which thus breeds growth.  Yet, I feel that this may be a contraction because the capitalist system would not grow in the long-run due to inequality, as proposed by Karl Marx.  I strongly agree with Marx’s idea because, inevitably, high levels of income inequality breed social unrest, which thus leads to the discouragement of investment.

One of the problems in some underdeveloped countries is that the elite upper class is not particularly concerned with growth and development. This is because growth might increase competition and very often the elites prefer modern technologies in their businesses; but because of the lack of technology, growth tends to slow down. However, other underdeveloped countries might overlook the notion that inequality is a bad thing. They are convinced that inequality promotes growth.

Personally, I believe that it depends on the circumstances and there is no general answer, but one thing we can be sure about is that per capita income is not necessarily sustainable, because income inequality and distribution poses problems for the country in terms of growth.

Another major reason per capita income is not a good indication of a country’s development is that it does not account for improving the longevity of human life nor the quality of the environment such as pollution, environmental degradation, health, education, etc., particularly in underdeveloped countries.  So, in order for income and welfare increases to be sustainable, the growth process must not lead to serious environment damage nor lead to any sort of its own destruction in any other way.

Also, despite the fact that per capita income affects material welfare, it is wealth that determines economic welfare and not current income as such.  This is because when people in industrial well-developed countries are directly consulted about their happiness and alike, income appears to play a much smaller role than standard economic theory would suggest. This can be illustrated by the example of a wealthy person who does not earn any income in a year but may still be able to enjoy high levels of economic welfare.

Nevertheless, one needs to keep in mind that despite wealth and technological advancements, there appears to be a loss of culture in many developed countries. I know I may be generalizing in saying this, but statistics show that suicide rates are increasing in more developed countries as opposed to the lesser developed ones. Thus, this pretty much indicates that to become wealthier is NOT always and necessarily a good thing.

– January, 2010

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14 responses to “Per Capita Income Not So Good An Indicator To Development

  1. the weakness of per capita income (PCY) as ameasure of standard of living are as follows:

    Population differences: its difficult to compare per capita income of two countries with unequal population sizes.A country with low population may show high percapita figures but not neceesarily high standard of living

    Icome distribution:the PCY figures show or reflect the distribution of income. the per capita income will be high but unevenly distributed thus the standard of living will be low.People have no access to goods and services e.g Saudi arabia which has go a high percapita income but unevenly distributed

    the composition of percapita income:welfare will depend on the composition of goods and services produced in the country. where there is much production of of capital goods or fire arms.there will be scarcity of consumer goods leading to low standard of living when undesirable goods are produced .the percapita income will be high but standard will be low

    The differences in tastes and preferences,different desire goods due to varying tastes and preferences. Acountry which depends on the high highly priced goods will have a high percapita income
    but not neccesarily ahigh standard of living on the other hand acountry cconsuming low priced goods will have ahigh percapita income but a low standard of living

    Differences in climatic conditions.this may affect the time and ammount of goods and services that apopulation need. The percapita income figures may be high for countries which spend highly on heating on heating and cooling garments.yhis may this may necessrily imply high standard of living

    Differences in currencies. Couries uses national income in alocal currency i.e uganda shillings in particular. the purchasing power of one currency may be hgher than that other to compare the percapital income of the country.The figures should be expressed in the same type of currency

    The price levels /inflations,the precapita incomefigueres may be high when the goods and services are highly priced.this may not neccessarily meean ahigh standard of living therefore its better to use the real percapital income
    real percapita = norminal GNP/price index of total population *100

    low percapita income when prices are stable will mean high standard of living with little money more goods and services will be secured
    differences in transport costs

    working conditions or peace at work

    • Nice explanation very nice thank you so much was looking for this article for a long time .. Thanaaaaank you very much I am grateful to you .. Very nice

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