The nature of economic development and the economic development of nature

Contemporary models of growth and development are founded on a category error: they ignore nature as a form of productive capital. Using as backdrop two recent books on the Indian economy that are representative of the prevailing orthodoxy, I review and in part extend an emerging literature that integrates development and environmental thinking. Contributors to the literature have reworked the economics of the household, communities, and other non-market institutions, reframed national accounting, reconstructed the theory of macro-economic development and public and trade policy, and revised the theory of collective action. In this paper I focus on a small part of the literature: economic evaluation. I develop the notion of sustainable development and construct a unified language for sustainability and policy analyses. I show that by economic growth we should mean growth in wealth - which is the social worth of an economy's entire set of capital assets - not growth in GDP nor the many ad hoc indicators of human development that have been proposed in recent years. The concept of wealth invites us to extend the notion of capital assets and the idea of investment well beyond conventional usage. I also show that by sustainable development we should mean development in which wealth (per head) adjusted for its distribution does not decline. This has radical implications for the way national accounts are prepared and interpreted. I then provide an account of a recent publication that has put the theory to work by studying the composition of wealth accumulation in contemporary India. Although much attention was given by the study's authors to the measurement of natural capital, due to a paucity of data the value of natural capital is acknowledged by them to be under-estimated, in all probability by a large margin. The study reveals that the entire architecture of contemporary development thinking is stacked against nature. These are still early days in the measurement of the wealth of nations, but both theory and the few empirical studies we now have at our disposal should substantially alter the way we interpret the progress and regress of nations

Urban poverty and some policy options: an analysis for India

This paper analyses the problem of the urban poor in India from a primarily macro-economic perspective, tracing the origins of their economic status to their low share in the factor earnings generated in individual industries. A macro-economic model then simulates the implications for them of a range of alternative policies, including growth on the current pattern of development priorities, income transfers from rich to poor and growth-with-redistribution via the creation of new income sources specifically for the target groups. The major conclusions are that on current development strategies the outlook for the urban poor is bleak, but through growth-with-redistribution moderate sacrifices of income growth by the richer classes can secure very substantial improvements for the poor