Teaching Notes · Economic Development and Growth

Measuring a Good Life: Todaro, Sen, and the Human Development Approach

If growth is only a means and quality of life is the real end, the obvious next question is how to define and measure that end. Development economics has offered several answers to this over the decades, and three of them are worth holding side by side: Michael Todaro's three core values of development, Amartya Sen's capability approach, and the human development approach that grew out of both.

Todaro's three core values

In his widely used textbook, Michael Todaro argues that a good quality of life rests on three values that appear, in one form or another, in almost every society.

Life sustenance

This is the most basic value: having the minimum goods needed to stay alive, principally food, shelter, and clothing. The income level at which a person can just meet these basic needs is often called the subsistence level, closely related to what is more commonly known as the poverty line. In Egypt, roughly a third of the population has historically fallen below this subsistence level, which is a reminder that for a large share of the world's population, development still has to start with the most basic question of survival before it can move on to anything more ambitious.

Self esteem

Self esteem, in Todaro's framework, is the sense of being a person of worth rather than a tool used by others for their own benefit. It is closely tied to not being exploited by people above you in a social or economic hierarchy, and it is usually built through access to a good education and meaningful work. A society that systematically denies people this kind of respect, even while providing for their basic material needs, is not offering a genuinely good quality of life by this definition.

Freedom from servitude

The third value sounds political at first, but Todaro frames it primarily as the freedom to choose: having a real range of options in life rather than being constrained to one path. He points to the example of consumer choice under state socialism, where buyers in East Germany had essentially one car available to them, the Volkswagen built in the West rather than the East, as a small but telling illustration. The more genuine options people have, and the more resources they have to act on those options, the higher their quality of life.

Sen's capability approach

The Indian economist and philosopher Amartya Sen, who won the Nobel Memorial Prize in Economic Sciences in 1998 largely for this body of work, drew a distinction that reframed how development economists think about wellbeing: the difference between a standard of living and a standard of welfare. Standard of living is about what a person owns, their assets, whether productive assets like a factory or consumer assets like a car. Standard of welfare is about what a person is actually able to do and enjoy with what they own.

The two do not automatically move together. Someone can become wealthier year after year without becoming any better off in terms of welfare, and Sen's approach asks why that gap opens up. A few recurring reasons appear across contexts: a lifestyle that requires working multiple jobs just to maintain a given standard of living, leaving no time to enjoy it; illness, which prevents people from using what they have; a lack of education, which limits people's ability to make the most of their assets; and cultural habits of consumption that direct spending away from what actually improves wellbeing. Sen's own prescription follows from this: building yourself through education and skills, working in a job that uses them well, and, eventually, having the freedom to stop working and actually live.

The human development approach

The human development approach, which underlies the United Nations Development Programme's Human Development Index, pulls Todaro's and Sen's ideas into a single organizing idea: development as a process of enlarging people's choices, with people placed at the center rather than GDP. It is often summarized as development of the people, by the people, and for the people.

• Of the people means investing in people themselves, through education, training, and healthcare, so that human capital, not just physical capital, grows. This is sometimes called human resource development, treating people as both the beneficiaries and the drivers of growth.
• By the people means effective participation, which in turn depends on people being qualified enough to participate meaningfully. Development by people cannot happen without development of people first.
• For the people means the end result has to be a felt improvement in people's actual lives, in the form of genuinely enlarged choices, not simply higher statistics.

Taken together, these three lenses, life sustenance and self esteem and freedom from servitude, standard of living against standard of welfare, and development of, by, and for the people, give a much richer answer to the question that opened this piece than GDP alone ever could.

Classifying countries by income

Before any of these richer measures can be applied, development economists need some working way to group countries for comparison, and the most widely used starting point is still income. The World Bank's income classification ranks countries by gross national income per capita in the previous calendar year, converted using the Atlas method, and sorts them into four bands: low income, lower middle income, upper middle income, and high income, the last of these sometimes still referred to informally by the older label of the OECD or developed world. An older but still commonly encountered framework divides the world into a First World of Western capitalist economies, a Second World covering the former Soviet Union and other communist or formerly communist states, and a Third World comprising the remaining developing countries, which on this framework make up roughly eighty percent of the world's population. Because lumping every developing country into one Third World category obscures enormous real differences between them, a further distinction is commonly drawn for the Newly Industrialized Countries, originally the four Asian tigers, South Korea, Taiwan, Singapore, and Hong Kong, later joined in common usage by countries such as China, India, and the larger Latin American economies, as against lower and lower middle income countries still in the earlier stages of industrialization, and the least developed countries, sometimes informally called a fourth world, facing the most severe and persistent deprivation.

The Human Development Index, formally

The Human Development Index itself, first published by the United Nations Development Programme in 1990, compresses three dimensions, a long and healthy life, access to knowledge, and a decent standard of living, into a single number between zero and one. Countries are then grouped into low human development, roughly 0 to 0.499; medium human development, roughly 0.5 to 0.799; and high human development, roughly 0.8 to 1.0. The index's main appeal is exactly what it was designed to demonstrate: because it blends health and education together with income rather than relying on income alone, a country with a comparatively low average income can still post a higher HDI than a wealthier country if it does comparatively well on life expectancy and education, which is precisely the point Todaro's and Sen's frameworks above are making in narrative form.

The index was substantially revised by the UNDP in November 2010. The clearest change was replacing gross domestic product per capita with gross national income per capita in the income component, on the reasoning that GNI better reflects the real resources actually available to a country's own population, including income earned abroad and excluding income repatriated by foreign owned firms operating locally. The 2010 revision also changed how the education component is measured, from simple enrollment ratios to the average years of schooling actually completed by the adult population combined with the years of schooling expected for children starting school today, and it replaced fixed, predefined maximum values in each dimension with the highest values actually observed across countries, while also lowering the minimum income goalpost in light of new evidence on just how low sustained income levels can fall.

More recently, the UNDP has also published a Planetary pressures adjusted HDI, which takes the familiar HDI and penalizes it for a country's environmental footprint, specifically carbon emissions and material consumption, so that two countries with an identical HDI can be ranked quite differently once the environmental cost of achieving that human development is taken into account.

Like any single index, the HDI has recognized limits. Gross school enrollment figures can be misleading where dropout rates are high, and the index says nothing about the quality of the schooling being counted, whether it happens in an under resourced public system or a well funded private one. A high HDI score is also compatible with a population that lives a long time but in relatively poor health, since life expectancy alone does not capture quality of life within those years. None of this makes the index useless; it simply means the HDI, like GDP before it, is best read as one useful summary statistic among several rather than a complete account of development on its own.

From the Millennium goals to the Sustainable Development Goals

The push to measure development more broadly than income alone eventually found its way into global policy targets as well. The United Nations adopted eight Millennium Development Goals in 2000, running through 2015, covering targets from eradicating extreme poverty and hunger to achieving universal primary education, promoting gender equality, reducing child mortality, improving maternal health, combating HIV, AIDS, malaria and other diseases, ensuring environmental sustainability, and building a global partnership for development. Their successor, the Sustainable Development Goals adopted in 2015 and running through 2030, expanded this into seventeen goals and one hundred sixty nine targets, extending the same basic logic, that development has to be judged by outcomes in health, education, equality, and environmental sustainability together, not by income growth alone, into a far more detailed and measurable framework. The environmental dimension of that framework is substantial enough to deserve its own discussion, which this series picks up separately.

Sources: Chapter 2, “Comparative Economic Development,” and the supplementary lecture on the Human Development Index, following M. P. Todaro and S. C. Smith, Economic Development (Pearson); A. Sen, Development as Freedom (1999); World Bank, country income classifications by income level; United Nations Development Programme, Human Development Reports, including the 2010 methodological revision and the Planetary pressures adjusted HDI; and the United Nations Millennium Development Goals and Sustainable Development Goals frameworks.