There is nowadays a general consensus amongst economists that economic growth is a prerequisite for human development. The idea behind this claim is that money needs to be created in an economy before it is reallocated and directed towards improvement of social services and improved welfare outcomes of the population. However, in my belief, it is not enough for the money to be created, but institutions need to be in place to ensure equitable and socially optimal use of the created resources. Institutions can vary in form and purpose, and I like to use Douglass North's (Nobel Prize in economics 1993) definition of an institution as any socially imposed constraint upon human behavior, be it government, the private sector, family, religion or some other commitment mechanism.
However, the issue that bothers me is the one way causality between economic growth and human development that I seem to be implying in the paragraph above. Human development must also be a prerequisite for economic growth, because one needs a healthy and educated population, favourable demographic prospects, environmental protection policies, equality of opportunity etc. in order to ensure sustainable economic growth in the long-run. This is even why national debt is justified, representing an investment into all types of capital, technology etc. which will be financed ex-post through economic growth that stems from it. There is no particular reason for why I chose to mention this issue of reverse causality in this particular paragraph, except to maybe boast of my mastery of economic reasoning!
Going back to why I started writing this blog entry, I believe that reallocation of resources should be based on a principle that equally satisfies the productive and the non-productive parts of the population and this has proved to be the biggest challenge to accomplish for many countries. While the Communist doctrine in practice favours the less productive parts of the population, and thus rewards low levels of productivity, offering people disincentives for working, capitalism has often shown to be insensitive to the needs of the vulnerable and socially marginalised groups whose increase in productivity levels are difficult to achieve while they are faced with social, monetary, locational, educational and other types of barriers to maximising their potential.
I tend to transfer these general philosophical dilemmas into my mundane development economics practice, and they certainly make my work a lot more challenging. The Serbian government is trying to adopt the Law on regional development, and as part of its effort it is attempting to determine the level of development of its municipalities, in order to determine the amount of transfers each municipality should receive from the central government. A group of the least developed municipalities is supposed to receive a 30% increase in the funds they receive from the central government. A huge debate has been stirred over the definition of development and the choice of indicators to measure such a vague term as development, and it was the following set of different premises that piqued my curiosity within this debate:
1. There is a consensus that population ageing and emigration from smaller rural areas is a problem.
2. There is evidence that old people, and especially in rural areas are more vulnerable to poverty.
3. There is an understanding that more economic growth, i.e. value added is needed in order to finance improvements in public services and the general welfare of the population. Money from pensions and other transfers is simply a reallocation of existing resources and does not represent value added per se. Therefore, sources of household income are very important for gauging level of development.
4. From the datasets, one can observe that the municipalities with the largest emigration figures abroad are also the ones with the problem of ageing population.
5. Private remittances to Serbia from abroad are estimated to be around 10% of GDP, yet there are no official statistical data that can offer us a detailed insight into remittance recipients.
6. There is a large body of anecdotal evidence (backed with some statistical estimates) that people send large amounts of remittances to their dependents (usually parents) in "underdeveloped" rural muncipalities of Serbia, and that this money is frequently the main source of household income for many of them.
7. There is also anecdotal evidence that once people retire, having worked abroad for e.g. 30 years, they return to their municipality and live off their foreign pensions.
Faced with this large body of arguments and anecdotal evidence, I started wondering who in fact are the most vulnerable parts of the Serbian population. Looking at this discussion through the perspective of the Government who is supposed to allocate development funds, i.e. money transfers, I am totally undecided on who should be given priority. Is it the municipalities which large numbers of elderly citizens, who maybe live off remittances, state pensions or agricultural produce that are the most vulnerable ones? Are the ones living off remittances better off than the ones living off state pensions? Are the most needy instead urban locations with depressed economic conditions, yet with enough human capital and infrastructure to develop its potential for future development? Should one pour funds into ageing municipalities in order to attempt to revive them economically and make them more attractive for young people? Or should one direct the funds towards their most productive potential use, i.e. where its potentials for future development are more palpable? What is the cost of allocating funds against their most productive use in terms of losing the opportunity to generate value added?
I am convinced that the existence of this dilemma is an additional argument to treat regional development at a higher level of aggregation than one municipality. I am not against migration, I would feel like a hypocrite if I were, having spent 7 years getting my education abroad before returning to Serbia (I also plan to leave again). Regional development should at least allow for regional urban hubs, towards which migration flows are naturally directed. The value produced in these regional hubs can then be used to finance public services for the more vulnerable parts of the population across the region, in smaller areas which represent a fiscal burden for the society by the mere number of the dependent parts of the population living in them. Migrants abroad can also contribute to reviving their region through sending in money or bringing back know-how, and they can therefore be a positive force in developing their places of origin rather than being blamed as the ones who contributed to bleak demographic prospects at home.
Setting priorities and especially allocating resources towards achieving them is something I find to be a huge moral burden. I do not know if I will ever be comfortable with decisions-making that involves incomplete information and favouring some groups over others for no particular reason. But as I will never be completely sure what is the right thing to do (I am in fact entirely against the concept of categorising concepts as right or wrong), I either need to learn how to deal with it, or stop my career in public policy before my actions get too involved in shaping the right and wrong categories this world/country is so eager to embrace.
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