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Are you interested in how economic growth is connected to human wellbeing?

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Our debate today works with the article titled The case for economic growth as the path to better human wellbeing from 2024, by Lant Pritchett.

This is a great preparation to our next interview with Casey Handmer in episode 410 talking about the necessity of urban economic growth for human prosperity.

Since we are investigating the future of cities, I thought it would be interesting to see whether economic growth is an essential driver for improving human material wellbeing. This article suggests that GDP per capita remains the most reliable predictor of improvements in health, education, and basic living standards.

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Welcome to today’s What is The Future For Cities podcast and its Research episode; my name is Fanni, and today we will introduce a research by summarising it. The episode really is just a short summary of the original investigation, and, in case it is interesting enough, I would encourage everyone to check out the whole documentation. This conversation was produced and generated with Notebook LM as two hosts dissecting the whole research.

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Speaker 1: Today we are trying to strip away the philosophy. Look at the raw numbers behind what might be the most critical question in human development. Is money, specifically national economic growth? Is it the silver bullet for human suffering? Or is our obsession with GDPA blindfold that hides the true quality of a human life?

Speaker 2: It really is the central question, isn’t it? It divides economists, sociologists, activists. We always hear this phrase grow the pie before you start sharing it, but if the pie is growing but the people eating it are choking on pollution or living in fear of a repressive state, have we actually accomplished anything?

Speaker 1: Today we’re looking at a text that claims it has the empirical answer. We’re breaking down a really rigorous data evvy paper from October, 2024 by the development economist lamp Pritchet. It’s titled. The case for economic growth as the path to better human wellbeing. And his conclusion is, let’s say it’s aggressive.

Speaker 2: He argues that economic growth isn’t just helpful. It is, and this is a key phrase. Empirically necessary and sufficient to solve poverty and provide the basics of a decent life, and that is exactly where I’m going to plant my flag today Necessary. Okay. I might grant you, but sufficient. That is a massive claim.

Speaker 1: It implies that if you just fix the GDP. All the rest of society rights, health inclusion, it just fixes itself. I’m here to argue that Pritts own data hides a lot of wreckage under the hood of that economic engine, and I’ll be taking the side of the paper. I’m arguing that growth is the primary moral imperative.

Speaker 2: If you care about people having water schools and hospitals, you have to raise median consumption. Without that engine, no amount of clever redistribution or social justice programming is going to save you. Then let’s get into it. You mentioned Pritts boldest claim that growth is sufficient, so walk us through how he justifies that.

Speaker 1: ’cause just looking at the world today, that feels, well, it feels pretty counterintuitive. It does feel counterintuitive, but the data is just relentless on this point. Pritchett uses the concept, he calls data envelopment. So imagine a graph on the bottom axis. You have median consumption. Basically how much the typical household is able to spend.

Speaker 2: On the vertical axis, you have a measure of poverty or a measure of basics like sanitation. Okay, so we’re plotting money against misery, essentially. Exactly. And when you plot every single country in the world, the shape, it’s undeniable. There’s no white space. There are simply no countries with high consumption that still have high levels of material poverty.

Speaker 1: And conversely, and this is the key point, there are no poor countries that have somehow managed to solve poverty without first having growth. The envelopment just means the data hugs that curve so tightly. You cannot redistribute your way out of a lack of resources. It’s a physical impossibility. Okay. I understand the correlation, Richard generally equals better basics, but correlation isn’t the whole story.

Speaker 2: I see development as more of a three-legged stool. You need productivity. That’s your growth. You also need state capability, the government’s actual ability to build a road or staff a clinic, and then you need a responsive polity. So democracy, voice rights. My argument is that Pritchett is basically treating the first leg, like it’s the whole stool, but the paper argues those legs tend to grow from the same trunk.

Speaker 1: But do they? I’d argue growth often outpaces the other two by a long shot. Growth is the fuel, okay, but state capability is the engine in the steering wheel. If you pour jet fuel into a broken engine or into a car with no steering wheel, you don’t get development. You get a crash. We have to talk about growth incidents, so define that for our listeners.

Speaker 2: Growth incidents is simply asking who gets the money. If GDP goes up by 10%, but all of that goes to the top 1%, then the national average looks great. The median person hasn’t moved an inch. Now, Priya talks about this, but I think he dismisses the inequality risk a bit too easily. I don’t think he dismisses it.

Speaker 1: I think he quantifies it. And this leads us to our first major clash, which is the link between poverty reduction and this idea of inclusive growth, right? Inclusive, the buzz word of the decade. It is, but Pritchard actually puts numbers to it. He looks at the correlation between median consumption. The person in the middle, and the reduction of headcount poverty and the R squared is 0.988.

Speaker 2: And for those who might have skipped stats, class R squared measures how much one variable explains another. A 1.0 is a perfect match, so that’s huge. Exactly. A 0.988 is statistically indistinguishable from a law of physics. It implies that nearly all of the variation in poverty reduction across countries.

Speaker 1: Is explained just by the median household getting richer. Look at the giants. China, Indonesia, Vietnam, China reduced extreme poverty by 94 percentage points in 35 years. Pritchett calculates that 99% of that reduction is predicted just by the shift in the median income. It wasn’t some specific targeted welfare program.

Speaker 2: It was the massive tide lifting the boat. Hold on. You can’t just look at the aggregate number and say Job done. That R squared hides a lot of real human variation. Let’s look at the growth incidence curves. Pritchett himself presents in the paper. He contrasts Brazil and Bangladesh. Two very different economies for sure.

Speaker 1: Right. Brazil is historically a very high inequality country. Bangladesh is relatively low inequality now in Brazil. During the period they studied growth was what they call propo. The poor saw their incomes rise faster than the rich did in Bangladesh. It was pro rich. The rich got richer faster. Now, both reduced poverty.

Speaker 2: Yes. But are we really saying it doesn’t matter that the rich captured the majority of the gains in Bangladesh mathematically in the context of solving absolute poverty. No, it doesn’t matter As much as you might think, that is a very hard pill to swallow. Here is why the differences in growth rates across countries are just massive.

Speaker 1: One country stagnates another grows at 7% that compounds hugely over time. The changes in inequality within a country are usually pretty small and slow. Britt’s point is that a pro rich growth curve in a fast growing country will still pull the poor out of poverty much faster than a propo curve in a stagnant economy.

Speaker 2: So you’re just saying the size of the pie matters more than how you slice it when the pie is tiny? Absolutely. Pritchett notes that redistributive programs like cash transfers are great. They’re cost effective. They’re mathematically incapable of solving poverty at scale. You simply cannot transfer money that doesn’t exist.

Speaker 1: If you wanna fist Bangladesh, you need Bangladesh to be richer, not just fairer. I’ll concede that you can’t redistribute zero, but this focus on income leads to the dollar a day trap. We celebrate lifting people above the $2 15 cent poverty line, but is that wellbeing? Or is that just not dying? And that is the perfect segue to the basics index, because you’re right, money is just paper.

Speaker 2: The goal is what the money buys. This is the part of the paper I actually found most compelling. Even if I disagree with the conclusion, Pritchett constructs this index that combines health, education, shelter, sanitation, the real stuff of life. And what does the data show? The relationship between GDP and these basics is non-linear and incredibly steep for developing nations.

Speaker 1: Explain non-linear in this context. For us, it just means at low income levels, a little bit of extra money buys a huge amount of progress. If you go from say, 1000 to $5,000 per capita, you see these massive jumps in literacy, water access, survival rates. Pritchett shows that even people who are technically above the poverty line often lack toilets or electricity if they live in a low GDP country.

Speaker 2: The national income determines the infrastructure. You just can’t have high basics without a high national income. I agree with the steep curve at the start. You need money to build the sewer system. I get that. But let’s talk about the plateau. If you look at the graphs, the responsiveness of these basics to growth, it drops off a cliff once a country reaches about $40,000.

Speaker 1: GDP per capita, sure diminishing returns. Once everyone has a toilet. More money doesn’t buy you more toilets, but it suggests that growth isn’t the only factor and there is a glaring, really uncomfortable outlier in the data that we have to address. Equatorial Guinea, I knew you were going to bring that up.

Speaker 2: I have to. It completely destroys the sufficiency argument. Equatorial Guinea has a high GDP per capita. It’s technically a rich country because of oil, but on the basics index, it scores abysmally. It sits way below the trend line. People are rich on paper, but they’re living in squalor. This proves that growth is not sufficient.

Speaker 1: You can have growth that is extractive, corrupt, and completely fail to deliver wellbeing. I would dispute that it destroys the argument. Equatorial Guinea is a statistical freak. It’s a kleptocracy run by a family dictatorship floating on oil. Pritchett acknowledges this. But the question is, do we build general development policy around the 1% exception or the 99% rule?

Speaker 2: We should build policy that prevents us from becoming the exception, but the rule of the data is clear. For the vast majority of nation’s. Higher income facilitates the tax base. Economists call this tax buoyancy. As the economy moves from farming to industry, the government suddenly has revenue, and even in imperfectly governed states that revenue tends to flow into infrastructure because a modern economy demands it.

Speaker 1: You can’t run a high GDP economy without roads and healthy workers. Okay? The market demands roads, maybe I can see that. But does it demand tolerance? Does it demand gay rights? Does it demand freedom of speech? This for me is where the whole growth is. Sufficient argument, just it completely falls apart.

Speaker 2: Okay. Let’s pivot to that. The paper does break down the social progress index or SPI, and this is crucial. The SBI measures things beyond just basics. It looks at opportunity, personal rights, and tolerance. Pritchett decomposes the data here. And guess what? For these higher level human needs, GGP is not the dominant driver.

Speaker 1: State capability and democracy are. He finds the correlation is weaker. Yes. Not just weaker for personal rights, the impact of growth is practically negligible compared to the impact of governance. You cannot buy freedom of speech with median consumption. You can be a rich country like Saudi Arabia or China and have very low scores on rights and inclusion.

Speaker 2: So if wellbeing includes being free, then growth is not sufficient. That’s a fair distinction. But let’s look at the hierarchy of needs here. Pritchett isn’t arguing against democracy. He’s arguing about the order of operations. Can you have a high functioning rights respecting democracy in a country where the average income is a thousand dollars a year?

Speaker 1: It’s rare, but which comes first? The chicken or the egg? The evidence points to the economic engine. You need the tax base to pay the civil servants. You need the literate population, which comes from the schooling bought by growth to demand better governments. I wanna push back against the degrowth, or growth isn’t enough crowds.

Speaker 2: That dictate to the developing world. Pritt shows that for shelter, water, and nutrition, the things that keep children alive, growth is overwhelmingly the driver for the basics. Yes. But you mentioned tax buoyancy. That assumes the government wants to spend that tax money on the people. And that brings us right back to state capability.

Speaker 1: Pritt notes the weak links in the chain. You can spend money on health inputs. You can build the hospital, but if the doctors don’t show up, because the system is corrupt, you don’t get health outcomes. Money buys the building. It doesn’t buy the care. True. But the paper counters this with what he calls the growth plus argument.

Speaker 2: Pritt isn’t saying growth only, he’s saying growth is the foundation. He argues that rigorous evidence shows that effective interventions, the plus part, like better management or specific health programs, are incredibly hard to scale without the economic engine. You can run a great little NGO program in three villages.

Speaker 1: You cannot fix a nation’s healthcare system without the massive revenue that comes from a structural economic transformation. Growth plus sounds reasonable. My fear is that policymakers just stop at growth. If you prioritize growth above all else, assuming the plus will naturally follow you. Risk the China scenario, massive poverty reduction, sure, but significant deficits and personal rights.

Speaker 2: The plus doesn’t just happen by magic. It requires political will, but let’s look at the urgency for the developing world. The country’s below that $40,000 threshold. What is the immediate moral imperative? It’s keeping people alive. It’s getting them electricity. The data shows that for opportunity.

Speaker 1: Governance wins, but for basics, growth dominates. We shouldn’t let the perfect be the enemy of the good. I agree with that. Provided we don’t destroy the planet in the process. The paper does touch on environmental quality, and this is where the growth engine is a real double-edged sword. Actually, the paper makes a counterintuitive point there too.

Speaker 2: It notes that for local environmental quality, like clean water, breathable air, things actually improve with income because once people aren’t starving, they start to demand clean air. Richer cities treat their water. The environmental Couse nets curve suggests pollution goes up as you industrialize, and then it goes down as you get rich enough to clean it all up.

Speaker 1: Now the greenhouse gas issue is different. That’s a global stock problem. Caused mostly by us, the rich nations. It’s hardly fair to tell a poor nation to stay poor, to save the climate when they didn’t cause the problem in the first place. A very valid point, but it just reinforces that we are playing with fire.

Speaker 2: Growth is a powerful tool, but it’s not a panacea. I think we’re converging on a synthesis here. Pritchett isn’t saying don’t do good policy. He’s saying that if you care about poverty, the lever that actually moves the mountain is growth. Everything else is a shovel. And I’m saying you have to make sure the lever doesn’t crush the people standing next to the mountain after reviewing pritts analysis, where do you land?

Speaker 1: I land on a note of caution. Pritchet proves that growth is a necessary engine. You can’t have a developed nation on a subsistence economy. That is a fact. I reject sufficiency. We have to be vigilant about the quality of that growth. We have to watch for those Equatorial Guinea scenarios, growth without distribution, and we have to remember that rights, inclusion, and tolerance.

Speaker 2: They require political fighting, not just economic lifting. The car needs an engine, yes, but if you don’t have a steering wheel, you’re just driving fast off a cliff. I like the metaphor, but my takeaway is really about focus. Bridget reaffirms that for the developing world, specifically those countries below that $40,000 threshold, the fastest, most reliable way to reduce human suffering is inclusive economic growth.

Speaker 1: We need to stop distracting developing nations with boutique interventions or lectures on degrowth. The massive engine of medium consumption growth is what historically delivers results. So money may not buy happiness directly, but the data suggests it’s the indispensable architect of the house where happiness can actually live.

Speaker 2: Money is the architect, but we are the builders and the builders have to show up.

Speaker 1: Fair enough.

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Episode and transcript generated with ⁠⁠Descript⁠⁠ assistance (⁠⁠affiliate link⁠⁠).