How Can Inequality Undermine the Development of a Country - Case Study Example

Topic:  How can inequality undermine the development of a country? Labour is considered a maojor factor that affects development of a country. It isone of the vital resources without which a country cannot develop. Building of labour as a resource for development is a priority for economic growth.Economic inequality manifests as greater income inequality whereby highly skilled workers earn more than low skilled workers. These manifestations have a negative influence on economic development (Organization for Economic Cooperation and Development 2005). One of the most important factors that prevent a downfall is economic equality. Economic equality is key to sustaining economic development since a distributive percent of the population controls the economy. When there is a continued increase in output of goods and services, be it total or per capita, there is economic growth. In the same vain, economic growth means additional earnings of the country which could be used for public services and additional earnings of its citizen (Nissan, Edward, Niroomand, Farhang 2012). Smith (cited in Nissan, Edward, Niroomand, Farhang, 2012) presented two growth themes namely classical sectoral analysis and the classical aggregate growth. he defines classical sectoral as performance of individual industries and their contribution to the growth process while the classical aggravate growth “provides explicitly the growth path subject to technical change due to division of labor”(website). Smith also said that technical, scientific and commercial specialization occurred as a result of division of labour (smith 1776). Proponents of social capital led by argued that; whenever there is continued increase in output of goods and services there is economic growth (Castano 2007, website). Castano (2007) studied the effects of social capital to economic growth through family, associations, informal links, link in places of work and the state. Social connections were discovered to enhance trust networks that gave rise to reciprocity among members and therefore contributed to ones social capital. This line of thought argued that there exist a positive effect of social capital to the economy in the family and association network when they mobilize their financial resources to create companies or keep them running (Castano 2007). In addition, the state has a role to play in promoting social capital. Castano (2007) mentioned three important roles played by the state as; regulating legal framework, promoting associative activities and promoting public education (Castano 2007). We must admit that the state plays a key role in promoting social capital. However the state has its weakness in form of slow legal procedures, corruption and civil strife that would hinder development of social growth. Inequality is the key hindrance to growth of social capital. Opponents of social capital pointed out that gender, race and culture within a society contributed to inequality in economic development (Organization for Economic Cooperation and Development 2005) they argued that there exist group difference in ability that are partially responsible for gender and race difference in wealth. They claimed that culture and religion may create inequality by either encouraging or discouraging wealth acquiring behaviour. They maintain that gender inequality and discrimination is argued to cause and perpetuate poverty and vulnerability in society as a whole. (Organization for Economic Cooperation and Development 2005) In this scenario, it is difficult to sustain social capital as social connections are interfered with. However, there are in place social welfare programs and government intervention strategies that promote wealth redistribution mechanism. These intervention strategies seek to enhance social capital through education. In addition, there is attempt to exploit cultural practices in fevour of economic development. Human capital as a determinant of economic growth. Accumulation of skills through education is a factor for economic development. Botton (2009) defined human capital as “all of the attributes embodied in individuals that are relevant to economic activity” (abstract). Human capital can be transferred between persons and it can also be developed over time (Ensley, Hmielieski, Siegel, & Wright, 2007). These group of individuals viewed human capital as an investment in education which is in turn an investment of time and foregone earnings in exchange for pay in future (Wilson, 2012). According to Osborne (2002), acquiring human capital is necessary in modernization and contributes to growth of the economy (Osborne 2002). These proponents of human capital claimed that human capital in addition to non human capital contributed to economic growth. Efficiency in human capital is emphasized and is maintained by education and technological development. It is also observed that human capital investment has no substitute and that education is a tool that add permanent value.; “there is no diminishing marginal returns to human capital investment and that education is a permanent added value” (Williamson 2008 p 237). Development of computerized and modern society led to need of more skilled and specialized labour. This factor resulted to increased labour productivity and output. Education, training, skills, medical care and values are all forms of human capital are said to boast economic growth (Becker 1992). A lot of benefit is associated with education to include improvement of living standard that comes with increase in income. Such benefits make education a valuable tool for human life. In addition, Education enhances personal skills and enables us meet societal demands therefore increasing human capital. Further, increase in level of education is said to enhance efficiency at work and ability to share and pass on skills and knowledge. Through acquiring a certain level of schooling, people’s skills are enhanced and therefore there is an increase in human capital. The higher the human capital, the more efficient it is to pass on skills and knowledge and at the same time, the higher the skills of the labour force the greater the output of production (Williamson, 2008 p. 236). Education is also seen as a way of increasing the economic agents’ productive potential. The amount of education that a person receives is a significant determinant to the returns of human capital. (Chatterji 1998 and Wilson 2001). Education is government investment in its population. Governments, as stakeholders in education are keen on enhancing education for development to be realized. Chatterji 1989 found out that placing emphasis on tertiary education is more a positive determinant of economic growth rather than having secondary education only (Chatterji 1998). The benefits of having education have market and nonmarket values. Education also has some other benefits that are considered non market. These benefits include enjoyment of leisure, parenting, as well as increased knowledge on earning power in labour market. Income is the major benefit of education with market value. Despite of these, inequality continues to afflict the society, it is noted that income inequality was at its highest level. For the past half a century, the average income of the richest 10% of the population is about nine times that of the poorest 10%. A Study by the World Institute for Development Economic Research at United Nations University reported that the richest 1% of adults alone owned 40% of the global assets in the year 2000 and the three richest people possessed more financial assets than lowest 48 nations combined (Organization for Economic Cooperation and Development 2005). This trend is worrying. Has education done any better to bridge this gap? And yet another question is whether education is responsible for this! In essence education has provided an avenue to bridge the gap. In any case very few of the educated people make to the list of worlds richest people. It is therefore realistic to say that education provides a rationale for income distribution. Income Level: The Link between Educational Attainment and Economic Growth. Studies by Fraumeni and Jorgenson (1993) indicated that gauging the impact of educational attainment and economic growth is reflected in an individual’s income. They said that people with higher education tend to have higher income when they become members of the labour force (Fraumeni & Jorgenson 1993).. The same trend has been observed by Franks (2009) who said that level of educational attainment is a determinant of income level (Franks 2009). An individual’s lifetime income must be considered to properly gauge the value of educational investment (Fraumeni & Jorgenson 1993). It is also found that increase in education attainment goes hand in hand with income. In effect this leads to equal income distribution or proportionate income distribution. However, the opposite effect is true when a larger dispersion of schooling exists among the labour force. Education is therefore said to ensure equitable and fair distribution of national resource. In addition such benefits that act as motivational factor for increased economic growth are a possibility. Further, education has been instrumental in eliminating ignorance and disease among the labour force for continued productivity. Opponents of Human capital as a determinant of economic growth argue that neither professionalism and labour organization nor employer control income. They maintain that inequality is caused by the market price. The price of skill is determined by competition for skilled labour and its supply. A job with so many workers may result to low wages because of competition. Some members may receive higher wages through corruption or political influence. Computerization and growth in technology created need for skilled labour but in effect technology replaced manpower resulting to unemployment. There was a high demand for skilled labour as a result and this increased relative wage of skilled personnel compared to unskilled worker. Such a change in wages led to inequality. (Organization for Economic Cooperation and Development 2005) However, we can argue that growth in technology is synonymous to economic development. Technology improves job efficiency in addition to pace of sharing and dissemination of acquired knowledge. Further, computers have created more opportunities in communication industries. Niggle (1998) said that “income distribution can influence growth through its influence over the ability of individuals to access education and invest in physical capital” (website). The higher the income, the easier it is to access quality education. The higher the quality of education, the better the quality of the human capital acquired. In this case, education is seen as the root cause of inequality. Education creates high wages for those who acquire it as a result those who are unable to acquire it receive low wages. With increasing number of educated labour capacity, there is likelihood of having a decrease in price of skilled labour and therefore unemployment will setup. This line of thought insisted that when supply is high the demand will go down. Unemployment will setup since the market cannot absorb excess skilled labour beyond its capacity. It’s also said that by increasing income level of the educated individuals, the gap between skilled and those without skills going to be enormous. Another result of inequality in income is having unequal access to quality healthcare. Health is perceived to be an important element so laborers can do their work appropriately (or at the best, maximize their productivity (Castano 2007). Having a healthy population is said to have an impact on economic growth. Governments invest in health and other social amenities to build on human capital. Inequality will arise when best medical care is a reserve for the rich. The middle class who make the background of the economy may have limited access to quality health care and this may lead to economic underdevelopment. In conclusion, social capital and human capital are the backbone of economic development. Quality of labour and improvement in its use enhances economic development. Inequality, which has also been discussed hinders economic development and may result to drop in per capita income as well as inflation in a country. Investment in education and social capital is beneficial as it promotes equitable distribution of national resources. Work cited Smith, A., 1776. An Inquiry into the Nature and Causes of Wealth of Nations, Oxford: Clarendon Press (1976.) Nissan, Edward, Niroomand, Farhang., 2012. “Linking labor productivity to economic freedom” The Free Library 22 September 2008. Castaño, M.S., 2007. “The Influence of Socioeconomic Factors on Economic Growth”, International Advances in Economic Research, pp.139-145. Castaño, Maria-Soledad, 2007. "The Influence of Socioeconomic Factors on Economic Growth," International Advances in Economic Research,” Springer, vol. 13(2), pages 139-145, May. Niggle, Christopher J. Equality, 1998. Democracy, Institutions and Growth. Journal of Economic Issues, Vol. 32. Website. Accessed on 18th April, 2012. Ensley, M. D., Wright, M., Hmieleski, K. M., Siegel, D.,2007. The role of human capital in technological entrepreneurship. Entrepreneurship Theory & Practice, 31(6), 791-806. Bottone, Germana. (2009). A new notion of progress: Institutional quality by Institute for Studies and Economic Analyses (ISAE) Roma: Piazza dell’Indipendenza. Chatterji M. ,1998. Tertiary education and economic growth, Reg. Studies 32 , 349-354. Becker, Gary Becker, Gary, 1930–, American economist. A professor at the Univ. of Chicago, he was awarded the 1992 Nobel Memorial Prize in Economic Sciences for extending the scope of microeconomic analysis. ..... Click the link for more information.. 1964. Human capital; A theoretical and empirical analysis with special reference to education. New York New York, state, United States New York, Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of ..... Click the link for more information.: Columbia University Press Columbia University Press is an academic press based in New York City and affiliated with Columbia University. It is currently directed by James D. Jordan (2004-present) and publishes titles in the humanities and sciences, including the fields of literary and cultural studies, ..... Click the link for more information.. Wilson Kathryn.2001.The Determinants of Educational Attainment: Modeling and Estimating the Human Capital Model and Education Production Functions. Wilson, city: seat of Wilson co., E N.C., Organization for Economic Cooperation and Development 2005, income inequality, race, ethnicity, wealth inequality, and intergenerational mobility. Organization for Economic Cooperation and Development. annual report Read More