Clarke, Matthew (2003) Is economic growth desirable? A welfare economic analysis of the Thai experience. PhD thesis, Victoria University.

Abstract

The desirability of economic growth is an emerging question in contemporary development studies. A dominant view both within the literature and public policy is that economic growth is desirable as it is the best means to increase social welfare and enhancing social welfare is a rational objective of society and governments. Economic growth increases social welfare through improving health outcomes, food intake and access to other basic needs. However, the costs of achieving economic growth are often not fully considered, as welfare analysis of economic growth is limited within the literature. This thesis focuses on Thailand as a representative developing economy. Over the last twenty-five years, 1975-1999, Thailand has experienced some of the world's highest and most constant rates of economic growth. Thailand is an appropriate case study because its remarkable levels of economic growth have resulted in it becoming a model country for other developing countries to emulate. Economic growth is defined as the change in Gross Domestic Product (GDP) per capita between specified time periods. In the mainstream literature, GDP per capita is often used as a measure of social welfare. Therefore, it is argued that economic growth (increases in GDP per capita) enhances social welfare. This relationship between economic growth and social welfare is questioned within this thesis. This relationship fails to consider a number of important economic costs and non-welfaristic impacts of economic growth on social welfare. Costs of economic growth include increased pressure on social relationships and environmental degradation, whilst non-welfaristic issues include distribution, poverty and intergenerational equity. However, these costs and non-welfaristic issues can be included in measures of social welfare through the operationalisation of social choice theory. Social choice theory allows the incorporation of these costs and issues through social welfare functions. Social welfare functions are the means by which normative social choice theory can be implemented. Social choice theory refers to the normative process of ordering alternative social states on the basis of choices, preferences and value judgments of members of that society. The use of a social choice approach to determine the desirability of economic growth is appropriate. Welfare economic analysis of economic growth based in social choice theory includes the costs and benefits of achieving economic growth and a systems perspective of society. This social choice approach is justified as it provides an operational framework for quantifying, measuring and interpreting the objective and subjective elements of economic growth on social welfare. Numerical and operational implementation of social choice theory to real life situations are limited within the literature. This thesis will undertake social welfare analysis of the Thai experience of economic growth by operationalising social choice theory through two social welfare functions. The first social welfare function adjusts national income (a figure similar to GDP per capita) by adopting certain welfare economic criteria, particularly systems analysis and cost-benefit analysis. It extends the work of previous GDP adjusted studies. Within this function national income will be adjusted to consider the costs and benefits arising from achieving economic growth. Comparisons of this measure of social welfare (adjusted national income) and unadjusted national income will assist in determining the desirability of economic growth. The second social welfare function is based on achieving a sense of well-being. It utilises a concept of hierarchical needs in a new form. Within this approach, social welfare includes non-welfaristic considerations such as liberty, social relationships and self-actualisation. Therefore, the fulfillment of specified hierarchical needs can be used to measure social welfare. The results of this social welfare function will be used to test the veracity of the results of the first social welfare function A brief welfare analysis of economic growth's desirability in the context of certain contemporary development issues, sustainability and globalisation, is also undertaken. The results of these welfare analyses are expressed as time series. All the time series trends show that despite constant increases in economic growth, social welfare in Thailand at times fell or remained unchanged. Based on this empirical welfare analysis, this thesis concludes that achieving economic growth often increases social welfare and is therefore desirable, but not at all times. Suggestions that economic growth may decrease a nation's aggregate social welfare are limited within mainstream literature. Within both empirical studies, during periods of high economic growth, social welfare fell at certain times and remained relatively unchanged at others. This experience is described as stunting economic growth as this economic growth has "retarded the progress" of social welfare. Stunting economic growth is undesirable. Finally, a number of illustrative policy frameworks to reduce periods of stunting economic growth and increase social welfare are suggested.

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