Population and Human Development

The population of a country — its total number of people — has a deep effect on its economy, because people are both the producers and the consumers of goods and services. India is the world's most populous country, so understanding population is vital here.

A few key terms describe population change: the birth rate (births per 1,000 people per year), the death rate (deaths per 1,000), and the growth rate of population (mainly birth rate minus death rate). When the death rate falls (due to better healthcare) while the birth rate stays high, population grows rapidly — which is what happened in India for many decades.

Is a large population good or bad? It has two sides:

• A large population can be an asset — a big workforce and a large market — if the people are healthy, educated and employed.
• But rapid, unplanned population growth becomes a burden — it strains food, water, housing, schools, jobs and the environment, and can lower the per-capita income and standard of living.

The key idea is the difference between the size and the quality of population. A large population of unskilled, unhealthy people is a liability; the same number of educated, healthy, skilled people is a powerful resource. This is why a developing country like India works both to control rapid population growth (through family planning and education) and, even more importantly, to improve the quality of its people — which brings us to the idea of human capital.

The most important resource of a nation is not its land or machines but its people — their knowledge, skills and health. The stock of skill, knowledge and good health embodied in a country's people is called human capital. Just as money invested in machines (physical capital) raises output, money invested in educating and keeping people healthy (human capital) raises their productivity. This investment in people is human capital formation.

The two main sources of human capital are education and health:

• Education makes people more skilled and productive, raises their incomes, helps them adopt new technology, and improves the quality of life. It has wide benefits beyond the individual — an educated population is healthier, more aware and more able to participate in democracy. Spending on schools, colleges and training builds human capital.
• Health — a healthy person can work harder and longer and learn better; a sick workforce is unproductive. Spending on healthcare, clean water, sanitation and nutrition builds human capital by keeping people fit to work and learn.

So education and health are not just "welfare" spending — they are investments that make the whole economy more productive. A developing country that invests in the education and health of its large population can turn that population from a burden into its greatest strength. This is why human-capital formation is central to economic development.

Economists once judged a country only by its national income. But a high income means little if people are uneducated, unhealthy or unhappy. So the modern view focuses on human development — widening the real choices and well-being of people, not just raising their income. The United Nations measures it through the Human Development Index (HDI), which combines three things:

• A long and healthy life — measured by life expectancy.
• Knowledge — measured by education (years of schooling).
• A decent standard of living — measured by per-capita income.

The HDI gives every country a score between 0 and 1; the higher the score, the better the human development. It reminds us that development is about people, not just money.

Finally, development must also be sustainable. Sustainable development means development that meets the needs of the present generation without compromising the ability of future generations to meet their own needs. In the rush to grow, countries often overuse resources and damage the environment (cutting forests, polluting air and water, exhausting minerals and fuels). Sustainable development asks us to grow in a way that protects the environment and conserves resources for our children — using renewable energy, reducing pollution, and not wasting natural resources. So the ultimate goal of economics is not just more output, but human development that is fair to people today and sustainable for the people of tomorrow. This is a fitting end to the study of economics: the subject exists, in the end, to improve human well-being.