The special value of greater capability for local earnings

I’ve been reading Martha Nussbaum’s just-published book, Creating Capabilities: The Human Development Approach. Martha Nussbaum is a well-known philosopher at the University of Chicago. She is one of the co-creators (with Nobel-prize-winning economist Amartya Sen) of what is sometimes called the “capabilities” approach to economic development. This “capabilities analysis” has been very influential in thinking about economic development in Third World countries. However, this capabilities analysis is more broadly relevant to how we think about economic and social goals in all countries.

The main point of the capabilities approach is that our goals for economic development should be broader than just increasing per capita GDP. We should be thinking about how economic development can enhance the most important human capabilities.

This approach leads to economic development analysis that includes a variety of measures of economic progress. We should be concerned not only with GDP per capita, but also with measures of health, education, ability to participate in democratic governance, the rights of women, etc. The question is: how well does the economy and society do in helping develop  for everyone the core human capabilities that give human life greater dignity?

At first glance, there might seem some tension between this analysis and my book Investing in Kids. I have focused on estimates of how a state’s investment in early childhood programs or business incentives might affect state residents’ per capita earnings.

However, focusing on per capita earnings is progress, compared to how economic development is often discussed by state policymakers. State government economic development policy has for too long focused only on how many jobs the state government can claim to have created. Whether the jobs actually go to state residents and increase their employment rate, or what the jobs pay, have been secondary considerations.

Furthermore, as discussed in more detail in chapter 2 of Investing in Kids, earnings per capita of local residents represents a special category of benefit.  Being able to be more consistently employed has a special significance to people. The value of a job is more than the earnings obtained. Obtaining and holding a job enhances an individual’s dignity. Being able to be employed in a better job also enhances  dignity. Higher earnings is correlated with job quality, although only imperfectly.

In addition, being able to be employed in one’s home area has a special importance.  The ability to stay and play a productive role in one’s home area allows an individual to better maintain and develop important ties to family, friends, and familiar places and institutions. Local ties are an important form of social capital. We know that local ties are important because people are willing to spend money and time to maintain those ties. For example, people are willing to forego many economic advantages to avoid moving away from their home area.

Therefore, enhancing local employment rates and earnings rates is one important way of enhancing human capabilities. Measuring that enhancement by the increase in earnings per capita of local residents is an imperfect measure. I think that the social benefits of increasing earnings per capita actually have a greater worth than is captured by the dollar increase in earnings.  However, the dollar increase in earnings is a figure that can be compared with costs.  To anyone interested in a “bottom-line” analysis of preschool or business incentives, we can say that the social benefits are at least equal to some multiple of the costs.

About timbartik

Tim Bartik is a senior economist at the Upjohn Institute for Employment Research, a non-profit and non-partisan research organization in Kalamazoo, Michigan. His research specializes in state and local economic development policies and local labor markets.
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