Why Human resources are both instrument and goal of economic development?

Human resources are both instrument and goal of economic development

Human resources are both the instrument and goal of economic development. As an instrument, human resources supply an essential factor service that makes the other factors work, viz. labour and entrepreneurial ability. In this role, human resources determine the size of total output in the economy.

On the other hand, all development activity in an economy is undertaken to provide better giving conditions to human beings. Human resources, as consumption units, share the total output of the economy. Thus, we can look upon human resources in two roles, viz. (a) as factor services, and (b) as units of consumption.

Human resources, as factor services, provide layout and entrepreneurship. More people mean more resources.

As such, population growth does contribute to economic growth, and not insignificantly. Some of the important points to be considered from this point of view are as follows:

Minimum Scales:

Some infrastructure is only possible with minimum density levels. Examples are roads, dams, ports and irrigation system. Industrial output in many areas is subject to strong economy-of-scale effects.

Where division of labour and scale economies are limited by small populations, an increase in the number of people can have a positive scale effect that raises productivity and investment. Economies of scale constitute one of the most important positive elements arising from population growth.

Demographic Transition and Savings:

Underdeveloped countries have populations with a high proportion of young dependents; when the child dependency ratio is high, the population consists of a relatively large number of consumers and relatively few workers.

Hence, consumption will be high relative to earnings and saving activity will be low. During the demographic transition, the number of workers rises relative to consumers, income rises relative to consumption and savings increase.

Capital Formation in Agriculture:

In agriculture the saver, the producer of capital and investor are often the same unit – the family farm. In the off­season the family clears new land, irrigates, builds fences and barns, and constructs roads, dykes and wells. With higher population growth, the farmer and his family will put in more hours on this type of capital formation increasing the agricultural capital stock.

This relationship is presented in literature on demography in form of what is known as the ‘Boserup Sequence’, so named after its author Ester Boserup. According to her, as population grows, land and other natural resources become scarcer relative to labour, and access to markets improves. As a result, agricultural intensification occurs.

Relative price changes and Food prices increase as demand for food rises. This process generates the need for new institutions, such as private property rights. The new institutions facilitate the adoption of more intensive techniques and greater investments, which increase yields.

The natural resource base improves as it becomes more valuable. Moreover, economies of specialisation and of scale associated with the provision of infrastructure and public services emerge, leading to a greater supply of these services.

Labour Force Participation:

Higher dependency ratios accompany climbing rates of population growth. This may affect labour force participation in terms of hours worked, entry and retirement age, and women’s employment outside house.

That hours worked for capital formation in agriculture can increase. An increase in urban children can lead to more women and children joining the labour force, and can prevent earlier retirement, swelling the workforce.

Trade Specialisation:

In the Heckscher-Ohlin model of trade, where a country specialises and exports goods that embody relatively large amounts of its abundant factors, a high growth rate in one factor (labour) would enable the country to specialise in goods using that factor intensively (e.g., the average cost of employing labour in Europe, including social and welfare costs, is S 20 an hour, $ 19 in the United States and S 18 in Japan and a rough average of $ 1.65 in most of Asia).

Assuming the nation is already exporting labour-intensive goods, it would simply specialise more and trade more. The growing labour supply enables the country to participate more in trade, and the gains it receives help to offset diminishing returns.

Technological Changes:

The pace of technological change may pick up the larger the talent pool from which to draw the people for work on various frontiers of science. There are probably some economies of scale to technological change and size effects upon markets may encourage competition, forcing the more rapid spread of technical know- how. Simon Kuznets identifies following circumstances in which a large population facilitates economic growth:

Existence of a variety of unutilised resources

Rising younger groups which an expanding population throws up facilitating mobility of labour

Division of labour becoming easier

An increasing stock of useful knowledge and advancing technology for the utilisation of human and physical resources.

In their rule as units of consumption, human beings make a demand on the national product of the economy. In this capacity, their number matter. If the stage of population is more than what can be absorbed by the national product, i.e., if there is over-population, it leads to a number of problems, among which the more important are as follows:

A rising population makes demand on food stocks of the economy; not infrequently, a wide gap emerges between requirements and available supplies. This causes scarifies and shortages.

A rising population also implies that a large part of the nation’s output is used up in meeting the current consumption requirements, only a small balance is left towards meeting the investment needs. This slows down the process of capital formation and hence of development; R.H. Cassen has called (i) savings effect, and (ii) investment effect.

The Saving effect argues that savings are reduced by population growth because of the increase of the so-called ‘burn of dependency.’ With high fertility, and declining mortality in younger and older age groups, the population acquires an increasing proportion of people in the non-working age groups relative to those of the working age.

Since all must consume while relatively few produce, consumption per head must rise and savings per head must fall even if productivity is rising, savings are less than they would be with a smaller number of dependents per worker.

The investment argument says that, with an increasing population, a share of investible resources has to be devoted to reproducing for the unproductive people “unproductive” facilities- particularly social overhead capital – which would be unnecessary if the population were not growing.

The composition of investment is altered in an unproductive direction instead of additions of capital, going to raise the productivity of the existing labour force; investment becomes merely “demographic investment” instead of real investment.

Coale and Hoover compared the economy along two time paths (i) one with higher fertility, and (ii) the other with lower fertility. If the economy proceeds along the first path, savings would be lower and a share of investment would also be diverted to unproductive uses.

When fertility differences do not affect labour size, GNP per capita would be lower under higher fertility than under lower fertility. In the longer run, with higher fertility and more labour force, th/ production potential of the economy would be more and the GNP would grow faster.

But the increase in GNP may not compensate for the growth of population, and hence the increase in GNP per capita would be lower under higher fertility than under lower fertility.

A large population also adversely affects the balance of trade of an underdeveloped economy. Such a country needs imports of industrial raw materials and capital goods to meet the needs of economic growth.

But when its requirements for food are higher than the available domestic supplies, it has to divert its scarce foreign exchange resources to food imports. It has to make a choice between food imports and development imports. The choice may quite often be a hard one, so that it chooses to carry the burden of trade deficit.

A direct consequence of over-population is the problem of unemployment with all its attendant evil effects, both economic and social.

The social overhead requirements of a country keep increasing with additions to the population. This means that again its investment resources get diverted from physical capital to investment in manpower resources.

In a nutshell, a large population may be a handicap.

Human resources have a two-pronged relationship with economic development. As a resource, people are available as factors of production to work in collaboration with other factors. As consumers, human beings make demand on the national product of the economy.

The size of population, therefore, is a crucial determinant of economic development. A large population may not necessarily contribute to economic growth; in fact, a fast-rising population may find self in a situation described by economists as ‘overpopulation’.