Rethinking the Links between Human Relationships and Economic Efficiency Using Local Institutions: The Case of Two Emerging Economies

Abstract:

Emerging countries around the world have been growing fast over the last thirty years, with most of these countries basing their economic development on a state capitalism. Within these countries, there is a concentration of wealth in the hands of a few people. This fact confirms the analysis of Thorstein Veblen (1898) who shows the gap that exists between the vested interest of the rich and the unmet needs of the poor. The world happiness report (Helliwell, Layard and Sachs 2016) also shows for the emerging economies a gap between the world rank in economic growth and in wellbeing. I propose a new paradigm of development for two emerging economies, Brazil and South Africa, by putting human development in the center of economic development and by using different approaches in economics and psychology. My analysis links the theories of Carl Shapiro and Joseph E. Stiglitz regarding “efficiency wages” (1984) with the complexity approach (Le Moigne 1995). This approach combines the results of positive psychology (Kahneman 2011) with the role of local institutions for improving the economic development of emerging economies (Deaton 2016). In the first section of the article, I examine definitions of economic and human wealth. In the second section, I analyze the gaps that exist between the standard-of-living ranking and the wellbeing ranking for both Brazil and South Africa in order to present meso-happiness indexes linking the micro- and macro-levels of human wealth. In the last section, I analyze the way local institutions in Brazil and South Africa could create dynamic links for these countries’ efficient functioning in the world economy.

Keywords::

• economic wealth
• gross domestic product (GDP)
• happiness index
• human wealth
• local institution
• new industrialized countries (NIC)

JEL Classification Codes::

• F63
• I32
• I39

Notes

¹ Emerging countries is a concept which appeared during the 1990s, with the so-called “Consensus of Washington.” This concept analyzes the situation of growing economies in a particular financial environment that has become open. During the 1970, economists talked about another concept of growing economies, the “New Industrialized Countries” (NIC). The NIC have been growing very fast and have had the power to decide which industrialized strategy (i.e., the exports growth strategy or the internal markets growth strategy) they would choose to follow. With the free movement of capital assets, only one strategy has now become sustainable: the export growth strategy, which fully characterizes emerging economies.

² For Frédéric Lenoir (2013, 8), the concept of Eudaimonia links chance and destiny to the rational and voluntary approach of individuals.

³ Today, experiments of neuroscientists test the decision-making process of individuals by using big data computing progresses. In spite of only stressing the biases in the decision-making of individuals, I wish to point to the results of neuroscience as a possibility for people to increase their happiness on their own.

⁴ For Idriss Aberkane (2016), using big data and neuroscience without philosophical analysis creates a risk for the opening of a dangerous gap between sciences and consciousness. Aberkane proposes that every person should learn about the use of the multiple parts of the brain (as everyone must try to understand his/her emotions and learn how to control them by reading philosophy) in order to follow their own choices.

⁵ The meso-level is difficult to define because it is the result of interactions between individuals. For this reason, different authors (Deaton 2016; Duflo 2010; Sen 1999) talk about “micro-institutions.”

⁶ The use of PPP rates (Kravis, Heston and Summers 1982) permits spatial comparisons of standards of living between countries. GDP in PPP dollars is computed by using the same international prices for all countries.

⁷ GDP is not a good indicator of economic wealth because it only computes the market value of goods and services. Public goods and services are evaluated at their output costs. Moreover, the negative (destroying the environment) or positive (innovation) external effects are not integrated in the GDP.

⁸ In 2016, the NICs’ GDP amounted to 44 percent of the world GDP in PPP dollars as compared to 24 percent in 1960, and the NICs’ exports rose from 11 percent in 1967 to 30 percent of the world exports in 2014 (CEPII 2016).

⁹ Brazil and South Africa also belong to the BRICS group. The increase in the real standard of living in Russia significantly grew between 1960 and 1990, as opposed to China and India where the standards of living were both inferior (i.e., in 1990, the standards of living were PPP $1,720 for India and PPP $1,525 for China, while it was PPP $19,516 in Russia).

¹⁰ Selecting an accurate happiness index is difficult (Attali 2013; Stiglitz, Sen and Fitoussi 2008) because, after decades of economists’ talking about competitiveness indexes, now every relevant entity proposes a different happiness index: Gallup, the Social Index, the Prosperity Index, the Better Life Index, the Good Country, the Happy Planet index, etc.

¹¹ One of the biggest problems with most happiness indexes is that nobody knows what weights are being used in their calculation. For example, it is surprising to discover that, in the “Happy Planet Index” (of the New Economics Foundation), Iraq (a war-ravaged country) is happier than the United Kingdom.

¹² Since 1990, the UNDP’s HDI takes into account three components in computing a country’s happiness level: real GDP per capita, level of education, and life expectancy. The IHDI has existed since 2010 and provides a measure for inequalities. For Brazil and South Africa, this index is lower than the HDI (0.557 as opposed to 0.755 for Brazil, and 0.428 as opposed to 0.666 for South Africa, respectively).

¹³ Wellbeing in Latin America (in Brazil, in particular) is higher than in other emerging countries. Several factors — such as a holistic vision, religion, human relations, respect for nature, and the short time horizon — may explain this high level (Ateca-Amestov, Cortes-Agular and Mori-Egido 2014).

¹⁴ The universal income experiment in Brazil has its foundations in the Brazilian Constitution, which provides for such basic income, and the Bolsa Familia program.

¹⁵ Analyzing the other in vivo experiments (Deaton 2016; Duflo 2010; Ostrom 2013; Sen 1999) will be useful in completing the quantitative measures of economic and human wealth I analyze here.

Additional information

Notes on contributors

Camille Baulant

Camille Baulant is a professor of economics and serves as the director of the Master’s Program in Competitive Intelligence and Competitive Strategies at the GRANEM Laboratory, University of Angers (France). She is grateful to Gemma Davies, a researcher assistant at the GRANEM Laboratory, for helping improve the English of her article. She thanks Fatme Myuhtar-May for her constructive remarks on the final manuscript.