What is the Capability Approach in Economics?

The capability theory in economics states that personal well-being is the most important factor in life.
The capability theory in economics states that personal well-being is the most important factor in life.

The capability approach is a normative economic theory that emphasizes the concept of well-being as the most important moral factor of human life. This approach was first explained by an Indian economist called Amartya Sen, who had a background in philosophy. The capability approach has been used by scientists to derive several more normative theories, the theory of social justice, and the ethics of development.

A Normative Theory of Amartya Sen

Amartya Sen developed the capability approach during the 1980s. There are two central normative demands in this theory. Firstly, the achievement of well-being is the fundamental freedom every person strives for. Secondly, well-being must be interpreted within a person's real capabilities and opportunities. So, the understanding of what people can actually do is imperative for Sen's capability approach.

This approach, therefore, can not offer explanations but focuses on normative concepts. The capability approach does not try to explain what poverty is, but is more concerned with the conceptualization of this social phenomenon. From Sen's perspective, it is wrong to interpret one's well-being based just on his or her material possessions or riches because it offers an improper theoretical focus.

There are four key elements that Amartya Sen sees as crucial for evaluating the well-being of a person.

Difference in Abilities

In Sen's theory, people massively vary in their abilities to transform the same resource into any type of valuable functioning. From this perspective, any theory that directs its focus only towards means is a phallic one, because it does not consider what are people actually doing with those resources.

Adaptive Preferences

The capability approach addresses one specific problem, and that is the situation where people accept the fact that they will never achieve something they want in life. If the conditions in which the people are living in seem too harsh, people adapt their preferences and eventually stop desiring things that are out of their reach.

Achievements and Effective Freedom

It is vital for people to have important options, even if they do not decide to use them. The capability approach is very assertive when it comes to differentiating the actual achievements of people and the effective freedom they achieve. Real achievements are called functionings, while effective freedom is labeled as capability.

Reflecting Complexity

The capability theory views reality as a very complex scientific entity. Therefore, it demands that no factors that make up a human life should be avoided. This normative approach needs to be observant of all living conditions in order to evaluate the well-being of people.

Utilization of the Capability Approach

The capability approach has served as an inspiration in social studies that resulted in the creation of interdisciplinary fields that offer new statistical insights in development studies. The UN programme, called the United Nations Development Programme (UNDP), provides a more comprehensive analysis of human development and does not limit this practice to only certain economic factors. For example, the UNDP does not restrict its findings based solely on GDP per capita. As Sen did with the capability approach, they view poverty as having limits in achieving well-being, and the idea of development is considered as an expansion of a person's capabilities.

The capability approach is powerful when it comes to emphasizing how diverse is the human condition and has been embraced within the feminist thought and some other scientific studies that are concerned with disabled people and the issues they face.


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