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Saturday, 22 January 2011

Economic Growth, Poverty and Inequality (Guest Blog)

The focus on economic growth is an important one – recognising that growth is important, but that unless the benefits are distributed, it will not by itself reduce poverty. A recurring issue in discussions on economic development is whether the main focus of development strategies should be placed on growth, or poverty, and/or on inequality. This author argues that this way of formulating the question of development goals poses a false dilemma. Rather, the answer can be simply expressed in two statements: First, the rapid elimination of absolute poverty, under all forms, is a meaningful goal for development. Second, to achieve the goal of rapidly reducing absolute poverty requires strong, country-specific combinations of growth and distribution policies.

The real challenge to establishing a development strategy for reducing poverty lies in the interactions between distribution and growth, and not in the relationship between poverty and growth on one hand and poverty and inequality on the other, which are essentially arithmetic. There is little controversy among economists that growth is essential for (income) poverty reduction under the assumption that the distribution of income remains more or less constant. Economic growth does tend to raise incomes overall, but the impact of growth on poverty varies enormously from one country to another, depending on the structure of growth and on government policies.

The impact of growth on poverty is mediated through inequality – it depends on both the initial rate of inequality in a country and the extent to which growth itself, leads to increases or decreases in inequality. The initial inequality which determine, who benefits from growth are not just about income. Other factors like access to titled land, access to credit, poor infrastructure, lack of good education and health facilities, poor housing etc also play a major role in determining the extent to which economic growth reaches the poor. Policies to redress these multiple inequalities are an important part of increasing the poverty reducing impact of growth, and of forestalling widening inequalities that are putting poverty reduction further and further out of reach for some groups.

Poverty rates are generally higher in rural communities. Special attention should be paid to promoting and supporting rural development and employment-generation activities. Part of the strategy should involve investing in infrastructure to connect poor households to economic opportunities, strengthening property rights of poor households, providing micro-credits, and reinforcing market institutions. In addition, for the poor to benefit from economic growth, they need support in order to take advantage of non-agricultural and urban employment opportunities. This can be done through the improvement of the quality of investment climate, the provision of incentives for labour-intensive production, and the granting of better access to education.

In this context, it is critical for Zambia to adopt full, productive, and decent employment as a central objective of poverty reduction strategies. Policies to foster the participation of women in the labour force also will make a significant difference in the distribution of family income. Empowered women can be some of the most effective drivers of development in the country. Already if you look around most of the urban and rural markets women dominate amongst the traders and thus deliberate Government policies that target women would help to catalyse economic activities around the country.

In conclusion let me quote from a report in 2008, from a committee of prominent economists and “leaders” of successful economies assembled in the World Bank-sponsored Commission on Growth and Development (CGD) which published “The Growth Report: Strategies for Sustained Growth and Inclusive Development.” In that report they said “Growth is not an end in itself. But it makes it possible to achieve other important objectives of individuals and societies. It can spare people en masse from poverty and drudgery. Nothing else ever has. It also creates the resources to support health care, education, and the other Millennium Development Goals to which the world has committed itself.”

Trevor Simumba
The guest author is an international trade economist currently based in the United Kingdom

(The Zambian Economist encourages guest contributions from leading Zambian thinkers on matters relevant to national development. The purpose of these notes is to stimulate discussion and ensure logic and impartial critique plays a leading role in shaping public debate. See the guest authors page for more information).

1 comment:

  1. Let me start by quoting the question, 'What are the causes of poverty?' and Peter Bauer's answer: "There are no causes of poverty. There are only causes of wealth.' This implies that we should concentrate on increasing the causes of wealth, rather than on reducing poverty as such. There will of course be exceptions, where poverty is caused by lack of access to educational and health facilities, and especially by discrimination, e.g. against women.

    Trevor Simumba concludes by stressing 'the extent to which growth itself leads to increases or decreases in inequality'. This implies that inequality is in itself undesirable. That, I suggest, is too sweeping. Inequality can be useful as a spur to action. When equality is enforced by law, as happened in communist countries, it tends to remove the incentive to hard work and initiative, and thereby to promote poverty.


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