Growth, equity, and poverty eradication

Growth, poverty, and equity

Writing two and a half thousand years ago, the Greek philosopher Aristotle observed that wealth 'is evidently not the good we are seeking; for it is merely useful for the sake of something else'. In other words, growth is simply one means to the end of improving human well-being, which is the ultimate purpose of development in its broadest sense. This is a seemingly obvious distinction, but it is one that is prone to be forgotten: growth is an indispensable tool for achieving development, but only if we direct growth to providing the 'something else' that Aristotle wrote about. This book considers the ends to which growth is a means, and how growth might best be directed to meeting those ends.

Poverty eradication makes good economic sense, as well as being a moral imperative. Poverty is not inevitable, and, while the target of eradicating extreme poverty is ambitious, it is far from impossible. The experience of the last 50 years demonstrates this clearly. Sustained and largely equitable economic growth took place both in the industrialised North and in the developing countries of the South between the 1950s and the late 1970s. This laid the foundations for rapid improvements in material wellbeing, and gave hundreds of millions of people a standard of living that would have been astonishing to their grandparents. During the lives of the last two generations, the reduction in levels of material deprivation, sickness, and early death in the developing world is historically unprecedented, and all too often overlooked. There is no good reason why these on-going improvements in living standards should not be consolidated and extended to benefit the millions of people who continue to live in poverty.

In almost every country in the last 50 years, income poverty has been reduced and morbidity and mortality rates have been dramatically lowered. Even in the poorest regions, life expectancy has increased by more than a decade, and child mortality has been halved in the last 50 years. Meanwhile, for the first time in human history, the majority of people are being given the opportunity to learn to read and write. Rising wealth and the growth of the state have been decisive factors in these achievements. Average per capita income in developing countries has increased threefold since 1950, and considerably faster in East Asia, and this has allowed states to tax more, and spend more on infrastructure and services with a high public-goods content.

Much has been done towards meeting the goal of poverty eradication, but huge sections of the world's population continue to be excluded from the benefits of growth. The 550 million people living in the 49 Least Developed Countries (LLDCs) have suffered reversals in living standards in the last decade, and in many countries in sub-Saharan Africa school enrolment, life expectancy, and nutritional intake are at approximately the same levels as 25 years ago. Women and children in particular have often failed to benefit from economic growth; they account for a disproportionate section of the world's poor people. In every society, people's opportunities to participate in growth in ways that enhance their well-being are restricted, because of marginalisation, ill health, a lack of education, and poverty.

In short, despite the progress made in the last 50 years, the scale of unmet human need remains enormous. One third of the population of the developing world continues to live in extreme poverty; more than 100 million children of school age are denied the right to an education; and every day 35,000 children under the age of five die from preventable diseases. The persistence of such extreme poverty, at the close of a century of unparalleled progress, is an indictment of the way in which the post-1945 vision of a globally shared freedom and prosperity has been betrayed.

There is a fundamental obstacle to more rapid poverty eradication and the completion of this unfinished agenda. This barrier is inequality. We live in a world fissured by huge and unprecedented disparities in wealth and opportunity. Moreover, these disparities have been growing ever more rapidly in recent years. In 1960, the wealthiest fifth of the world's population had an average income some thirty times larger than the world's poorest fifth. In 1990 the 'income-share ratio' stood at 60:1. Today it stands at 78:1. Much of this wealth is concentrated in the hands of a tiny group of individuals. The richest ten people in the world share a net wealth that is 1.5 times the national income of the world's least developed countries, home to 750 million people. At the same time, one third of the population of the developing countries — 1.3 billion people — struggle to survive on less than $1 a day, and the numbers of poor people continue to grow.

Inequalities between developed and developing worlds, and within societies, mean that poverty is being reduced more slowly than is necessary if the international commitment, made at the United Nations Social Summit in 1995, to halving the incidence of poverty by 2015 is to be achieved. Inequality has two effects on poverty levels: it slows economic growth, and it makes a given rate of economic growth less effective in reducing poverty. While equity and economic growth are mutually reinforcing, inequality is socially destabilising, bad for growth, and of its nature restricts the capabilities of marginalised groups. Conversely, equitable access to markets, political power, and social provision, on the basis of needs, is the fastest and most effective route to poverty eradication. So there are moral and economic cases for growth with equity. For example, successful land-reform programmes have shown that, in terms of production costs and resource allocation, smallholder farming is highly efficient. More equal societies are also more likely to foster entrepreneurial behaviour, and less likely to generate rentier elites. And more equal societies are likely to invest more heavily in 'human capital'.

Recent trends in the distribution of wealth call for a renewed commitment to equitable development, which is clearly directed towards improving human well-being. This will require both a more even distribution of assets and opportunities than exists at present, and for more resources to be committed to national and international poverty-eradication strategies. The issue of how to mobilise resources for poverty eradication, or 'development finance', is a crucial one for states and for civil society, and will be considered later in the book. At present, most of the world's poorest countries lack the resources to meet the basic needs of the majority of their people.

Yet there is nothing inevitable about under-funding and under-provision of development strategies in poor countries. The fact that many poor countries have achieved marked improvements in living standards at low cost reinforces the point that determining the size and distribution of available resources, the 'resource envelope', is in...