Developmental Pathways to Poverty Reduction

Y. Bangura

• Publisher: Palgrave Macmillan
• Year: 2015
• ISBN:
  9781137482549
• Topic: Economics
• Subtopic: Development Economics
• Index: Economics

This book looks at developmental pathways to poverty reduction that emphasize employment-centred structural change, social policies that both protect citizens and contribute to economic development, and types of politics that support economic transformation and participation of the poor in growth processes.

Part 1

Development Strategies

1

Developmental Pathways to Poverty Reduction

Yusuf Bangura

1 Introduction

Poverty reduction has gained much prominence in international development policy. In 2000, governments made a commitment through the adoption of the Millennium Development Goals (MDGs) to reduce poverty and hunger by half by 2015. Low-income countries that seek help from the international financial institutions (IFIs) are now required to prepare poverty reduction strategy papers (PRSP) that will inform their economic and social policies. Bilateral aid is also increasingly tied to progress made in poverty reduction. However, there are concerns that many countries will be unable to make meaningful dents in their poverty. At the centre of these concerns is whether countries are following the right development paths. Critics affirm that current anti-poverty strategies have not overcome the constraints of the stabilization policies of the 1980s which contributed to a deepening of poverty or generated growth with limited employment in loan-recipient countries; and that lessons have not been drawn from the development strategies of newly industrialized countries that drastically reduced poverty in relatively short periods.

This book is about pathways to poverty reduction that emphasize high growth rates and employment-centred structural change; social policies that both protect citizens and contribute to economic development; and types of politics that support economic transformation and the participation of the poor in growth processes. It draws on the experiences of countries that were successful in transforming their economies and lifting their citizens from poverty in very short periods. Although most successful developmental states were authoritarian, the key institutions and policies that informed their strategies are not intrinsic to authoritarian rule (Sen, 1999). Poor countries that operate under democratic conditions can learn a great deal from those experiences as well as from democratic countries that have been successful in transforming their economies and improving the well-being of their citizens.

The book is part of a collective effort by the United Nations Research Institute for Social Development (UNRISD) to understand why people are poor and why inequalities exist, as well as what can be done to correct these injustices. More than 100 scholars contributed to this effort, which culminated in the flagship report Combating Poverty and Inequality: Structural Change, Social Policy and Politics published in 2010. In-depth studies were conducted in Botswana, Brazil, Costa Rica, India, Kenya, Malaysia, South Africa and Taiwan. There were also overview papers on China, Finland, Ireland, the Republic of Korea, Singapore, the former Soviet Union, Sri Lanka and Viet Nam; and 40 thematic papers complemented the findings of the case studies.

The chapters in this volume are derived from the thematic and overview papers. The volume is one of six books in the series Developmental Pathways to Poverty Reduction. The others focus on Botswana, Costa Rica, India, Malaysia and South Africa. The present volume should be read in conjunction with these other books and the flagship report for a comprehensive understanding of poverty and how to overcome it.

This volume is divided into two parts. The first part examines six issues in development strategies: the links between structural change and employment; financing development strategies; macroeconomic policy making; politics of donor assistance; growth and redistributive politics; and agrarian social pacts. Part 2 discusses case studies on Korea, Singapore, China, Brazil and Ireland. These cases provide insights on the interconnections of economic development, social policy and politics.

The next section of this introduction provides an overview of the poverty challenge and international development policy; section 3 discusses core issues in developmental pathways to poverty reduction; section 4 summarizes the chapters; finally, section 5 concludes by highlighting key challenges that low-income countries are likely to face in adopting a developmental approach to combat poverty.¹

2 Poverty and international development policy

Poverty is closely linked to inequality (Bangura, 2011). The different ways in which people are connected in the dynamics of wealth creation make some poor and others rich. Unfortunately, the inequality dimension in tackling poverty has been largely neglected in international development policy. The focus instead has been on extreme poverty. This view suggests that if absolute poverty is falling, policy should not be concerned with developments at the other end of the income distribution. The separation of poverty and inequality may be due to the fixation with growth in the 1990s as the sole route out of poverty. According to this view, what mattered most was the income level of the poor, not equality, whose pursuit might distort efficiency and ultimately undermine growth itself. The 1990s was the period during which free market ideas gained ascendancy and the world economy experienced a finance and technology-induced boom that also impacted favourably on poor countries. Therefore, on the eve of the millennium, when the MDGs were being set, there was a strong belief that poverty could be reduced without questioning economic policy orthodoxy and income distribution. However, recent research (see, for example, Fosu, 2011) suggests that to overcome poverty highly unequal societies need higher levels of growth than those that are more equal, and also that there is no trade-off between growth and equity (UNRISD, 2010; OECD, 2012; UNDP, 2014). When inequality is high, growth may be concentrated among sectors that benefit the elites; the poor, on the other hand, may be excluded from market opportunities or lack the resources to benefit from growth.

The measure used by the international development community to track global poverty – an income of US$1.25 a day – conceals the real extent of poverty in low-income countries. Countries may be declared as making progress in meeting the MDG poverty goal, when in reality many of their citizens may be mired in poverty in multiple dimensions (UNDESA, 2012). The main challenge in the fight against poverty is in Africa where the average poverty rate is still above 50 per cent. High growth rates in the last decade have helped some countries, such as Ethiopia, Ghana, Senegal and Rwanda, to register some progress (Bangura, 2012). However, even in these countries, poverty remains high, especially when measured by the higher US$2 a day metric. According to the 2014 Millennium Development Goals Report (United Nations, 2014), the goal of halving global poverty has already been met. Much of this is due to the spectacular growth of China, and to some extent India, where hundreds of millions of people have escaped poverty. However, this still leaves 700 million people globally in poverty; this figure rises to 2.2 billion if the near poor is included (UNDP, 2014). Besides, it remains to be seen whether current levels and patterns of growth in low-income countries can drive down poverty figures to the levels that have been attained by industrialized countries where poverty is now measured in relative, not absolute, terms.

Although the MDGs set targets on poverty reduction, they do not spell out the strategies required for achieving them (UNRISD, 2010). This task has been left to the PRSPs, which are drawn up by governments in those low-income countries that need financial assistance from the International Monetary Fund (IMF) and World Bank. As Gottschalk points out in Chapter 4, the PRSPs share a strong lineage with the structural adjustment policies of the 1980s. They emerged as a response to the deflationary and negative social effects of the adjustment policies, which spurred the international community, in 1996, to launch the Heavily Indebted Poor Countries (HIPC) initiative. The PRSPs were devised to ensure that resources freed up by debt relief were used for poverty reduction. The IMF’s key instrument for providing loans, the Poverty Reduction and Growth Facility (PRGF), which was changed to the Extended Credit Facility in 2010 following the financial crisis that began in 2007, was expected to support the PRSPs’ goals of growth, poverty reduction and country ownership. In practice, however, it has remained narrowly focused on price stability.

Independent reviews by the IMF and World Bank suggest that the PRSPs have had only a limited impact on the macroeconomic framework used by these institutions to disburse loans (IMF, 2004). In many cases, countries simply transferred the macroeconomic framework of the PRGF to their PRSPs “with limited efforts to open up the policy debate” (IMF, 2004). Indeed, HIPC finance ministers found “little evidence of important policy changes on macro or structural policies between PRSPs and PFPs” (the policy framework papers of the previous structural adjustment programmes); and complained that the programmes “continue to be restrictive” (Mkwezalamba, 2002), even though the IMF’s own independent evaluation did not find an anti-inflation bias in programmes when inflation rates are below 5%.

The adjustment policy regime of the IFIs sees economic growth as the road to poverty reduction, and that growth will occur through a contraction and restructuring of state activities; the privatization of public enterprises; and the liberalization of labour markets, trade, exchange rates and capital accounts. It privileges macroeconomic stabilization over development issues related to capital accumulation and structural change. It supports targeting over universalism in social policy in the belief that only the very poor need state protection while better-off groups should explore market-based provision. However, criticism of “stabilization overkill” and the focus on poverty reduction in current programmes have led to higher pro-poor expenditures, especially in education and health. Policy now recognizes the importance of equity for pro-poor growth, but is critical of asset redistribution, especially in areas like land reform that are likely to impact positively on the poor (World Bank, 2006); indeed, the new interest in equity privileges equality of opportunities over outcomes. Pluralism in policy making is acknowledged, but group participation serves mainly a consultative function, as decisions, which need the approval of the IFIs, are not binding on governments and the IFIs; and there is a lack of convergence between the politics of drawing up the PRSPs and mainstream national politics.

3 Core issues in developmental pathways to poverty reduction

Developmental pathways differ from conventional international development policy in tackling poverty. They involve rules governing economy and polity that facilitate economic growth, structural change, productive employment, and comprehensive social policies. They are premised on the view that late industrializing countries have to involve the state in multiple activities other than regulation and stabilization. Such countries require policies and institutions that will not only “allow things to happen but can also cause things to happen” (Nayyar, 2006). They need to mobilize resources for investment; create incentives that will spur entrepreneurs to adopt a long-term, integrated view of development; correct market failures in credit markets by intervening in such markets and directing credit to weak but potentially productive investors; develop basic infrastructure as well as a trained, healthy, and productive workforce; pursue strategies in industry, agriculture, and trade that will lead to a healthy balance between these sectors; and ensure that development impacts positively on the well-being of all sections of the population. In the words of Adrian Leftwich (2007), the politics of such states should be “developmentally driven” and their economic development must be “politically driven”. Such an approach to development rules out clientelistic or patronage types of politics that are out of sync with the imperative of growth. It also challenges the adjustment strategies of the IFIs which downplay the role of the state in economic development. In this section, we highlight the core issues in developmental pathways to poverty reduction by focusing on state–society relations, industrial policy, financing, and social policy.

3.1 State–society relations

Understanding developmental pathways to poverty reduction requires analysis of the internal organization of states and patterns of intervention that are both redistributive and growth-enhancing. States are complex organizations with varying levels of authority, functions and competencies that may convey an image of incoherence (UNRISD, 2010). They display uneven levels of capacities across the entire range of institutions in the bureaucracy (Weiss, 1998). Actual capacities are often constructed around specific goals, which may impact the rest of the bureaucracy. Successful late developers were able to transform their states into cohesive and, in some cases, centralized institutions around the goal of economic growth. This involved the development of expertise, especially on markets, industry and technology, within an agency that coordinated the diverse ministries and instilled a sense of mission in the bureaucracy. Competence in setting, implementing, monitoring and enforcing growth-enhancing policies may not always exist at the required levels at the initial stages. They are built over time (Kohli, 2004). Fundamentally, the bureaucracy’s commitment to growth depends on the orientation and commitment of the political leadership itself.

Countries vary in the extent to which they have been able to transform their states into cohesive and purposeful institutions that are committed to growth, structural change and redistributive policies. Although both economic growth and redistribution require purposeful states, they may demand different kinds of relations with business and subaltern groups. States that prioritize only economic growth may be compelled to narrow the focus of public policy to meet the growth objectives and construct relations with business groups that may be seen as allies in coordinating industrial change. Labour and other subaltern groups may be either repressed or forced to play a subordinate role in order for wages not to outpace productivity levels, especially if the growth strategy is oriented towards support for export-oriented firms that need to be internationally competitive. A growth strategy that is constructed under democratic conditions may, however, face daunting problems in suppressing labour demands. State effectiveness may require social pacts or agreements, whether formal or informal, in which labour agrees to hold down wages in exchange for commitments by business to reinvest profits and expand employment and for the state itself to provide social benefits. States that do not prioritize and enfo...

Table of contents

• Cover
• Title
• Copyright
• Contents
• List of Tables
• List of Figures
• List of Boxes
• Acknowledgements
• Notes on Contributors
• List of Acronyms and Abbreviations
• Part 1 Development strategies
• Part 2 Case Studies
• Index