Equality and Development

[Michael Pollak]

Financial Times ; 27-Jun-2000

LETTERS TO THE EDITOR: Growth cannot fight poverty on its own

>From Mr David Bryer.

Sir, Martin Wolf is right about one thing: the World Bank is not Oxfam
("Banking for the world's poor", June 21). But in the rest of his article
against the presumed enemies of market-based growth, Mr Wolf is like some
latter-day Don Quixote, charging at an imaginary foe.

To set the record straight, Oxfam is not "anti-growth". Economic growth is
self-evidently essential for poverty reduction, since without it average
incomes cannot rise (witness the costs of economic stagnation in Africa).
But the rate at which growth is converted into poverty reduction depends
upon the extent to which the poor share in the benefits, which is a
function of income distribution.

Crudely stated, more equal societies are more efficient at transforming
growth into poverty reduction. In Indonesia, each Dollars 1 generated
through economic growth delivers around 10 cents to the poorest 20 per
cent.

For highly unequal societies like Mexico or Brazil, the equivalent figure
is 2-3 cents. It follows that Brazil and Mexico have to grow at over three
times the rate of countries like Indonesia to achieve the same average
income gain for the poor.

Latin America's income distribution patterns help to explain why, after a
decade of economic recovery, there are now 5m more people below the
poverty line than there were in 1990.

The World Bank paper by David Dollar and Aart Kraay, cited by Mr Wolf,
argues that income distribution is irrelevant to poverty reduction.

This is not borne out by experience. Increasing income inequality is
weakening the link between growth and poverty reduction in a large group
of countries, including China, India and - as a recent Inter-American
Development Bank report shows - at least 15 countries in Latin America.

Does this amount to a case for abandoning growth, or for rejecting
market-based reforms? Of course not. But it does underline the need for
policies that combine high growth with enhanced equity.

All too often poor people are excluded from the opportunities created by
globalisation and market reforms by illiteracy, ill-health and inadequate
access to productive assets and marketing infrastructure.

Far from being anti-growth, there is compelling evidence that improved
equity in these areas can act as a spur to growth (as in east Asia), and
that high levels of inequality undermine growth and investment (as in
Latin America).

The simplistic return to 1980-style "trickle-down" economics apparently
advocated by Messrs Dollar, Kraay and Wolf is not just anti-poor, it is
also anti-growth.

David Bryer, Director, Oxfam GB, 274 Banbury Road, Oxford OX2 7DZ

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