Malaysia, Morocco and the Republic of Korea form a select group of countries that halved the proportion of their people living in poverty in less than a generation. The Indian states of Haryana, Kerala and Punjab have achieved the same type of progress. Another dozen countries – including Botswana and Mauritius – reduced poverty by a quarter or more. Their experiences are well-documented and other countries can learn much from them. After all, if they have done it, others can do it too. The question is how?
Stronger voices and choices for the poor; economic stability and growth that favours the poor; basic social services for all; open access to trade and technology; and sufficient development resources, used well. These are the five sets of policy recommendations to reduce extreme poverty which are put forward in the Better World for All report, which many of the articles in this Spotlight are based on.
Voices and choices
Empowering poor people is the starting point of the proposed strategy. That means opening political space for poor people to organise. It also means providing opportunities for women and minorities, by encouraging them to participate as fully as possible in the political process and its institutions. Democratisation has to go beyond elections. It has to promote an independent judiciary, an open civil society and a free media, all of which can make governments accountable for their promises and actions.
Empowering people requires a commitment to respect fundamental human rights and the rule of law. One important way of showing that commitment is for countries to adopt treaties: today, half the world’s countries have ratified all six human rights conventions, such as the Convention on the Elimination of Discrimination Against Women (CEDAW) and the Convention on the Rights of the Child (CRC). This is up from a tenth of countries just 10 years ago.
Democratisation also demands overcoming corruption (see Spotlight on bribery and corruption, Observer No.220, 2000). Honest and responsive government fosters – indeed embodies – human development.
Empowering people, maximising the resources for development and reducing poverty go hand in hand with building sound, effective institutions, expanding administrative capacity, encouraging local participation and improving the business environment.
Economic growth is not a guarantee of poverty reduction, though it is clearly essential for sustaining poverty reduction in the long term. What is needed is pro-poor growth, which means generating more decent income-earning opportunities for poor people, helping them unleash their productive potential and allowing them to meet at least their families’ basic needs. It means stimulating activity in small, even informal, businesses, both urban and rural. In most cases, it requires measures to improve property rights, bargaining power and access to credit, training and new technology. In short, pro-poor growth should aim to reduce inequities by creating better opportunities for all groups in society, particularly poor women.
China and Malaysia are examples of countries that have achieved pro-poor growth. The trouble is that many other countries today need substantially faster pro-poor growth, among them the 30 developing countries whose real per capita incomes are lower today than they were 35 years ago.
Getting basics right
Providing basic social services is of course essential to any pro-poor growth and long-term development strategy. At the Copenhagen Social Summit in 1995 the world’s leaders suggested as a rough guideline that 20% of budgetary expenditure and 20% of aid flows should be allocated to basic social services. Although the budget allocations to such services have recently increased in many countries, such as the Dominican Republic, Guatemala, Malawi and Namibia, few developing countries or donors meet the guideline. Yet there is an urgent need to invest in education (particularly girls’ education, where the returns are high) and in high-quality and cost-effective services to the poor in healthcare, water, sanitation and other basic services.
One way of contributing to the cost of these services is to build a broad, equitable and fair tax base. On average, taxes actually collected in low-income countries accounted for less than 10% of GDP in 1994-98, compared with some 20% in middle-income countries and over 25% in high-income ones. The issue is one of improving tax collection, rather than increasing taxes.
Trade, technology and ideas
Globalisation offers enormous opportunities for development. It provides better ways of tapping the world’s knowledge, technology for delivering products and services, and access to the world’s markets. Several countries have taken advantage of these new opportunities, such as India, which is building a strong reputation for itself in new technologies.
Opportunities have been enhanced by the plummeting cost of telecommunications in the past two decades, while the spread of cellular telephones and the Internet have been a boon, say, to cocoa traders in Ghana who need to track world prices. The transfer of knowledge and ideas is critical to development everywhere and a major challenge is to plug all of civil society and business in developing countries into these promising networks. Though this would obviously entail large investments in telecommunications and power supplies, costs are falling, while new (particularly cellular) technology is becoming easier to deploy.
Having the technology is not enough of course. The high-income countries have a clear responsibility to reduce tariffs and other trade barriers to imports from developing countries, particularly in food and textiles markets. And richer countries should help poorer ones to build their capacity to trade effectively, such as by helping them to negotiate with trading partners and where possible to reduce their economic dependence on commodities. For countries themselves to benefit from globalisation, they have to lower their tariffs and other trade barriers, especially for sectors which stand a fighting chance of competing on world markets and for which exposure to world competition would bring clear benefits in terms of capital and growth. They should streamline their systems for the flow of imports, exports and finance. They also have to do their best to minimise volatility by maintaining consistent fiscal and monetary policies that broadly support pro-poor growth.
Use resources effectively
Development costs money. Much comes from investment by people and much from investment by government. What has spurred the growth of many East Asian countries is their high savings rates, often more than 30% of gross national product. Many African countries, by contrast, have had total savings rates of only 10-15% of national income, too low to sustain growth fast enough to lift more people from poverty.
Money must be spent wisely – on projects with long-term development prospects and on basic services for the poor, not on subsidised services for the rich, such as lavish hospitals in town centres. Being able to rely on predictable resources, like tax and customs revenues through a working tax collection system and indeed aid flows, and having the capacity to deliver public services efficiently will mean a better return on development spending.
Some regions rely almost entirely on aid for their external finance. Private capital flows can add much to what countries put into their development efforts. But these flows are concentrated in fewer than 20 developing countries, and some types of these flows, such as bonds and bank lending, can be volatile, as witness the Asian crisis of the late 1990s. Countries need to create the conditions that attract longer-term investments from overseas as well as locally. Countries like Mozambique and Uganda are beginning to do just that, by providing a stable political and economic environment and a welcoming and transparent regulatory environment.
External aid plays an important part in supporting development, especially in poor countries. Most OECD countries have adopted a target to provide 0.7% of their GNP as aid, but only Denmark, the Netherlands, Norway and Sweden have met this. Worse, the inclination to help developing countries declined in the 1990s. In just five years, from 1992 to 1997, OECD aid fell from 0.33% to 0.22% of GNP, a decline that halted in 1998 and 1999. Donors need to provide more aid to poor countries.
Accelerated debt relief is also critical if the poverty goals are to be met.But donors also have to offer easier access to their markets, including duty-free and quota-free access for poor countries. And they should finance programmes that will benefit many countries at once, such as research on vaccines for tropical diseases. Indeed, reducing human suffering and the number of violent conflicts, sustaining the environment and stemming the spread of such global threats as HIV/AIDS, are all keystones to promoting growth and reducing poverty in the poorest and least developed countries.
Where do we go from here?
There is a consensus that any strategy aiming at poverty reduction has to be multifaceted. Acknowledgement of this is clear in the Better World for All report put out jointly by the UN, the IMF, the World Bank and the OECD in June 2000. It is also clear, to judge by the reaction that the report has drawn, that differing opinions abound on where the priorities for poverty reduction should lie: More growth? Greater equity? Faster globalisation? More trade liberalisation?
A number of non-governmental organisations have strongly criticised the Better World for All report for not adequately addressing the problems of unfair trade, declining aid, inadequate debt relief and the governance structures of the international financial institutions. They argued that without profound changes in these areas, a significant reduction in poverty would remain illusory. In their view the report was one-sided because it dwelt too much on what developing countries must do and not enough on the responsibilities and commitments of the industrialised world, commitments that they believe have not been met.
In fact the report avoids finger pointing. Rather, it highlights the broad policy recommendations which, if adopted, could significantly reduce poverty by 2015. It is everyone’s responsibility to help ensure those goals are achieved. This, as A Better World for All underlines, is why partnerships are so important – between developing countries and high income countries, governments, civil society and the private sector, and between international organisations like the UN, the World Bank, IMF and OECD, institutions that must remain open to discussion and debate on development progress and policies, while seeing to it that undertakings are matched with action. Partnerships are not a question of imposing one view on another, but rather taking responsibilities jointly – North and South – to work to achieve the goals that have received unprecedented universal endorsement. It is not an easy challenge, but it is a feasible one. It is our duty to embrace it.
For larger graph, please click here
• International Trade Centre: Integrated Framework for Trade-Related Technical Assistance to Least Developed Countries – http://www.intracen.org/ldcs/itc.htm.
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©OECD Observer No 223, October 2000