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Economic growth - only way out of poverty

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Economic growth - only way out of poverty

by Shaun Benton
22 May 2008
BuaNews Online
BuaNews Online

There is no way to lift the millions of the world's poorest people out of the ghetto of poverty other than through sustained economic growth, writes Shaun Benton.

This according to a report, by an international group of leading economists, which was released in Cape Town, London, Cairo, New York and the Caribbean island state of St Kitts and Nevis on Wednesday.

In Cape Town, Finance Minister Trevor Manuel presented the Report of the Commission on Growth and Development (CGD) to the media, along with leading economist Gobind Nankani, a Ghanaian who heads the Global Development Network.

The CGD, a result of two years' study on the requirements for "sustained and inclusive" economic growth for developing countries, is chaired by Michael Spence, one of two Nobel prize-winning economists on the commission.

'The Growth Report - Strategies for Sustained Growth and Development' sought to identify the key policy ingredients for long-term growth and development, in a report that was expected to be presented in New Delhi on Thursday.

But reacting to the immediacy of issues such as fast-rising food prices, the report stated that policies supporting the growth of biofuels could be halted or even reversed should they be found to be a threat to food security.

"Policies that favour biofuels over food can be reviewed and, if necessary, reversed", the report stated, while calling for "prompt action to protect poorer people from price increases".

The report recommended a number of actions to combat food price rises over the longer term, "once the current emergency situation is dealt with", according to a CGD media release on the report.

The actions to contain steep food price increases include an end to export bans and "more effective safety nets and redistribution mechanisms" to protect the more vulnerable, as well as a revitalisation of infrastructure investment for agriculture.

The issue of biofuels is one that has been receiving serious consideration in South Africa, with Deputy President Phumzile Mlambo-Ngcuka remarking recently that because South Africa had not yet fully entered into the production phase of biofuels, there was still time "to turn it around into food security".

In its 165-page report released on Wednesday, the CGD commissioners found that the reduction of poverty is "impossible" without economic growth.

It also warned that malnutrition and reduced incomes "will reduce long-term growth prospects", with Mr Manuel pointing out to reporters that economic expansion "is not an end goal but a necessary means to achieve growth".

A sustained and growing economy is a basic, fundamental prerequisite for lifting people out of poverty, with Mr Spence saying that it can "lift people en masse from poverty and drudgery".

Mr Manuel echoed this finding on Wednesday, saying that "no country has been able to lift people out of poverty in the absence of economic growth", but pointedly adding that a perspective that sees economic growth simply as an end in itself is one that provided no direction forward.

And another key element of the Report - which examined key basic "ingredients" for sustained growth, along with further development - is that a one-size-fits-all policy is unworkable.

While "some universal issues are obviously true", Mr Manuel said, he and Mr Nankani emphasised that a country's economy had its particular idiosyncrasies that needed to be taken into account.

This leads to a result where, in practice, argued Mr Nankani, policy-making by governments becomes "a bit of an art", and that is had to be formulated in a "country-specific, time-specific way".

Another key feature of the Report is that in the more successful, high growth economies studied, none had governments where the ideas of "free-market purists" were overwhelmingly dominant, said Mr Manuel.

And while the energies of a free market encouraged faster growth, "the state has a very important complementary role to play to markets", said Mr Nankani, who is currently based in New Delhi, India.

But a micro-economic analysis could never overlook the private sector's process of "creative destruction" where companies expand or shrink in a process that brings an economic vigour fundamental to growth, the economist indicated.

The evidence in the study, according to Professor Robert Solow, the other Nobel economic laureate on the commission - and quoted by the CGD - showed that "competition is absolutely essential at every stage of economic development".

Further to this, the study found, he said, that access to world markets is "very much a lesson for the rich countries as it is for developing countries, and that the more equitable the growth, the more sustainable it's likely to be".

Another key point was that of inclusion. Mr Nankin told reporters in Cape Town on Wednesday that "growth has got to be inclusive or it's never sustained", adding that the current economic climate in the world provided a historic, "golden opportunity" for resource rich, commodity-exporting African countries.

Referring to the thesis of the "resource curse" commonly used by economists from the basis of 20th-century experience of war-ravaged but resource-rich developing countries, Mr Nankin insisted that the "resource gift" can be a "blessing" rather than a curse, particularly for commodity-exporting African countries.

And while African countries needed to take a "much bolder" approach when taking advantage of global opportunities, inclusiveness - the mainstreaming and sharing of economic endeavour - needed to be "significant in Africa" and underpinned by education and the acquiring of skills.

The study identified 13 countries that had experienced economic growth of more than seven per cent consistently over about 25 years, and queried how other developing countries could emulate them on top of the more obvious elements of for, instance, macroeconomic stability.

This fiscal responsibility would see "modest inflation" in a policy environment orientated towards a high investment and high savings ratio, which are ultimately essential to an improved quality of life for people, said the Finance Minister.

The Report found that equality of opportunity and gender inclusiveness were necessary to bring the benefits of globalisation to those not yet actively participating, while drilling down to details around the core issue of education and skills.

This probe found that, for instance, adequate nutrition among infants and children is crucial to the equalisation of opportunity, allowing children to benefit appropriately from educational systems and to then bring this capacity to the workplace.

And labour had to be mobile, the economists found, as it dealt with an area of particular importance to South Africa, with its dual economy where the mainstream economy runs in parallel with what is often referred to as the "second economy".

This awkward duality is already being addressed by the Asgisa - the Accelerated and Shared Growth Initiative of South Africa - programme under way in South Africa.

Dealing broadly with this question, the Report recommended a way of bridging the divide between the formal and informal labour sectors by allowing export-oriented industries to recruit workers on easier terms than those which prevail in the formal sector.

However, this recruitment should come also with similar levels of worker protection in terms of safety and health and working hours. The Report also highlighted the need for countries - with all their various stakeholders - to better analyse the effects of changing demographics.

These changing demographics are being marked by a rapidly urbanising world, with the rate of urbanisation - itself "frequently unplanned" - presenting a "big, big challenge" in the developing world, with governments needing to examine ways in which to get services into these dense locations, said Mr Manuel.

This is a particularly pressing issue in the so-called "South" - the developing world - where most of the largest cities in the world would be located by 2020, a high-level meeting of the India-Brazil-South Africa trilateral held in Cape Town earlier this month noted.

At the same time it was noted that half the world's population is - as of this year - now living in cities, with urban slum dwellers now numbering over one billion people. - BuaNews
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