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Tuesday, November 20, 2007

Growth Policy and Poverty Reduction

In his remarks on the East Asia crisis and the financial hypocrisy summarized in the post below this one, Joseph Stiglitz says:

The poor were among those who bore the biggest burden of the crisis, as wages plummeted and unemployment soared. As countries emerged, many placed a new emphasis on "harmony," in an effort to redress the growing divide between rich and poor, urban and rural.

They gave greater weight to investments in people, launching innovative initiatives to bring health care and access to finance to more of their citizens, and creating social funds to help develop local communities.

Dani Rodrik discusses whether "investing in people" is always the best growth strategy:

Pro-poor growth, social growth, or just growth?, by Dani Rodrik: Income per head in a landlocked African country stands at a fraction of levels it had reached in the 1970s, with only the last few years seeing some decent economic growth. What kind of a growth strategy should this country follow? A strategy that focuses on expanding employment opportunities in the rural areas where most of the poor live? Should it consist of expanding their capabilities, by investing directly in education and health? Or should it focus on wherever the economic activities that will provide sustainable sources of income growth into the future lie, even if these may be in mostly urban areas and likely to foster greater inequality in the short-run?

These are the unexpected questions which a meeting with the World Bank raised... When my colleagues and I pushed for a growth strategy that focused, well, on growth, the reaction from the World Bank staff present was skeptical. It was pro-poor growth they wanted. ... Growth should be social growth, which means investing in people...

Here is how I see it. Having a growth strategy that focuses on growth proper ... does not mean that you don't care about poverty or inequity. It just means that you recognize different targets require different strategies. I recognize that a growth policy may not necessarily achieve significant poverty reduction in the short-run. That is why there is always room for social policy. Growth policy is not social policy--at least not necessarily in the short to medium-run (although in the long-run it probably is the most effective social policy we can think of). But it is indispensable to generate a sustainable increase in the economy's resources and long-run living standards. ...

And by the same token, social policy (targeting the poor directly) should not be confused for a growth strategy. Trying to come up with "pro-poor growth strategies" may backfire if it shortchanges us on growth while distracting us from the need for proper social policies.

    Posted by on Tuesday, November 20, 2007 at 02:34 AM in Economics, Policy | Permalink  TrackBack (0)  Comments (38)

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