The question of whether economic growth can lead to decrease in poverty is the subject of debate in the present. The neoliberal view of the issue is that it is good for the less fortunate and that poverty can be alleviated through economic growth. In this paper, I argue that unless the poor take part in the economic system and the constraints that hinder their participation are eliminated Growth on its own can’t help to reduce poverty. The state also has an integral role in helping the poor gain from growth by encouraging policies for the poor. In the following paragraphs I will define the concept of pro-poor growth; expose the constraints to growth that favor the poor and what is possible to do to help make growth beneficial to the poor.
2. Definition of concept: pro-poor growth
In the words of Ravillion in Ravillion and Datt (1991:19), pro-poor growth can be described as ‘growth that involves and helps the most vulnerable’. This means that pro-poor development requires the greatest participation of marginalized groups in all sectors. Ravallion and Datt add that pro-poor growth is in particular, marked by what they describe as ‘deliberate’ transfers’ to those who are not able to rise from poverty. The basic theory they’re advocating can be summed up as the idea that poor people require intervention or assistance in order to be able to take advantage of growth. That means that pro-poor development is a deliberate effort to ensure that the poor gain of growth instead of leaving the poor in the hands of the ‘invisible’ hand of the market. It is about setting an enabling environment in which the poor can have the opportunity to participate meaningfully within the economy.
According to Kydd and colleagues (2001:10) pro-growth will occur when the following conditions exist:
Increases in productivity or price in tradable products with large average shares in low-income population.
The productivity and price rise in products that are tradable and have high labour inputs by those who are poor.
Technologies are evolving or have reduced barriers to entry, allowing people who are poor to take part in non-tradables that they were previously unable to engage in or
Increases in the large amounts of non-poor people that result in increased demand for goods and services, produced by the poor due to the upstream or spending linkages.
It is vital to realize that not all growth is beneficial to the poor. Here are some of the traits or aspects of growth that are not pro-poor:
Disparities in wealth distribution
Increases in rural poverty
Development that isn’t focusing on agriculture despite the vital role it plays in the fight against poverty
The absence of investments in health and education, that play a crucial role in alleviating poverty
Inability to reduce inequality and lack of programmes designed to meet the needs of those in need (www.seurities.com).
Like Acocella (1998:162) notes in his article, it is essential to be aware that growth does not always translate into human development. Growth may occur without any negative impact on human development particularly with regards to the poor. Acocella asserts that real growth or improvement occurs when there is an improvement in the overall well-being of the people. Growth that does not lead to an improvement in the wellbeing of people cannot be said to be developmental in nature. Real growth as Ferro and al (2002:4) note that it should result in the development of people, and this involves empowering the poor to share in and profit from the growth’. It is clear that pro-poor growth does not occur automatically without the implementation of the appropriate policies that will be instrumental in helping to facilitate its implementation. There are polices and practices that could prevent pro-poor growth from taking place. I will look at a few of them in the following section.
3. The constraints to growth for the poor
In order to ensure that there is a pro-poor development for any country, it is important to ensure that all obstacles that hinder people from achieving their goals are removed. Failure or reluctance to address these barriers may frustrate the progress of people in poverty and in the end hinder any poverty reduction strategy in tackling the problem of poverty. Here are some obstacles that could hinder development that is pro-poor:
3.1 Inequality and the inability to access market
It can be difficult to develop policies that are pro-poor in nations characterized by inequality. Stewart (1995:209) states that it’s difficult to design policies that benefit the poor in societies that are not economically stable. He gives an example of societies that are inequal, such as Ghana, Mexico and Philippines, where he argues that the growth of these countries has not had any difference to the poor. These societies are contrasted with Indonesia with a more egalitarian structure to start with and a pro-poor and equitable pattern of development’. Other examples given include East Asian societies, which due to their effective policies in tackling inequality helped to lower the amount of poverty in a significant way. It is evident that there is a relationship between inequality and poverty. May (2002:2) further demonstrates that policies of inequality pursued by the apartheid administration in South Africa were not good in reducing poverty since they restricted certain groups from taking part in the economy that the state. Inequality was a major cause to the loss of resources such as land and livestock and simultaneously the denial of opportunities to make these assets more productive by limiting access to markets, infrastructure and education.
The problem with inequality is that it results in social exclusion when certain groups are not offered opportunities or benefits. The inability of the poor to participate from participating meaningfully in the market can adversely impact their wellbeing. In an economy which is characterized by low inequality and the less fortunate will be able to enjoy a greater share of the benefits from growth compared to an economy which is characterized by a high degree of inequality. The authors of Ravallion and Datt (1997:7) illustrate that inequalities in the ownership of both human and physical assets can affect the opportunities of the poor to take part in economic growth’. Policies that support the poor will ensure that the poor have access to infrastructure and markets. It is evident that when there isn’t any equality between the different classes of socioeconomics, the dependence on market forces and the unobserved hand of Adam Smith to meet basic demands is simply an illusion.
3.2 Fiscal constraints
The governments, especially in developing countries , are finding it difficult to develop pro-poor growth policies and approaches for poverty reduction due to financial constraints. Structural Adjustment programs have been found to be in the majority of cases making problems worse. In reality, governments are usually faced with the issue of having to cut back on spending on social services, which are supposed to benefit the poor. This means that less money is allocated to essential services such as education, health and other fundamental services. The reductions in spending by the government directly affect the most vulnerable (Howard 2001:57). It is nevertheless important to remember that the state is faced with global challenges and obstacles in its effort to implement policies that are effective in reducing poverty. There is a global demand to the state to adopt an ‘indirect’ role in the economic system.
3.3 Reducing the role of the state
The market liberalization that comes with globalization is one of other things that advocate for the rolling back of the state as well as the elimination of restrictions regarding prices as well as the amount that can be moved and stored. The author Howard (2001:57) correctly notes the ‘liberalization and expansion of financial markets increases inequality and poverty. Globalization means that governments are required to liberalize their markets. However, the most important question is whether liberalization of markets can benefit the less fortunate. There are mixed reactions to this. There are those who see globalization as beneficial for the poor, especially with regard the opportunities it opens up for trade and the creation of new markets. However, there are those who view it as harmful.
In fact, as Levinson (2001:11) shows globalization is beneficial to the less fortunate in some countries and harm those from other nations’. Although there is a general desire to reduce the state’s role to allow to market forces to work (if ever they ever work) The state has its own role to play when it comes to things that an individual can’t do for themselves. It is common especially among the poor to come across people who are not able to take part in the labor market because of elderly age, illness, chronic illness or otherwise disabled, socially marginalized or discriminated. The poverty of such people as per Streeten (1995:253) cannot be eliminated or reduced by relying on the market, but by deliberate ‘pressure for transfers and social services and the elimination in discrimination’. The focus on reducing the role of the state in the economy could have a negative effects on growth that is pro-poor.
To ensure that pro-poor growth takes place, the state should play a major role in the redistribution of resources and opportunities through the transfer of assets, prioritization of the poor in public spending and also in regulating market liberalization to protect the livelihoods of vulnerable people. According to Ferro et al (2002:19) note, ‘government is an instrument of the people to help in the process of development’. Therefore, government plays an important role in promoting poverty growth by developing the right policies to address the problem of poverty.