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Poverty reduction

Promoting progress

by Ellen Thalman
There is “no single recipe” for developing countries to achieve fast, sustained growth, according to the Commission on Growth and Development. Instead, successful growth strategies depend on a set of policy ingredients, mixed appropriately for each country’s specific needs.

The Commission was comprised of an independent group of policymakers, business leaders and scholars, supported by the World Bank, the Hewlett Foundation and the governments of Australia, Netherlands, Sweden and the United Kingdom. In May, it published its much-touted report.

The study took lessons from 13 developing countries, which maintained growth rates of seven percent or more for periods of more than 25 years. The sample included Botswana, Brazil, China, Singapore and Oman. The 13 countries have little in common – some are very populous, others very small, some are rich in natural resources, others not. Nonetheless, the Commission found that they shared some similarities: “They fully exploited the world economy, maintained macroeconomic stability, mustered high rates of saving and investment, let markets allocate resources and had committed, credible and capable governments.”

On that base, countries chose any number of different policies, blended for their specific needs. Those fall into five categories. The first is “accumulation”, which includes strong public investment for “accumulating” infrastructure and labour skills. The next is “innovation and imitation”, which introduce new ways of doing things, adapting to world market standards. “Allocation” involves using capital and labour to let prices guide resources and resources respond to prices. “Stabilisation” helps to protect the macroeconomy against downturns and inflation. And, finally, “inclusion” means a growth strategy should share its benefits with society, for example through public health and
education policies. In any case, countries must engage in the global economy to gain access to technology, knowledge and financial markets, the Commission argues; and developing a strong export sector is critical in the early stage of growth.

“The Growth Report kills off once and for all the misguided notion that you can lift people out of poverty in the absence or growth. Growth can spare people en masse from poverty and drudgery,” said Michael Spence, Nobel laureate and Commission Chair.

Specifically, the Commission said that growth requires high rates of investment, perhaps as much as 25 % of GDP or more, especially in health and education. Labour and resources must be highly mobile, it said, stressing that public deport for economic policies depend on wide segments of the people benefiting from growth. On the other hand, subsidies for energy consumption are said to be “often misspent”.

Financial market openness helps the long run, but timing and sequence of liberalisation are debatable. While international financial institutions often put developing countries under pressure to open financial markets, policymakers should ensure that the “economy is diversified, capital markets are mature and financial institutions are strong.”

Combining these policies will require “reform teams” of economists and policymakers, who focus on specific economies over the long-term, the report said, refraining from proposing strategies for specific countries. However, the Commission did outline “opportunities and constraints” for some specific regions.

In Africa, the commission found that industrialised countries should help finance education and “implement promptly the time-bound trade preferences granted to manufactured exports from African countries to help them overcome the disadvantages of being late-starters.” For small states, the Commission recommends regional economic integration. In the case of resource-rich countries, the importance of good, transparent governance is stressed.

In addition, the Commission said policymakers must take into consideration global trends that pose potential risks outside their control, such as global warming, “the surge in protectionist sentiment”, rising commodity prices, the world’s aging population and the US external deficit.

Ellen Thalman