Economic Growth and Poverty Reduction

1. Introduction

The question of whether growth in the economy leads to reduction in poverty is a matter that is a major point of contention. The neoliberal stance on this question is that growth can benefit the poor and that poverty could be reduced through economic growth. In this paper, I argue that unless the poor are able to participate in the market and the constraints that hinder their participation are removed, growth on its own can’t help to reduce poverty. The state should also play the major role of making those who are poor benefit from economic growth by adopting policies that are pro-poor. In the subsequent paragraphs I’ll define what is pro-poor growth and expose the constraints to growth that favor the poor and how in order to allow growth to benefit the most vulnerable.

2. Definition of concept: pro-poor growth

In the words of Ravillion (2001: 3) and Datt (1991:19) According to Ravillion and Datt (1991:19), pro-poor growth can be described as “growth that benefits and benefits the most vulnerable’. This means that pro-poor growth is the most effective participation of marginalized groups in every sector. Ravallion and Datt claim that pro-poor growth is, for instance, defined by what they refer to as ‘deliberate’ transfers’ to those who are unable to climb from poverty. The basic argument they’re advancing is that the poor need intervention or assistance in order to be able to take advantage of growth. It is a logical conclusion that pro-poor economic growth is a deliberate attempt to make the poor benefit from economic growth, rather than leaving the poor in the hands of the ‘invisible’ hand of the market. It’s all about setting an enabling environment in which the poor are given the chance to take part in meaningful ways within the economy.

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According to Kydd and co. (2001:10) pro-growth will occur under the following conditions:

The productivity or price rises for tradable goods with a high average share in the spending of the poor.

The productivity and price rise in products that are tradable and have large labour inputs for those with low incomes.

Changes in technology or reduced barriers of entry, allowing the poor to engage in the production of non-traded goods that they were previously unable to engage in or

Gains from the substantial amounts of non-poor people, which lead to expanded demand for goods and services created by the poor as a result of upstream or expenditure linkages.

It is crucial to remember that not all growth is good for the poor. Here are some of the characteristics or aspects of growth which are not in favor of the poor:

Disparities in wealth distribution

Growing poverty in rural areas

Affluent growth is not considered in despite the role that it plays in poverty alleviation

The absence of investments in health and education, that play a crucial role in alleviating poverty

Inability to address inequalities and lack of programmes designed to meet the needs of those in need (

As Acocella (1998:162) observes in his article, it is essential to realize that growth may not always lead to human growth. Growth could occur without negative impact on human development particularly for the most disadvantaged. Acocella further argues that real growth or improvement occurs when there is an improvement in the health of the people. Growth that does not lead to improvements in the quality of life of individuals cannot be considered to be developmental in nature. Genuine growth, as Ferro and al (2002:4) observe, should lead to human development, and this entails ’empowering the poor to share in and profit from the growth’. It is evident that this growth can’t happen by itself without the implementation of appropriate policies which will aid in making it possible for it to manifest. There are policies and practices that could hinder growth for the poor from occurring. I examine a few in the following section.

3. Limits to growth that favor the poor

In order for pro-poor growth to take place within any community, it is essential to make sure that all obstacles that stop the poor from reaching their goals are eliminated. Inability or unwillingness to address these barriers could hamper the progress of poor people and may end up hindering any poverty reduction strategy from successfully addressing the issue of poverty. Here are some of the restrictions that could adversely impact the growth of people in poverty:

3.1 Inequality and inaccessibility to market

It is difficult to carry out pro-poor policies in countries characterized by inequality. Stewart (1995:209) claims that it is difficult to design policies that benefit the poor for inequal societies. He cites an example of inegalitarian societies such as Ghana, Mexico and Philippines and argues that growth has not made any difference to the poor. These societies are contrasted with Indonesia with an equitable structure to start with and a more pro-poor model of development’. The other examples are East Asian societies, which due to their effective policies in tackling inequality could reduce the level of poverty in a significant way. This implies that there is a link between inequality and poverty. May (2002:2) is also a proof that policies of inequality implemented by the apartheid administration within South Africa were not good for poverty reduction as they restricted certain groups from taking part in the economic activities in the nation. The propagation of inequality led to ‘loss of assets such as livestock and land and simultaneously the denial of opportunities to make these assets more productive by the restriction of access to markets, infrastructure, and education.

The issue associated with inequalities is it can result in social exclusion where certain groups are denied the opportunity or resources. Being excluded from the opportunities of the poor from having a meaningful role in the economic system can negatively impact their wellbeing. In an economy that is not characterized by inequality people of lower incomes are likely to receive a larger share of the benefits of economic growth than the economy that is marked by a high level of inequality. As Ravallion and Datt (1997:7) indicate, ‘inequality in the ownership of both human and physical assets can affect the chances of people who are poor to participate in growing economies’. Policies that promote the poor will ensure that the disadvantaged have access to markets and infrastructure. It is clear that in cases where there isn’t any equality between the various socio-economic classes the dependence on market forces and the unobserved hand of Adam Smith to meet basic needs is merely wishful thinking.

3.2 Fiscal constraints

The governments, especially in emerging countries, are having a difficult time difficult to pursue pro-growth strategies and methods for poverty reduction because of the fiscal limitations. Structural Adjustment programs have been found to be in the majority of cases making things worse. Governments typically face the problem of having to reduce expenditure in social services which are meant to aid the most vulnerable. This means that less is allocated to essential services like education, health, and other fundamental services. The reductions in spending by the government directly affect those who are poor (Howard 2001:57). It is nevertheless important to note that the state faces global pressures and obstacles in its effort to implement policies that are good for poverty alleviation. There is worldwide pressure for the state to play a less ‘directive’ role in the economy.

3.3 Reducing the role of the state

The market liberalization that coincides with globalization is among other things that call for the rolling back of the state, the repeal of restrictions regarding prices as well as the amount that can be moved and stored. The author Howard (2001:57) accurately notes the liberalization of financial markets raises poverty and inequality’. As part of globalization, governments are forced to liberalize their markets. The question is whether market liberalization will benefits the poor. There are various opinions on this. Some see globalization as being beneficial to the poor, especially with regard the opportunities it opens up in terms of trade and new markets. On the other hand , there are those who view it as harmful.

In fact, as Levinson (2001:11) suggests that globalization helps the less fortunate in some countries while harming those in other countries’. Although there is a general call for ‘rolling back the state’s role to make way to market forces to work (if ever they actually work), the state has the ability to be involved in particular with regard to matters that individuals can’t do for themselves. It is commonplace for the poor to see those who are unable to participate in the labor market because of old age, infirmity or chronic illness, or are incapacitated, socially excluded or discriminated. The poverty of these people according to Streeten (1995:253) is not removed or alleviated by relying on the market, but instead through deliberately ‘pressuring for social services and transfer payments and elimination in discrimination’. The stress on reducing influence of the state in the economy could have a negative impacts on the growth of pro-poor people.

To ensure that pro-poor growth takes place, the state must be a key player in the distribution of opportunities and resources through transfers of wealth, prioritization of the poor when it comes to public spending and managing market liberalization to ensure the livelihoods of vulnerable people. According to Ferro et al (2002:19) point out, ‘government is an instrument of the masses in the development process’. Hence government can play vital roles in the promotion of poor growth by implementing the appropriate policies for addressing the problem of poverty.

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