Poverty Cut by Growth Despite Policy Failure Jomo Kwame Sundaram

At the UN Millennium Summit in September 2000, world leaders committed to halve the share of people living on less than a dollar a day by 2015. The World Bank’s poverty line, set at $1/day in 1985, was adjusted to $1.25/day in 2005, an increase of 25% after two decades. This was then re-adjusted to $1.90/day in 2011/2012, an increase by half over 7 years! As these upward adjustments are supposed to reflect changes in the cost of living, but do not seem to parallel inflation or other related measures, they have raised more doubts about poverty line adjustments.

The number of people living on less than $1.90 a day in developing countries is estimated to have fallen from close to two billion in 1981 to 1.95 billion in 1990 to just under 1.4 billion in 2005 and 902 million in 2012, projected to 702 million in 2015. The share of poor people has thus declined from 44% in 1981 to 37% in 1990, 24% in 2005 and 12.8% in 2012, projected to 9.6% in 2015.

Uneven progress
Much of the progress has been due to sustained rapid growth in several large developing countries, notably China and India, and higher commodity prices for over a decade until 2014. However, outside of East Asia, progress has been modest, with actual setbacks in some countries and regions. For those earning just above the extreme poverty line ($1.90 a day), progress can be temporary as economic and other shocks threaten hard-won gains, forcing them back into poverty. Progress in reducing poverty has been generally slower using higher poverty lines. Over 2.1 billion people in the developing world lived on less than $3.10 a day in 2012, compared to 2.9 billion in 1990.

Extreme poverty in Sub-Saharan Africa has hardly declined, standing at around 42.6% in 2012. Moreover, many of the poor in this region are estimated to be very far below the poverty line as the average consumption of Africa’s poor is only about 70 cents a day—barely more than twenty years ago. Thus, even 20 more years of progress at recent rates will not end poverty in Africa, with a quarter of Africans expected to still be deemed poor in 2030.

Besides income, wide ranging deficits in the human condition remain widespread, not only in most low income countries, but also in many middle income countries. Access to basic education, healthcare, modern energy, safe water and other critical services — often influenced by socioeconomic status, gender, ethnicity and geography — remain elusive for many.

Claiming credit
There is little evidence that the professed commitments by the global community to the Millennium Development Goals (MDGs) and what was done in the name of the MDGs was critical to poverty reduction. This does not bode well for the Sustainable Development Goals (SDGs), especially with the protracted economic slowdown since 2008, the declining commitment to economic multilateralism and the constrained fiscal and policy space most developing countries have.

In decoupling poverty reduction from economic development, various ‘silver bullets’ – microcredit, ‘bottom of the pyramid’ marketing, land titling, ‘good governance’ – were touted, but failed, as miracle cures. In most developing societies, economic reforms and policies imposed or advised by international financial institutions, did not deliver promised growth, but instead often exacerbated growing inequalities, both within and among nations. And even where economic growth – typically despite, rather than because of the conventional wisdom – lifted most boats, it often did not raise the leaky, fragile ones of the poor.

This nuanced record of poverty reduction challenges the conventional policy prescriptions identified with the Washington Consensus – the norm outside East Asia since the 1980s. Reductions in public investments – in health, education and other social programmes – have adversely affected billions. The poor have also been more vulnerable to economic downturns, as unskilled workers tend to lose their jobs first, while job recovery generally lags behind output recovery.

Ideology, crisis and poverty
The counter-revolution against development economics, and the ascendance of the Washington Consensus since the 1980s, significantly transformed the development discourse. Reforms such as macroeconomic stabilization, defined as low single digit inflation, as well as microeconomic market liberalization, associated with structural adjustment, were all supposed to accelerate economic growth and poverty reduction, presumed to follow from growth. These typically failed on both counts – to spur growth and to eliminate poverty.

Little attention was given to structural causes of poverty, including gross inequalities of resources and opportunities, and the consequences of uneven development. While the Washington Consensus economic reforms were supposed to unleash rapid growth, social protection was reduced to social safety nets targeted at a few supposedly falling between the cracks, often victims of temporary setbacks such as natural catastrophes and economic crises.

The Washington Consensus reforms, often imposed as conditionalities, have significantly constrained policy space for national development strategies. Failure to sustain growth, regressive tax reforms and reduced government revenues have also constrained developing countries’ fiscal space. Developing countries also significantly reduced state capacities and capabilities while under pressure to liberalize and globalize on unequal and debilitating terms. Such reductions of both fiscal and policy space have undermined sustainable and equitable development.

Poor policies
Conventional policy approaches to poverty eradication are clearly insufficient, if not worse. Meanwhile, obstacles to reducing global poverty remain formidable, numerous and complex. Targeting – often demanded by many donors – is not only typically costly, but also inadvertently excludes many who are deserving. Furthermore, many poverty programmes favoured by donors have not been effective in reducing poverty, although some have undoubtedly helped ameliorate poverty.

The 2008-2009 global financial and economic crisis has prompted some reconsideration of appropriate economic policies, even by the international financial institutions. There is now greater recognition of the need for inclusive, pro-growth and counter-cyclical macroeconomic policies as well as prudent capital account management, but institutional prejudices and prescriptions have been slow to change at the country level.

The overall global economic situation and prospects have deteriorated with the ongoing economic slowdown. While the timing and sustainability of economic recovery remain uncertain, job prospects and work conditions continue to deteriorate, with adverse consequences.