Pro-poor growth, social growth, or just growth?

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, as we were discussing growth diagnostics and binding constraints for the country in question.  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 prop-poor growth they wanted. And even greater concern was expressed by a member of "civil society" participating in our discussion through video-conference. Growth should be social growth, which means investing in people, he argued.

Here is how I see it.  Having a growth strategy that focuses on growth proper--and on removing the most binding constraints on it--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.

(Sometimes you get lucky and your growth strategy coincides pretty well with what your social policy ought to look like. In South Africa, for example, growth and equity both require generating employment opportunities for currently unemployed unskilled black workers. An employment subsidy targeted at these workers is probably the most direct instrument for achieving both ends.)

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. 

Comments

[April]

Great point Dani. I will only underscore your point about keeping in mind the primary goal of the policy you are designing or elaborating.
Social policy - when designed with a growth focus - can also be flawed. For example, privatization of hospitals, without having in place a functioning (and solvent) service purchaser can generate reductions in access to important services for those who can't pay, and expose those who can pay to potentially catastophic (financial) risks.
Yet I have participated in discussions about hospital privatization which looked at it from the perspective of private sector and economic growth - rather than as it should be looked at - an instrument of social (in this case, health) policy.

[qingdao]

I was in Chad in the late 70s when AID had $20 million to spend (the smallest package possible then). The health people wanted health, ed people ed, women wanted women to benefit, water experts water, ag ag etc; all had excellent reasons; spreading the money around would not work because the Inspector had to SEE how the money was not wasted. The AID economist plunked the entire $20 million down on a simple all-weather road construction project which infuriated everyone.

[Random African]

"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."

Yup.
And Zambia already went through that.

[Chris Blattman]

A few years back I was running surveys of firms and workers in the Kenyan manufacturing sector. Looking at the macroeconomic figures for the country, I was struck that something close to 40 percent of GDP was generated by less than 5 percent of the workforce--those in the manufacturing sector.

I thought then, and I think now, that if we want a country like Kenya to move from $2,500 per head to $12,000 per head--the kind of income that it would take to develop a sustainable social sector providing health and education benefits to all--then Kenya needs to industrialize. This probably means urban growth among a small wage-earning, semi-skilled class, at least in the short run. Is this strategy pro-poor? Not automatically. But a pro-poor national policy that moves is tandem with a progressive social policy is probably the only real sustainable pro-poor growth strategy this economist can envision.

[Brian]

Interestingly, Zambia (to mention a landlocked African country at random) may also be a place where (on the margin, after mining -- which is driving the current growth surge) growth and pro-poor growth may coincide. Already fifty years ago, Zambia was one of the most urbanized countries in Africa (from mining). In fact, for decades, it was a poster child for a fascinating African phenomenon of urbanization without growth. Location, plus the lack of ancillary support services rendered manufacturing driven growth infeasible (despite huge pro-urban price distortions). Zambia also happens to be among the least drought prone, and most land abundant countries in Southern Africa. As some recent successes (e.g in cotton growing/outsourcing) show, the mix described above creates a potential competitive advantage in marketized agriculture (with a large sub-regional market nearby, with excess demand). Fascinatingly, Zambia is one of the few countries worldwide that -- for reasons suggested above -- seems to be witnessing a spontaneous net migration from town to countryside.

[paine]

"Trying to come up with "pro-poor growth strategies" may backfire "

i agree totally

in fact by my lights
development policy
should be about growth ..period
but a growth path
where emerging states figure out
how to
boot strap growth
with minimal
trans nat entanglements
the command to
"open wide"
is for a drilling

---------------
but then i'm
a hideous
red dupe and dunce

lets put this
on the recordhere
why not
i defended in print
pol pot's
kr nearly
autarkic policy
for developing
cambodia
from 75-79

plangloss rouge
tinted my glasses ....

but
to see that national gulag
as a model
for autonomous development

that dark mark
is best left
to my judgement day

btw
kheiu S
the paris built
theory monger behind that "vision"
of self development
is finally under indictment for
crimes against humanity

i guess
i oughta
be an honorary
indictee myself

[Random African]

Brian, I'm not sure I get you.

Didnt past zambian pro-poor growth strategies hinder growth and distracted the country from real social policy ? Isnt that the explanation for urbanization and increase of social standards without growth ? And didn't pro-urban price distortions actually hurt manufacturing growth ?

[Eric H]

Without more detail, I'm concerned about what growth strategy you are proposing. Will this be another one of those stories where the government pursued a course of action that forced people out of their traditional, sustainable (though meager) lifestyles and into a modern, cash economy in which they have no choice but to become employees at the local sweatshop? Yes, I know, in many cases people will stand in line to be "exploited" by some big multinational and their main complaint may be that they won't hire their family members. But there are real sweatshops out there, too. And given the implications of Peak Oil, sustainability has to be a consideration.

See http://www.econbrowser.com for more information on Peak Oil.

[J_Gutmann]

I am quite intrested in what you think about the European lisbon strategy, which is a combination of growth, employment and(!) social policy. In Europe and especially here in Germany it is currently argued that these different policies in one comprehensive strategy would strengthen each other. Thus would the right social policy contribute to economic growth. Maybe you could give me a short statement?

[Jeff Mowatt]

We've been involved in promoting pro-poor strategies for the last decade in a for-profit approach which advocates the use of development aid as investment capital. It's been demonstrated in Russia with a five year project with full cost recovery and now we've scaled up. we completed a 'Marshall Plan' proposal, yes this is actually a plan and not a call for a plan, based on a microeconomic development strategy. It's designed to return nil overall cost over 5 years by engaging multiple components, some yielding profit and more that full cost recovery to offset the less than full cost recovery components. In this holistic approach way we can both eliminate the digital divide and at the same time render profit to build group care homes for institutionalised children. It's a microeconomic 'Marshall Plan' because the tools available now , microfinance in particular, weren't available 60 years ago when infrastructure building was the only way to go. We know trickle down fails consistently, even where democracy is strong, far more so where it isn't because we can look amongst ourselves and find those without adequate healthcare and living conditions without stepping into the developing world.

People-Centered Economic Development is how we dscribe it and proof of concept has been delivered already, in a 5 year project in Siberia.

[paine]

eric h

"in many cases people will stand in line to be "exploited" by some big multinational and their main complaint may be that they won't hire their family members."

bulls eye
liberating folks
means giving them
something better then
bad choices

for your household
to be untimely ripped
from your subsistence plot
may well propell progress at the social level
by means of lower wage rate / higher joblessness
"efficient wage rates"

we have 200 years of solid evidence
the spontaneous social effect
of open market only industrial "policy"
is .. mass misery

but we know it CAN work

is there a better way ???

is there any other way ???

that's been on the
scientific agenda since
the early 19th century

[paine]

where policy collides

growth policy
vs social policy ???

no
one class based policy vs another class based policy

the household plot
is the safety net
of any
subsistence system
flipping households off the land is not best done
like the table cloth removal trick
households always brake every time their plot is whipped out from under em

[paine]

the evil genius
comrade deng
understood this
the state must
preserve
household plot rights
during the hideous transition
to a mechanized society
one reason i'd rather be a han then a hindu
china has this basis
in the countryside
and india doesn't

[robertdfeinman]

Growth advocates for underdeveloped countries seem unwilling to factor in the looming shortages of natural resources.

By some calculations the world is already consuming about 1.6 times the annual renewable resource level. This is estimated to go up to 2.0 by mid century.

There seem to be three ways people approach this issue.
1. Deny it exists
2. Claim that technology will solve the problems
3. Arm themselves so as to protect their share of what is (or will be) available.

There are two irrefutable facts, the industrial nations already consume more than their "fair share" and overpopulation is the underlying cause of all the resource pressures.

To my mind the most equitable path would be for the developed world to learn to live with less and for the underdeveloped world to reach an adequate standard of living, but not anything near what is currently available to the wealthy.

The US is choosing the third option: maintain supplies by force or intimidation. The government has the implicit support of the people in this, just look at all the politicians falling over one another to claim that they will spend the most on militarism. If this didn't resonate with voters they wouldn't be saying it.

[ben]

I don't agree with Prof. Rodrik's argument. In my experience in Africa, it seems to me that the situation is usually that there are lots and lots of constraints to growth, and that while some are clearly more important than others, it's impossible to rank the importance of the constraints with any degree of precision. Moreover, governments have very little capacity and/or willingness to implement effective social policies.

Given that we can't address all of the constraints to growth at once, doesn't it make a lot of sense to prioritize the ones that we know will have a significant poverty impact?

[Random African]

" Moreover, governments have very little capacity and/or willingness to implement effective social policies."

and the fact that the pie isnt getting bigger doesnt have anything to do with that ?
really ?

[Barkley Rosser]

I am wondering if Martin Ravallion was at this meeting. I am aware that he has a paper about Malawi that argues that poorer people there are better off in the sense of saying that they are happier (that darned happiness literature) when they are nearer richer people than when they are not, contradicting the Easterlin paradox literature that says people are less happy when they are near richer people because of the relative income effect. Supposedly in very poor countries like Malawi, the postive externalities of being near richer people are more important.

So, this would seem to say, "focus on growth." But then, some of the "social" policies have been argued to have at least longer run growth in terme of real per capita income, such as educating rural women.

[StevenT]

Malaysia is one good example where pro-poor growth policy becomes a social growth policy and that has alienate many middle class and professional alike. Now you see a brain drain occuring there as educated folks who are not part of the social policy would not hesitate to migrate when given the opportunity to.

I would say the most approriate growth is focusing on the urban areas so that the middle class may drive the economy while educating the poorer people so that they would develop the necessary skills in the future to balance the income inequility. The problem i see is the lack of political will among its own leaders to develop Africa. What is needed is a benevelont dictator (whether elected or appointed) who could spend the time focusing on his country than trying to protect his position.

[robertdfeinman]

An idea about the change in views on development.

In all but the poorest regions, people now have TV and this allows them to see what the rest of the world looks like. I just wonder what sort of impact this is having. If it seems that the good life happens in urban settings then the young might be more willing to leave the land and try their luck in the cities.

Many policies still seemed aimed at subsistence farming, but the next generation may not be interested in this even if their income can be increased. This trend has been obvious in the US for several decades so why not elsewhere?

[Johan Theron]

Regarding the pro-poor or growth argument. Does Goverment provide low cost housing as part of welfare while business provide economic housing as part of growth?

[Phil]

First of all, as a UK student, can I thank you for your ever inciteful papers.

With regards to this blof entry, isn't this a departure from your previous piece "Growth Versus Poverty Reduction: A Hollow Debate" where you said; "From this perspective, it may be entirely rational and proper for a government considering two competing growth strategies to choose the one that has a greater potential payoff for the poor, even if its impact on overall growth is less assured."?