Pro-poor economic growth: Linchpin of achieving socially inclusive growth in Bangladesh*****
Friday, 22 April 2011
Momtaz Uddin Ahmed
In the recent years many new phrases such as "pro-poor growth", "inclusive growth", "harmonious society", "sufficient economy" etc. are making their way into development discourses and deliberations echoing more or less a common sentiment: development is more than growth. The "growth-first" approach or "high-growth" policies pursued during 1960s, though led to increases in per capita income and significant reductions in poverty in some countries, could not achieve participatory, inclusive, and equitable development. Against this backdrop, a strong feeling has spread all around that growth and development policies need to be revised in line with the expectation of the citizens across the developing world. The citizens want growth to be participatory, equitable, poverty-reducing at a high rate on a sustained basis. They expect that growth would create productive and decent work opportunities, promote environmental protection and ensure education and health care facilities for all, especially, for the poor and the disadvantaged. Consequently, the national policy makers and international development organisations like the World Bank and the Asian Development Bank are now consciously adopting and grasping new ideas and changes in their approaches and initiatives towards development. The Government of India, for example, is emphasising "inclusive growth" through enhanced budget allocations for development of the social sectors and improvement of society's quality of life. In their bid to establish harmonious society the People's Republic of China endorsed in their eleventh Five-Year Programme (2006-2011) a gradual shift towards policies aimed at achieving balanced, equitable, and sustainable development (Felipe Jesus, 2010, ADB). Similarly, the institutions such as the World Bank and the Asian Development Bank also acknowledge these shits in the development policies and objectives and argue that economic growth and globalisation should be inclusive. A digression at this stage is called for to conceptualise "inclusive growth". No consensus has emerged yet as to the formal definition of the term. However, a broad agreement seems to be that inclusive growth means "growth with equal opportunities". Elaborating it further, Ali and Son (ADB, 2010) argue that inclusive growth is "growth that not only ensures equal opportunities but also one that ensures equal access to the opportunities created for all segments of the society. Growth is inclusive when it allows all members of a society to participate in, and contribute to, the growth process on equal basis regardless of their individual circumstances". The pertinent issue is now: if we accept this definition of inclusive growth, how should it be interpreted for Bangladesh and what kind of policies need to be implemented to achieve it. Inclusive growth in the Bangladesh context: Why and how There is no reason to reinvent the case for socially inclusive economic growth in Bangladesh where widespread poverty, inequality and human deprivation continue to persist, albeit at a slow declining pace. It is encouraging to note that Bangladesh has made notable progress by growing at a steady rate of around 6% (recording a GDP growth of about 6.7% during 2010-2011) in the past two decades despite facing series of external shocks in the form of natural disasters, global economic crisis and rising food prices, the last one particularly affecting the poverty reduction at a desirable pace. The country is also noted (by the World Bank) to have been on right track to be able to meet some of the Millennium Development Goals (MDGs) (i.e. infant and child mortality, gender parity in school enrollment, improvements in sanitation and quality of housing) by the year 2015 and doing better in these regards than in the comparable countries. Propelled by the respectable GDP growth and a relatively stable inequality, Bangladesh achieved notable reduction in poverty during the last decade between 2000 and 2010. According to World Bank estimates, headcount poverty rate declined from 49% in 2000 to 40% in 2005. The declining trend continued during the next five years (2005-2010) also and has been estimated by the latest HIES survey to recede from 40% to 31.5%. More importantly, both income and consumption gini coefficients also declined marginally for the first time from 0.47% to 0.46% and from 0.33% to 0.32% respectively during 2000-2005 and 2005-2010. This reduction in poverty and progress towards achievements of MDGs through encouraging, the pace of poverty reduction in Bangladesh is still very slow (ranging between an annual average of 1.5 to 1.7 per cent) especially compared to many fast growing South-East Asian countries like Vietnam, China, Thailand, and Indonesia. More importantly, despite all its progress, Bangladesh still remains a poor country. Though population below upper and lower poverty lines declined by 6 million and 8.3 million respectively (World Bank, 2008), close to 50 million people are still noted to remain in poverty of varying intensity. Again the frequent visits by external shocks and persistent and glaring inequalities in opportunities against the backdrop of an existing large vulnerable population size suggest the need for vigorously pursuing comprehensive policies for achieving a sustained high and socially inclusive growth and faster rate of poverty reduction. Is pro-poor growth a panacea? Poverty-growth nexus is currently a widely researched area establishing the fact that faster and sustained economic growth is frequently the primary determinant of reduction of income poverty. While studies revealing strong links between the two are quite numerous (see, Society for International Development [SID] 2007 for a survey) the impact of GDP growth on income poverty reduction varies among countries depending on the policy strategies and country conditions. The findings of a joint World Bank - DFI sponsored study (AFD 2005) in fourteen countries revealed that on an average a 1.0 per cent increase in GDP per capita reduced poverty by 1.7% during 1993-2002. However, GDP growth seems to be more powerful in reducing poverty in some countries than in the others. For example, of the 14 countries covered by the above study, the reduction in poverty turned out to be most spectacular in Vietnam where poverty declined by 7.8 per cent between 1993 and 2002. Next to Vietnam came China and India which also recorded impressive reductions (3.0 to 6.0 per cent) in poverty where policies were in place to enhance active participation of the poor and increase their productive capacities. In contrast, poverty reduction in the South Asian countries including Bangladesh has in general been much slower (ranging between 0.4 per cent to less than 2.0 per cent in Bangladesh). Income inequality in these countries also being high and not showing signs of any notable decline, the benefits of poverty reduction have not reached all groups and regions in these countries. Thus as argued by Cook, S. (2006), GDP growth alone is not enough to achieve sustained poverty reduction and social cohesion especially when the socially marginalised groups suffer from extreme poverty and also live in the remote and inaccessible areas. Additionally, many countries fail to enjoy benefits of growth due to external shocks and political and ethnic conflicts, further aggravating vulnerability of the poors' livelihoods and impeding translation of the benefits of growth into sustained human development. In this backdrop of limited success of the growth-only approach to achieve participatory, equitable and socially inclusive development, I would strongly advocate the case for accelerated pro-poor growth, as the strategy for achieving an optimal combination of higher and participatory growth, sustained reduction of poverty, and social cohesion in Bangladesh and other South Asian countries. The OECD (2007) POVENET (Development Assistance Committee Network on Poverty Network) also recommends pro-poor growth as the strategy towards increasing the impact of growth on the poor and helping the poor households to escape poverty, especially its non-economic dimensions, such as inequality and deprivation. Road to Pro-Poor Growth While a spate of literature (Ravallion Martin 2004 provides a succinct survey) has developed on the subject of pro-poor growth, the broad consensus within the development community seems to be that pro-poor growth is a pace and pattern of growth that enhances the ability of the poor women and men and other excluded groups to participate in, contribute to, and benefit from growth. Elaborating further, some observers become more explicit and suggest that growth is pro-poor when it is inequality reducing, the incomes of the poor rise at faster rates than that of the non-poor, and enables the poor of all sectors and regions to take advantage of the opportunities which generate growth. When viewed in this way, the implicit strategy for successfully implementing a pro-poor growth strategy would need to put in place policies ensuring macroeconomic stability, well-defined property rights required to boost farm productivity, an enabling investment climate, an attractive and easily accessible incentive framework encouraging development of entrepreneurship, well-functioning factor markets and institutions, and broad access to infrastructure and education. In emphasising on the drivers of pro-poor economic growth, Nicholas Stern has noted that growth must be employment-augmenting in an investment climate surrounding ordinary business activities in both urban and rural locations, for firms of all sizes-small, medium and large including foreign firms without encountering any bureaucratic hassles and institutional constraints. Another all-important necessary pre-condition to achieve socially inclusive growth put forwarded by many observers is that governments must commit efforts and resources to the pursuit of 'full employment' characterised by productive and decent job opportunities. To ensure such employment-induced growth, policy makers may even have to reverse the conventional causality between growth and employment and start thinking that a full and productive employment generating economy will lead to higher and faster growth, rather than the other way round. Besides creating an enabling and empowering environment for the small producers, direct pro-poor policies should also encompass investments in basic education, health, nutrition, and family planning services; guaranteeing access to credit, technology, and training, and deliberate promotion of SMEs and rural non-farm activities including greater market access facilities for flourishing the growth and expansion of such activities. Dr. Momtaz Uddin Ahmed is a professor of Economies at Dhaka University and he can be reached at: ahmed_1947@hotmail.com
In the recent years many new phrases such as "pro-poor growth", "inclusive growth", "harmonious society", "sufficient economy" etc. are making their way into development discourses and deliberations echoing more or less a common sentiment: development is more than growth. The "growth-first" approach or "high-growth" policies pursued during 1960s, though led to increases in per capita income and significant reductions in poverty in some countries, could not achieve participatory, inclusive, and equitable development. Against this backdrop, a strong feeling has spread all around that growth and development policies need to be revised in line with the expectation of the citizens across the developing world. The citizens want growth to be participatory, equitable, poverty-reducing at a high rate on a sustained basis. They expect that growth would create productive and decent work opportunities, promote environmental protection and ensure education and health care facilities for all, especially, for the poor and the disadvantaged. Consequently, the national policy makers and international development organisations like the World Bank and the Asian Development Bank are now consciously adopting and grasping new ideas and changes in their approaches and initiatives towards development. The Government of India, for example, is emphasising "inclusive growth" through enhanced budget allocations for development of the social sectors and improvement of society's quality of life. In their bid to establish harmonious society the People's Republic of China endorsed in their eleventh Five-Year Programme (2006-2011) a gradual shift towards policies aimed at achieving balanced, equitable, and sustainable development (Felipe Jesus, 2010, ADB). Similarly, the institutions such as the World Bank and the Asian Development Bank also acknowledge these shits in the development policies and objectives and argue that economic growth and globalisation should be inclusive. A digression at this stage is called for to conceptualise "inclusive growth". No consensus has emerged yet as to the formal definition of the term. However, a broad agreement seems to be that inclusive growth means "growth with equal opportunities". Elaborating it further, Ali and Son (ADB, 2010) argue that inclusive growth is "growth that not only ensures equal opportunities but also one that ensures equal access to the opportunities created for all segments of the society. Growth is inclusive when it allows all members of a society to participate in, and contribute to, the growth process on equal basis regardless of their individual circumstances". The pertinent issue is now: if we accept this definition of inclusive growth, how should it be interpreted for Bangladesh and what kind of policies need to be implemented to achieve it. Inclusive growth in the Bangladesh context: Why and how There is no reason to reinvent the case for socially inclusive economic growth in Bangladesh where widespread poverty, inequality and human deprivation continue to persist, albeit at a slow declining pace. It is encouraging to note that Bangladesh has made notable progress by growing at a steady rate of around 6% (recording a GDP growth of about 6.7% during 2010-2011) in the past two decades despite facing series of external shocks in the form of natural disasters, global economic crisis and rising food prices, the last one particularly affecting the poverty reduction at a desirable pace. The country is also noted (by the World Bank) to have been on right track to be able to meet some of the Millennium Development Goals (MDGs) (i.e. infant and child mortality, gender parity in school enrollment, improvements in sanitation and quality of housing) by the year 2015 and doing better in these regards than in the comparable countries. Propelled by the respectable GDP growth and a relatively stable inequality, Bangladesh achieved notable reduction in poverty during the last decade between 2000 and 2010. According to World Bank estimates, headcount poverty rate declined from 49% in 2000 to 40% in 2005. The declining trend continued during the next five years (2005-2010) also and has been estimated by the latest HIES survey to recede from 40% to 31.5%. More importantly, both income and consumption gini coefficients also declined marginally for the first time from 0.47% to 0.46% and from 0.33% to 0.32% respectively during 2000-2005 and 2005-2010. This reduction in poverty and progress towards achievements of MDGs through encouraging, the pace of poverty reduction in Bangladesh is still very slow (ranging between an annual average of 1.5 to 1.7 per cent) especially compared to many fast growing South-East Asian countries like Vietnam, China, Thailand, and Indonesia. More importantly, despite all its progress, Bangladesh still remains a poor country. Though population below upper and lower poverty lines declined by 6 million and 8.3 million respectively (World Bank, 2008), close to 50 million people are still noted to remain in poverty of varying intensity. Again the frequent visits by external shocks and persistent and glaring inequalities in opportunities against the backdrop of an existing large vulnerable population size suggest the need for vigorously pursuing comprehensive policies for achieving a sustained high and socially inclusive growth and faster rate of poverty reduction. Is pro-poor growth a panacea? Poverty-growth nexus is currently a widely researched area establishing the fact that faster and sustained economic growth is frequently the primary determinant of reduction of income poverty. While studies revealing strong links between the two are quite numerous (see, Society for International Development [SID] 2007 for a survey) the impact of GDP growth on income poverty reduction varies among countries depending on the policy strategies and country conditions. The findings of a joint World Bank - DFI sponsored study (AFD 2005) in fourteen countries revealed that on an average a 1.0 per cent increase in GDP per capita reduced poverty by 1.7% during 1993-2002. However, GDP growth seems to be more powerful in reducing poverty in some countries than in the others. For example, of the 14 countries covered by the above study, the reduction in poverty turned out to be most spectacular in Vietnam where poverty declined by 7.8 per cent between 1993 and 2002. Next to Vietnam came China and India which also recorded impressive reductions (3.0 to 6.0 per cent) in poverty where policies were in place to enhance active participation of the poor and increase their productive capacities. In contrast, poverty reduction in the South Asian countries including Bangladesh has in general been much slower (ranging between 0.4 per cent to less than 2.0 per cent in Bangladesh). Income inequality in these countries also being high and not showing signs of any notable decline, the benefits of poverty reduction have not reached all groups and regions in these countries. Thus as argued by Cook, S. (2006), GDP growth alone is not enough to achieve sustained poverty reduction and social cohesion especially when the socially marginalised groups suffer from extreme poverty and also live in the remote and inaccessible areas. Additionally, many countries fail to enjoy benefits of growth due to external shocks and political and ethnic conflicts, further aggravating vulnerability of the poors' livelihoods and impeding translation of the benefits of growth into sustained human development. In this backdrop of limited success of the growth-only approach to achieve participatory, equitable and socially inclusive development, I would strongly advocate the case for accelerated pro-poor growth, as the strategy for achieving an optimal combination of higher and participatory growth, sustained reduction of poverty, and social cohesion in Bangladesh and other South Asian countries. The OECD (2007) POVENET (Development Assistance Committee Network on Poverty Network) also recommends pro-poor growth as the strategy towards increasing the impact of growth on the poor and helping the poor households to escape poverty, especially its non-economic dimensions, such as inequality and deprivation. Road to Pro-Poor Growth While a spate of literature (Ravallion Martin 2004 provides a succinct survey) has developed on the subject of pro-poor growth, the broad consensus within the development community seems to be that pro-poor growth is a pace and pattern of growth that enhances the ability of the poor women and men and other excluded groups to participate in, contribute to, and benefit from growth. Elaborating further, some observers become more explicit and suggest that growth is pro-poor when it is inequality reducing, the incomes of the poor rise at faster rates than that of the non-poor, and enables the poor of all sectors and regions to take advantage of the opportunities which generate growth. When viewed in this way, the implicit strategy for successfully implementing a pro-poor growth strategy would need to put in place policies ensuring macroeconomic stability, well-defined property rights required to boost farm productivity, an enabling investment climate, an attractive and easily accessible incentive framework encouraging development of entrepreneurship, well-functioning factor markets and institutions, and broad access to infrastructure and education. In emphasising on the drivers of pro-poor economic growth, Nicholas Stern has noted that growth must be employment-augmenting in an investment climate surrounding ordinary business activities in both urban and rural locations, for firms of all sizes-small, medium and large including foreign firms without encountering any bureaucratic hassles and institutional constraints. Another all-important necessary pre-condition to achieve socially inclusive growth put forwarded by many observers is that governments must commit efforts and resources to the pursuit of 'full employment' characterised by productive and decent job opportunities. To ensure such employment-induced growth, policy makers may even have to reverse the conventional causality between growth and employment and start thinking that a full and productive employment generating economy will lead to higher and faster growth, rather than the other way round. Besides creating an enabling and empowering environment for the small producers, direct pro-poor policies should also encompass investments in basic education, health, nutrition, and family planning services; guaranteeing access to credit, technology, and training, and deliberate promotion of SMEs and rural non-farm activities including greater market access facilities for flourishing the growth and expansion of such activities. Dr. Momtaz Uddin Ahmed is a professor of Economies at Dhaka University and he can be reached at: ahmed_1947@hotmail.com