Economic growth Further information:
Growth Elasticity of Poverty The anti-poverty strategy of the World Bank depends heavily on reducing poverty through the promotion of economic growth. The World Bank argues that an overview of many studies shows that:
Growth is fundamental for poverty reduction, and in principle growth as such does not affect inequality. On average, in developing countries, a 1% increase in average (per capita) incomes reduces the proportion of the population living on less than 1$ a day by about 3%, although other factors are also relevant. Growth accompanied by progressive distributional change is better than growth alone. High initial income inequality is a brake on poverty reduction. In particular, countries with identical growth rates but lower levels of income inequality experience a more substantial reduction in poverty rates due to economic growth. Poverty itself is also likely to be a barrier for poverty reduction; and wealth inequality seems to predict lower future growth rates.
Organizations such as the IMF and the World Bank see economic growth as a necessary but not sufficient condition for poverty reduction. Hence it is important to note that varying rates of poverty may not just simply be related to economic growth. Some research tends to show that some countries can have economic growth and reduce poverty while other poor nations cannot. Since the 1980s some countries in Latin America have had economic growth rates similar to countries in East and Southeast Asia, but most have not reduced poverty. In general, the difference between countries in these two regions may be due to even versus uneven economic development. However for the very poorest country, poverty reduction is simply impossible without economic growth. For example, in 2008 Sierra Leone had an annual per capita income of 677$ (measured in constant international dollars which are adjusted for purchasing power). This means that in Sierra Leone, even with a perfectly equal distribution of income the poverty rate would be 100% (in fact the only reason why the poverty rate, as measured by the headcount rate is not 100% currently is due to the existence of income inequality).
Good governance According to some social scientists, good governance is one of the most important if not the most important key to economic development and poverty reduction. Good governance means efficient and fair government, government that is less corrupt and works for the long-term interests of the nation as a whole. Researchers at UC Berkely developed what they called a "Weberianness scale" which measures aspects of bureaucracies and governments Max Weber described as most important for rational-legal and efficient government over 100 years ago. Comparative research has found that the scale is correlated with higher rates of economic development. With their related concept of good governance World Bank researchers have found much the same: Data from 150 nations have shown several measures of good governance (such as accountability, effectiveness, rule of law, low corruption) to be related to higher rates of economic development.
Examples of good governance leading to economic development and poverty reduction can be seen in countries such as Thailand, Taiwan, Malaysia, South Korea, and Vietnam. They tend to have a strong government, also called a hard state or development state. These “hard states” have the will and authority to create and maintain policies that lead to long-term development that helps all their citizens, not just the wealthy. Multinational corporations are regulated so that they follow reasonable standards for pay and labor conditions, pay reasonable taxes to help develop the country, and keep some of the profits in the country, reinvesting them to provide further development.
Despite all the evidence of the importance of a development state, some international aid agencies have just recently publicly recognized the fact. The United Nations Development Program, for example, published a report in April 2000 which focused on good governance in poor countries as a key to economic development and overcoming the selfish interests of wealthy elites often behind state actions in developing nations. The report concludes that “Without good governance, reliance on trickle-down economic development and a host of other strategies will not work.”
Despite the promise of such research several questions remain, such as where good governance comes from and how it can be achieved. The comparative analysis of one sociologist suggests that broad historical forces have shaped the likelihood of good governance. Ancient civilizations with more developed government organization before colonialism, as well as elite responsibility, have helped create strong states with the means and efficiency to carry out development policies today. On the other hand strong states are not always the form of political organization most conducive to economic development. Other historical factors, especially the experiences of colonialism for each country, have intervened to make a strong state and/or good governance less likely for some countries, especially in Africa. Another important factor that has been found to affect the quality of institutions and governance was the pattern of colonization (how it took place) and even the identity of colonizing power. International agencies may be able to promote good governance through various policies of intervention in developing nations as indicated in a few African countries, but comparative analysis suggests it may be much more difficult to achieve in most poor nations around the world.
Debt relief One of the proposed ways to help poor countries that emerged during the 1980's has been debt relief. Given that many less developed nations have gotten themselves into extensive debt to banks and governments from the rich nations, and given that the interest payments on these debts are often more than a country can generate per year in profits from exports, cancelling part or all of these debts to may allow poor nations "to get out of the hole". However the effectivness of debt relief is uncertain and whether or not it has lasting effect is disputed. It may not change the underlying conditions that have led to less long-term development in the first place.
Import substitution and export industries The most widely used policies of the countries of East and Southeast Asia that have been successful at reducing poverty involve import substitution and the development of export industries. Import substitution simply means attempts to discourage imported goods so that the domestic economy of the less developed country can start making the products itself. Import substitution was carried out successfully in Taiwan by the Kuomintang Party. The income gap between the top 20 percent of the Taiwan population and the bottom 20 percent dropped from 12 to 1 in 1960 to 4 to 1 by 1980. Another example is the South Korean ban on Japanese car imports that lasted for decades. This led to South Korea building up their own auto industry, now selling millions of highly rated automobiles in the United States and Europe. Import substitution was also a major focus of development policies in Thailand, who has been shown by some figures to have had the best record for reducing poverty of any nation in the world.
There is also the common policy of export industries. With this policy the government helps stimulate the production of goods for exports to the rich nations to obtain a favorable balance of trade and the inflow of capital or funds for further investment. A flood of consumer goods such as televisions, radios, bicycles, and textiles into the United States, Europe, and Japan has helped fuel the economic expansion of Asian tiger economies in recent decades.
Land redistribution According to International Fund for Agricultural Development land reform policies that reduce the inequality in land ownership and create small farms can be a cost effective way of reducing rural poverty. When peasants and farmers own their own land, farming is often more productive, agriculture is more labor intensive (which creates more farm jobs), and small farmers and peasants are able to keep more of the profits themselves.
Land redistribution has been tried in many countries but depending on how it was carried out it has had mixed success. It worked in Japan, but only because the devastation of World War II put the U.S. occupation forces in charge, and General MacArthur was willing to push land reform on a willing Japanese population. During the 1970s the United States under President Carter attempted to impose land reform in Central America. The idea was to give incentives and payments to wealthy landowners, and loans to peasants so they could buy land taken from big haciendas. What seemed like a good idea resulted in political violence and revolution throughout most of Central America. Landowners resisted, peasants who had their hopes raised became angry, and political violence spiraled upward as both sides attacked the other. The results were even more right-wing military coups throughout the region. There was one brief revolutionary government emerging in Nicaragua, but the Reagan administration quickly activitated the CIA to aid the "Contras" who brought down the Sandinista government.
Microloans One of the most popular of the new technical tools for economic development and poverty reduction are microloans made famous in 1976 by the Grameen Bank in Bangladesh. The idea is to loan small amounts of money to farmers or villages so these people can obtain the things they need to increase their economic rewards. A small pump costing only $50 could make a very big difference in a village without the means of irrigation, for example. A couple of hundred dollars for a small bridge linking a village to a city where it can market farm products is another example. A specific example is the Thai government's People's Bank which is making loans of $100 to $300 to help farmers buy equipment or seeds, help street vendors acquire an inventory to sell, or help others set up small shops.
Empowering women Empowering women has helped some countries increase and sustain economic development. When given more rights and opportunities women begin to receive more education, thus increasing the overall human capital of the country; when given more influence women seem to act more responsibly in helping people in the family or village; and when better educated and more in control of their lives, women are more successful in bringing down rapid population growth becase they have more say in family planning.
Fair trade Further information: Fair trade Another approach that has been proposed for alleviating poverty is Fair Trade which advocates the payment of a above market price as well as social and environmental standards in areas related to the production of goods. The efficacy of this approach to poverty reduction is controversial.
Development aid Most developed nations give development aid to developing countries. The UN target for development aid is 0.7% of GDP; currently only a few nations achieve this. Some think tanks and NGOs have argued that Western monetary aid often only serves to increase poverty and social inequality, either because it is conditioned with the implementation of harmful economic policies in the recipient countries, or because it's tied with the importing of products from the donor country over cheaper alternatives, or because foreign aid is seen to be serving the interests of the donor more than the recipient. Critics also argue that some of the foreign aid is stolen by corrupt governments and officials, and that higher aid levels erode the quality of governance. Policy becomes much more oriented toward what will get more aid money than it does towards meeting the needs of the people. Victor Bout, one of the worlds most notorious arms dealers, told the New York Times how he saw firsthand in Angola, Congo and elsewhere "how Western donations to impoverished countries lead to the destruction of social and ecological balance, mutual resentment and eventually war." "Once countries give money, they control you." he says.
Supporters argue that these problems may be solved with better auditing of how the aid is used. Aid from non-governmental organizations may be more effective than governmental aid; this may be because it is better at reaching the poor and better controlled at the grassroots level. As a point of comparison, the annual world military spending is over $1 trillion.
Millennium Development Goals Eradication of extreme poverty and hunger is the first Millennium Development Goal. One of the targets within this goal is the halving of the proportion of people living in extreme poverty by 2015. In addition to broader approaches, the Sachs Report (for the UN Millennium Project) proposes a series of "quick wins", approaches identified by development experts which would cost relatively little but could have a major constructive effect on world poverty. Some of these "quick wins" are these such as directly assisting local entrepreneurs to grow their businesses and create jobs, access to information on sexual and reproductive health, drugs for AIDS, tuberculosis, and malaria, free school meals for schoolchildren, legislation for women’s rights, providing soil nutrients to farmers in sub-Saharan Africa, access to electricity, water and sanitation, upgrading slums and providing land for public housing, among other things.
East and Southeast Asia Some of the best prospects for economic growth and poverty reduction in the last few decades have been found in East and Southeast Asia. China, South Korea, Thailand, Taiwan, Vietnam, Malaysia, and Indonesia are developing at high to moderate levels. Thailand, for example, has grown at double-digit rates most years since the early 1980’s. China has been the world leader in economic growth since 2001. It is estimated that it took England around 60 years to double its per capita income when the Industrial Revolution began. It took the United States around 50 years to double its per capita income during the American economic take-off in the late nineteenth century. Several East and Southeast Asian countries today have been doubling their economies every 10 years.
As a result of the high growth rates in per capita gdp poverty has declined dramatically. For example in the 1960’s 60 percent of the people in Thailand lived below a poverty level estimated with cost of basic necessities. By 2004, however poverty was around 13 to 15 percent.Thailand has been shown by some World Bank figures to have had the best record for reducing poverty per increase in GNP of any nation in the world.