Combating Poverty: Experience and Prospects
Author:
Michael Walton https://isni.org/isni/0000000404811396 International Monetary Fund

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Publication Date:
01 Jan 1990
eISBN:
9781451952063
Language:
English
Keywords:
FD; F&D; price; poverty; policy; currency; poverty incidence; poverty-reducing strategy; world poverty; country experience; poverty reduction; Poverty reduction; Personal income; Sub-Saharan Africa; East Asia; Middle East; Africa
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Providing economic opportunities for the poor and building up their capacity to take advantage of those opportunities can help reduce poverty and ensure sustainable growth

Abstract

Providing economic opportunities for the poor and building up their capacity to take advantage of those opportunities can help reduce poverty and ensure sustainable growth

Over a billion people—a third of the population of the developing world—are living on less than $370 per annum. While conditions may improve substantially in East and South Asia over the next decade, other parts of the world may show lesser gains, or even declines. Lack of income generally coincides with inadequate social conditions: the poor suffer from high child mortality, poor health, and limited education. Life expectancy in Sub-Saharan Africa—the poorest region of the world—is 50 years; it is almost 80 in Japan. Mortality among children under five in South Asia exceeds 170 deaths per thousand; in Sweden it is less than ten. Over 110 million children in the developing world lack access even to primary education; in developed countries anything less than universal enrollment is regarded as unacceptable. These averages may not accurately reflect conditions of the poor, who almost invariably are at lower levels of health and education.

The World Development Report, 1990 examines the conditions of the poor and how they can be influenced by government policies and the international community. Coming a decade after the last World Development Report devoted to this topic, it has been able to draw on considerable experience and research on poverty and assess the implications for the poor of the macroeconomic difficulties that many countries faced in the 1980s. The principal conclusion of the Report is that the most effective strategy for reducing poverty involves two, equally important, parts: creation of income-earning opportunities for the poor, through a pattern of growth that encourages the efficient use of labor; and increasing the current welfare of the poor and their capacity to respond to opportunities through provision of social services. A critical complement to this strategy is the provision of transfers and safety nets to help those who do not benefit quickly from the two-pronged attack on poverty, and to deal with shocks at the household, community, and national level.

The World Development Report, 1990 is a Bank staff report prepared by a team led by Lyn Squire and comprising Ehtisham Ahmad, Robert L. Ayres, Gary Fields, Helena Ribe, Mark Sundberg, Jacques van der Gaag, Dominique van de Walle, and Michael Walton. The International Economics Department prepared the data and projections. The work was carried out under the general direction of Stanley Fischer.

Copies are available from World Bank Publications, P.O. Box 7247-8619, Philadelphia, PA 19170-8619 USA, $14.95, in English, French, and Spanish.

Who are the poor?

Poverty has many dimensions: inadequate incomes, malnutrition, lack of access to social services, and lack of social and political status. The poor are heterogeneous, across and within countries. But some generalizations can be made on both the extent and nature of poverty.

Defining poverty as the inability to attain a minimal standard of living, the Report constructed two indices based on a minimum level of consumption and standard of living. The first index was a country-specific poverty line, the second was global, allowing crosscountry comparisons. This second index produced a low and a high poverty line covering an income range of $275-370 per person per year. The results for the higher line show poverty incidence to be the worst in South Asia and Sub-Saharan Africa, at about one half the total population, compared with about 20 percent in East Asia and Latin America. In terms of numbers, South and East Asia account for two thirds of the total poor in the developing world in 1985. Social indicators are strongly associated with poverty incidence (see Table 1).

Table 1

Poverty and social Indicators in the developing world, 1985

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Source: World Development Report, 1990. World Bank.

Understanding the nature of poverty is important for policymaking and analysis. In terms of both incomes and social conditions, poverty remains much worse in rural areas. The rural poor often account for 80 percent of all the poor in Africa and Asia, though somewhat less in the more urbanized countries of Latin America and developing Europe. They lack assets, especially land and human capital (i.e., skills and education). Incomes of the poor mainly come from unskilled labor on their own small plots of land, agricultural employment, and low-paid work in the rural nonfarm and urban informal sectors. While many of the poor live in intrinsically fertile areas, some—and possibly rising numbers—live in resource-poor regions where poverty, environmental problems, and population growth tend to interact perniciously.

Children are particularly vulnerable under poverty; a poor child’s lack of education and weaker health status increases the probability that he or she will become a poor adult. Despite their crucial role in determining the quality and character of subsequent generations, in many areas, poor women suffer from lower status, less access to education, and greater demands on their labor (including household responsibilities) than their male counterparts. The ability of the poor to cope with their difficult circumstances is severely limited by the chronic shortage of resources available to them.

Has poverty declined?

While the conditions of the poor are grim today, in most parts of the world there has been major progress in reducing poverty over the past 25 years. Over 1965-85, life expectancy rose from 50 to 61 years and net primary enrollment increased from 73 to 84 percent of the primary school population in the developing world. Improvements in social conditions occurred in all regions. Outside Sub-Saharan Africa, there has also been comparable progress in increasing the incomes of the poor. Data for 11 countries, that account for close to 50 percent of the world’s poor, indicate that in every case the proportion of the poor in the population declined and the average incomes of the remaining poor rose over the 15-20 year-period examined for each country (see Table 2). This was true even in countries that pursued inegalitarian development paths, such as Brazil and Pakistan. In Indonesia, the proportion of the poor in total population fell a remarkable 41 percentage points in only 17 years. In India, the pace of decline of poverty incidence was relatively slow so that the numbers of poor people rose.

Table 2

Changes in poverty over time in selected countries

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Source: World Development Report, 1990. World Bank.

There are two major qualifications to this picture. First, Sub-Saharan Africa shows a long-term decline in the incomes of the poor, despite some progress on social indicators. Second, the experience of the 1980s was more mixed. It is often called a “lost decade” for development and especially for the poor. For the poor living in South and East Asia there were further increases in incomes and continued progress in social indicators. But for many countries in Latin America, Sub-Saharan Africa, and Eastern Europe, poverty worsened in the wake of macroeconomic decline. Social indicators were somewhat more resilient in these countries. In Latin America, progress in basic health and education indicators continued and even quickened, despite cutbacks in public social spending. In Sub-Saharan Africa, the evidence is much more limited, but it points to a slowing of progress in child mortality and some decline in average primary school enrollment.

Lessons of experience

How does government policy affect the pace of poverty reduction? Assessment of past country experiences supports the case for the two-part strategy involving government intervention and the creation of safety nets for the poor. The story is relatively simple in the case of social aspects of poverty and more complex for the incomes of the poor.

Government intervention. Effective government action is the key to improvement in social conditions. This requires making adequate budgetary provision for the social sectors, ensuring access of the poor to resources and facilities (either through widespread provision or effective direction of benefits toward target groups), and efficient delivery systems. Progress is often associated with growth, as in Malaysia, Indonesia, and Thailand, but there is no necessary link. Some low-income countries—notably China and Sri Lanka—and middle-income countries—for example, Chile, Costa Rica, and Colombia—have achieved social conditions well above the norm for their income level through effective and sustained public action in the social sectors. Such countries show what can be done for social development even in the absence of growth. By contrast, high growth in the absence of effective government action in the social sectors, does not bring commensurate gains in social development. Brazil and Pakistan illustrate this.

Public policy has more complex, but no less powerful, effects on the incomes of the poor. The central factor is the interaction between the poor’s changing physical and human assets and the opportunities created by the growth process. Government policies influence the poor’s asset holdings, notably through education and land reform, and the pattern of growth, which in turn determines the demand for unskilled labor and the output of the poor. Initial conditions also play a powerful part in determining the effects of government actions on the poor: an even distribution of land and incomes helps ensure that the poor benefit more from growth. But success in poverty reduction in all types of countries has been associated with a combination of efficient labor-promoting growth and strong support for human resource development.

Indonesia, starting with a relatively equal distribution of land and incomes, pursued a strategy that involved widespread provision of education and other social services, and strong support for rural development. This encouraged rapid labor-intensive growth that further improved the distribution of income. By contrast, India—also with relatively equal land and income distribution—invested less in the human capital of the poor and had stronger biases against labor in industry. It also experienced less rapid rural expansion and showed a much less rapid decline in poverty.

Among countries with initially unequal distribution of land and incomes, the successful ones in the war against poverty over the past 25 years—Colombia, Thailand, and Malaysia—also pursued heavy investment in human capital and encouraged efficient labor-intensive growth in agriculture, industry, or both. Colombia, for example, experienced a particularly sharp reduction in inequality. By contrast, Brazil pursued policies that led to relative neglect of the human capital of the poor and sustained the high degree of initial inequality. It has had a much lower decline in poverty than would have been the case with policies similar to those of, say, Malaysia.

Poverty in 2000

The projections in this year’s World Development Report for the incidence of poverty in the year 2000 give cause for moderate optimism. They assume continuation of past growth in developed countries, resolution of the debt crisis, and some shift in favor of the two-part strategy against poverty in countries that have followed more inegalitarian policies in the past. However, any improvements in income distribution are expected to be moderate, in line with the historical experience of countries that succeeded in reducing inequality.

While all projections should be treated with caution, the results are striking. They suggest that East Asia could see the virtual eradication of poverty as we know it, and South Asia could achieve substantial progress. Reductions in the incidence of poverty are also likely in Latin America, the Middle East, and North Africa, but the numbers of the poor in these areas may not diminish. Sub-Saharan Africa could suffer an increase in the numbers of the poor of 85 million between 1985 and 2000. If all these changes occurred, Asia’s share of world poverty would decline from 72 to 53 percent, while Africa’s would double from 16 to 32 percent.

The year 2000: declining poverty, except in Africa

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Source: World Development Report, 1990. World Bank. Note: See Table 1 in article for 1985 figures.

Favorable prospects in Asia depend crucially on India sustaining the momentum of the 1980s and China tackling its current difficulties and restoring the reform process. Failure to resolve the debt crisis could lead to another decade of stagnation in Latin America and no progress on poverty incidence in this region. But the plight of Sub-Saharan Africa is clear. The central projection already assumes a growth rate of almost 4 percent per annum and, as discussed in the recent report Sub-Saharan Africa: From Crisis to Sustainable Growth, even this will require a major effort to sustain and deepen structural adjustment, restore basic services, and build capacity, supported by increased aid flows. Holding the numbers of the poor to current levels would require a growth rate of 5.5 percent per annum. Yet the position of many African countries today is not radically different from that of Indonesia in the late-1960s, when that country was emerging from a period of severe macroeconomic instability, failed growth, and internal violence. Its success in reducing poverty in the past two decades is an indication of what could be achieved in Sub-Saharan Africa, given the right kind of domestic policies and external conditions.

The outlook for social indicators also presents contrasts, but here there is potential for progress in all regions. Primary enrollments are expected to grow everywhere if long-term trends continue. Child mortality rates could fall substantially everywhere, but would still remain well above 100 per thousand in Sub-Saharan Africa.

But the short-term trend of slow progress in social indicators in Africa during the 1980s, if it continues into the 1990s, could lead to primary enrollments in 2000 of only 46 percent (compared with 86 percent for the long-term trend), and a child mortality rate of 153 per thousand (compared with 136). A substantial expansion of social spending levels and rehabilitation and expansion of health and education services will be required to avoid these declines. While this is possible without an acceleration in growth (as the historical experience of other countries has illustrated), both the feasibility of the required changes and the benefits to the poor would be immensely eased by a sustained recovery in Africa.

Where radical land redistribution has been effectively implemented—as in the Republic of Korea and Japan—it has directly benefited the poor and then helped lay the basis for the subsequent pursuit of the two-part strategy. It is clearly desirable in inegalitarian societies and deserves external support. Unfortunately, it is rarely feasible politically. Weak and gradual land reforms (which are more common) have generally failed to substantially reduce poverty.

Transfers and safety nets. The consequences of transfers and safety nets are less clear at the national level. Many countries that have swiftly reduced poverty, including Indonesia and Malaysia, have maintained moderate levels of transfers to the poor. These did not appear to impede growth, nor did they have a major impact on the poor. In a few—for example, Jamaica and Sri Lanka—subsidies have amounted to a significant portion of national resources. While they helped improve the welfare of the poor, well over one half the transfers went to better-off segments of society.

Reaching and involving the poor. National development strategy is critical, but its effectiveness is strongly influenced by the extent to which public policy and intervention—in providing economic services, social services, and transfers—take account of the needs and circumstances of the poor and involve them in the design and implementation of programs. Among other things, this may involve agricultural research that takes account of the risks and farming environment of poor peasants, or health programs that allocate sufficient resources to rural clinics. There is also increasing evidence of the value of the direct participation of the poor, often with help from nongovernmental organizations.

Adjustment and the poor. The recession and debt crisis of the early 1980s severely disrupted the growth process of many countries. Varying country experiences illustrate the consequences of alternative policy responses to short-run difficulties. The approach to macroeconomic adjustment can have a major influence on outcomes for the poor. The most successful responses have involved a combination of swift and effective changes in policies to provide the framework for restoration of growth and macroeconomic measures to cushion the impact on private consumption. In many cases, relative price changes that encouraged efficient growth—and a growing demand for labor—also brought short-run benefits to the rural poor, especially where small farmers accounted for many of the poor. This was the case in countries such as Costa Rica, Ghana, Indonesia, and Malaysia.

Even with well-designed macroeconomic policies, some of the poor suffer in the short run, making the case for targeted transfers. The most promising policy instrument for this purpose is special employment schemes. These have been used to good effect to provide income relief for the urban poor in Chile and Peru, and for the rural poor in parts of South Asia and Africa, especially in the context of droughts.

Why is Africa different? A review of the past 25 years indicates that Sub-Saharan Africa’s experience has, for the most part, been distressingly different from the rest of the developing world. Yet its relative failure in poverty reduction can be illuminated by the same factors that help explain success elsewhere. First and foremost is the pursuit of inappropriate growth strategies. While Indonesia and Thailand were investing heavily in a supportive environment for rural producers, Ghana and Tanzania were pursuing state-led, capital-intensive industrialization, with strong biases against agriculture and other labor-intensive sectors and in favor of capital and import-intensive activities. Failures in economic development made these African countries particularly vulnerable to the shocks of the 1970s and 1980s. They entered a downward spiral until a combination of policy change and external support initiated a recovery in the mid-1980s. African countries that pursued a more balanced—and hence less anti-labor—path, such as Cameroon and Kenya, achieved better agricultural and industrial growth. They almost certainly did better for the poor.

Major African efforts in human resource development after independence produced substantially greater progress in social indicators than in the incomes of the poor. But the failure to grow had two severe consequences for human resource development: first, the beneficiaries of expanded social services lacked the opportunities to convert their enhanced capabilities into higher incomes; and second, by the 1980s national decline meant fewer resources for the social sectors. In many countries, this contributed to a steady decay of national education and health services.

Prospects for policy changes

Tackling poverty is difficult and Africa’s problems are daunting. But the success of countries that have pursued effective policies in the past is immensely encouraging. In assessing the political feasibility of adopting policies that will help the poor, the question of tradeoffs is important. Country experience indicates that there need not be significant tradeoffs between an effective poverty-reducing strategy and economic growth. There are strong complementarities between expansion of the human capital of the poor, encouragement of efficient, labor-promoting growth, and improvements in aggregate income levels. But clear conflicts may arise with the better-off segments of society.

The two-part strategy advocated in the 1990 Report is clearly redistributive: expanding free or subsidized social services, and putting effective transfers and safety nets in place for the vulnerable involves government spending that must be financed by taxation or reduced services to the better-off members of a population. Shifts from an inefficient, capital-intensive growth path also hurt former beneficiaries among the richer segments of society. The poor are intrinsically weak politically since power is associated with economic position. But the experience of countries, such as Colombia, Indonesia, and Malaysia (or more recently Ghana), that have pursued the two-part strategy points to its political feasibility, even when the apparent political power of the poor is weak. More radical solutions, such as expropriatory land reform, could lead to swifter progress in countries where inequality is severe, but there is much less likelihood that this will be politically feasible.

The conclusion of the World Development Report is that effective action by developing countries, with international support, can lead to a substantial reduction of world poverty by the end of the century (see box) and could, if with greater difficulty, hold the numbers of the poor in Sub-Saharan Africa to their current levels. There will be costs for the better off, but these are massively outweighed by the advance in human welfare that a sustained attack on poverty would bring.

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Cover Finance & Development
Finance & Development, September 1990
Author:
International Monetary Fund. External Relations Dept.
Volume/Issue:
Volume 27: Issue 003
Publisher:
International Monetary Fund
ISBN:
9781451952063
ISSN:
0015-1947
Pages:
56
DOI:
https://doi.org/10.5089/9781451952063.022