The fight against poverty: the central axis of development policies?

Date: 2013
Aide publique au développement : la question des inégalités redevient d'actualité
Article Index
Judging the quality of one's own living conditions

From the Washington Consensus to the New York Consensus, the fight against poverty has become the central axis of development policies in the late 1990s. In the eighties and the early nineties, the so-called "Washington Consensus" largely dominated the development agenda. Faced with the debt crisis and the structural macroeconomic imbalances of many developing countries (internal and external deficits, high inflation, low economic growth), international financial institutions, notably the World Bank and IMF, advocated the establishment of structural reforms to restore macroeconomic balances and strengthen competitiveness through Structural Adjustment Programmes (SAPs). The Washington Consensus proposed the liberalization of foreign trade and the establishment of supply policies to strengthen economic competitiveness and to reduce budget deficits and balance of payments disequilibria. While these policies, along with efforts towards the massive external debt relief of heavily indebted poor countries (HIPC), have helped to improve the situation on the macro-economic level (lower inflation, the restoration of internal and external balances in particular), they have often had a deflationary effect and a high social cost in the short term.

The first direct criticism of the Washington Consensus came from the publication of the UNICEF report "Adjustment with a human face" in the late eighties, which warned of the human impact of these policies. In 1990, the publication of the first report on human development, and the development of the Human Development Index (HDI) by the UNDP, began the reorientation of the development agenda. Offering a composite indicator that measured both per capita income growth but also access to basic social services (education, health), the authors proposed an indicator of development that went beyond mere monetary wealth and included more qualitative elements focused on the creation of human capital. Major United Nations conferences in the nineties, including Rio (sustainable development), Cairo (population and development), Beijing (women and development) and Copenhagen (social development), have also been influential in pushing the direction of the development agenda towards human development.

From Structural Adjustment Programmes toPoverty Reduction Strategies

In addition, the World Bank, under the leadership of James Wolfensohn and with the impetus of chief economists who are specialized in inequality issues (Joseph Stiglitz and François Bourguignon), has gradually made ​​the fight against poverty the central axis of its action. Its 2000/2001 World development report (World Bank, 2001) marked a turning point, the Bank advocated a multidimensional approach to poverty, going beyond the monetary approach in terms of poverty lines, to integrate capacity and "empowerment". Such theoretical consideration was given its operational implementation through national poverty reduction strategies (PRSPs).

The late 1990s was also characterized by the emergence of the themes of pro-poor growth and human poverty. The 1997 UNDP Human Development report (HDR) introduced a human poverty index for the first time, while the 1998 UNDP Human Poverty report advocated the implemented pro-poor growth strategies. The Millennium Declaration and the attached Millennium Development Goals (MDGs) represented the culmination of a long process of theoretical reflexion and a political coming-of-age, which would put the fight against poverty at the heart of the development agenda, discussed both from the point of view of monetary income (objective 1) and of opportunities/capacity (objectives on health, education, food security and gender equity).

The French approach: the fight against poverty and inequality

The issue of inequality has never really managed to impose itself as a consensual objective of the international community. However, the French Cooperation strategy has developed proposals for an agenda that focused not only on the fight against poverty, but also on the fight against inequality. In a working document published on the eve of the Millennium Summit (DGCID, 2001), it clearly inscribed its approach within the framework of the theoretical work of economists specializing in inequality, including Roland Barro (Barro, 2000) who highlighted the constraints to growth in poor countries that are caused by inequality, Philippe Aghion who advocated redistribution policies to correct market imperfections, and François Bourguignon who called for transfers of cash, or payments in kind, to poor families. The approach taken by the French Cooperation strategy also called on the political economy to integrate the political dimension and the analysis of power relations that influence the distribution of national income within a country. The IMPACT network, set up by the former Director General of the French International Cooperation, has for a long time been a place for the French Ministry of Foreign Affairs to conduct research and empirical studies on poverty and inequality. It has often made reference to the work of, for example: Bruno Losch on the coffee and cocoa sector; Jean-François Bayard on the State in Africa; and Alice Sindzingre on the political economy of reforms in Africa.

Inequalities are back in the headlines

The issue of inequality and its impact on growth and human development has, however, never been recognized as a central axis of development cooperation, despite efforts from France and others. Priority has been given to the fight against absolute poverty and to the support of human development. Nevertheless, inequality is now making a return to the heart of the debate, with rising income inequality attracting major media attention during the last decade. The OECD report "Divided We Stand" shows that in all OECD countries, and also in most emerging countries with the exception of Brazil and Indonesia, household income inequality measured according to the Gini coefficient has increased between the early 1990s and the end of the last decade (OECD, 2011). See figure 2, chapter 1.

The main source of these inequalities in OECD countries is the growing inequalities in labour income

These inequalities in labour income are determined by differentials in wages and in the number of working hours (explosion in part-time working) and by the inactivity rate (rising unemployment). Reducing tax progressivity and redistributive social policies, because of funding and competitiveness problems, only very partially correct these inequalities at the level of the final disposable income of households.

. In emerging countries, the same report noted a sharp increase in the dispersion of income since 1990 in China (+24%), India (+16%) and to a lesser extent in South Africa (+4%), whereas it has stabilized in Indonesia and decreased in Brazil (-10%), although Brazil has by far the highest levels of disparity (the income of the richest 10% is more than 50 times the income of the poorest 10%, compared to nine times the average in OECD countries).

These developments, in the case of emerging countries, are logically leading to a reopening of the debate on the link between growth and inequality. Are we seeing here the classic Kuznets curve effect (emerging countries have not yet fully entered into the second phase of their growth process, which is characterized by a combination of growth in GDP/capita and the reduction of inequality)? Or is it due to the consequences of an external growth model that requires the long-term suppression of real wages to maintain a competitiveness differential?

Such developments also revive the debate on the measurement of poverty and the way in which inequalities are taken into account in the development agenda. The UNDP, as early as the 1990s, sought to go beyond the simple measure of absolute poverty by developing the human poverty index, which has since been replaced by the multidimensional poverty index (MPI). The MPI seeks to measure poverty not only in terms of low monetary income, but to provide a more qualitative approach in terms of capability deprivation (10 core indicators are used to measure the three dimensions of poverty: human health, education, living conditions). The 2011 HDR, in addition to monitoring the MPI of 109 countries, provides a sub-national monitoring in 66 countries to measure regional disparities.

In its 2006 report on equity and development, the World Bank emphasized the need to better take into account equity in development policies (World Bank, 2006). In an imperfect market, the distribution of wealth may affect the allocation of investment opportunities and economic efficiency by creating rent-seeking situations and preventing some players from expressing their full potential. The State may then play a role to compensate for market imperfections and to enhance the efficiency of the economy, either through a redistributive policy or by a longer-term policy to strengthen economic opportunities or by supporting the distribution of assets and the capacity of the weakest to express themselves. This action also strengthens social cohesion. The report did not avoid the questions of the political dimension, inequalities in access to power or the political expression that can promote rent-seeking behaviour and the reproduction of these inequalities.

In the same vein, the latest report from the OECD Development Centre (OECD, 2012) promotes the idea that social cohesion is a prerequisite for sustainable development. The report highlights progress in developing countries over the past decade: 83 developing countries had a per capita income growth that was double that of the OECD countries, compared to only 12 in the 1990s, while 50 developing countries have a GDP/capita growth rate greater than 3.5% per year. It underlines, however, that most developing countries are now faced with rising inequality along with rising middle class expectations in terms of their standard of living and for a fairer redistribution of national income. This is reflected in the levels of public dissatisfaction over living conditions, despite the progress made ​​in terms of per capita income (graph below). The situation in Tunisia is particularly interesting as it shows a high dissatisfaction index despite a 4% increase in GDP/capita on average over the last decade. The report therefore recommends the strengthening of social cohesion through appropriate fiscal policies, employment policies, education and social protection, and suggests that certain grants should be called into question as they are overly favourable to the wealthier classes (e.g. subsidies for the consumption of fossil fuels, which according to the International Energy Agency reached 450 billion USD in 2010).

It is hoped that this work and a growing awareness of the issue of inequality will enable the post-2015 agenda to go beyond the measurement of absolute poverty alone. Indeed, a growing number of experts are arguing for the integration of relative poverty indicators (such as, for example, the UNDP's indicator of measuring the proportion of people with an income of less than half the median income) into measurement indicators. This approach would be easier to implement if, as advocated by the OECD, targets and indicators were not limited to the overall objectives and indicators of comparability between countries, but they incorporated national objectives with indicators to monitor a country's progress in relation to its own situation.

Judging the quality of one's own living conditions

The expectations of the middle class are rising in many developing countries, along with rising incomes and education levels. The fastest growth of the sample (China) and the lowest one (Thailand) correspond respectively to the highest and lowest levels of a population's satisfaction with its living conditions. In Tunisia however, despite positive indicators in terms of increasing revenue and education level, the population remains largely unsatisfied.
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