Redistribution, inequality and growth

A paper from the IMF finds that redistribution does not damage growth, and may help it.  “Lower net inequality is robustly correlated with faster and more durable growth”, and “redistribution appears generally benign in terms of its impact on growth”.   This is not any great surprise.  Richer countries tend to better public services and greater equality; transfer payments have limited economic effects; the evidence over many years has been that welfare does not damage an economy.  However, it may be surprising that it’s the IMF saying it.

Apology: I originally posted this with a link to an older IMF paper.  The link has now been corrected.  PS

International aid can work

An article in the Independent suggests that Jeffrey Sachs has lost the argument:  international aid can’t save places that are mired in poverty.  This is based largely in criticism of Sach’s favoured Millennium Villages Project, which have sought to show that intensive aid can make a difference in a locality.  The projects aren’t what they’re cracked up to be; there are no experimental controls; other places with no such projects have done better.

There are three problems with those criticisms.  The first is that many of the criticisms are untrue, or at least disputed.  The second is that even if the MVPs had been completely misconceived and crackpot (they’re not – they’re just small scale), it wouldn’t be possible to generalise from their success or failure to the whole concept of overseas aid.  The third is that all of this has been happening during a period when international aid has been visibly more successful than ever before (which of course upsets any potential finding from a control).    The combination of aid with Poverty Reduction Strategies and partnership working has paid handsome dividends, with many of the poorest places in the world showing a spectacular drop in infant mortality, typically of a quarter.  Even if we don’t buy the economics, we can still believe in that.

India’s right to food

It’s more than thirty years that Amartya Sen made the fundamental argument in Poverty and Famines (1981) that the problem of hunger is not about shortage of food, but people’s right to get to the food that was there. The Right to Food campaign in India seems to have won the argument.   A bill currently under consideration accepts the principle of a right to food, and aims to deliver it by subsidies of basic grains.

There are doubts, of course, about India’s capacity to deliver the right effectively.  And, as reported last month, a third of the world’s poorest people are in India.

The poorest parts of the world

Many people working on poverty issues are sceptical of the measures used by the World Bank, based on poverty lines of $1.25 or $2 a day.  While the figures can’t be taken at face value, it’s doubtful that income at that level can be ‘measured’, very low incomes do tell us two things: that lots of people are poor, and that as there is almost no money they are probably not part of a formal economy either.

A short statistical report from the World Bank, The state of the poor, flags up some interesting issues. The first is that extreme poverty by their measure is falling in most parts of the world, with the clear exception of Sub Saharan Africa, Second, while a third of the poorest people are in Sub Saharan Africa, and a third more are in one country – not China, which has 13% of the poorest people, but India.  (I missed the World Bank report when it came out, but the Times of India didn’t.)   The Millennium Development Goals aimed to cut extreme poverty by half, and that has been done; the next goal is to go for half again by 2030, and these places are where the main focus will fall.

The British believe in contributions, apparently

An intriguing pamphlet from the Policy Network compares attitudes to benefits in Britain, France and Denmark. Their main point is that other countries have a greater commitment to ‘social investment’, but apart from that they also have material on social attitudes to benefits and services. Question 1 asks whether benefits hould be targeted at those in need, confined to those who have contributed or available to every citizen. In Britain, 48% of people said that pensions should be for those who contributed; 41%, social housing; 49%, unemployment benefits. Then question 2 asks what the main response of the government should be to financial problems: and only 24% say that benefits should be limited to people who have contributed. There is a fairly marked discrepancy here, which might be taken in three ways. One possibility, though I think it’s unlikely, is that people thought rapidly about counter-examples. A second explanation is that the responses defend what people suppose to be true at present – pensions are contributory, unemployment benefits used to be, and even if social housing has never been, some public authorities used to house people according to their ‘merits’, including contributions such as military service. The third explanation, which is most likely, is that the opinion is soft-centred, and there is something in the way the questions are worded that has led to an inconsistent response.

Sustainable growth and poverty

A paper for the World Bank questions whether green growth policies are good for the poor. Stefan Dercon argues: “High labor intensity, declining shares of agriculture in gross domestic product and employment, migration, and urbanization are essential features of poverty-reducing growth. … trade offs are bound to exist. … the poor should not be asked to pay the price for sustaining growth while greening the planet.”

The argument is not new; it is perhaps more remarkable for its source. In The Future of Socialism, Tony Crosland argued that higher personal consumption – consumption, not just formal economic growth – is fundamental to the living standards of the poor. The policy he advocated was not to achieve maximum growth, or even high growth relative to other countries, but to improve people’s position over time, because that was necessary to achieve greater equality. Later, in Socialism Now, he added a crucial rider: that without growth, redistribution would be impossible. “I do not of course mean that rapid growth will automatically produce a transfer of resources of the kind we want … but I do dogmatically assert that in a democracy low or zero growth excludes the possibility.” Those arguments seem to me to apply with equal force to the developing world; and they raise the question whether it is possible to be pro-green and pro-poor at the same time.

Fog in Channel: rest of world cut off

I’ve read some parochial comments about British social policy in the last week. A chapter in the new Routledge Handbook of the Welfare State claims that “In no country did social exclusion become more prominent as a basis for social policy than in Britain.” France, which has led the world in this, developed the concepts of “exclusion” and “insertion”, and restructured their benefit system around them in the 1980s; the European Union treaties, influenced by the French speaking directorates, depend on “combatting exclusion”; the model has now spread to places like Portugal and Brazil. A report from the IEA claims that “Social expenditure in the UK stands at one of the highest levels in the world.” That’s true in one sense – any relatively rich country is likely to spend more through social expenditure than a relatively poor country. More relevantly, the UK is just above the OECD average (24.5% social expenditure, compared to the OECD average of 22.1%). Its expenditure is exceeded by, for example, France, Germany, Austria, Belgium, Denmark, Italy, Portugal and Spain – in other words, by most long-standing EU members.

The heading I’ve put on this entry is admittedly unfair – I couldn’t resist it. The problem with these comparisons isn’t so much that they’re insular, as that they’re looking in the wrong direction. People making policy in Britain tend to focus on the example of other English speaking countries – notably the US and Australia – rather than its European peers, or any review of broader international developments. That’s our loss.

Merkel misses the point on welfare

Angela Merkel, in an interview for the Financial Times, suggests that Europe has to spend less on welfare to be competitive. “If Europe today accounts for just over 7 per cent of the world’s population, produces around 25 per cent of global GDP and has to finance 50 per cent of global social spending, then it’s obvious that it will have to work very hard to maintain its prosperity and way of life.” She cites the problem of competition from other countries: “Other models have long since emerged: China, India, Japan, Brazil, and they will be joined by other countries that are working hard and proving to be innovative.”

She’s missing something important. All the countries she’s mentioned are committed to social support as well as economic development. Japan has long established networks of solidarity; China, Brazil and India have all been extending their systems of social protection. So have other countries she doesn’t mention, such as South Africa, Mexico and Indonesia. Developing security, reducing vulnerability and improving welfare is a large part of what prosperity is for.

The World Bank on jobs

The new World Development Report 2013 is available, with a focus on jobs. One of the straplines on the website, also on p 57 of the report, claims that

“Jobs are created by the private sector; public action sets the stage”.

Sometimes the balder claims are qualified, but similar sentiments keep cropping up in the course of the report:

“it is not the role of governments to create jobs … as a general rule it is the private sector that creates jobs. The role of government is to ensure that the conditions are in place for strong private-sector-led growth …” (pp 21-2)

This is ideological claptrap. Do we think that police, teachers, firefighters, roadbuilders or health workers don’t have real jobs?

“The private sector is the key engine of job creation, accounting for 90 percent of all jobs in the developing world.” (p xiii)

Doesn’t that imply that the public sector in developing countries is small by comparison with countries that are economically more successful? And where would the private sector be without the demand for infrastructure generated by governments?

There’s yet more doctrinaire stuff:

  • “Any taxes create distortions” (p.27)
  • “The solution to all these demographic and technological challenges rests with the private sector.” (p.58)
  • “Different labor outcomes among persons with disabilities stem from productivity differentials, from disincentives created by the system of social benefits …” (p.84)
  • “policies should aim at removing the market imperfections and institutional failures preventing the private sector from creating more of those jobs.” (p 257)

This tone isn’t maintained consistently all the way through the report, but it’s troubling to see that the Bank still gives so much prominence to the discredited economic purism that led to Structural Adjustment. I thought, or hoped, that we had moved on from there.

Can Europe act on poverty?

The European Commission has proposed the development of a new fund to give European aid to the ‘most deprived’, mainly homeless people and children in poverty. The money would be directed through Member States or ‘partner organisations’ – that is, through NGOs.

I’ve written in the past about the Commission’s attempts to establish competence by developing programmes that create a precedent (see The principle of subsidiarity and the social policy of the European Community, Journal of European Social Policy, 1991 1(1), pp 3-14; Social policy in a federal Europe, Social Policy and Administration 1996 30(4) 293-304). When the Lingua programme allowed the EU to fund language teaching in schools, the responsible commissioner claimed: “we now have competence in education”. It’s been a long time since the EU did much to pursue that agenda; but if this fund is approved, the EU will have competence in poverty relief.