The World Resources 2005

Growth Alone is Not Enough

We all know the basic facts. Half the people in the world live on less than $2 a day. A fifth live on less than $1 a day. Over the next three decades, two billion more people will be added to the global population—97 percent of them in developing countries, most of them born into poverty.
—James D. Wolfensohn, President, World Bank, Oct. 3, 2004

Even where there is economic growth, many poor people are left behind. Economic growth alone does not necessarily translate to poverty reduction. In Latin America, for instance, the number of people in poverty has increased in the last decade even as the GDP per capita has increased, indicating that economic inequality has intensified (Chen and Ravallion 2004:31; World Bank 2005:24).

IIn China, too, the nation’s growing wealth has by-passed many families, with the benefits often captured by rapidly industrializing regions and cities, and missing many rural residents. One result has been a widening of the income gap between urban and rural areas over the last two decades, as well as greater growth and poverty reduction in China’s coastal provinces where the engine of economic growth runs hottest (Ravallion and Chen 2004:15-16, 25). Moreover, the rural poor often suffer the environmental costs of China’s industrialization and rapid growth disproportionately. Highly polluting industries have routinely relocated from cities to China’s rural areas to avoid clean-up costs, leaving a legacy of water and air pollution that many rural residents are too poor to escape (Yardley 2004:1). All too often, such inequalities in income and vulnerability among groups are exacerbated by rapid economic growth, with the poor falling further behind (Kakwani 2004:6).

REDUCING INEQUALITIES REDUCES POVERTY

Working toward economic equity—toward a more equal distribution of economic benefits within a nation—is a powerful means to fight poverty. It is a necessary complement to strategies that expand the national economy, so that some of the benefits of growth make their way to those in the lowest income bracket. Even when economic growth is slow, policies that more equally distribute economic gains can help reduce poverty, as shown by the success of Jordan in lowering its poverty rate from 1992-1997.

In 1989, following a currency devaluation, Jordan suffered an economic crisis that increased the poverty rate sixfold. At the same time, the nation’s level of economic inequality—the difference between the incomes of the rich and the poor—increased dramatically as well, prompting a significant rethinking of economic strategy among government policymakers (Shaban et al. 2001:iv).

Beginning in 1991, Jordan changed its spending policies to increase the proportion of economic benefits flowing to the lowest income sector. One of the most effective changes was the gradual replacement of general food subsides, from which richer families benefited most, with direct cash payments to poor families only (Shaban et al. 2001:iv, 15-20). This reprogramming reduced the nation’s economic inequality, with the gap between the wealthiest segment of Jordanian society and the poorest narrowing over the next six years (Shaban et al. 2001:viii, 10-13).

Subsequent analysis showed that it was this reduction of inequality that helped Jordan reduce its poverty rate from 14.4 percent in 1992 to 11.7 percent in 1997, even though the nation experienced little or no economic growth during this period (Shaban et al. 2001:viii, 7). In addition, those who remained poor were not as far below the poverty line, and extreme poverty had declined (Shaban et al. 2001:8). The reduction in inequality was driven by a greater percentage of government expenditures being captured by the poor. Had this trend toward reduced inequality been accompanied by genuine economic growth, Jordan’s poverty rate would likely have dropped even more.

Perhaps the most striking examples of the difficulty of spreading the benefits of growth equitably occur in the indus- trialized world, where poverty persists in spite of the general affluence of the population. In the United States, the number of poor has risen steadily since 2000, reaching almost 36 million people in 2003—some 1.3 million more than in 2002. Historically marginalized groups such as Native Americans, African Americans, and Hispanics continue to suffer significantly higher rates of poverty. For example, 24.4 percent of African Americans fell below the poverty line in 2003, compared to the national rate of 12.5 percent. Among Native Americans and Hispanics, poverty rates were 23 percent and 22.5 percent, respectively (DeNavas-Walt et al. 2004:10). (See Figure 1.1)

In general, research shows that to benefit the poor most, economic growth must be coupled with policies that reduce inequalities and improve how income is distributed in a society (Kakwani 2004:6). Where dependence of the poor on natural resources is high, as it is in most developing nations, these policies must necessarily involve the environment. And they must translate to governance practices that increase the poor’s access to vital natural resources and their ability to govern those resources so that they share in the income from them.

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