ROOTED in the neo-classical paradigm, growth is an obsession with the international financial institutions (IFIs). When they came under heavy criticism for the model’s lack of suitability for less developed countries due to their high levels of poverty and skewed asset distribution that the growth focus alone cannot address, they coupled growth with poverty reduction however forced a fit that might be and that might not even fit too well.

So, when growth does not work to reduce poverty, they insist on more of growth even if higher and higher growth is redistributing more in favour of owners of assets of production thus pushing the possibility of equity and poverty eradication more and more into the future.

A recent World Bank report insists that the South Asian region “must create the conditions and incentives necessary to sustain and accelerate growth that benefits all.” The catch, therefore, is the growth that benefits all. What then is the growth that benefits all? The report cites the East Asian countries “where growth rates of 7-10 per cent have lifted millions from poverty.”

The key question here is about the factors that led to and/or facilitated the kind of growth rates that alleviated poverty. That is, is the relationship between growth and poverty a simple linear one or are there more factors in the model that make growth work in favour of poverty reduction?

The IFIs too think that there are more factors but the factors they focus upon are the ones that reinforce growth primarily and not the ones that make growth work to reduce poverty effectively, surely, and fast.

For example, they may focus on labour productivity enhancement through capital and technology that displaces labour and adds to misery. They may emphasise privatisation that has similar misery enhancement outcomes. They may emphasise premature trade liberalisation that may hurt industry and cause job losses.

In effect, the IFIs focus on growth which may be an intervening variable at some point in the model. But, the IFIs do not focus on factors that must be addressed to crank the economies in a sustainable way to not only lead to growth but also to poverty reduction. In the context, East Asian examples are cited.

One needs to see for oneself whether it was only growth that led to poverty reduction or whether it was the kind of “growth that benefits all.” And, if it was a special kind of growth that benefited all, what kind was it and how was it made possible? For, Brazil too experienced high growth during the 1960s through the 1980s but Brazil is an example in dualism.

Despite Brazil’s best performance in Latin America in terms of growth from the 1960s to the 1980s, Brazil’s inequality in terms of land, assets, and incomes is amongst the worst in the world.

In 2003, the income share of the lowest 10 per cent was only 0.8 and of the top 10 per cent, it was 45.8 (World Development Indicators, 2006). Land reforms are blocked by large plantation owners. Brazil’s population percentage below the poverty line was 54 per cent in rural areas and 15.4 per cent in urban areas in 1996 (Ibid).

Overall, almost 24 per cent population below the poverty line in a middle income country reflects skewed distribution of incomes. So, Brazil has been a case of skewed land distribution, high growth rates, skewed income distribution, and high poverty levels.

The IFIs must explain why high growth rates of the 1960s through the 1980s in Brazil failed to convert into equitous income distribution and poverty eradication. A further outcome is that even the growth rates have now tapered off in Brazil.

So, is it growth alone that works miracles? Or, is it the character of growth and the factors behind it that make it effective in terms of sustainability and poverty reduction?

Of the IFIs favourite East Asian examples, Taiwan’s is another case in point. Taiwan experienced very high rates of growth from 1960 to 2000 and shot up to the high-income status by 2000. In the Taiwanese case, however, it was not just the economy that became rich through higher incomes of the top 10 per cent or the top 20 per cent, the levels of living of the people at large improved significantly.

In Taiwan, absolute poverty was eliminated, relative inequality reduced considerably, unemployment reduced to very low, universal elementary and middle school education was achieved, life expectancy was increased to 75 years and infant mortality was reduced to five per 1000 live births.

It can justifiably be said that Taiwan’s growth was shared with the people and was not kept restricted to the top crust which is when growth results but so does inequality, unemployment, and poverty. What kind of growth was Taiwan’s and what factors enabled it?

Taiwan had implemented a thorough land-to-the-tiller reform programme in the 1950s. Landowners were compensated by shares in state-owned enterprises when they transferred land to the peasants. This gave a boost to agricultural productivity that, in turn, underpinned successful industrialisation. The sectors would grow in sync and pull the economy up along with the people who had all been integrated into the economic mainstream through land reforms.

Japan and South Korea took the same route that led to all inclusive sustainable development that the IFIs now feel happy about without mentioning all the factors that fed into the happy outcomes. They choose to talk about growth minus land reforms and, therefore, present the development history of these countries partially.

Other factors at work in Taiwan were, inter alia, infrastructure development, education, frugality, and guided capitalism not unbridled premature free market reform thrust upon some other economies that are given a heavy dose of growth. Government controls were gradually reduced and not withdrawn suddenly and prematurely as some other economies were advised despite their weak moral fabric irrespective of the sector—public or private.

Malaysia is another country often cited in the context of high growth rates. But, a significant portion of the Malaysian economy is dependent on the exports of oil and palm oil. Even though manufacturing grew to 40 per cent of GDP in 2000, economic recovery, after 1985-86 recession due to fall in commodity prices, was led by net exports that accounted for three-quarters of the growth.

The economy, therefore, remains vulnerable due to high degree of openness. While the poverty rate is one of the lowest in the less developed world and educational attainment is high, the educated comprise over 96 per cent of the unemployed with secondary educated being 48 per cent of the total unemployed and tertiary educated being 15 per cent of the total unemployed.

Definite political will and government intervention contributed to education and poverty reduction. However, inequalities are highly pronounced with the top 10 per cent getting over 38 per cent of the income shares and bottom 10 per cent left with only 1.7 per cent of the share in incomes.

We, therefore, see different outcomes in terms of income inequalities and poverty in countries known for high economic growth rates. Best results are seen in countries that distributed (land/assets) before growth as these countries later experienced best income distribution patterns from growth.

So, growth, by itself may not lead to poverty reduction and greater equity unless coupled or preceded by other measures that ensure distribution of incomes from growth such as land reforms in the case of East Asian countries and/or political/government intervention as in Malaysia and also in East Asian countries.

To justify growth emphasis by saying that it will lead to poverty reduction is an argument proved false in many less developed countries as in Brazil and in Pakistan too. It is also challenged in India where the shining India argument was rejected by the electorate unless India shines for all and sundry.

Some correlation between growth and poverty does not necessarily establish the direction of causation unless poverty is focused upon through structural reforms that would, in turn, propel growth through demand creation on a wider scale that can alone ensure sustainable growth.

All those obsessed with growth must be obsessed with poverty and its structural determinants if it is growth that they want at an increasing rate over the long haul. Otherwise, growth too tends to taper off as it did in Brazil and as it does in other structurally weak economies from time to time.