El caso de la junta directiva y el representante legal 71

Although debate continues on the role that economic growth plays in improving the quality of peoples’ lives, there is convincing evidence that sustained economic growth, accompanied by measures to ensure participation of the poor and to protect the environment, is an essential and powerful force in the fight against global poverty.

The following graph illustrates the association of economic growth with reductions in poverty in selected regions of the world between 1981 and 2001.

FIGURE 1: POVERTY REDUCTION IS CLOSELY ASSOCIATED WITH GROWTH

Source: World Development Report 2005: A Better Investment Climate for Everyone. World Bank, 2004.

Countries that have delivered sustained economic growth in recent decades, most notably China and other Asian countries, have achieved dramatic improvements in living standards and lifted millions of people out of poverty – albeit not without ongoing challenges of income inequality between regions and environmental degradation. Those countries that have failed to achieve such growth have a dismal record in reducing poverty.

The World Bank makes the case, “The importance of growth for reducing poverty cannot be overstated. Poor people typically benefit from rising aggregate incomes and suffer from economic contractions. Major improvements have also occurred in the non-income dimensions of poverty in recent decades. …But progress has been uneven and massive challenges remain.”13

Professor Ricardo Hausmann, Director of Harvard’s Center for International Development argues, “The fundamental difference between poor countries and

There is convincing evidence that sustained economic growth, accompanied by measures to ensure participation of the poor and to protect the environment, is an essential and powerful force in the fight against global poverty.

50 40 30 20 10 0 -10 0 -2 2 4 6 8 10 CHINA

EAST ASIA OTHER THAN CHINA

UGANDA INDIA SOUTH ASIA OTHER THAN INDIA MIDDLE EAST & NORTH AFRICA

LATIN AMERICA & THE CARIBBEAN EASTERN EUROPE & CENTRAL ASIA SUB-SAHARAN AFRICA

Average per capita growth rate, 1981-2001 (%)

D e cl in e in sh a re o f p o p u la ti o n b e lo w U S $ 1 a d a y, 1 9 8 1 -2 0 0 1 (% )

rich countries is that poor countries have low income and rich countries have high income. If you want to transform poor countries into richer countries then incomes need to grow, so economic growth is central to that. In the poorest countries in the world, workers are 1/70th as productive as workers in the richest countries in the world. And this is a relatively new phenomenon. When Adam Smith wrote about the wealth of nations, the poorest country in the world was only four times poorer than the richest country in the world. That has gone from four- to-one to seventy-to-one.”14

While sustained economic growth is essential for tackling poverty, the quality of growth is also a key factor.

The OECD’s Development Assistance Committee (DAC) has commented, “Vigorous, sustained economic growth in the private sector creates jobs and incomes for the poor. It also generates public revenues to finance social development and social protection programmes and to strengthen the institutional framework and physical infrastructure for efficient markets. …But even rapid and durable growth can leave people behind. Only about half the increase in incomes of the poorest fifth of the population comes from GDP growth. The other half comes from the quality of growth – from its composition, distribution and sustainability.”15

The UN’s Commission on Private Sector and Development, concluded in a similar way, “…for output growth to contribute to poverty alleviation, it must translate into incomes for the poor. For wage labourers and salaried workers, the quantity of employment and the rate of pay are crucial. For the self-employed, productivity and returns are important, influenced by technology, inputs and prices. Employment is thus the key link between output growth and poverty alleviation.”16

Likewise, Professor Benjamin M. Friedman, argues in his book The Moral

Consequences of Economic Growth, “Economic progress needs to be broadly based if

it is to foster social and political progress. That progress requires the positive experience of a sufficiently broad cross-section of a country’s population to shape the national mood and direction.”17_{In situations where economic growth results in}

a rising standard of living for the majority of citizens, Professor Friedman argues that its impact is not only limited to a higher material standard of living, but also, “…more often than not fosters greater opportunity, tolerance of diversity, social mobility, commitment to fairness, and dedication to democracy.”18

In short, to have any long-term hope of being sustained, efforts to accelerate economic growth must take into account wider considerations of human development and environmental sustainability, as well as the challenges of raising productivity levels, upgrading quality and technology, and integrating into global value chains.

“…for output growth to contribute to poverty alleviation, it must translate into incomes for the poor. For wage labourers and salaried workers, the quantity of employment and the rate of pay are crucial. For the self- employed, productivity and returns are important, influenced by technology, inputs and prices. Employment is thus the key link between output growth and poverty alleviation.”

Having said that, without economic growth and the public revenues as well as the private wealth that such growth generates, aspirations to fund human and environmental progress are doomed to failure. As the multi-sector Commission for Africa reported, “Africa is the poorest region in the world. Over the last 30 years, on average, its people have seen virtually no increase in their incomes. Across countries and within countries over time the message is clear: without economic growth, Africa cannot make substantial reductions in poverty.”19

There is a long way to go, in Africa as well as other low-income countries. Mark Malloch Brown, the former UN Deputy Secretary-General and UNDP Administrator, has commented, “Economic progress has in many places stalled. Growth is anaemic and not overcoming a structural unemployment driven by reduced agricultural opportunities, urban migration, and above all, a demography that is putting hundreds of millions of young job seekers into the employment market. Simply put, we are failing to meet the challenge of higher economic growth.”20

What is required to reverse this situation? As in other areas of development, there has been an important transition in thinking and approach over the past few decades.

The Commission for Africa captures this transition, “Economists have long seen growth in terms of the accumulation of physical and human capital, on the one hand, and the productivity with which factors of production – land, labour and capital – are used, on the other. The collapse in African growth post-1973 is blamed on a collapse in both. The last decade has seen a shift of attention towards still more fundamental questions. Why do some countries see more rapid accumulation and higher rates of productivity growth than others? What enables a country to sustain growth, once it has been ignited? The answers have focused on institutions – particularly those relating to governance, including peace and security and the economic framework – and on geography – particularly the impact of Africa’s distinctive tropical, largely landlocked geography on agriculture and transport costs. Both governance and geography shape the incentives, opportunities and constraints on the private sector – from small firms to big firms – and the level of productivity and innovation in the economy.”21

But, as the Commission emphasizes, “Neither governance nor geography is destiny. There are many ways a nation can act to improve its governance and many ways outsiders can help. …Problems of geography can also be overcome or reduced by investments in infrastructure, good governance, and regional cooperation to stop political borders becoming economic barriers.”22

There is clearly no one-size-fits-all approach to ensuring economic growth. Patterns of growth, market concentration and opportunities for small enterprises will obviously vary for different countries and sectors. Natural resource

beneficiation, for example, as well as agribusiness, manufacturing, and services, such as banking, telecommunications, transportation, tourism, health and education, all offer some degree of opportunity for domestic enterprises, including small enterprises. But the specific policies, investment strategies, institutional structures and types of partnership between the public and private sectors that are needed are likely to vary in each case. So too is the balance between public intervention and market-driven approaches.

Carlos Magariños states that, “Most – if not all – of the countries that have succeeded in achieving economic development and translating it into social progress did so by combining sound macroeconomics with market-oriented reforms, good governance with reliable institutions, and the proper interaction between incentives and the supply of public goods, so as to balance economic dynamism with social inclusiveness. Most of them, far from adopting one-size-fits- all models, developed their own approaches.” 23

Professor Hausmann comments, “I think there has been too much guidance and not enough experimentation. I think there’s too much of an attempt to have a ‘one- size-fits-all’ approach to development, one formula, a single conventional wisdom, and that has not been terribly helpful. We need more country focus; we need less focus on how to make aid effective and more focus on how to make policies in countries effective.” 24

In summary, the achievement of sustained economic growth is increasingly accepted as an essential prerequisite for reducing poverty. The crucial challenges are:

• How to identify and overcome the constraints to such growth on a country by country basis; and

• How to ensure that it benefits the poor and does not degrade the environment. Governments, in both donor and developing countries, have a crucial role to play in addressing these challenges, but so do the private sector and the poor themselves. The different roles and responsibilities of government, the poor and the private sector are outlined in the following sections.