ISLAMABAD: The policymakers need to devise economic development plans based on inclusive economic growth with neutral income distribution keeping poverty insight as it has some illustrative trade-offs.

This was the crux of a webinar titled “Development is Poverty Reduction but Poverty Reduction is not Development” organised by the Pakistan Institute of Development Economics (PIDE), here on Thursday.

Professor Lant Pritchett of the London School of Economics (LSE) on the subject said the development economics needs to reject the impetus to “define development down” to “twisty development” which leads development economics away from being about development to being about charity work and leads economics away from economics to plumbing.

He said that the results of the simulation exercise of fraction of benefits of distribution and neutral economic growth which accrue to “the poor” at various poverty lines. The bottom line is that at the currently used “extreme poverty” almost none of the benefits of growth in developing countries goes to “the poor”.

How much of the benefits of 10 percent increase in income/consumption in 13 largest developing countries would accrue to “the poor”? At the current threshold for “extreme poverty” of the $2.35 trillion distribution neutral increase only 58 billion which is just 2.5 percent would go “extreme poor”. So, even though growth benefits the poor equi-proportionately, only a small fraction of the benefits go to the “extreme poor.”

He said that low-bar poverty lines and the shift of the focus of development from national development to poverty allow the rich countries to posture as committed to noble goals while abdicating any serious commitment to provide effective support to development. Low-bar poverty lines and “kinky development” generally shift attention from development i.e. building productive economies, expanding state capability, and promoting responsive politics to charity work.

The poverty lines are not to be taken literally but they encourage “pro-poor” growth however at low bar poverty lines “pro-poorness” does not really make any difference…the 58 billion goes only to 70 billion with “pro-poor” growth—it is the line that is the problem.

He further said that “dollar a day” poverty lines are “stupid” as any poverty line has three analytic problems and low-bar poverty lines make those problems as bad as they can possibly be. A low-bar poverty line implies a discontinuity where there isnot one and hence treats nearly alike as very different.

Pakistan should reject low-bar poverty lines as normative objectives of development any way as poverty lines only make sense as economics if the marginal well-being gain from income is well approximated by zero at the poverty line. This is orders of magnitude false at any proposed low bar poverty line.

He said that “poverty reduction is the objective of development” and the poverty line used to define and measure global poverty based on “dollar a day” poverty line is no longer a viable stance for a development organisation or actor. The basic point is that “dollar a day” was always an unreasonably penurious poverty line and now, with the continued economic growth even where not particularly rapid nearly all developing countries have reached a point where there are very few “dollar a day” poor.

For instance, in the latest World Bank data Pakistan is reported as having only 4.9 percent of its population in the “dollar a day” which is now $ 2.15 or “extreme” poverty. This implies that development actions that produced broad-based benefits in Pakistan would not benefit the “global poor” as only one in 20 Pakistanis is poor, saying this is just ridiculous.

A poverty line treats the gains to income of households that are very different as the same a poverty line treats well-being gains to income as zero when they are actually large (this is stupid and evil).

For omnibus, non-economic, measures of human well-being national development is empirically necessary as no country gets to high human well-being without national developmentand empirically sufficient, moreover,every country with high national development has high human well-being, he explained. He further said that instead of distributing money among the poor through the Benazir Income Support Program (BISP) like schemes, should focus on inclusion on productive economy with expanding value chains which will reduce poverty.

He said that globalisation agenda is aimed at increasing productivity, if implemented truly it can help economic growth, but it depends on the situation of a certain region. For instance, Pakistani labour is not competing with the labour of developed countries like America, but competing with Bangladesh and India. Value additions to the goods and services is a key to economic growth and if the labour of a country is vibrant and innovative they will play a more significant role in the economic growth of a country as compared with the labour of a traditional country.

It is impossible for governments to fix everything at once as long lists of reforms can have the effect of impeding action and leading to inappropriate sequencing of the reforms that are implemented. Prioritisation is key to formulating a credible growth strategy. This requires analysis that identifies both the key constraints on growth and the obstacles to removing these constraints, including political obstacles. So not only is it essential to have sound economic analysis; it also requires an appreciation of the political context within a country.

Copyright Business Recorder, 2024


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