Boost economic growth to reduce poverty: Study
Bryan Lee
Tue, May 27, 2008
The Straits Times
LONDON - WHY do some countries prosper while most do not?

A study of 13 economies - including China, Singapore, Brazil, Taiwan and Malaysia - by a commission led by Nobel prize-winning economist Michael Spence has come out with some answers.

A key finding of the Commission On Growth And Development report, which was released recently, was that while humanitarian aid and micro-finance schemes help the poor, the way out of poverty for billions is to boost economic growth.

'We spent too many years looking around and talking about poverty reduction without any reference to growth,' Professor Spence told Reuters.

'That just doesn't make sense to me. It's the only thing that works.'

And how do struggling countries do that?

The 21-member panel had no magic formula, but it offered insights and common lessons distilled from its study of the 13 economies that have expanded at an average rate of at least 7 per cent a year for 25 years or more.

These included opening up to the global economy to boost exports and draw technology and investments, as well as a society willing to set aside consumption and save to finance investment.

But the independent commission funded by the World Bank, charities and governments also deviated from Western orthodoxy, which emphasises the role of liberal democracies and free markets.

What is needed is strong political leadership, it concluded.

'Growth at such a quick pace, over such a long period, requires strong political leadership,' it said.

'Such leadership requires patience, a long planning horizon and an unwavering focus on the goal of inclusive growth.'

In several cases, 'fast growing economies were overseen by a single-party government that could expect to remain in power for a long period of time', it noted.

'Government is not the proximate cause of growth,' it added.

'But stable, honest and effective government is critical in the long run.

'The remit of the government, for example, includes maintaining price stability and fiscal responsibility, both of which influence the risks and returns faced by private investors.'

The study also noted that governments in the high- growth economies were not free-market purists.

'They tried a variety of policies to help diversify exports or sustain competitiveness. These included industrial policies to promote investment in new sectors, and managed exchange rates, shepherded by selected capital controls and reserve accumulation,' it said.

Public investment was an essential complement to private investment.

An active government hand was also seen in infrastructural development and in the education and health sectors.

While equality of opportunity was important, that was different from equality of outcomes. The panel rejected the view that economic growth could be attained without a rise in inequality.

'In the early stages of growth, there is a natural tendency for income gaps to widen,' said the report.

'This rise is not permanent, but it can take decades to run its course. The extent of inequality needs to be managed.'

Prof Spence, who teaches at Stanford University, told the Wall Street Journal: 'The thing you have to keep your eye on is that you are not destroying more jobs at home in globally competitive sectors than you're creating. At that point, you will lose political support.'

The two-year study also flagged potential pitfalls, such as avoiding air and and water pollution in the early stages of economic development, which will prove costly in the longer term.

'Energy and fuel subsidies are also a mistake. They not only become a fiscal burden on the public budget but also contribute to global warming through emission of greenhouse gases,' it said.

The report was praised by former US Treasury Secretary Lawrence Summers, but he said its emphasis on economic winners did not fully take into account many countries, the Wall Street Journal reported.

There were dissenting voices as well, like that of Mr William Easterly, a former World Bank development expert.

He said the panel should have pushed the importance of market incentives and entrepreneurship instead of enlightened bureaucrats.

'Political and economic freedom are the keys to prosperity.'

"This is great to keep overseas Singaporeans connected to home news and affairs"

"My favourite was "The Aftermath for Malaysia Election" - (in my opinion), this was a very well crafted world standard image, it is even suitable for a Time magazine cover!"
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