Development Work Is About Economic Growth Not About “Poverty Alleviation” – Part 2

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WASHINGTON – International development practitioners focus more on ways in which they can eliminate or alleviate poverty, the visible manifestation of underdevelopment, rather than planting the seeds that may foster self-sustaining economic growth and therefore true development and –by the way–the only way for any society to really get out of poverty. This “poverty alleviation is our goal” approach, while well intentioned, encourages the misallocation and outright waste of limited resources, all in the name of the noble cause of the “fight against poverty”.

Non sustainable projects

For instance, it is considered good to create “economic” activities, whatever they may be, that will generate some new income for the poor. However, in the haste to make some positive changes now, donors all too often leave out any solid analysis of the reasonable chances for such activities to become self-sustaining after the donor initial funding and assistance is gone.

The consequence of incomplete analysis is that very substantial resources have been squandered in non sustainable activities –all of them justified as honest, good faith efforts to reduce poverty. Unfortunately, quite often when the donor leaves the poorly planned and under resourced activity collapses.

Focus on what it takes to produce sustainable growth

In fairness, absolutely poverty creates an environment so difficult that it may very well be impossible to engineer within its confines any kind of meaningful economic enterprises. Indeed, there can be a legitimate debate about what is at issue: “Poverty as lack of economic development”, or “The dreadful condition of poverty that, as such, prevents building the foundation for economic development”. True enough, it is obvious that the sick and the hungry, along with refugees displaced by conflicts, cannot possibly engage in any meaningful economic development.

Relief alone will solve nothing

Still, if we focus most of our resources on improving what is a very bad, sometimes horrible, environment, without recognizing the absolute necessity to create at the same time the economic wheels and help them turn as soon as possible, at best we have accomplished humanitarian relief. To be sure, this can have some positive impact in reducing the impact of poverty, or at least its worst consequences.

But in so doing we will not have caused any meaningful qualitative transformation. Qualitative change leading to real development consists in the creation of a workable process through which societies chart a path towards self-sustaining economic growth.

Poverty is reduced through self-sustaining enterprise

Contemporary examples reinforce this fact. Structural changes encompassing laws and incentives rolled out by governments in some important poor countries greatly improved the “enabling environment” for wealth creating activities, with the consequence of allowing hundreds of millions to be more productive and lift themselves out of poverty through their very own engagement in wealth creation activities that in preceding times were not accessible to them.

China and India

The different stories of what happened in China and India in the past twenty to thirty years have been told many times. But it is important to stress here that the activities of donors and aid programs have had very little impact on these gigantic, systemic changes. The key factors that unleashed these positive energies have been economic liberalization policies that allowed and indeed encouraged people to become more productive, to invest in education and new enterprises, and make money without penalties or fear of being dispossessed. Poverty reduction has been the byproduct of almost unprecedented rates of economic growth caused by policies that fostered new enterprise. It had nothing to do with policies that had as their primary goal the poverty reduction. Which is to say that in these successful examples poverty reduction is the welcome byproduct of successful wealth creation. 

Donors do not like to focus on economic growth

But, somehow, the notion of economic growth as the primary goal of development does not appear to be a noble enough purpose. At least for some development practitioners, economic growth conveys the images of rapacious businessmen, outrageous profits, corrupt practices, wheeling and dealing, profiteering, cronyism, child labor, domestic and foreign exploitation perpetrated by the unchecked powerful; and –worst of all– it means accepting growing economic disparities within societies.

Some of these critiques are justified. Unfortunately, some of these problems are often part of the picture of societies embracing enterprise, at least to some degree.

It is true that economic development, while crucially important, rarely occurs in a linear, harmonious fashion, with gradual, well-distributed benefits for all. To the contrary, it is a messy affair, especially in developing countries that usually lack the framework of laws and institutions that should at least limit excesses and protect people from injustices.

Economic growth is a messy process

However, the existence of significant flaws in how economic development occurs does not disqualify the basic proposition of wealth creation as a precondition for any lasting improvement in the human condition.

In fact, unless we postulate really large-scale, donor-led activities in perpetuity, there is no other way to reduce and eventually eliminate poverty. There just isn’t.

But development practitioners are unconvinced. Many of them, contemplating the negative aspects of uneven economic growth, affirm that, unless this process can be properly regulated to ensure harmonious growth and fairness, then it is better not to have it all. So there you have it: better all poor but equally poor, if the alternative is wealth, but just for some.

Development practitioners often lack a business background

The inability to put economic growth front and center in the framing of development agendas in part can be explained by the cultural make-up of the practitioners. The development environment is managed mostly by functionaries who work for public “donors”: state-run development agencies or multilateral institutions.

They are accompanied by large, religious or lay, private charities. For them, development is a mission, not a policy goal that requires the mobilization of indigenous resources in a productive way. Furthermore, development programs are quite often administered by an ever-growing number of not-for-profit entities. Most of the actors in this system are civil servants, functionaries and well-meaning volunteers. Bottom line: most of them are not business people. 

They are part of large, public or private bureaucratic institutions depending on public funds or donations. As a rule, they do not like, know or understand business and what it takes to make economic growth happen and flourish. For many of them, fighting poverty is a moral, noble endeavor for the good of mankind.

Teaching people how to make a profit in a competitive environment — the indispensable lever for economic growth– is viewed as promoting self-centered and egotistical drives, therefore not at all a laudable effort. In fact many see it as morally questionable.

Poverty reduction alone will not do it

However, lacking a clear focus on economic growth as the paramount strategic objective, the goal of achieving development through poverty reduction is likely to be an endless and quite frankly fruitless task. True, with all these efforts, the poor may become a little less poor, but they will not learn much about getting richer through in competitive enterprises.

Asia grows, while donor supported Africa does not

Asia reduced poverty largely through the elimination of artificial barriers to economic activities, while at the same time promoting education as the ticket to a better life.

On the other side of the divide, we have the sad story of Africa as the paradigm of what has gone consistently wrong, despite decades of well-meaning, donor-led efforts aimed at reducing poverty and improving overall conditions. Whatever has been tried, it failed to create, (with few exceptions, of course), an environment in which enterprises could flourish, with the attendant positive outcomes of sustainable wealth creation activities and consequent diminution of poverty.

This massive failure, compared with the success stories driven from within Asian societies, should provide enough material for reflection on the validity of the current approach.

Still, as yet, this reappraisal has not taken place. Donors are still “fighting poverty“; instead of creating solid foundations for sustained economic growth.

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