Why talking about global poverty reduction without talking about economic growth is a mistake

chinese by Kenno McDonnellBetween 1990 and 2010, the proportion of those living in extreme poverty around the world halved (from 43% to 21%), despite significant increases in the global population. Approaching one billion fewer people are living in extreme poverty now than two decades ago. One of the key United Nations Millennium Development Goals was met 5 years early.

Extreme poverty is narrowly defined: those living on less than $1.25 a day (in 2005 prices). But the significance of this achievement ought not to be underestimated.

Many of those who have escaped extreme poverty in that period have not merely been pushed over the threshold, they have had their lives transformed – particularly in China, where the vast bulk of poverty reduction has happened.

There are a great many reasons for this phenomenal reduction in poverty, but one dwarfs all others: economic growth.

The extraordinary rates and pace of industrialisation in developing countries has created vast economic growth. It may be true that in developed economies like ours the ‘rising tides lift all boats’ theory no longer seems to hold true, but in developing economies it most certainly does. As The Economist notes:

In 1990-2010 the driving force behind the reduction of worldwide poverty was growth. Over the past decade, developing countries have boosted their GDP about 6% a year—1.5 points more than in 1960-90. This happened despite the worst worldwide economic crisis since the 1930s. The three regions with the largest numbers of poor people all registered strong gains in GDP after the recession: at 8% a year in East Asia; 7% in South Asia; 5% in Africa. As a rough guide, every 1% increase in GDP per head reduces poverty by around 1.7%.

Approximately two-thirds of poverty reduction in developing nations comes from economic growth, with the other one-third caused by falling inequality – ensuring the proceeds of that growth are shared more evenly.

Given all of that — the nature of the Millennium Development Goals, and the world’s success in meeting at least the poverty reduction target — it is, frankly, astonishing that on the first day of autumn conference in Glasgow next week, we will debate a motion on global poverty that singularly fails to mention economic growth at all.

No mention in the motion’s analysis of the present situation, and no mention in its calls for further action.

What is in the motion is, broadly, all very positive, but to talk about the story of global poverty reduction without mentioning economic growth is like attempting to understand the contents of a 500-page book by skimming the middle two pages.

This is all the more frustrating because the story of economic development is a story of the success of liberalism. The experiments of economics have shown lots of things over recent centuries and decades, many contradictory and confusing. But if there is one thread to be picked out of everything we know it is that the liberalisation of economies — the opening of borders, a willingness to trade openly, allowing individuals to engage in commerce –is the only route to sustained economic prosperity and the reduction and near-elimination of absolute poverty.

It is highly likely that taking the next billion people out of poverty will be more difficult. Economic development often slows and becomes more challenging the further along the path a country travels. But what we can be sure of is that growing the world economy and increasing global trade will be crucial — alongside the other measures which the motion talks about, including reducing carbon emissions and adapting to climate change.

That’s why I am supporting an amendment to motion F4 from Liberal Reform, which can be viewed here (amendment one). If you’re a conference voting representative you can do the same by filling in your details here.

Photo by Kenno McDonnell

* Nick Thornsby is a day editor at Lib Dem Voice.

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25 Comments

  • Not for the first time Ncik Thornsby sings the praises of the government of mainland China. —
    “Many of those who have escaped extreme poverty in that period have not merely been pushed over the threshold, they have had their lives transformed – particularly in China, where the vast bulk of poverty reduction has happened.”

    He then goes on to assert that —
    “……. because the story of economic development is a story of the success of liberalism. …
    — the opening of borders, a willingness to trade openly, allowing individuals to engage in commerce –is the only route to sustained economic prosperity and the reduction and near-elimination of absolute poverty.

    Can both statements be true? The latter does not seem to be a very accurate description of The People’s Republic. Is Nick Thornsby just a communist sleeper biding his time?

  • Joshua Dixon 25th Sep '14 - 12:36pm

    “but to talk about the story of global poverty reduction without mentioning economic growth is like attempting to understand the contents of a 500-page book by skimming the middle two pages.”

    I think the same could be said about a generalised assumption that economic growth lifts people out of poverty. Particularly without mentioning the sort of action that is also required for it to truly have an effect. Hopefully I’ll get a chance to speak on this in Glasgow to expand on my thoughts. Should be an interesting debate if it gets selected!

  • Nick T Nick Thornsby 25th Sep '14 - 1:09pm

    Hi John,

    I’ve re-read my piece and can’t find any references to the government of China, but happy to be corrected. Perhaps if I state my view that the Chinese regime is an appalling one that not only oppresses its citizens but acts as a malign influence on the world stage in its support for other unspeakable regimes, then you may actually engage with the point?

    It is a plain fact that the Chinese economy has opened up over recent decades. How many products in your house were manufactured in China? All of those statements are true of China – it is certainly not yet the sort of liberal economy I’d like to see there, but it has started on the path of liberalisation.

    Josh – again, I don’t see where I say that we should focus exclusively on the economy? Indeed I say quite the opposite – we should talk about growth and all of the other issues in the motion.

    Why is there an instinctive reaction by some in the party to dismiss the overwhelming evidence that economic growth has reduced poverty on a significant scale?

  • Simon McGrath 25th Sep '14 - 1:20pm

    @Joshua – but it is a demonstrable fact the economic growth does lead to reduced poverty. The example of China, India, Vietnam, Malaya show this very clearly. There may be a few countries where growth has come from resource extraction and kleptocracies have essentially stolen the money but I can’t think of any other examples.

    @Nick -I think the problem that a few in the Party like John Tilley have is that they are instinctively opposed to capitalism and can’t bear to accept how successful it has been in making billions of people better off.

  • Nick Thornsby and Joe Otten.

    I took two parts of Nick’s original piece and asked if both could be true?
    I added on a facetious suggestion that Nick might be a communist sleeper.

    But can you not acknowledge that there is a certain irony in the fact that the world’s most successful “capitalist” economy is managed and regulated by The Communist Party of The People ‘s Republic of China?

  • Joshua Dixon 25th Sep '14 - 2:06pm

    Nick & Simon – I think my point was either missed or badly worded on my part. My point is that if we want to talk about economic growth being a leading mechanism to lift people out of poverty then we need to be explicit in the fact that the long term effects of it are not as clear as we may think. The last 20 years of economic growth and its effects will not be the same as the next 20, 30 years. We must also be clear that growth needs to be utilised in conjunction with action.

    As the President of the World Bank Group said:

    “Even if all countries grow at the same rates as over the past 20 years, and if the income distribution remains unchanged, world poverty will only fall by 10 percent by 2030, from 17.7 percent in 2010. This is simply not enough, and we need a laser like focus on making growth more inclusive and targeting more programs to assist the poor directly if we’re going to end extreme poverty.”

    So yes, let’s acknowledge the importance of economic growth, but lets not allow that to be the end of the debate. Let’s ensure the focus is now on how we can fairly utilise growth to ensure a greater redistribution of wealth and expansion of programs targeted to help those in poverty. Waiting around for growth to lift people out of poverty simply isn’t enough. I know you weren’t intending for that to be the case, but the amendment itself fails to make that clear.

    Also, can I just say that I was in no way trying to “dismiss the overwhelming evidence”.

  • Stephen Hesketh 25th Sep '14 - 2:19pm

    @Nick Thornsby | Thu 25th September 2014 – 11:58 am
    “… talking about global poverty reduction without talking about economic growth is a mistake”

    No it isn’t.

  • Stephen Hesketh 25th Sep '14 - 2:24pm

    Arguements for free trade, international development etc should not be used to hide the fact that the differences in the local and global distribution of wealth and consumption of resources is inexcusable.

  • Joshua Dixon 25th Sep '14 - 2:33pm

    Also should be noted that there is little evidence to suggest that local growth has the desired effects on poverty that it does on the more global scales we’re discussing here.

  • Simon McGrath 25th Sep '14 - 2:52pm

    @joshua – what is ‘local growth’ ?

    @Stephen – can you clarify? The growth in CHina, India etc are enormously reducing global inequality

  • Joshua Dixon 25th Sep '14 - 3:36pm

    Simon – I’m talking growth within local economies, cities etc

  • David Evershed 25th Sep '14 - 5:46pm

    The increase in global competition, particularly in manufactured goods, has meant that the increase in living standards in the Far East has been at the expense of lower pay for unskilled workers in the West. As the number of high skilled workers in the Far East increases, so the salaries of all workers in the Far East and the West can be expected to converge. Only those with rare talent will be able to demand premium pay.

    So the outlook for reducing poverty in the world is good but the outlook for wages for the majority in the West is that they will decline as they converge with the pay of those elsewhere in the World.

  • Stephen Hesketh 25th Sep '14 - 8:07pm

    The fallacy this article is based upon is that economic growth has no resource-limited elements to it, that globalised free market capitalism is not only benign but positively good, and that the extreme wealth of the few can be justified because a completely unintentional bi-product of it is that abstract poverty is reduced to poverty.

    It ignores the historical realities of industrialisation in the UK and elsewhere, for example the fact that people move away from their families to live in the over-crowded grime of sprawling cities and to work long hours on low pay.

    It also ignores the negative effect corporate globalisation has on local small-scale enterprise.

    I can accept that people can be financially better off but anyone who believes it to be some sort of blueprint for a free, sustainable, egalitarian and above all Liberal society, in my opinion is unable to see the wood for the felled trees.

  • Paul In Wokingham 26th Sep '14 - 9:25am

    Standard Chartered recently published research that indicates that in the last 5 years the total indebtedness of China has increased by about 100% of GDP – that is in the form of bond issuance, shadow banking etc. This is staggering, but in the highly planned Chinese economy there is an informal dollar-peg on the yuan which has seen the PBC build up the world’s largest dollar reserve, So China probably won’t crash, just fizzle.

    It is mildly ironic that the people in the party who are most adamant that we must reduce our current account and structural deficit are applauding a country that has increased debt by 100% of GDP in 5 years.

    But those massive GDP growth numbers – while good for the citizens of China and other countries (setting aside the well-publicized stories of working conditions in the electronics factories) are probably not sustainable. And there does not seem to be anything remotely Liberal about the policies that brought them about – unless you are saying that anything that is not protectionism is Liberalism.

  • In the world of debating, several people are proposing a rule whereby anyone who mentions China whilst clearly having no understanding of China’s economy, legal system, cultural, poverty and/or growth have to pay a pound at the end of the debate.

    Nick, Joe and Simon would all have to pay one pound right now.

    Yes, China has reduced its ‘absolute’ poverty. It is has also reduced the life quality of its people and its happiness scores overall.

    If you remove ‘largish’ minority who have been uplifted into their new middle classes, the story becomes even bleaker.

    A find it strange when neo-liberals hold China out as example of why they are right and that we should follow China’s model for success, when China does just about everything they say is wrong.

    The fact is that China’s extreme authoritarian model and Neo-Liberalism both cause pain and suffering for all but the select few, whilst using ‘statistics’ to make out they are helping out the common man.

  • Paul In Wokingham 26th Sep '14 - 10:05am

    I must admit that I have only now read the amendment linked in the article and see very clearly that it says

    After line 47 add:
    e) The lifting of over 1 billion people out of extreme poverty since 1990, thanks to global free trade and the resultant increase in global prosperity.

    After line 82 add:
    13. Continue to support the liberalisation of world markets, particularly by using our influence in global bodies such as the World Trade Organisation, where progress has in recent years been disappointing.

    So this amendment is about free trade. Presumably the authors are anticipating the usual well-rehearsed anti NAFTA style arguments?

  • Joe Otten
    We know a bit about South Korea here in Kingston upon Thames, we have the biggest resident Korean population anywhere outside of Korea.
    If you think that the last fifty years of economic progress in South Korea is down to the sort of right wing let everything rip model of economics that you seem to favour I suggest you do some research quickly.

    You might want to start by googling the word. CHAEBOL

  • Amendment signed.

  • I find it interesting that in the entire discussion so far no mention has been made of Africa…

    Yes China and India have made vast strides in lifting their populations out of poverty, however, they serve to illustrate how important it is for the benevolent rule of government. There are many countries where this is not the case eg. Zimbabwe, Congo …

    So whilst we should cheer the progress made, there is no room for complacency.

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