"CEOs can't wait to read Sunny Bindra's articles every week."

Only growth will pull us out of poverty

Aug 08, 2004 Success, Sunday Nation

We must grow! There is only one solution to entrenched poverty such as ours, and that is economic growth. It has been proved again and again: growth has to be the principal strategy for raising the incomes, consumption and living standards of the poor.

Consider this: a recent study by Xavier Sala-i-Martin, a Columbia University economist, has shown that in the 1970s, only 11 per cent of the world’s poor were in Africa and a massive 76 per cent were in Asia. In other words, 3 out of every 4 poor people in the world were Asians. Yes, really. Most of us are unable to remember such a world. What we know is this: that by the late 1990s, Africa’s share of the world’s poor had grown to 66 per cent, and Asia’s had declined to just 15 per cent. So now two out of every 3 poor people are Africans.

What happened? No amount of evasion or looking for scapegoats will help us when faced with a statistic like that. We can try blaming the ghastly colonialists, the gruesome slave trade, or the nefarious designs of the world financial institutions. We can play the blame game until the cows come home. But we will wait for a long time, because those milk cows left us decades ago.

The fact is, one part of the world managed to pull itself out of entrenched poverty over the same period that we managed to sink deeper into its withering embrace. Sala-i-Martin puts it very simply: “Poverty reduced remarkably in Asia because Asian countries grew. Poverty increased dramatically in Africa because African countries did not grow…a central question economists interested in human welfare should ask, therefore, is how to make Africa grow.”

Growth is Force Number One when it comes to alleviating poverty. But that alone does not tell us a great deal. The real question is what we must do to grow. The first answer lies in trade. Trade fuels growth, and growth reduces poverty. Consider the contrasting experience, within Asia, of India and the Far Eastern countries. From the 1960s to the 1980s, India remained locked in the ideology of self-sufficiency and high trade barriers. Singapore, Hong Kong, South Korea and Taiwan, meanwhile decided to look outward and grow their competitive advantage in a variety of export products. The result is well known: India stagnated over that period, and the ‘Little Tiger’ economies enjoyed phenomenal growth and poverty reduction.

Consider also the experience of India and China after 1980, the two countries that held most of the world’s poor within their borders in the 1970s. Both ‘sleeping giants’ awoke to adopt an export focus and liberalisation: China aggressively so; India, until more recently, at a more modest pace. According to the World Bank, China grew at an annual average of 10 per cent and India at 6 per cent during the two decades ending in 2000. Last year, India, too, hit the 10 per cent mark. Poverty in China fell from an estimated 28 per cent to just 9 per cent over a similar period; India’s poverty rate fell from over 50 per cent to a more tolerable 26 per cent.

To make any sort of dent in our own poverty ratio, we absolutely have to grow the pie. And we must grow it at rates of 5, 7, or 10 per cent every year – not the 2 or 3 per cent we seem to have settled into. Our own economy cannot deliver that kind of growth – it is simply too small to provide the demand. We have to tap into world markets, just as the Asians did. To do that, we must first produce products that other people want to buy.

In modern economies, that sort of comparative advantage is not endowed by nature. The Asians did not rely on favourable climate, fertile soil or mineral resources to achieve their success: they used knowledge, enlightened government, good management and sheer hard work to wrest advantage from the West. What we need is a well-educated workforce, technical expertise, high levels of capital investment, and entrepreneurial fervour. All of those things can be acquired; all are within our grasp.

We must put great energy and resources into education – but education alone is not enough. To see that, you need only look at the behaviour of our university students. These learned scholars, who cause mayhem when asked to sleep in double-bed bunks and specialise in disrupting major funerals, are living examples of the fact that teaching people facts alone achieves nothing. They can emerge from the learning process as outstanding barbarians. And even if we produced exceptionally skilled graduates, in a low-growth economy all we will be doing is producing workforces for other countries that have the job opportunities.

The fact remains, however unpalatable it may be to some, that in this country we need Foreign Direct Investment, the magical FDI. We will never be able to fulfil the capital investment needed with our own meagre resources without using foreign funds. And, as I have argued in the past, FDI is far preferable to foreign aid: it is self-perpetuating; it does not demand demeaning concessions to foreign governments; and it brings in much needed technological expertise.

Consider the mobile-phone revolution in this country: can anyone argue that it was a bad thing? It has placed an essential communication tool in the hands of over 2.5 million Kenyans to date. It has connected to the world villages that had never dreamed of such a thing. It has given the landline monopolist a much-needed kick in the pants. And it has provided employment not just directly, but to the tens of thousands who sell handsets, connections and scratch cards, and run booths and kiosks.

Growth can be a great ‘pull-up’ strategy for the poor of this country – we need not stay entranced by ‘trickle-down’ and offer the poor mere crumbs. But ‘pull-up’ has certain pre-requisites: it suggests that we encourage the types of enterprises that employ large numbers of low-skilled people; it advocates that we give rural people innovative access to funding; it requires roads and power connections where the poor live; and it demands a stable macroeconomic framework.

All of that asks for just one small thing: that we have an administration that possesses the merest iota of competence. As things stand, we have a government that appears unable to run a tendering process for a second national telecommunications operator. Call me a simpleton, but just how hard is it to evaluate a tender? We also have leaders who have not the vaguest clue on how to handle a hostage situation. How hard is it to check your facts before rushing to call press conferences to make premature exclamations on issues that are under intense international scrutiny?

Very, very hard, apparently. The telecommunications tender fiasco and the Iraq hostages debacle have confirmed our ineptitude to a sniggering and sceptical world. Again, our dignity is laid bare. Again, our ability to grow is retarded. With not an apology in sight.

Buy Sunny Bindra's book
here »

Share or comment on this article

More Like This