Lecture Development economics - Lecture 9: Re-Distribution with Growth (RWG)

The reports of ILO, World Bank and other international agencies promoted this view that along with economic growth there should be a fairer distribution of incomes. Therefore, the economists present a set of four theories to attain the combination of economic growth and fairer distribution of wealth.

1 Re-Distribution with Growth (RWG) Millennium Development Goals (MDGs) Lecture Re-Distribution with Growth (RWG): The reports of ILO, World Bank and other international agencies promoted this view that along with economic growth there should be a fairer distribution of incomes Therefore, the economists present a set of four theories to attain the combination of economic growth and fairer distribution of wealth By following them individually or collectively the incomes of lower classes can be increased However, how such methods will be implemented depends upon the social and economic conditions of2 a Theories or Methods of Income Distribution: (1) To enhance the growth of GNP by raising the savings, and allocate the resources in a better way so that all the sections of the economy could be equally benefited (2) To take steps to get education, loans and other public services for the poorest sections of the society (3) The fiscal systems of the countries be devised in such a way that the distribution of income could move in favor of the poor class (4) The existing assets of the countries be mobilized in3 Components of RWG: (1) As far as growth of GNP is concerned it is a necessary condition to remove the poverty, but it is not a sufficient condition Just depending upon growth it will require a greater time on the part of the poor people to increase their incomes As there exists a weaker relationship between the incomes of the poor people and the remaining economy, therefore, the incomes of the poor class will always lag behind the overall growth of the economy No doubt, the poor class will also be benefited as compared with no rise in GNP, yet, to avail the better benefits due to the strategy of growth of GNP, some package of redistribution will have to be implemented (2) As far as the matter of raising of the incomes of the poor is concerned, govts should invest in 'Human Resource Development' No doubt, such investment in Man may have the effect of decreasing the outputs for sometime and such investments will not yield the quicker results, yet it will lead to increase the productivity and incomes of the poor class in long run (3) The redistributional policies will be consisting of taxing the rich and exempting the poor from taxes Moreover, the poor class be provided with the subsidies in consumption This will improve the efficiency of the poor class But in case of so many UDCs the income levels are poor and they cannot be redistributed Moreover, taxing the rich for re-shuffling of income and wealth may have a negative effect on savings and investment Again, the rich in a country are a few, but they are very much influential they would never allow to shift the resources towards the poor (4) As far as shifting the existing assets towards the poor is concerned (through progressive system of taxation and land reforms) they will also have the effect of bringing an equality in the distribution of income Particularly the land reforms will provide protection to the tenants Consequently, their productivity and income will increase So many economists has criticized the RWG because it stresses upon to follow an evolutionary path rather a revolutionary way Moreover, this approach does not consider the political change which is something very necessary for 'Redistribution', Again, this approach does not pay Experience with Growth and Distribution: Kuznets Curve or U-Shaped Curve: Regarding 'Growth and Distribution' Simon Kuznets (1955) gave the following views: In the initial stage of economic development the issue of distribution of income gets worsened But later on it is improved On the basis of statistical data Kuznets obtained an inverted 'U-shaped' curve Later on after Kuznets in 1976 Ahluwalia improved inverted U-shaped curve on the basis of statistical data of 50 to 60 poor countries Kuznets says that in the initial stage of economic development the unequal income distribution is something imperative It is so because that the population shifts from a stagnant agri sector to higher income modern sector The modern sector gives lower wages in the initial stage because of the increased supplies of labor But with the passage of time when the population falls short in agri and backward sector the supply of labor decreases Now the industrial sector will be forced to pay them higher wages Thus in the beginning the distribution of income becomes unfavorable for the poor class, but later on9 it Mexico and Brazil which heavily depended upon capital intensive technology which did not absorb the labor who migrated from agri sector As a result, the growth in these economies (and even in Pakistan during 1960's) led to concentration of wealth in a few hands On the other hand Taiwan and Korea which depended upon labor intensive technologies the growth led to distribute the benefits to common man The inequality in income distribution in the initial stages of development is also attributed to this fact that the demand for skilled labor increased more than unskilled labor In this way, their wages increased more than unskilled 10 labor Kuznets and other economists got the following results on the basis of data regarding growth and distribution (i) The growth biased economies came into being like Mexico and Brazil (ii) Sri Lanka which experienced a low growth rate but here the distribution of income became fairer (iii) In case of Korea, Taiwan and former Yugoslavia the higher growth rate was accompanied with fairer distribution of income In addition to Korea and Taiwan, Israel, Singapore, Malaysia, Indonesia and Hong Kong are also included in this group 12 The marvelous and remarkable performance of East Asian Countries is attributed to the followings: (i) The saving rates heavily increased due to better policies (ii) The labor force of these countries was found highly efficient, dutiful and hardworking (iii) The govts of these countries left no stone unturned to encourage the entrepreneurs (iv) These countries laid heavy stress upon boosting their exports (v) These countries did not hesitate in importing technologies and knowledge etc (vi) These economies altered themselves in the purview of world circumstances 13 MILLENIUM DEVELOPMENT GOALS (MDGs) A global agenda for development MDG FRAMEWORK ― COMMITS INTERNATIONAL COMMUNITY TO AN EXPANDED VISION OF DEVELOPMENT ― PROMOTES HUMAN DEVELOPMENT AS KEY TO SOCIAL AND ECONOMIC PROGRESS ― CREATES GLOBAL PARTNERSHIP FOR DEVELOPMENT ― CONSOLIDATES TARGETS ESTABLISHED BY INTERNATIONAL CONFERENCES INTO EIGTH ESSENTIAL GOALS ― FIRST SEVEN MUTUALLY REINFORCING, AIMED AT REDUCING POVERTY IN ALL FORMS ― EIGTH GOAL – GLOBAL PARTNERSHIP FOR DEVELOPMENT – IS ABOUT MEANS TO ACHIEVE FIRST SEVEN – “A GRAND BARGAIN” 15 The Millennium Development Goals Goals and Targets (from the Millennium Declaration) Indicators for monitoring progress Goal 1: Eradicate extreme poverty and hunger Target  1.A:  Halve,  between  1990  and  2015,  Proportion of population below $1 (PPP) per day [i] the  proportion  of  people  whose  income  is  Poverty gap ratio  less than one dollar a day Share of poorest quintile in national consumption Target 1.B: Achieve full and productive  employment and decent work for all,  including women and young people Growth rate of GDP per person employed Employment­to­population ratio Proportion of employed people living below $1 (PPP)  per day Proportion of own­account and contributing family  workers in total employment  Target  1.C:  Halve,  between  1990  and  2015,  Prevalence of underweight children under­five years  the proportion of of age people who suffer from hunger Proportion of population below minimum level of  dietary energy consumption  For monitoring country poverty trends, indicators based on national poverty lines should be used, where available [i] 16 The Millennium Development Goals (cont.) Goals and Targets (from the Millennium Declaration) Indicators for monitoring progress Goal 2: Achieve universal primary education Target  2.A:  Ensure  that,  by  2015,  children  everywhere, boys and girls alike, will be able  to  complete  a  full  course  of  primary  schooling Net enrolment ratio in primary education Proportion of pupils starting grade 1 who reach last  grade of  primary  Literacy rate of 15­24 year­olds, women and men Goal 3: Promote gender equality and empower women Target  3.A:  Eliminate  gender  disparity  in  primary and secondary education, preferably  by  2005,  and  in  all  levels  of  education  no  later than 2015 Ratios  of  girls  to  boys  in  primary,  secondary  and  tertiary education Proportion  of  seats  held  by  women  in  national  parliament Share  of  women  in  wage  employment  in  the  non­ agricultural sector 17 The Millennium Development Goals (cont.) Goals and Targets (from the Millennium Declaration) Indicators for monitoring progress Goal 4: Reduce child mortality  Target 4.A: Reduce by two­thirds, between  Under­five mortality rate 1990  and  2015,  the  under­five  mortality  Infant mortality rate rate Proportion  of  1  year­old  children  immunised    against measles Goal 5: Improve maternal health  Target  5.A:  Reduce  by  three  quarters,  Maternal mortality ratio between  1990  and  2015,  the  maternal  Proportion  of  births  attended  by  skilled  health  mortality ratio personnel  Target  5.B:  Achieve,  by  2015,  universal  Contraceptive prevalence rate  access to reproductive health Adolescent birth rate Antenatal  care  coverage  (at  least  one  visit  and  at  least four visits) Unmet need for family planning  18 The Millennium Development Goals (cont.) Goals and Targets (from the Millennium Declaration) Indicators for monitoring progress Goal 6: Combat HIV/AIDS, malaria and other diseases Target  6.A:  Have  halted  by  2015  and  begun  to reverse the spread of HIV/AIDS         Target  6.B:  Achieve,  by  2010,  universal  access  to  treatment  for  HIV/AIDS  for  all  those who need it HIV prevalence among population aged 15­24 years  Proportion  of  population  aged  15­24  years  with  comprehensive correct knowledge of HIV/AIDS Ratio  of  school  attendance  of  orphans  to  school  attendance of non­orphans aged 10­14 years Target 6.C:  Have  halted by 2015 and begun  to reverse the incidence of malaria and other  major diseases         Incidence and death rates associated with malaria Proportion  of  children  under  5  sleeping  under  insecticide­treated bednets Proportion  of  children  under  5  with  fever  who  are  treated with appropriate anti­malarial drugs Incidence,  prevalence  and  death  rates  associated  with tuberculosis Proportion  of  tuberculosis  cases  detected  and  cured  under directly observed treatment  short course  Proportion of population with advanced HIV infection  with access to drugs 19 The Millennium Development Goals (cont.) Goals and Targets (from the Millennium Declaration) Indicators for monitoring progress Goal 7: Ensure environmental sustainability Target  7.A:  Integrate  the  principles  of  sustainable  development  into  country  policies  and  programmes  and  reverse  the  loss of environmental resources     Target  7.B:  Reduce  biodiversity  loss,  achieving,    by  2010,  a  significant  reduction  in the rate of loss Target 7.C: Halve, by 2015, the proportion of  people  without  sustainable  access  to  safe  drinking water and basic sanitation Proportion of land area covered by forest CO2 emissions, total, per capita and per $1 GDP (PPP) Consumption of ozone­depleting substances Proportion of fish stocks within safe biological limits Proportion of total water resources used   Proportion of terrestrial and marine areas protected Proportion of species threatened with extinction Proportion  of  population  using  an  improved  drinking  water source Proportion  of  population  using  an  improved  sanitation  facility Target  7.D:  By  2020,  to  have  achieved  a  10 Proportion of urban population living in slums[i]    significant  improvement  in  the  lives  of  at  least 100 million slum dwellers  The actual proportion of people living in slums is measured by a proxy, represented by the urban population living in households with at least one of the four characteristics: (a) lack  of access to improved water supply; (b) lack of access to improved sanitation; (c) overcrowding (3 or more persons per room); and (d) dwellings made of non­durable material [i] 20 The Millennium Development Goals (cont.) Goals and Targets (from the Millennium Declaration) Indicators for monitoring progress Goal 8: Develop a global partnership for development Target  8.A:  Develop  further  an  open,  rule­ Some  of  the  indicators  listed  below  are  monitored  based, predictable, non­discriminatory trading  separately  for  the  least  developed  countries  (LDCs),  and financial system Africa,  landlocked  developing  countries  and  small  island  Includes  a  commitment  to  good  governance,  developing States development  and  poverty  reduction  –  both  Official development assistance (ODA) nationally and internationally Target 8.B: Address the special needs of the  least developed countries Includes:  tariff  and  quota  free  access  for  the  least developed countries' exports; enhanced  programme of debt relief for heavily indebted  poor  countries  (HIPC)  and  cancellation  of  official  bilateral  debt;  and  more  generous  ODA  for  countries  committed  to  poverty  reduction Net  ODA,  total  and  to  the  least  developed  countries,  as  percentage  of  OECD/DAC  donors’  gross  national  income Proportion  of  total  bilateral,  sector­allocable  ODA  of  OECD/DAC  donors  to  basic  social  services  (basic  education,  primary  health  care,  nutrition,  safe  water  and sanitation) Proportion of bilateral official development assistance  of OECD/DAC donors that is untied ODA received in landlocked developing countries as a  proportion of their gross national incomes ODA  received  in  small  island  developing  States  as  a  proportion of their gross national incomes  21 The Millennium Development Goals (cont.) Goals and Targets (from the Millennium Declaration) Indicators for monitoring progress Goal 8: Develop a global partnership for development  (cont.) Target  8.C:  Address  the  special  needs  of  Market access landlocked  developing  countries  and  small  Proportion  of  total  developed  country  imports  (by  island  developing  States  (through  the  value  and  excluding  arms)  from  developing  countries  and least developed countries, admitted free of duty Programme  of  Action  for  the  Sustainable  Development  of  Small  Island  Developing  Average  tariffs  imposed  by  developed  countries  on  States  and  the  outcome  of  the  twenty­second  agricultural  products  and  textiles  and  clothing  from  developing countries special session of the General Assembly) Agricultural support estimate for OECD countries as a  percentage of their gross domestic product Target  8.D:  Deal  comprehensively  with  the  Proportion  of  ODA  provided  to  help  build  trade  debt problems of developing countries through  capacity )  national and international measures in order to  Debt sustainability make debt sustainable in the long term 10 Total  number  of  countries  that  have  reached  their  HIPC  decision  points  and  number  that  have  reached  their HIPC completion points (cumulative) 11 Debt  relief  committed  under  HIPC  and  MDRI  Initiatives 12 Debt service as a percentage of exports of goods and  services 22 The Millennium Development Goals (cont.) Goals and Targets (from the Millennium Declaration) Indicators for monitoring progress Goal 8: Develop a global partnership for development  (cont.) Target  8.E:  In  cooperation  with  13 Proportion  of  population  with  access  to  affordable  pharmaceutical companies, provide access  essential drugs on a sustainable basis to  affordable  essential  drugs  in  developing  countries Target  8.F:  In  cooperation  with  the  private  14 Telephone lines per 100 population  sector,  make  available  the  benefits  of  new  15 Cellular subscribers per 100 population technologies,  especially  information  and  communications 16 Internet users per 100 population 23 PROGRESS ACHIEVED ― HALVING EXTREME POVERTY REMAINS (ED) WITHIN REACH LARGELY DUE TO EXTRAORDINARY SUCCESS IN MOST OF ASIA BUT SOME IN SOUTH ASIA AND SUBSAHARIAN AFRICA REMAINS OFF TARGETS ― GLOBAL ECONOMIC CRISIS COULD ENDANGER GAINS 24 PROGRESS ACHIEVED (CONT.) ― OTHER SOCIAL GOALS – SOME PROMISE  PRIMARY SCHOOL ENROLMENT  90% REACHED IN EIGTH OUT OF TEN REGION  GENDER PARITY 95% IN SCHOOL IN SIX OF TEN REGIONS  DEATH FROM MEASLES CUT ONE THIRD 2000-2006  VACCINATION RATE 80% FOR CHILDREN IN DEVELOPING WORLD  1.5 BILLION PEOPLE GAINED ACCESS TO CLEAN DRINKING WATER  ACCESS TO MEDICINES SPREADING  THANKS TO DEBT WRITE OFFS AND REDUCED DEBT SERVICE, SOCIAL SERVICES SPENDING UP 25 CONTINUING CHALLENGES ― SOCIAL GOALS REMAIN IN JEOPARDY ― MATERNAL MORTALITY STILL WAY HIGH (1/2 MILLION MOTHERS DIE EVERY YEAR AT CHILD BIRTH) ― ONE QUARTER OF CHILDREN IN DEVELOPING COUNTRIES UNDERNOURISHED ― HALF DEVELOPING WORLD POPULATION STILL LACK IMPROVED SANITATION ― OVER ONE THIRD LIVE IN URBAN SLUMS AND ON AND ON 26 .. .Re-Distribution with Growth (RWG): The reports of ILO, World Bank and other international agencies promoted this view that along with economic growth there should be a... Experience with Growth and Distribution: Kuznets Curve or U-Shaped Curve: Regarding 'Growth and Distribution' Simon Kuznets (1955) gave the following views: In the initial stage of economic development. .. circumstances 13 MILLENIUM DEVELOPMENT GOALS (MDGs) A global agenda for development MDG FRAMEWORK ― COMMITS INTERNATIONAL COMMUNITY TO AN EXPANDED VISION OF DEVELOPMENT ― PROMOTES HUMAN DEVELOPMENT AS KEY