Sunday, July 18, 2004
Making sure the poor aren't always with us
Posted by David Smith at 09:00 AM
Category: David Smith's other articles

WHO was the big winner in Gordon Brown’s comprehensive spending review last week? Not John Reid at health, despite a 7.1% annual real-terms increase in his budget for the next three years. And not Charles Clarke at education, who gets an extra 3.9% a year.

No, the winner was Hilary Benn, son of the considerably more famous Tony, at international development. He gets an increase of 9.2% a year in real terms between now and 2007-8. If he stays in the job, he can expect much more.

Overseas development assistance is on course to rise to £6.5 billion, 0.47% of GNI (gross national income, used in preference to gross domestic product for these measures). The chancellor committed himself, or his successor, to hitting 0.7% of GNI by 2013.

When Labour took office in 1997, the figure was 0.26%. With overseas development spending already up by 140% in real terms since then, the younger Benn is taking over where Clare Short left off.

Aid for overseas development gets a mixed press. Are things improving in the Third World? The latest Human Development Report from the United Nations Development Programme (UNDP), out last week, had encouraging things to say.

It pointed out: “Between 1960 and 2000 life expectancy in developing countries increased from 46 to 63 years. Mortality rates for children under five more than halved. Between 1975, when one in every two adults could not read, and 2000, the share of illiterate people was almost halved. Real per capita incomes more than doubled, from $2,000 to $4,200.”

Most of that was achieved by exposure to the global economy and trade, rather than aid. The biggest improvement in the number of people living on less than $1 a day — the standard poverty measure — has come from China’s economic rise, which has taken more than 400m out of poverty in the past 20 years.

Even so, the problems of global poverty are huge and enduring. Many economists leave university determined to spend their careers doing something about it, only to find that it is more productive — and lucrative — to spend their time analysing the decisions of the Federal Reserve or the Bank of England’s monetary policy committee.

More than a billion people, a sixth of the global population, are still below that $1-a-day figure, and roughly three billion are below $2 a day. As the UNDP also pointed out, “massive human deprivation” remains, including 800m people suffering from undernourishment and 100m children with no education.

And while globalisation has been a force for reducing poverty, it has also plainly increased disparities. That is not all bad. Deng Xiaoping, the former Chinese leader, said: “Will the reforms in China lead to more income inequality? I hope so.”

Even so, there is the question of degree. A new paper from the Department of Trade and Industry, “Liberalisation and globalisation: maximising the benefits of international trade and investment”, points out that the gap in average incomes between the 20 richest countries and the 20 poorest has doubled in the past 40 years.

This is part of a long-term trend. The advanced economies of western Europe, north America and Japan had a real per-capita GDP rise between twentyfold and thirtyfold from the early 19th century to the end of the 20th. In the rest of the world there was a fivefold rise. Even adjusted for relative prices — purchasing power parity — the richest countries are more than 70 times as well off per head as the poorest. In the first half of the 19th century the gap was something like 4.5 times.

More recently, the problem has been for those countries apparently stuck in poverty, where things have got worse. According to the UNDP, 46 are poorer than they were in 1990. The worst-affected region by far is Africa, the continent that development appears to have left behind, because of bad government, corruption, war, unfair trade and Aids.

On his trip to the Vatican earlier this month, the chancellor spoke with passion about such problems and about a British initiative, the International Finance Facility, which could make a serious difference. The facility, proposed last year by the Treasury and Dfid, the international development department, is a genuinely good British idea, backed by serious-minded Conservatives such as Lord Griffiths.

Brown — who, contrary to a report last week, has visited Africa — rightly sees mutual benefits from development. The rich countries don’t gain by keeping the poor downtrodden. As he puts it: “When some are poor, our whole society is impoverished.” Apart from the obvious economic gains in trade and investment opportunities, Third World poverty breeds resentment and makes the world a more dangerous place.

The International Finance Facility would work by using the pledges of rich countries to aid the poor as collateral for raising funds for development in global capital markets. Help for poor countries could increase by $50 billion (£27 billion) a year. It could act, as Brown puts it, like a modern Marshall plan, but this time aimed mainly at Africa.

The facility has attracted a lot of support and could get the green light at the annual meeting of the International Monetary Fund in September. Without it, many of the millennium development goals — on poverty, education and health — will not be achieved in Africa until well into the 22nd century.

Aid, of course, has to come with strings attached. It should not flow directly into the bank accounts of corrupt dictators. It should be used to finance long-term economic development, not to act as a short-term palliative that could increase rather than reduce dependency, as Lord Bauer, Margaret Thatcher’s right-wing economist, pointed out many years ago.

Countries receiving aid should put in place sensible economic policies, something the involvement of the markets should help to promote. Handled badly, aid can increase economic problems, notably inflation. Poor economies should also be committed to free trade, the best route to prosperity.

Here too, however, the government has sensible things to say. The DTI’s new white paper on trade and investment makes the point that trade barriers in advanced economies, notably in agriculture, cost poor countries $75 billion (£40 billion) a year.

Developing countries cannot be expected to liberalise their trade unilaterally if that would merely stack the odds further against them. If the current trade round, the so-called Doha development agenda, is to succeed, it requires concessions from the rich countries.

It is easy to despair about the world’s poor. The problems are many but there are success stories. And we should be proud that many of the best ideas are coming from Britain.

PS: Somebody said to me the other day that they like this column because I write like an economist. With all due respect to fellow economists, that’s a bit like being told you make love like an accountant, or are the bad boy of flower-arranging.

Anyway, I will write like an economist about last week’s job figures. On the one hand they were good, showing that the claimant count was down by 9,600 to 850,900, or just 2.7% of the workforce. This is comfortably below the 3% rate normally thought to be consistent with full employment.

On the other hand, employment in the latest three months was down 29,000 to 28.3m, and the wider Labour Force Survey measure of unemployment was up by 6,000 to 1.43m, or 4.8% of the workforce.

We have had these divergences between the two sets of figures before. But maybe the message this time is that the rise in employment is levelling off, particularly if public-sector jobs are to grow at a slower rate (the 70,000 civil service job cuts being only part of the story).

A levelling-off of employment, in the context of rising output, could deliver the long-awaited rise in productivity, for a while at least.

In a recent speech, Steve Nickell of the Bank of England made the point that low productivity and rising male inactivity (despite falling unemployment) are products of the same thing: low skills among men. Only by tackling that — another spending review theme — will there be a sustained improvement in productivity.

From The Sunday Times, July 18 2004

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