April 16, 2013

Who says trade and growth will lead to development?

This article first appeared on the Ottawa Citizen blog on aid and development.

Aid hasn’t done much for development, and even less for sustainable growth in countries. In fact everything but aid – trade liberalization, productivity and technology gains, income redistribution, remittances, the new “gangnam style” dance (ok, I made that bit up) – have been at the heart of the dramatic improvement in living standards in a number of emerging economies in recent years.

This is the main premise of the Globe & Mail’s March 29 editorial, “Towards better, smarter foreign aid”, on their rationale for why merging the Canadian International Development Agency (CIDA) into one Department of Foreign Affairs, Trade and Development makes total sense.

Forget building bridges, roads and dams. Together, aid can better used to promote trade, which in turn will lead to more sustainable growth and long-term development. Just look at Brazil and Mexico and South Africa, the Globe says.

So I did.

In recent years, there has been a growing body of evidence that has analyzed some of the factors that encouraged sustained and inclusive growth and development in many emerging and developing economies.

The World Bank -sponsored 2008 Commission on Growth and Development drew its “strategies for sustained and inclusive growth” from 13 developing economies that enjoyed a sustained (25 years) period of strong growth (seven percent) and human development. The UNDP’s 2013 Human Development Report on “The Rise of the South” was released just one month ago. It taps the experience of 40 countries that had “done better than expected” in terms of both income and non-income dimensions of human development.

Both reports (like me) unequivocally agree that while trade and growth are important, growth is an insufficient condition to ensure long-term, positive and sustainable human development.

So what then? Each report highlights a number of key factors that contributed to the success of these economies in terms of both positive growth and human development outcomes. They overlap in three areas worth highlighting:

1)      Strong leadership and an active government and society  – While the private sector has an important role to play in development, both the Commission and UNDP reminds us of the necessity of a pro-active developmental state and society. Supported by a talented and well compensated public service, the Commission’s cases identified the importance of active governments that were invested in, and committed to, long-term plans to bring about inclusive growth in their economies and to effective institutions to deliver on this commitment.  But governments also need social policy that promotes inclusion, adds the UNDP, to ensure non-discrimination and equal treatment. As the Arab Spring has reminded us, this also requires space for people – in particular young people - to voice their concerns and demands, influence and shape policy, participate in political processes and demand accountability.

2)      A healthy questioning of unfettered liberalization – While the Commission acknowledges the need for open markets and a responsive economy that supports innovative new industries and dumps obsolete ones, it acknowledges that none of the countries they studied were free market purists (nor was the US and UK, for that matter). These countries developed industrial strategies to promote investments in new sectors, subsidized industries that otherwise wouldn’t have emerged, managed their exchange rates, implemented capital controls, and built up their reserves. (It is enough to make Adam Smith roll over in his grave.) Although neither the UNDP nor Commission advocate for such policies long term, they do recognize that there is a time and a place for such policies. Likewise, while the UNDP notes that tapping global markets is key, “success is more likely to be the result not of a sudden opening but of gradual and sequenced integration with the world economy, according to national circumstances, and accompanied by investment in people, institutions and infrastructure.”

3)      Impressive levels of public investments – Both the Commission and UNDP underscore the importance of investing heavily in people (quality education and skills development, in particular for girls, and nutrition and health care), and in infrastructure (roads, ports, airports, electricity, telecommunications). But this must also be accompanied by a strong focus on job creation and equality of opportunity that can shape (and be shaped by) the nature and pace of the job market, in synch with the skill-set of the new workforce. Furthermore, social safety nets, legal empowerment and access to basic services help smooth the transition for people between jobs. According to the Commission, this produces “healthy, educated workers, passable roads, and reliable electricity” and actually crowds in private investment, creating what the UNDP calls “virtuous cycles in which growth and social policies reinforce each other.”

Which leaves me wondering: wouldn’t “better, smarter foreign aid” have more leverage and impact if it aligned less with how we think growth and development works, and more with how it is actually happening – and quite successfully – in many parts of the developing world?

What do you think?

This blog was written by Fraser Reilly-King, Policy Analyst (Aid), CCIC. The views expressed are his own, and do not necessarily represent the views of CCIC or its members.

April 9, 2013

Human Development Report 2013: Operationalizing Sen’s Development Framework through the Multidimensional Poverty Index

Development is frequently framed solely in terms of economic growth. Welfare and poverty measures’ paramount focus has been on income, consumption of goods, and availability of resources. Hence, development processes have traditionally been evaluated and quantified using economic indexes such as the Gross Domestic Product. Likewise, poverty is defined by a threshold of income, or alternatively of household commodities consumption, that one must cross in order to escape from being labelled “poor.”

However, examining income alone is inadequate for describing human poverty. Utilitarian-focused poverty measures do not reflect concerns over other aspects of human deprivation, such as well-being, happiness, sustainability, freedom, capabilities, and the like. In short, these poverty measures’ preoccupation with setting the right components and prices in evaluating those metrics overshadow the non-economic aspects of human development.

Unsatisfied with current measures of poverty and welfare, and wanting to capture the full complexity of human capabilities, development economists such as Amartya Sen have expounded the capability approach throughout the past few decades. Sen’s work seeks to reorient development work to expand individuals’ capabilities in achieving valuable beings and doings. Departing from orthodox measures of poverty and the Rawlsian emphasis on primary goods or utility measures, Sen examines an individual’s level of functionings – that is, the “various things that a person may value doing or being.” This framework reorients human development to expand a person’s real opportunities or freedoms to live lives he or she has reason to value.

Notwithstanding his other contributions to the development discourse, Sen’s conceptualization of capabilities as a kind of substantive freedom is an advancement for those who are traditionally disregarded in decision-making processes. Recognizing the poor’s agency in voicing their own needs and laying claims to opportunities for living lives they have reason to value, the marginalized are cast to the forefront as actors – in lieu of passive beneficiaries of aid – within development processes. In sum, Sen’s philosophical reframing of poverty and development has the potential to effectively democratize development processes.

His conceptual framework laid the foundations for the Human Development Index, which was created in 1990 for the Human Development Report. This index is supplemented by the Multidimensional Poverty Index (MPI) in 2010, which “identifies multiple deprivations at the individual level in health, education and standard of living” across 104 developing countries (UNDP). Its developers advocate for its use in order to complement income poverty measures. By measuring acute poverty instead of extreme poverty (based on the World Bank’s $1.25/day poverty measure), the MPI sheds light on those who “do not reach the minimum standards in several indicators at the same time” (Alkire and Santos 2011:30).

The legitimacy of the MPI stems from how it reflects the Millennium Development Goals in its indicator cut-offs, making it a more direct measure of human development aspirations that are internationally agreed-upon (Alkire and Santos 2011:30). Drawing from data sources such as the Demographic Health Surveys (DHS), the Multiple Indicator Cluster Surveys (MICS), and the World Health Survey, the MPI focuses on the wider dimensions of poverty and underdevelopment than traditional income poverty measures. Unlike the Human Development Index, however, the MPI’s variables are linked to a particular household (i.e. same survey source). The MPI is also decomposable by population sub-groups, allowing policy makers to analyze poverty data and target their development policies to specific groups accordingly.

OPHI’s analysis of the global MPI 2013 spans four topics, of which one is an analysis of where the poorest “Bottom Billion” live using both national averages and individual poverty profiles. By identify where the poor are and how they are poor, the MPI 2013 can be used to divert resources effectively to meet the Millennium Development Goals and the post-2015 MDGs. The analysis is especially important in dispelling common assumptions of where the poor are: almost 10% of the poorest billion people live in High Income or upper Middle Income countries. This demonstrates the need for going beyond traditional monetary poverty measures for identifying the poor.

Because the MPI can be disaggregated, it can highlight inequalities across regions and social groups. If one examines national poverty levels, the MPI shows that the “Bottom Billion” live in 30 countries, with 66% of the poorest billion living in Lower Middle Income countries. An analysis of subnational poverty levels shows that the bottom billion live in 265 subnational regions across 44 countries. Finally, individual poverty profiles reveal that the poorest billion are distributed across 100 countries, with over 9% living in upper Middle Income countries. Geographically speaking, South Asia is home to the majority of the world’s poorest billion, ranging from 52 to 62%, depending on the level of disaggregation. Most of the rest of the “Bottom Billion” live in Sub-Saharan Africa.

From the discussion above, it is clear that the MPI is a crucial tool for analyzing the effectiveness of poverty alleviation efforts on national, subnational, and individual scales. Moreover, it provides a more comprehensive picture of human development and takes into account the voice of the poor. By focusing attention on people’s capabilities, the MPI is one step closer to realizing Sen’s call towards a development paradigm that centers on the poor’s agency in reframing what poverty means, thus bringing about a more inclusive development regime that truly addresses the deprivations faced by individuals.

Esther Kwan is a first year MPhil student at the Oxford Department of International Development.