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Monday, 25 September, 2000, 12:02 GMT 13:02 UK
Does growth benefit the poor?

by BBC News Online's Steve Schifferes in Prague

To the demonstrators gathering in Prague to protest against globalisation, the key issue is whether economic growth benefits just the rich or helps the poor as well.

Many protesters argue that the economic prescriptions of the International Monetary Fund and the World Bank have worsened poverty and inequality in developing countries.

And some, especially radical environmentalists, would like to slow down or reverse growth, saying it harms natural resources.

Now those views have received some support from an unexpected side.

'The quality of growth'

The World Bank's chief economist, Nick Stern, says that "although economic growth remains central, an emphasis on the quality of that growth is just as important if the poor are to benefit."

In a new report, The Quality of Growth, the World Bank says that more needs to be done to address issues of redistribution and environmental protection.

It argues that there should be more investment in human capital, especially education, and less in physical capital and the exploitation of natural resources.

Environmental damage

The report estimates that if you take into account the depletion of natural resources, the level of gross savings in Russia would not be 25% of GDP but a negative 1.6%, while in Nigeria the real investment rate would fall to a negative 12%.

And Mr Stern admits there could be a trade-off between growth and these other measures of development, in which case economic growth might have to take second place.

This stance was endorsed by some third world development agencies, who nevertheless argue that the Bank's policy was not being implemented in practice.

Caroline Harper of Save the Children told BBC News Online that other issues of social policy should be given equal priority with economic objectives designed to promote growth.

But in many countries in Africa and the former Soviet Union, countries are still being told by the IMF to charge users for health and education services to boost their budgets - something which directly hits the poor.

The Washington consensus

Once the World Bank decreed that free trade and free capital flows were the indispensable conditions for stimulating economic growth in developing countries - the so-called 'Washington consensus'.

Mr Stern now says this policy is dead. However, he argues that there is no alternative to IMF policies that ensure macroeconomic stability.

Supporting the argument, another paper published by the World Bank suggests that growth is good for the poor.

David Dollar and Aart Kraay say the incomes of the poor rise in line with rising living standards, they do not fall disproportionately in times of economic crisis, and avoiding inflation is of particular benefit to poor people's incomes.

Mr Stern argues there is no contradiction between looking at the quality of growth and putting in place traditional policies that boost economic growth.

Growth is the single most powerful tool in poverty reduction, he says, although he notes that it does not guarantee redistribution of resources, and does not capture some key non-cash needs of the poor, like health and education.

Developing countries still need open markets and investment from abroad, he says.

'Fundamental flaws'

But others say the way the World Bank promotes growth is fundamentally flawed.

Christian Aid's Andrew Pendleton said: "Economists often say that poverty will not be tackled unless there is strong growth in the world economy. But that is a fantasy unless wealth is spread more evenly."

And Mark Weisbrot and Dean Baker of the Washington-based Economic Policy Institute dispute the analysis in the World Bank paper.

They say evidence for the relationship between growth and redistribution is weak, and that the key question is "what has caused the dramatic slowdown in economic growth over the last two decades, and how much of it is attributable to the policies of the IMF and World Bank".

"The fact that the growth slowdown has coincided with increasing globalisation should cause economists who advocate indiscriminate opening to trade and financial flows at least some cause for reflection," they conclude.

Growing opposition

And new evidence of the extent of the growing opposition to the policies of the IMF in developing countries has been released by the UK-based presssure group World Development Movement (WDM).

WDM researchers say that since the anti-globalisation protests began in Seattle in December 1999, there have been one million people involved in demonstrations in 13 countries ranging from Argentina to Zambia, with at least 300 injuries and 160 arrests.

"These protests demonstrate the strong feeling against the harm caused by IMF policies," said Jessica Woodroffe of WDM.

The protests in Prague may or may not succeed in disrupting the IMF/World annual meeting, but they have certainly stimulated a debate which has now gone to the heart of these institutions themselves.

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