Take off on economic growth…but not on inequality

ARCH2O_StaticDynamism_09-750x400One of the big contradictions on economic growth it´s the incapacity to reduce inequality, however it has a proven record in reducing poverty despite positions against this position.

Like in the picture “Static dynamism” we could see two opposite movements: static (and sometimes increasing) levels of inequality and a dynamic index of economic growth that makes a chaotic stage in which expectations “fly” in a high altitude but without a coherent order needed to clear obstacles and build a reliable and harmonic global system in which all the actors could “fly” freely and in the same direction.

Where relies the origin of this contradiction? One factor that contributes negatively is high expectations from political decisions. A poor boost on productivity having as a consequence high and sustain rates of unemployment, as the case of Spain (23% since the onset of the financial crisis) shows how useless could be to focus in economic growth´s rates when there is not appropriate inclusive policies that helps on the process to “assemble” a real society growth. With successful rates of economic growth, poverty has more chances to be reduced, but not for inequality. Also the fact that economic growth levels are so low, transforms countries as Spain into a stagnate economy, making the challenge of reducing inequality or poverty very difficult. If at least these slow rates of growth would be in conjunction with correct political decisions that tend to reduce unemployment it would be possible to get to positive results. Instead, rates of poverty in the EU have increased to 24.4% of the population including child poverty, which rates goes from 34,6% in Rumania to 29.9% in Spain.

“Economic growth does not in itself reduce poverty and inequality, but also that pro-equity policies and conditions lead to faster and better economic growth”[1].

Acceleration and recessions of the economy on an unprecedented magnitude and frequency marks the dynamic of these complex “codes” of economic-financial behavior.

Currently the world its submerged in several and serious crisis and only by a smart and active management of crisis could be faced with fastness. Big crisis, e.g. migration could be transformed into a positive resource, as Germany is using it to help on their demographic challenges.

Productivity, infrastructure, innovation and education are also others well-know factors and real engines of growth that helps to build resilience, including climate change challenges. Political will become paramount as it’s through political decisions that this engines could be developed and it’s within their own mission to push for structural reforms. To build a resilient society is imperative to establish inclusive policies, in which all the sectors of the society are involved.

“Pro-growth is not pro-poor”, I consider more accurate to stress that pro-growth is not necessary pro-equality. When the World Bank is referring to the first statement means that development aid is just one important aspect in taking in account not the only one, but one that helps in the process of growing economically. What could be the stage if those countries would not had that aid?

 To growth economically is one positive element to struggle against poverty; the real disruptive element that could not be resolved just by growing is corruption. Any effort regarding growth national policies or development aid has a very low impact in countries with high levels of corruption. One of the solutions to struggle against this “disease” is to empower local actors and strengthen institutions that could bring control, transparency and accountability to the system. Is quite common to see international organizations (humanitarian or financial institutions) that help countries without develop mechanisms for a proper follow-up, and at the end (paradoxically) blame the country if there is not success.

Growth cannot be seen but correlated with pillars as good governance, leadership, equality, manageable levels of corruption and also development aid. Particularly for developing countries have proved successful results. According to the IMF, growth in advanced economies is projected to increase from 1.8% in 2014 to 2.1% in 2015 and 2.4% in 2016. Meanwhile in emerging market and developing economies to slow from 4.6% in 2014 to 4.2% in 2015.[2]

So, the big challenge is that economic growth reduces poverty but (eventually) increase inequality. Economic growth by itself will not reduce poverty or inequality, but just helps on a process that need other strong pillars as good governance, transparency and accountability.

If we growth economically we are better prepared to make reforms, but if we don’t use this opportunity to take the correct political decisions that exploits resources and keep the balance by applying inclusive policies, the result will be more inequality and a slow reduction of poverty.

Current global levels of economic growth (3.3%) are the highest in decades but it’s not translated it into a strong, resilient and reliable system, by the contrary it pushes parts of the society out of system to the point that developed countries are facing increases in poverty rates. Is in this sense that economic growth may not even be useful to tackle with poverty. The reduction of poverty comes for more complex initiatives in which development aid & a smart distribution of resources are at first line.

The combination of different approaches plays a key role to tackle inequality in an effective and active way; economic growth per se, is not a guarantee, in fact, it may lead to more inequality. Only by inclusive policies is that its possible to assure the rational and equal distribution of resources. By the contrary as what many authors suggest that this approach is referring to left-wing ideologies, is the only solid path to achieve sustainable growth. Without the involvement of all the actors of the society is not possible to build resilience, consequently sustainability. When the system “breaks” financially it has a high impact in middle and low social class that results in widen the gap and increase inequality. With o without economic growth this gap gets stronger and encysts in the society.

In his time, high expectations on economic growth were a good engine to success, now it´s time to take off also on measures against inequality focus on factors other than economic growth.

[1] http://bit.ly/1M4HeMm

[2] http://bit.ly/1JptgrS

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