There's more to becoming rich than GDP growth

Growth is correlated with improvements in other desirable indicators of quality of life
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The Independent Online

The poor are different from us, they have less money. This simple fact explains why for many years the focus of economists, and organisations such as the World Bank, has stayed firmly on boosting GDP growth rates in the developing world. If 2.4 billion people in the world live on less than $2 a day, getting some more dollars into their pockets is a clear priority.

The poor are different from us, they have less money. This simple fact explains why for many years the focus of economists, and organisations such as the World Bank, has stayed firmly on boosting GDP growth rates in the developing world. If 2.4 billion people in the world live on less than $2 a day, getting some more dollars into their pockets is a clear priority.

But is it a bit too simple? A World Bank report published yesterday painted a far more complex picture. Countries with the same growth rates can end up with very different numbers of people living in poverty and the same sorts of economic reforms can end up having very varied outcomes in different places.

It also emphasised the fact that genuine economic progress requires more than money. Clean air and water, freedom from disease, access to education and security from natural and financial disasters all matter to people as much as having the cash to buy food and goods. While these other aspects depend on GDP growth, growth alone is not enough.

It is typical of economists, a cynic might say, to lift up their noses from dusty tables of figures at last, brush the dollar signs out of their eyes, and notice the obvious. Maybe so but the economists triumph in their collection of detailed evidence on the links between all these good things. It's easy enough to generalise about the importance of good institutions or better education for economic development but, if true, then we need to understand the specifics too.

The report: "The Quality of Growth" accumulates plenty of fascinating detail. The first point concerns the difficulty of generalisation. As Nick Stern, chief economist at the World Bank, notes it is not all bad news on development. In the past few years, the apparently inevitable trend towards greater inequality between countries in GDP per head has come to a halt, as some of the poor are actually getting richer.

Over the period since 1975, it is not only the high profile Asian tigers that have enjoyed rapid growth but also countries like Botswana, Mauritius, Lesotho, and Sri Lanka. China and India have also seen average incomes increase substantially and that also covers a lot of people.

Secondly, growth is correlated with improvements in other desirable indicators of quality of life. It reduces poverty and infant mortality, boosts literacy and life expectancy, and is linked with reduced deforestation and water pollution. But the causation is not all one way. Improvements in health, education and environmental standards can contribute to future growth. The authors conclude that growth has to be high quality if it is to be sustained.

As for how to improve the quality of growth, there is some quite startling conclusions. To take just a few of the findings, extensive corruption is strongly linked to increased infant mortality, with a mortality rate four times higher than in low corruption countries. The study estimates that if the most corrupt countries adopted the standards of the least corrupt, they could treble GDP per head. It would be easy to dismiss the conclusion that corruption hinders growth as a platitude but this is an extraordinarily powerful result.

The same holds for other seemingly obvious links such as the fact that a reduced burden of regulation is good for growth. There are less obvious findings too, like the economic pay-off from improvement in civil liberties. The evidence clearly overturns the once fashionable notion that authoritarian regimes might even be better for growth because they could get things done. Good government is decisively more important than firm government.

There are clear and possibly controversial policy implications. For what this report ends up saying is: if the poor want to be more like the rich in terms of money, they have to be more like the rich in other ways too.

These include a liberal political regime, a commitment to more equality for women and members of ethnic minorities, and a concern for the environment.

This is not an easy message about policy priorities for a banker in a designer suit to deliver to a country where average incomes are just a few hundred dollars a year, life expectancy less than 50 years and as many as one in five children die in infancy.

d.coyle@independent.co.uk

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