Linking Economic Growth, Poverty, And Inequality

Pieterse (2001) outlines to us the difficulty of defining the concept of development, as its history is characterized by the supremacy of intellectual trends in context and the multidimensional reality of the concept makes it hard to create an encompassing and working definition. Despite this, one core meaning of development may be deductible in all trends of development theories, according to Pieterse, that is economic growth. Huntington (1987) agrees to this by saying that economic growth, initially, has been a central goal of development towards the third world forged by economists. However, he further enumerates other central goals that have circulated in development literature over time; these are equity, the growth of democracy, political stability, and state autonomy (p 6). These goals offer a multifaceted concept of development. Recent development trends, however, fills in the missing link to these conventional development goals. Amartya Sen and the United Nations Development Programme (UNDP) brings to the fore the importance of uplifting people's overall well-being - that is human development - as a central concern of development as previous goals seemed insufficient in this particular area. Amartya Sen (1999) defines development as human development, clearly in such a way that its primary ends and means include a "process of expanding real freedoms that people enjoy", this furthermore entails the elimination of poverty, oppressive and repressive states, "poor economic opportunities", and "systematic social deprivation". Similarly, UNDP (1990) defines development as the enlargement of "people's choices", in other words it also talks about the enhancement of freedoms, and this includes the formation of the individual's capabilities and overall well-being through an effective and efficient provision of education, health care, and political, economic and social freedoms. This definition veers away from overemphasizing the importance of wealth by stating that income, although also a crucial aspect of development, does not equate to the totality of people's lives and reducing social deprivation and poverty. Building on these definitions, the goals of development must therefore be the balance between economic progress and poverty reduction through human development, in such a way that economic goals contribute to poverty alleviation and the enlargement of people's freedoms towards their overall well-being and equality.

The pretense is that first, there is a need to identify the links between three important dimensions of developmental goals mentioned above, that is, inequality, growth and poverty. At this point we shall discuss the importance of economic growth and the prevalence of inequality towards poverty. We begin by defining what poverty is, the World Bank (1990; 2001) characterizes it as a "deprivation in well-being", the incapacity of the people to participate in basic levels of consumption, as well as the inability of the people to achieve decent levels of education, security and health. Sen (1999) more or less agrees to this by defining poverty as "a deprivation of basic capabilities" (p 20). On the other hand, economic growth is, according to Huntington (1987), traditionally defined in "in terms of increases in per capita gross national product" (p 4) - a primary goal of early development theories. However, this did not equal the improvement of the "living conditions for the millions of people in the third world" (p 5), and thus the need for redefining the goals of development. UNDP (1990) further enumerates that the growths in GNPs of developing countries lacked in the aspect of "socioeconomic deprivation", and on the other hand, "low-income countries" have shown, through effective use of means, possibilities for achieving "high levels of human development" (p 10). Although, economic growth is imperative for development it constitutes only one aspect of development, the goals should then lean more towards poverty reduction, and on widening of people's freedoms, as mentioned above (Huntington, 1987; Sen, 1999; UNDP, 1990; Bourguignon and Morrison, 2002).

Indeed it is agreeable that there should be a focus on alleviating poverty and that human development should be the means and ends of economic growth. The relationship of poverty reduction and economic growth is that economic growth, according to the UNDP (2005), "is one of the obvious requirements for accelerated income poverty reduction and sustained human development" (p20), hence it is an important pre-requisite in uplifting the poor's living conditions. Rodrick (2000) affirms this by mentioning that during the past decades, developing countries which have reached a sustained economic growth was able to alleviate their "absolute poverty levels" (p 2). Closer to home, East Asia, according to the World Bank (2001), has lowered its poverty levels through a steady rate of growth in spite of the financial crisis. Indeed there is much theoretical and contextual support with regard to the systematic relationship of economic growth towards poverty, it may be concluded that with a sustained economic growth, poverty, especially income poverty is reduced through the provision of economic opportunities for the poor; as the World Bank puts it, this is termed as pro-poor growth (World Bank, 2001 and 2007; Rodrick, 2000; UNDP, 2005).

This sustained economic growth directly affects poverty reduction in such a way that it increases household income (hence pro-poor growth) (UNDP, 2005; World Bank, 2001). One implication of pro-poor growth is that growth directly contributes to the well-being of the poor in "absolute terms" as seen through poverty measures (World Bank, 2007; Kraay 2004). Another implication, according to UNDP (2005), is that growth directly contributes to the redistribution of income that can support poverty and human development.

Not only that sustained economic growth contributes to pro-poor growth, it also increases the spending power of the state to invest towards social services, education, and health, and through a focus on the creation of labor intensive opportunities for the poor (UNDP, 2005; World Bank, 2001). However this does not take into consideration the efficiency of the government to utilize the fiscal increase due to economic growth. It is a major probability that the government would incur high levels of corruption that could prevent these crucial investments from happening thus hampering human development. Economic growth, coupled with state inefficiencies and bureaucratic corruption, could then account as counter-productive towards poverty reduction. If done otherwise according to Rodrick (2000), pro-poor growth, simultaneous with "investments in primary