This document discusses issues with the commonly used term "pro-poor growth" in development discourse. It argues that the term is ambiguous and can refer to two different concepts - one focused on changes in income distribution and the other on impacts on the poor. It also argues that the term is emotionally loaded and can mislead people into believing "pro-poor growth" is the only acceptable form of growth. Finally, it claims the distribution-focused definition of the term distracts from real policy choices that can impact poverty, like economic growth rates. The document advocates abandoning or clarifying the use of the term.
"Pro-Poor Growth" - adjusting the rhetoric to the reality. Don Sillers, USAID/EGAT/PR
1. “Pro-Poor Growth” - Adjusting the Rhetoric to the Reality
Don Sillers, USAID/EGAT/PR
Since the late 1990s, the term “pro-poor growth” has attained a prominent place in the
vocabulary of the development community. This note argues that the net effect of this term’s
appearance has been to reduce the prevailing quality of thinking, by directing attention away
from the real issues connecting growth and poverty reduction. As matters stand, continuing to
use the term “pro-poor growth” is harmful for at least three reasons:
First, different authors apply the phrase to at least two fundamentally different concepts –
one focused on changes in distribution, the other on net impacts on poor people. The co-
existence of these two meanings produces much ambiguity and miscommunication. The
distribution-focused concept seems to have emerged as the more prevalent – an
unfortunate outcome, for reasons detailed below.
Second, the emotionally loaded wording tends to seduce listeners into believing that
“pro-poor” growth is not only desirable but is the only acceptable form of growth. After
all, what kind of moral monster would admit to opposing “pro-poor growth,” or
conversely to supporting anti-poor growth? Casual listeners are far more easily
persuaded to adopt the position that “growth is good only if it is pro-poor” than to sort
through exactly what this statement means and what trade-offs are at stake.
Third, the distribution-focused concept of “pro-poor growth” distracts attention from
public policy choices that can actually affect the lives of the poor – the rate and
sustainability of economic growth, and the degree to which poor people are able to take
advantage of the opportunities created though growth – and directs attention instead to
distributional issues where public policies often have only limited impact, especially in
the short run and especially vis-à-vis far more powerful trends in global technology and
the terms of trade.
The bottom line is that continued use of the phrase “pro-poor growth” does more harm than
good. Under these circumstances, AID could strike a blow for clear thinking about growth and
poverty reduction through either of two courses of action: (1) eliminating “pro-poor growth”
from our own vocabulary, using more specific phrases to describe more specific phenomena, and
going out of our way to explain to others why they should do the same; or (2) consciously and
consistently using “pro-poor growth” in its less popular but more meaningful sense of “growth
that benefits the poor,” using a different phrase to talk about changes in income distribution, and
again trying to promote a similar shift in usage among the rest of the development community.
Problem 1: Ambiguity
Ever since the development community began using the phrase “pro-poor growth,” there has
been general agreement that it must be a good thing, alongside active debate over just what it
means. As several contributors to this debate have noted, it is quite difficult to identify a precise
definition. For example, the World Development Report 2000/01: Attacking Poverty uses the
Preliminary Draft – For Comment Only 1/30/15 2:25 a1/p1
2. phrase freely, but never provides a clear definition of the concept. However, two “families” of
definitions can be identified:
Distribution-focused definitions. One family of definitions focus on changes in the distribution
of income that accompany growth over a particular time period. From this perspective, the
essence of “pro-poor growth” is that the poor benefit more than others. Kakwani and Pernia
(2000) offer a typical definition along these lines: “Thus, growth will be pro-poor when … the
poor benefit proportionally more than the nonpoor, i.e., growth results in a redistribution in favor
of the poor.” The same authors recognize that economic growth can enable poor households to
escape from poverty, even when the distribution of income remains unchanged or moves against
the poor: they define either of these outcomes as “trickle-down growth.” Somewhat
confusingly, Kakwani and Pernia also apply the label “pro-rich growth” to describe the same
situation. According to this set of definitions, growth must either be “pro-poor” or “pro-rich:” it
cannot be both. Thus, from this perspective the “pro-poor-ness” of growth depends exclusively
on changes in the distribution of income.
Poverty-outcome-focused definitions. The second family of definitions focus on changes in
the incomes (or consumption) of initially poor households over a particular time period. From
this perspective, “pro-poor growth” is simply growth that benefits the poor; it need not benefit
the poor more than others. Ravallion and Chen (2001) offer one clear definition of this type:
“… ‘pro-poor growth’ is the mean growth rate [in the income or consumption] of the [initially]
poor…” Rather than restricting attention to changes in distribution, this measure concentrates on
overall outcomes for initially poor households, “for the purpose of monitoring the gains to the
poor from economic growth…” Ravallion and Chen argue that their measure represents an
improvement over one used by Dollar and Kraay (2000): the growth rate in mean consumption
or income of the poorest quintile of the population.1
For present purposes, the similarities
between these two measures are much more important than their differences: both focus on
outcomes for poor households.
Figure 1 illustrates the key distinction between these two concepts. In this figure, the origin
represents the starting position for a particular country at the outset of a “growth episode” of
some duration. Each arrow represents two aspects of such a growth episode: the percentage
change in national real consumption, measured along the horizontal axis, and the percentage
change in the real consumption of the poorest 10 percent of households, measured along the
vertical axis.2
In this figure, the northeast and southwest quadrants represent the overwhelming
majority of real-world experience, as documented by Deininger and Squire (1996) and others:
overall growth accompanied by growth in the consumption of the poor, and overall economic
deterioration accompanied by further immiseration of the poor. The empirical record
demonstrates that the consumption of the poor only rarely moves in a different direction from
national consumption, and then only when measured over a brief transitional period. As a result,
1
Ravallion and Chen note that the Dollar-Kraay concept can run into problems to the extent that households initially
living above the mean of the bottom quintile experience income growth which allows them to move into the second
quintile: the mean income of the bottom quintile falls, even as the incidence of poverty has declined. It is not clear
whether this situation is empirically important.
2
The poorest 10% are highlighted purely for the sake of specificity; attention could equally be drawn to the poorest
20% or 40%, or to those households initially living under the $1-a-day or $2-a-day poverty lines.
2
3. it is reasonable to concentrate on the northeast quadrant, where all episodes of overall growth
that can reasonably be described as “pro-poor” are plotted.
In the distribution-focused view, the pro-poor-ness of a particular growth episode depends on
what happens to the income distribution. In figure 1, growth with unchanged distribution is
represented by an arrow lying along the 45° line. All arrows drawn counter-clockwise from the
45° line (e.g., D and E) represent “pro-poor growth” according to this view; all arrows drawn on
or clockwise from the 45° line (e.g., A, B or C) represent “trickle-down” or “pro-rich” or “anti-
poor” growth, regardless of how well the poor do over the corresponding growth episode.3
Moreover, among growth episodes counted as “pro-poor” according to this view – that is, among
growth episodes in which the income share of the poor increases relative to the non-poor –
Kakwani and Pernia rank pro-poor-ness solely on the basis of the distributional change involved.
For example, they count episode E as more pro-poor than episode D, despite the much larger
benefits that accrue to the poor during episode D. This last point highlights a key source of
confusion created by using the phrase “pro-poor growth” in this manner: by defining “pro-poor-
ness” as purely a function of distributional changes, these definitions necessarily sever any real
connection between pro-poor-ness and growth. In this view of “pro-poor growth,” the word
“growth” is simply along for the ride. This point suggests a potential source of increased clarity:
revising the terminology so that statements that purport to say something about growth actually
do so, while statements that actually say something about distributional change use words that
make this explicit.
The poverty-outcome view classifies the same growth episodes differently. In this view, the pro-
poor-ness of growth depends entirely on whether it increases the welfare of the poor, and by how
much. In terms of figure 1, the critical piece of information about any particular growth episode
is the vertical component of the arrow representing it: all growth episodes in the northeast
quadrant are counted as “pro-poor,” but to different degrees. Episode A is more pro-poor than
episodes D or E, because faster overall growth during episode A has provided greater net gains
to the poor than the slow growth and pro-poor redistribution seen during D or E. In this view,
episodes B and D are counted as equally pro-poor, despite the fact that the distribution of income
has moved in different directions. Finally, growth episode C is counted as the most pro-poor of
all, because the very rapid growth experienced during this period has outweighed the shift in
income distribution against the poor, yielding the largest net gains for initially poor households.
This pattern is empirically important because it characterizes the stylized facts behind the rapid
decline in absolute poverty seen in recent decades in China and India, arguably the most rapid
reduction in absolute poverty in human history. Likewise, growth episode A merits attention
because it roughly corresponds to the average growth experience of those developing countries
included in the Deininger-Squire data set, by virtue of having meaningfully comparable data on
income distribution at the beginning and end of a particular growth episode: based on this large
sample of growth episodes, the “average” story is that distribution changes little, so that growth
in the income or consumption of the poor depends overwhelmingly on the rate of overall growth.
3
This figure also highlights the peculiar “yes/no” aspect of the distribution-focused view: growth episode A is
defined as “trickle-down” because the poor benefit exactly as much as the average, whereas an imperceptible
rotation counter-clockwise would transform this episode into “pro-poor growth.”
3
4. Neither of these very different concepts of “pro-poor growth” has yet driven the other out of the
marketplace of ideas. A Google search on the phrase “pro-poor growth” uncovered examples of
documents using the phrase in each of these two, fundamentally different senses, although those
using some form of the distribution-focused definition seemed to be in the majority. Likewise, a
(completely unscientific) poll among thoughtful non-specialists found some who thought “pro-
poor growth” should mean “growth that’s good for the poor,” and others who thought it should
mean “growth that’s especially good for the poor.” Again, the distribution-focused concept
seemed to hold a slight majority.
Based on this evidence, it appears that the development community continues to face a situation
in which a widely used phrase is used in two completely different, mutually inconsistent ways.
Such confusion cannot be good for clear thinking about policies, programs, and institutional
reforms. In the interests of clarity, the label “pro-poor growth” should be attached to at most one
of these competing concepts, while a different label should be developed to refer to the other.
The next section suggests an even better solution – discard the term entirely, and adopt new
terms that mean what they sound like they mean.
Problem 2: Subverting Analytical Clarity with Emotional Language
Virtually all members of the development community are keenly aware of the misery and
degradation suffered by the many millions of people living in absolute poverty in the developing
world. Many became involved in development in the first place out of a sense of personal
commitment to reducing poverty, and continue to regard poverty reduction as the ultimate goal
of their professional efforts. Their fervor is further strengthened by the extreme divergence seen
among developing countries in recent decades: while economic success in some countries has
enabled millions of people to escape from absolute poverty, stagnation or decline in other
countries has caused many others to fall deeper into poverty, with no visible prospects for
escape. The manifest evidence that mass poverty is not inevitable makes its persistence in some
countries seem all the more outrageous.
This sense of personal moral commitment to helping the poor predisposes many members of the
development community to approach the subject of poverty reduction from an emotional, rather
than an analytical angle. Under these circumstances, describing a particular pattern of growth as
“pro-poor” makes it too easy to convince listeners that such a growth pattern must be a good
thing – indeed, that it must be the only acceptable form of growth – even without a clear
understanding of the relevant tradeoffs. Similarly, describing a particular growth pattern as
“trickle-down” or “pro-rich” or “anti-poor” growth relies on the listener’s emotional inclination
to reject any such pattern of growth, before – or instead of – considering how the fortunes of
different members of society might be changing during such a growth episode. Given the
predisposition of the audience, it can be safely assumed that many will automatically associate
“pro-poor growth” with “good growth” and anything else with “bad growth.”
“Pro-poor growth” is an example of what philosophers call a “persuasive definition,” in which
emotionally charged language is used to influence attitudes toward a concept. In some such
cases, the words are used in a manner that bears little relation to their ordinary usage. The most
notorious example of this practice is the special meaning Marx attached to the word
“exploitation,” under which any firm that pays wages to its workers while still making a profit, is
4
5. by definition exploiting those workers (Little, 1982). The stakes involved with “pro-poor
growth” are not as high, but the problem is the same: people hear the words and are persuaded to
act against “exploitation,” without understanding the special way in which that word is being
used. Likewise, people hear the phrase “pro-poor growth” and are persuaded that it must be not
only a good thing but a necessary thing, even without a clear understanding of what it means.
As emphasized in the previous section, at least two fundamentally different concepts of “pro-
poor growth” currently exist within the development community. The implication of this section
is that the label should be thrown out entirely, and replaced with alternative terminology that
carries less emotional baggage. In particular, it would be possible to take advantage of the fact
that the net change in the income or consumption of the poor over a particular time period can be
decomposed into a portion reflecting the change in the overall economic pie, and a second
portion reflecting any change in the share of the poor in that pie. By using the labels “pro-poor”
and “anti-poor” exclusively to describe changes in the distribution of income, while describing
changes in overall income simply as more or less “rapid,” any net changes in the position of the
poor could be summarized clearly and unambiguously. The final section considers options for
alternative terminology.
Unfortunately, the term “pro-poor growth” may already have taken root too deeply for this first-
best solution to be practical. If so, the second-best solution would be to promote the more
analytically meaningful notion of “pro-poor growth,” and correspondingly to suppress the more
misleading notion. The following section makes the case for adopting the poverty-outcome
notion of “pro-poor growth.”
Problem 3: Distracting Attention from the Real Policy Choices
The preceding sections concentrate on the rhetorical problems created by the phrase “pro-poor
growth,” including ambiguity and emotionality. Up to this point, no strong conclusion has been
drawn regarding the relative merits of the two families of definitions. In contrast, this section
argues that the distribution-focused definition is especially misleading – in particular, that this
terminology actively undermines clear thinking about the real policy issues affecting the poor.
To see why this is the case, recall the point made near the end of the last section – that any
change in the economic position of initially poor households can be decomposed into two
components: one reflecting growth in the national economy over the period in question, and a
second reflecting any change in the income distribution that affects those initially poor
households relative to the national mean. In principle, the poor might benefit from a shift in
income distribution that gave them a larger share of national income, even if that income was
stagnant. Conversely, the poor could benefit from receiving a constant share of a growing
national income, or even from a smaller slice of the economic pie as long as the pie itself was
growing rapidly enough. However, in reality the implied symmetry between growth and
redistribution is purely illusory; in reality, the potential to achieve rapid and sustainable progress
against poverty through faster economic growth is far greater than through changes in the
distribution of income. This asymmetry is true for the policy choices facing governments, and
even more true of the policy advice offered by donors, who have virtually no chance of
persuading host governments to take steps narrowly aimed at changing the income distribution.
5
6. Figure 2 helps illustrate these points. In this figure, each observed change from the initial
position is decomposed into two components: (1) a distribution-neutral change in mean real
consumption, represented by an arrow lying along the 45° line; and (2) a change in the initial
pattern of distribution either for or against the poor, represented by a dotted arrow running up or
down from the 45° line. For example, growth episode B can be decomposed into a distribution-
neutral growth component (from the origin to point B′), along with a shift in the income
distribution against the poor (from B′ to B.)
Figure 2 illustrates several points about the analytics of poverty reduction:
First, improvements in the income and/or consumption of the poor can arise from growth with no
change in distribution; moreover, the faster the growth, the better for the poor: growth to point A
along the 45° line is better for the poor than slower growth to point B′ or E′. The same point
applies for any given change in distribution: faster growth is better for the poor (C vs. B).
Second, for any given rate of overall growth, a change in the pattern of distribution can
strengthen or weaken the net gains to the poor: relative to the same degree of distribution-neutral
growth, a pro-poor change in distribution can further improve the situation of the poor (D′ to D),
whereas a shift in distribution against the poor can reduce their net gains (F′ to F), or even, in
principle, result in net losses for the poor (G′ to G).
Third, considering only the interests of the poor, an adverse change in distribution can be offset
through faster growth. Thus, growth episode B leaves the poor in the same situation as growth
episode D.
Some form of the growth-redistribution decomposition shown in figure 2 is referenced by
virtually all participants in the pro-poor growth debate, regardless of which side of the debate
they stand. Still, while undoubtedly helpful for illustrating analytical points about the potential
sources of poverty reduction, this decomposition contains a drawback: it can mislead readers into
conceiving of growth episodes (and the policy choices behind them) as two-step sequences: a
distribution-neutral growth step along the 45° line, followed by a subsequent redistribution step.
Taking this naïve view one step further, it is easy to conclude that developing countries have
policy levers at their disposal that would permit them to choose a rate of overall growth, and
separately choose a desired degree of income redistribution. In terms of figure 2, it is tempting
to imagine that the host country can choose a “growth policy” package that takes it to a point like
D′, while meanwhile choosing a separate “distribution policy” package that will produce a
further improvement in the situation of the poor (to D) or else cause the poor to give up some of
the gains that they would otherwise have won (to F). If things were really this simple, it would
of course always make sense to encourage the host country to choose growth with pro-poor
redistribution rather than growth with a distributional shift against the poor.
However, few if any real-world policy choices work this way. Rather, most real policy choices
jointly affect the rate of growth and the resulting distributional outcomes. In terms of the figure,
it is the solid-headed arrows (B, C, etc.) that are the fundamental outcomes of policy choices,
whereas distribution-neutral growth (B′, C′, etc.) and growth-neutral redistribution (B′ to B, etc.)
are purely analytical devices. In this more realistic setting, the host country’s ability to fine-tune
6
7. the direction of the net outcome tends to be far more limited. To the extent that achieving a pro-
poor shift in the income distribution requires a large sacrifice in potential growth (for example,
choosing E over B, in a situation where D is not a feasible option), very few host countries are
likely to choose this option. It is true that in some countries, populist coalitions have
occasionally achieved political dominance and chosen low-growth, redistributive policy options,
but they have rarely “sold” these options to the public in these terms and such strategies have
usually been reversed once the growth consequences have become clearly visible. In recent
years, even populist governments (e.g. Lula in Brazil) have recognized that maintaining a
growth-friendly policy environment is a precondition for achieving actual gains for their poor
constituencies. [Venezuela, Zimbabwe]
Just as important for present purposes, there is little reason to expect that the host country will
rank the available options in the same way as might foreign donors or foreign NGOs, especially
those ideologically committed to pro-poor redistribution as an end in itself. Under the right
political-economic conditions, a host country may adopt economic reforms promoted by donors
or other external parties, to the extent that those reforms offer a means to achieve gains for all,
whether or not the poor share proportionally in those gains. In fact, such external policy advice
may be accepted where it offers a means to achieve long-term, continuing income gains for
society as a whole, even if it involves a temporary setback for the poor in the short-term. In
contrast, there is little or no precedent for a host country adopting external policy advice directly
aimed at shifting the distribution of income to the poor. A donor peddling a reform package
specifically aimed at achieving a pro-poor distributional shift is setting itself up for failure,
especially if that shift can only be achieved by sacrificing potential growth. This point
underlines the third problem with “pro-poor growth” noted in the introduction to this paper: that
when donors convince themselves that growth must be (distributionally) pro-poor to be
acceptable, their attention can easily be diverted from areas where they can make a useful
contribution to development, toward a narrow concentration on areas of extreme political
sensitivity for the host country, where their advice is likely to have little or no positive impact.
How might an ideological commitment to support only growth strategies that provide
disproportionate benefits to the poor divert attention from real-world opportunities to reduce
poverty? Consider globalization. Though segments of the NGO community categorically reject
any move toward international integration, all serious scholars recognize that participating in
global markets offers poor countries opportunities for absorbing productivity-enhancing
technologies, and thus to accelerate growth, that are difficult or impossible to achieve in other
ways.4
The East Asian “tigers” seized this opportunity in the 1960s, and were rewarded not only
with greatly accelerated growth, but a substantial narrowing of the wage gap between skilled and
unskilled workers that probably sufficed to produce disproportionate benefits for the poor.
However, the experience of more recent globalizers has been different. In China, rapid growth in
international trade and investment since the mid-1980s has helped spur rapid growth in average
incomes and rapid reduction in the incidence of poverty. China’s growth has been strongly pro-
poor in the sense of providing large absolute gains for the poor, which have allowed enormous
4
As Dani Rodrik (2002) has noted, “No country has developed successfully by turning its back on international
trade.” There remains a serious debate over whether globalization plays an essential or merely a supporting role in a
successful development strategy, along with many more specific issues about sequencing of different reforms, etc.
7
8. numbers to escape from absolute poverty.5
However, in relative terms the reverse has been the
case: there has been a large increase in the wage premium commanded by more educated
workers, especially those with a college education (Zhang and Zhao, 2002; Park, Zhao, Zhang,
and Song, 2002). Meanwhile, provinces along the coast have done considerably better than
those in the interior, which have been less affected by inflows of foreign direct investment and
less able to seize export opportunities. The result has been a sharp increase in wage inequality,
at least within urban China (the only areas for which data are available.) In sum, China’s growth
experience since the mid-1980s has closely resembled growth episode C in figures 1 and 2. The
contrast with the experience of the 1960s seems to reflect the emergence of new technologies
that place a strong premium on skills: workers with the skills needed to use new
communications technologies, to use those technologies to search the global market for new
economic opportunities, and to communicate effectively in English all command large wage
premia. More generally, it appears that global technological change in recent decades has been
strongly “skill-biased,” tending to inflate the wages of workers with greater skills over those with
fewer skills (Berman, 2000). As a result, new globalizers experience at least a temporary
tendency for the poor and less skilled to gain less than the non-poor. Nevertheless, as China’s
experience clearly shows, the absolute benefits for the poor can be quite dramatic.
Whether China’s growth experience has embodied “pro-poor” growth or “pro-rich,” “anti-poor,”
“trickle-down” growth depends on the notion of “pro-poor-ness” adopted. Under the poverty-
outcome definition of pro-poor-ness, what counts is the enormous gains experienced by millions
of initially poor households, and China’s experience richly deserves being praised as pro-poor.
In contrast, under the distribution-focused definitions, what counts is the fact that someone else
did even better, so China’s growth record must be disparaged as one of “trickle-down.”
Was there a more attractive option? Could China have chosen a different growth strategy that
would have yielded similarly strong gains for the poor, yet avoided the observed shift in the
income distribution in favor of the non-poor? If so, no one has identified such an option. No
one has identified an alternative set of technologies sitting on the shelf that would have brought
such dramatic gains in income, yet reversed the relative gains to the more and less highly skilled.
Rather, had China considered only growth strategies that included a pro-poor shift in the income
distribution, it would have had to forgo the absolute gains provided through modern
communications technology and stronger links to international markets, and thus settled for a
much slower growth rate and a much slower reduction in absolute poverty. That choice might
seem attractive to well-fed anti-globalizers in the West, but it is not at all clear that those with a
direct stake in the outcome would make the same choice. Finally, any suggestion by outsiders
that China should have forgone rapid growth in order to avoid the observed shift in the income
distribution would have been rejected by Chinese political leaders as an outrageous interference
in China’s internal affairs, condemned as a ploy to keep China poor and weak.
Of course, it is possible to identify complementary policy changes that might plausibly offset at
least some of the observed shift in the income distribution, enabling the poor to receive a greater
share in the benefits of growth. For example, reducing or eliminating restrictions on migration
5
According to the World Bank’s estimates, the share of China’s population under the $1-a-day line was nearly
halved between 1990 and 2000 (31.5% to 16.1%), a drop of 156 million people. (Global Poverty Monitoring
Database, at www.worldbank.org/research/povmonitor)
8
9. from poorer interior provinces to booming coastal provinces would help reduce one source of
increased inequality. Likewise, shifting more of the burden of education funding from
households to the public budget might help create greater equality in educational attainment
within the labor force, and thus allow more workers to benefit directly from the increased returns
to skill. However, it is highly unlikely that either of these steps would have sufficed to reverse
the observed shift in the income distribution. For example, reduced restrictions on internal
migration would have reduced the wage gap between coastal and interior provinces but could
obviously not have eliminated that gap, because the wage gap is what drives migration in the
first place. Likewise, it is precisely the emergence of high returns to skills that has motivated
greatly increased demand for higher education;6
without that strong payoff to additional
schooling, far fewer households would found it worthwhile to keep their children in school so
long, with or without public funding. Finally, without the increased returns to skill created
through globalization, even the most vigorous shift in public education funding would likely
have expanded the share of the college-educated only very gradually, by inducing more students
to stay in school longer. In actuality, precisely because of the changed incentives created by
globalization, a substantial number of those already employed have responded by going back to
school to get a college education.7
Any notion that China should have or would have delayed its embrace of global markets for
several decades while it transformed the skill mix of its population, and thus put all households
in the position to benefit equally and immediately from the new opportunities, is simply wishful
thinking, because in that case neither the increased funds needed to pay for that transformation
nor the changed incentives needed to motivate it would have occurred. In sum, there is no
reason to believe that China had a live option to achieve similarly rapid progress in reducing
absolute poverty, without a contemporary shift in the distribution of income against the poor.
Future decades may offer the opportunity to shift the distribution back toward the 45° line, as the
changed incentives created through globalization filter through the system.
Without going into equivalent detail, the case of India provides important points of overlap with
the Chinese example. Though slower and more tentative than China’s, India’s embrace of global
markets and increased reliance on market forces at home since the early 1990s has represented a
similarly dramatic shift in development strategy. India’s GDP growth has accelerated markedly,
though not so strongly as China’s. As a result, the share of the population living on less than a
dollar a day at PPP has fallen from 41 percent in 1992 to around 28 percent in 1999-2000
(Deaton, 2002). Changes in household survey methodology and other problems make it difficult
to pin down changes in distribution with any precision, but virtually all scholars agree that India
experienced a large increase in inequality over this period. Inequality increased between states
(the south and west did much better than the north and east), between urban and rural areas, and
within urban areas (Deaton and Dreze, 2002). Educational gaps appear to have played an
important role in producing these different outcomes (Park et al., 2002). Those at the top of the
income distribution did enormously well: tax returns suggest that the real income of the top 1
percent of households increased by half over the 1990s, while those in the top 0.01 percent
nearly tripled their real incomes over the same period (Banerjee and Piketty, 2003). In sum, if
6
Household data cited by Park et.al. 2002 report a more than doubling in the share of the urban Chinese labor force
with a college education or above between 1988 and 1999, from 12.1% to 26.8%.
7
Personal communication, Albert Park, University of Michigan.
9
10. we think of growth episode C in the figures as illustrating China’s recent experience, then we
could think of B as representing India’s: slower but still highly respectable progress in raising
average income and in reducing absolute poverty, similarly accompanied by a widening in
income inequality.
The Indian experience raises some of the same questions about alternatives as in the Chinese
case. Beginning in 1991, could India have chosen a different development strategy that would
have provided a similar acceleration in poverty reduction, while simultaneously achieving a pro-
poor shift in the distribution of income? Nothing in its previous record, nor in the specific
pattern of growth seen in the 1990s suggests that this is the case. When India chose to begin
opening to the global market and to begin actively absorbing and exploiting advanced
technologies, some states and some people were in a better position to take advantage of the
opportunities created thereby. It is just possible that some other combination of policies and
programs would have enabled those with limited skills and those living in states most cut off
from foreign trade to gain an increased share of the national income while still achieving a
similarly high rate of overall economic growth, but no one has suggested what this alternative
might be. If a pro-poor distributional shift could be achieved only through continued rejection of
foreign trade, investment, and technology, it is reasonable to presume that the overall rate of
growth and the rate of absolute poverty reduction would have been considerably lower – a
situation like episode E rather than episode B. Again, it is not at all clear that any substantial
number of the millions of Indians who have emerged from absolute poverty over the past decade
would have viewed this as “pro-poor” in any relevant sense.
As in China, the opportunities created during the 1990s would have been even more broadly
shared had India previously done a better job of providing its entire workforce with a decent
basic education. It is now in a position to begin making up for past failures, though this is more
difficult in India due to the dominance of state governments in education. In contrast, it is much
harder to make the case that India could have done more for its poor population by delaying
economic liberalization for the decade or more needed to transform the educational composition
of its workforce. More realistically, as long as the payoff to increased education remained
modest, the impetus for households and governments to make the sacrifices necessary to achieve
such a transformation would likely never have emerged.
As a final example, consider the case of Latin America. Broadly speaking, Latin America has
faced the same skill-biased trends in global technology confronted by China and India. In recent
decades, many countries in the region have tried to achieve faster growth by adopting policy
reforms intended to tap into global markets more effectively. For reasons that continue to be
hotly debated, the results have been relatively disappointing: even relatively vigorous reformers
have achieved only modest rates of economic growth, especially when compared with East Asia
or with Latin America’s own experience in the 1960s and 1970s. This is not to suggest that the
reforms have not promoted growth: countries that failed to embrace reform have generally fared
even worse.
Another contrast between Latin America and East and South Asia lies in their relative factor
abundance. Whereas China and India are quite labor-abundant compared with their trading
partners, careful examination of Latin America suggests that most of the countries in the region
10
11. should be viewed as resource-abundant rather than labor-abundant. On that basis, economic
theory would predict that policy reforms would tend to reduce the relative wages of unskilled
workers, rather than to increase them as in the East Asia tigers.8
In addition, especially
compared with China and the rest of East Asia, most of Latin America is marked by strong
inequality in the distribution of schooling, meaning that a large share of the population is
relatively poorly positioned to take advantage of many opportunities created by market reforms.
Combined with the underlying skill-biased trend in global technology, these structural features
help explain Latin America’s sluggish performance in reducing poverty since the early 1990s. In
terms of figure 2, the typical growth episode in Latin America during this period can be
represented by an arrow somewhere between F and G, emphasizing the slow growth and even
slower poverty reduction experienced by most countries in the region.
As with China and India, we must ask whether the Latin American countries could have pursued
an alternative set of policies that would have allowed them to achieve better overall results in
terms of growth and/or poverty reduction, while simultaneously achieving a “pro-poor” shift in
the income distribution relative to the beginning of the reform period? With the benefit of
hindsight, it seems clear that many countries could have achieved faster and more sustainable
growth by avoiding the overvaluation that many encountered as a side effect of relying on
exchange rate pegs to reduce inflation (Ffrench-Davis, 2000). On the other hand, it is not clear
that any country in the region could have overcome the anti-poor shift in the income distribution
seen in this period through any economically and politically feasible set of policies. The extent
of the shift would almost certainly have been less severe had governments made earlier and more
vigorous efforts to promote greater equality in education, but the impact of such efforts on the
income distribution accumulate only very gradually, as they contribute to upgrading the skills of
the overall workforce. No plausible set of educational reforms could have changed the existing
skill mix over the time horizon encompassed by the economic reform period. Here again,
insistence that reforms should only be undertaken as long as they result in a “pro-poor” shift in
the income distribution simply distracts attention from the real policy dilemmas that countries
are facing.
Thus far, the analysis has emphasized educational investments as the main policy lever for
changing the distribution of income over time. This emphasis is by no means casual, but rather
incorporates the emerging view that poverty reduction ultimately depends on two sets of
complementary reform efforts: those aimed at raising the sustainable rate of growth, and thereby
the emergence of economic opportunities, and those aimed at ensuring that all members of
society are in a position to take advantage of the opportunities created by growth (see, e.g.,
Squire 2003). Educational investments represent one of the principle means through which
societies can equip new generations with the skills needed to benefit from new economic
opportunities. Moreover, most governments have accepted, at least in principle, the argument
that basic education is a basic human right, resulting in political pressure – both domestic and
international – to ensure that all children receive at least a basic education of decent quality.
8
The empirical work performed by Behrman, Birdsall and Székely (2003) for 18 Latin American countries for the
period 1977-98 identifies a strong disequalizing impact from market reform during this period. Their analysis points
to domestic financial reform, tax reform, and capital account liberalization as the policies contributing to greater
inequality. Interestingly, increased trade openness was found to have no significant impact on inequality, while
privatization contributed to reduced inequality. The authors conclude that the disequalizing effects seen in the
region have mainly operated through technological progress.
11
12. Still, the fact remains that educational investments pay off only very slowly, as they raise the
skill composition of the labor force. If so, do alternative policy measures that redistribute
existing assets offer greater potential to shift the distribution of assets and income in a pro-poor
direction?
Experience suggests that the answer is probably no in most times and in most countries. Part of
the reason lies in political economy: those with much higher-than-average assets and incomes
often exercise strong influence over the policy-making process, and naturally oppose the
adoption of policies that would redistribute their own assets and income on a large scale. Even
when populist governments take power, many financial assets prove internationally mobile
through capital flight, while the potential to redistribute through income and property taxes is
typically limited by a whole range of problems, including poor record-keeping, evasion, and
corruption (Newbery and Stern, 1987). Similarly, many efforts to redistribute income on the
expenditure side run encounter severe problems including diversion of funds, targeting according
to political rather than poverty criteria, and capture by non-poor households (see, for example,
Park, Wang, and Wu 2001 on China and Olken 2003 on Indonesia).
Finally, consider land redistribution. There is a respectable argument that a country in which
agricultural land is divided relatively evenly into “family farms” will achieve higher productivity
than an otherwise similar country where, for historical reasons, ownership of land is highly
unequal.9
In principle, this insight points to the possibility of achieving increased productivity
through fully compensated land redistribution funded through the tax system. Whether or not
this process should be seen as redistribution depends largely on the incidence of the taxes raised
to finance it. However, this point simply returns us to the one made in the preceding paragraph:
getting rich households to pay taxes to buy land to give to poor households requires an unusual
set of political-economic circumstances that is rarely seen in practice. More broadly, the
theoretical productivity gains expected from land reallocation must be weighed against the dead-
weight losses incurred by raising the taxes necessary to pay for this reallocation.
Broadening the focus to uncompensated land distribution raises a different set of issues. The big
success stories of this type took place under circumstances that are hard to replicate in
contemporary developing countries: in both Korea and Taiwan, much of the redistributed land
had been recently vacated by Japanese colonists who returned to Japan following World War II,
easing the political problems involved in seizing it. Meanwhile, the recent brutal suppression of
political protests by native Taiwanese against the newly arrived Kuomintang government left
large Taiwanese landowners in no mood to resist the (partially compensated) transfer of their
land. Finally, the Japanese land reform of 1946 was directly imposed by the Allied forces of
occupation. In all these cases, the political cards were all in the hands of the authorities
imposing the land reform. In the more usual case, land owners wield considerable political
influence of their own, allowing them to exert more vigorous opposition to uncompensated
transfers of their land. In the worst case, uncompensated land transfers may spark political
violence and contribute to a broader breakdown of economic and political order, as recently in
9
The argument is based on the difficulties of supervising hired labor in many aspects of the farm production
process, resulting in advantages for a farm size that can be operated by members of a single family, who presumably
manage themselves in line with the interests of the family unit (Binswanger and Deininger, 1997). Of course, the
size of such a farm can differ enormously from one economic and agricultural setting to another.
12
13. Zimbabwe. Although some governments might choose to undertake such a conflict for political
reasons of their own, few if any would do so in response to “free advice” offered by outsiders.
It is of course impossible to examine every potential mechanism for redistributing assets and/or
income. However, the preceding examples help illustrate the broader point: explicit
redistribution of existing income or assets will almost always be intensely political, pitting the
economic interests of one segment of society against another. A country may well choose to
redistribute some of the gains flowing from growth-enhancing policy reforms, though such
redistribution is likely to be limited in scope. If, as argued here, the dominant current trend in
global technology is biased toward higher skills, most of the big opportunities for poor countries
to move toward the global productivity frontier will yield disproportionately large rewards to
those already possessing those skills, at least in the short to medium term. Countries that reject
these opportunities may avoid a pro-rich shift in the income distribution, but only by sacrificing
large and continuing absolute gains for both the rich and the poor.
This point brings us full circle to the rhetoric of “pro-poor growth,” in the distribution-focused
sense of growth yielding disproportionate gains for the initially poor. By framing debate about
policy options in such emotionally charged terms, proponents seek to persuade developing
countries to forgo those reforms with the greatest potential to accelerate growth, and thereby the
greatest potential to achieve large and sustainable absolute gains for the poor. The good news is
that most governments will assess the growth and distribution dimensions separately, and be
more receptive to external advice aimed at boosting growth, while rejecting external advice on
matters of income redistribution. In either case, the donor community would do well to avoid
adopting terminology designed to promote policies that are likely to be rejected by analytically
competent governments, while causing harm to those countries naïve enough to adopt them.
Options for adopting more analytically informative terminology
If, as suggested above, the phrase “pro-poor growth” tends to undermine rather than enhance the
quality of discussion regarding poverty reduction, what options are available for engendering a
“pro-clarity” shift in terminology?
One way to think about this problem is to refer back to the decomposition outlined in figure 2.
Whatever alternative terminology is adopted, it should permit us to distinguish among the three
elements highlighted in that decomposition:
• the overall change in the economic pie over the course of a growth episode (shown as
movements along the 45° line);
• the change in the share of that pie earned or consumed by the poor (shown as shifts up or
down from the 45° line); and
• the net change in the income or consumption of the poor (shown as the vertical component of
the resulting arrow, along the vertical axis).
In addition, the phrases used to describe these three components should be as neutral and
analytical as possible.
13
14. Option 1. One option – regarded by this author as first-best – is to drop the phrase “pro-poor”
altogether, at least as a modifier of “growth.” Instead, growth would be described more neutrally
and informatively as more or less “rapid,” as more or less “steady,” as more or less “sustained,”
etc. All such references to growth would refer to changes in overall income or consumption –
movement up or down the 45° line. Meanwhile, phrases like “pro-poor” and “pro-rich” would
be used exclusively to describe changes in the income distribution, in which context they are
quite clear and unambiguous. This leaves the choice of appropriate terminology to describe the
resulting changes in the income or consumption of the poor. My own view is that this choice
becomes somewhat less critical, once the terminology applied to the other two components is
rectified.
For example, think back to the discussion of the sources of poverty reduction in China:
describing this experience as one of “very rapid growth, accompanied by a shift in the income
distribution in favor of the non-poor, but nevertheless resulting in large absolute gains in income
and consumption for poor households and a dramatic reduction in absolute poverty” conveys the
main elements of the situation fairly clearly, and in ways easily related to the decomposition
shown in figure 2. The same framework works equally well for other scenarios: growth episode
E can reasonably and clearly be described as one of “sluggish growth, together with a strong pro-
poor shift in the income distribution, resulting in a moderate increase in the average incomes of
poor households and gradual progress in reducing the incidence of absolute poverty.” Here
again, the language provides a clear sense of how the pieces fit together.
Option 2. The second option is to resign ourselves to retaining the phrase “pro-poor growth,”
but consistently using it in the less popular but more analytically meaningful and more policy-
relevant sense of “growth that benefits the poor.” This option has the advantage of jumping
aboard an existing bandwagon, rather than attempting to attract others to a new one of our own.
On the other hand, retaining the existing language largely sacrifices the opportunity to confront
the deficiencies of the distribution-focused terminology, thus ensuring that the existing situation
of ambiguity and confusion will persist, with proponents of different concepts of “pro-poor-ness”
continuing to talk past one another.
In terms of the decomposition depicted in figure 2, this terminology uses two sets of modifiers
for “growth” to describe two different components of any growth episode. On the one hand,
changes in overall income or consumption continue to be described as more or less rapid,
suggesting movement along the 45° line. On the other hand, net changes in the income or
consumption of the initially poor are described as more or less “pro-poor,” corresponding to the
vertical component of each growth episode, shown on the vertical axis. The two are linked by
the contemporaneous change in the income distribution, which again can be described as “pro-
poor,” “pro-rich,” etc. Compared with the distribution-focused terminology, this decomposition
offers a significant improvement in clarity. On the other hand, using the word “growth” to
describe two of the three components of any growth episode as decomposed in figure 2, while
also using “pro-poor” or similar phrases to describe two of those three components, seems to
entail a loss of clarity relative to Option 1 as outlined above. On that basis, this author would
cast a vote in favor of Option 1 – a full-blown shift in the terminology, eliminating “pro-poor” as
a potential modifier of “growth” and applying it exclusively to describe changes in distribution.
14
15. Before closing, it is worth mentioning a third option, which has arisen from analytical work
conducted under USAID’s “pro-poor economic growth” activity. Different outputs from this
activity appear to use the phrase “pro-poor growth” in both of the senses identified in this paper.
However, these analyses also introduce the concept of a “pro-poor economic growth policies.”
The shift in attention from “growth” to “policies” is significant. Rather than focusing on the
overall change in the position of the poor, or on the change in their position relative to others,
this framework attempts to unbundled the various components of the policy framework, and
assess the their individual impact on the rate of overall rate of growth and on growth in the
income or consumption of the poor. That is, rather than worrying about overall changes, which
are subject to large forces outside the control of policy makers, this framework looks for
opportunities to “tweak” the overall change through selective improvements in policies. In
particular, the analytical work seeks to identify policy changes that have the potential to boost
the rate of economic growth while simultaneously enabling the poor to gain a larger income
share – all other things held equal. The good news here is that, by concentrating on the impacts
of individual policies, this framework almost automatically sticks to issues of relevance to policy
makers, rather than getting bogged down in matters that are often outside the control of policy
makers and even more often off limits for donors. The bad news is that the phrase “pro-poor
economic growth policies” tends to fall apart in discussion, leading to more unproductive and
inconclusive discussion of the meaning of “pro-poor growth” before moving on to the
analytically valuable discussion of policies.
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16
17. 45°
45°
% Change in Real
Consumption,
Poorest 10%
% Change in Mean
Real Consumption
A
D
B
C
EF
G
Overall growth w/
gains for poor
Overall deterioration
w/ gains for poor
Overall deterioration
w/ losses for poor
Overall growth
w/ losses for poor
H
C
A
B, D
E
Figure 1: "Pro-Poor" Growth: Separating the Rhetoric from the Reality
18. Overall deterioration
w/ gains for poor
Overall deterioration
w/ losses for poor
Figure 2: "Pro-Poor" Growth: Issues of Political and Economic Feasibility
45°
45°
% Change in Real
Consumption,
Poorest 10%
% Change in Mean Real
Consumption
A
D
B
C
E
Overall growth w/
gains for poor
Overall growth
w/ losses for poor
G
C
A
B, D
E
E'
B'
D', F', G'
C'
FF
G
18