From structural adjustment to human development: Impact on poverty and inequality

A conference in honour of Sir Richard Jolly

Institute of Development Studies, 17-18 November 2011

Notes: Day 1: Session 1

Welcome and introductions

  1. Lawrence Haddad, Director, IDS:
  • First met Sir Richard Jolly in New York during a UN sub-committee on nutrition, of which Richard was the chair. Struck by the depth and breadth of Sir. Richard’s knowledge and his commitment to a people-centred development. Richard is a man of incredible optimism and has been a wonderful and enthusiastic colleague.
  1. Richard Morgan, UNICEF:
  • Sir Richard Jolly was a mentor and a friend at UNICEF during time they spent together there. UNICEF’s focus on equity that is so central to UNICEF’s function was actually developed and safe-guarded by Richard in 1980s. Richard’s approach to development is to see that it is rooted in the reality of the country. The programming of UNICEF resources as rooted in each country’s reality has permeated into other areas of the UN and has gained high support from individuals such as Kofi Annan and Tony Lake, the current executive director of UNICEF.

Session 1:Structural adjustment, the ‘new macro fundamentals’ and human objectives

Frances Stewart (Chair):

  • Recognised Richard as a man of deep optimism, an intellectual and a man of action.
  • Extended gratitude to UNICEF and UNDP for providing the financial support for the conference to take place.

Participant contributions:

Giovanni Andrea Cornia, University of Florence:“The new macro fundamentals and inequality”

  1. Introduction:
  • First meeting with Sir Richard Jolly in New York and his kindness and friendship is memorable.
  • Importance of intuition in Economics: they began to discuss quite early on that thatadjustments were not working and were having a negative impact on the most vulnerable groups in society - especially in developing countries.
  1. The financial crisis of 2008-2009 hit much of the developed world harder than the developing world. What explains this difference?
  2. Is there a new macro-fundamentals developing? What is its nature? And is it substantially different from previous forms?
  3. Latin American countries and to an extent Sub-Saharan African countries (SSA) which adopted state-controlled or semi-autonomous macro-model, survived the external shocks that hit Western countries that have long adopted the neo-liberal/liberal macro model. Latin American countries showed more resilience than SSA countries. Perhaps due to the low integration of SSA economies in world.
  4. Post-soviet countries that adopted the liberal macro model also suffered external shocks unlike say China/Vietnam, which do not follow the standard liberal macro model.
  5. The following explain these differences - domestic-political policies, regulation and the type of integration in the world financial markets.
  6. Millennium Development Goals (MDGs) versus inequality:
  • MDGs highlight the importance of poverty reduction and people centred development goals.
  • But MDGs objectives covered inequality issues (this is because inequality was seen as due to liberal macro-structural framework and also the confusion between poverty reduction and inequality).
  • MDGs goals cannot be achieved without macro-fundamentals changing
  • There has been a significant reduction of inequality in Latin American countries and what macro-fundamentals underlie such drastic fall in inequality gaps?
  • Liberal macro model is focused on macro-balance and not growth or poverty reduction and so growth, investment rate & inequality negatively affected.
  1. The new macro-fundamentals (nature and design):
  • Applied in a totally new economic context from 2000 different from 1980s
  • Adoption of country specific measures (counter-cyclical; capital inflow control, controlled exchange rate, tax policy etc)

Gerry Helleiner, University of Toronto: “Trade, exchange rate and global poverty: policies for the poorest.”

  1. Introduction:
  • Sir Richard Jolly as a long time friend who is deeply optimistic and rare breed in economic tradition who brings in social perspective.
  1. Focus on trade policies and their effect on poverty dimension and long term development agenda - especially in Africa.
  • Trade: should be seen as an instrument and not as an objective itself. Trade (free or partially unfree) does not always lead to growth and poverty reduction. What is not always featured is the losers and winners in trade; the bullying and the power dynamics.
  1. Trade, trade policies & development are complex and at times uncertain relationships, so what to do help alleviate poverty and reduce inequality through trade?
  2. Preferential trade agreement policies (aid to trade) & deliberate enactment of pro-poor trade policies to help bolster the low income countries and mainstreaming development for trade.
  3. Exchange rate is one area where government in low income countries can develop pro-poor policies that will encourage export: (dominates the size of trade barriers).
  4. People focus on financial integration for big countries but to small and poor countries generate enormous pressures (exchange rate) compared to big economies. These countries need to be extremely cautious about the advice they receive and develop tools to defend themselves.
  5. Context and capacity of the policy institution and people (collect, analyse data and project) – limited relevant knowledge and skills are redeployed elsewhere – well trained experts but moved around thus disabling collective memory/institutional memory.
  6. Train useful policy analysts against too much abstraction and sophisticated analysis; too little attention to the characteristics of poor countries and so what is needed is to help poor countries to help themselves.

Raphael Kaplinsky, Open University, “Innovation for pro-poor growth: From redistribution with growth to redistribution through growth:

  1. Introduction:
  • Sir Richard concern has always been redistribution of growth to mitigate povery.
  1. Global growth vs global poverty indicators are showing that global growth model seem to be inducing rather than reducing poverty outside China - so:
  • There is something wrong in the equation.
  • Globalisation is inherently unequalising
  • ‘Planet of slums’ – specialisation does not lead to gain for all.
  • Financialisation is part of globalisation (away from producers to rentiers).
  • Trajectory of innovation (unskilled labor vs skilled labor – value added.
  1. Inducement of Innovation:
  • Demand
  • Factor prices & infrastructure
  • Path dependency & firm trajectories
  • Regulatory environment
  1. Forces of disruption to innovation trajectory
  2. Policy implications:
  • Address market failures (knowledge imperfections, not just factor prices, sweep of standards)
  • Reorienting systems of innovation
  • Strengthening the role of non-market actors
  1. Redistributing income
  2. Implication of China in Africa (Chinese merchandise is cheap and of low standards but yet affordable)

Commentator: (Carlos Fortin, IDS):

  1. Helleiner:

a)mainstream development into trade and not the other way round.

b)What about subsidies? Restriction to foreign capital (India & China shows that exchange rate can have an impact on poverty)

  1. Andrea & Kaplinsky (too optimistic): Inequality is reducing (Andrea) – inequality as opposed to poverty reduction eg Chile has reduced poverty but inequality still exists; caveats (the change is not fundamental; redistribution) how fragile is this new situation?
  2. Kaplinksy (low income countries are growing – yet in India and China the rich are getting richer.

We neednew approach to social assistance.

Discussion:

a)What is the role of local initiative in changing macroeconomic systems and make it more in tune with participation and people? (it is very technocratic)

b)Where is the environment in the discussion about growth?

c)If we were to have more migration, how will it affect trade? The flow of remittances of migration needs be understood and explored further.

d)Andrea: trade provokes migration especially for labour-intensive industries – within countries and countries of destination.

e)What is the Relationship between business-cycle and dominant economic idea?Some countries deployed counter-cyclical measures (Tanzania) and IMF later appreciated their moves.

f)What is the vision of contemporary innovation in the context of sub-Saharan Africa?

g)China and India are always lumped together yet there are discernible differences: what about modernizing elite (china & India)? What is their role? These countries have improved in trade but terrible social reforms.

h)Kaplinsky –massive instances of inequality in India continue to persist; environment – Chinese and Indian technology is environmentally degrading with disastrous economic implications in the future

i)How can democracy contribute to macro-economics? In Africa it is the new frontier, the quality of democracy, the shape of progressive regimes and greater participation in elections, wage councils, trade unions are beginning to take form and root.