Quality of growth
A recent World Bank study found that while the world faces unprecedented opportunity to reduce global poverty and improve human welfare, much depends on the quality of growth pursued by different countries.
At any given time, the study reveals, governments have at their disposal 25% to 40% of national income to spend and distribute across social groups. Since growth is clearly linked with reduction in poverty, the composition of government spending would determine the quality of growth and consequently reduction of poverty.
The study differentiates between government expenditure on public goods and private goods. Public goods are defined as expenditure that complements rather than substitutes for production in the private economy. The present US-UK bailouts, expenditure on education, health, social security, public infrastructure, institutional development, law and order fall in this category as these expenditures have spill over benefits for the people.
The writers of the study, however, consider commodity subsidy (energy, agriculture), corporate subsidy, etc as being harmful as these are mostly results of political lobbying and can have market distortion effect.
However, while conceptually the authors may be correct, in countries like Bangladesh subsidies given to energy and agricultural sectors are more likely to bring about a fairer distribution of wealth than the unbridled capitalism practiced in the West.
The announcement by the new Bangladeshi government to reduce price of diesel and fertiliser should help farmers to have more income and help reduce price of some essentials as the subsidy would lower the cost of production.
One must, however, admit that the world, and Bangladesh is no exception, is facing a food crisis that has to be tackled in all earnestness. The Madrid Conference on Food Security held on January 26-27 underlined the existence of the global crisis.
Professor Jeffery Sachs presided over an ad-hoc advisory group meeting prior to the Madrid Conference that held that desperate hunger had been made worse by the global meltdown for one billion people out of 6.5 billion inhabitants of the earth.
The meeting recommended boosting of productivity of small holders that would result in more food and food security for farm families, greater income for the poorest of the poor, and escape from poverty by commercialisation of subsistence agriculture.
The meeting was optimistic that massive scale up of food yield and productivity through application of improved technology is possible by infusion of money through financial co-ordination mechanism (FCM) as a part of World Bank's Global Food Crisis Response Program (GECRP) and Multi-Donor Trust Fund (MDTF) that would provide critical inputs to small farmers and help transition from subsistence farming to commercial farming.
The problem is that any initiative that involves contribution from donor countries has been historically fraught with danger. The promise by the developed countries to give 0.7% of their GDP as aid and assistance made decades back is yet to be fulfilled. Major part of the investment and capital infusion continue to remain within the borders of the First World. Technology transfer from the developed to the developing world still remains mired in bureaucratic bottlenecks.
In international trade, the terms of trade are almost always against the underdeveloped world. Politically, the iron curtain may have come down, but the digital divide between the developed and the developing countries remains.
It is sometimes argued that the flow of aid and loan to cash-starved developing countries is not being properly used, posing as a bottleneck in the path of development.
If Bangladesh is taken as an example, it has been calculated that from 1972 to 2006 the country was committed a total of about $54 billion, out of which it received $45 billion. In 2007, out of $1.6 billion of foreign assistance $1.1 billion was loan and $590 was grant.
It has been noted that the proportion of grant aid has been declining steadily. The flow of food and commodity aid has also been declining. Unsurprisingly, the beneficiaries of the assistance have not been the recipient countries, as 80% of the total foreign aid goes back to the donor countries in the form of import payment and 15% to local importers, indenters, and bureaucrats.
Foreign aid has played an insignificant role in stimulating growth. Another effect has been that while per capita debt obligation was $6.59 in 1974 it has risen to $140 in 2006.
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