1998
Strategies in the struggle against poverty, a comparative approach

Constanza Moreira

Eradication of poverty was a central objective of the Copenhagen Summit.  There was general agreement that poverty had worsened in the world’s most underprivileged groups and communities, in conjunction with social discrimination and exclusion.  The Summit particularly emphasised policies to fight poverty.  The Beijing Conference also specifically highlighted the effects of poverty on women and the need for policies to eradicate poverty. 

How effective have efforts been to overcome poverty in the various countries that signed these agreements? This article critically assesses the results and initiatives of a group of countries1 on the issue of poverty eradication, showing their achievements and shortfalls that have taken place in this field. They are “lessons from experience” that should be given special attention

An examination of the relationship between models for economic development, poverty and disparity in countries[1]that are moving from closed economies and considerable State presence to open economies in the framework of structural adjustment processes will enable us to discuss the connection between structural adjustment policies and strategies to fight poverty.  It will also be possible to reach important conclusions on the limitations of prevailing economic reform to deal adequately with the problem of poverty.

Reduction of poverty and economic growth: not enough “trickle-down”?

Macro-economic policies have not always been consistent with policies to reduce poverty: in most cases they run counter to the needs of social development.  There appears to be a strong relationship between development strategy, macro-economic policy and anti-poverty policy.  Development models have a direct impact on the incidence of poverty. 

A basic assumption about the relationship between growth and poverty appears in the “trickle-down theory”, the belief that wealth will automatically “trickle down” to deprived sectors and raise their standard of living.  However, the cases examined below show the deficiencies of this belief and the ambiguity of the relationship between growth and poverty reduction.

Over the last two decades, a number of countries have moved from protected economies with a strong State presence in the provision of basic services to open market economies where the State is no longer the main supplier of social services.  This change has taken place with varying results.

Latin American countries changed from import-substitution industrial models to open and de-regulated economies in the seventies and the eighties.  While Chile and Cost Rica were “successful” in achieving growth objectives, Mexico has found it difficult to consolidate a self-sufficient development model.  In most cases, the change has brought high social costs.

The social costs of adjustment are greater in some cases than in others.  The difference is mainly due to key elements of the development model.  One of these elements is greater or lesser public spending on “human capital” (the presence of the State in the supply of basic services such as health and education). Countries such as Chile and Costa Rica have managed to “absorb” or “overcome” the social cost of adjustment, due to a more decisive role of the State in backing human development.

A second element is the way and degree to which the development model stimulates job creation, particularly in the lower income sectors.  If exports are labour intensive (the case of Costa Rica), or require human resources from the rest of economy (Chile), the development model will have a positive impact on the rest of society. Free trade has a negative effect when the export sectors are capital intensive and have weak links with the other sectors of the economy (Mexico). 

The situation of countries of the former Socialist block is different from that of the countries of Latin America.  They have gone through accelerated economic changes, from totally state-run economies to market economies.  They have also undergone political changes of a wider scope that, in many cases, have redefined the very limits of the nation states.  

In those countries, inequity was very low in relative terms, “social development” indicators (inter alia life expectancy, infant mortality, literacy) were good and absolute poverty was practically nonexistent.  Transition to a market economy produced a general impoverishment as a result of the economic recession and fall in salaries and real income.  Disparity increased between the sectors that were able to “adjust” to the market and those that could not.  “New poverty” appeared among people who had never been poor before.  For these countries, economic growth is still pending and, without it, anti-poverty strategies seem doomed to failure.  In addition to poor economic performance and doubtful self-sustainability, they face increasing social costs.

The main problem for former Socialist block countries is how to manage the transition towards a market economy in societies where the State formerly satisfied basic needs.  These countries show that the relationship between growth and poverty is not direct.  The Polish case is a “counter-confirmation” of the belief that growth brings about a decrease in poverty: in spite of GDP growth, poverty has remained unchanged.  It is the only profile of countries affected by poverty that has varied.

A third set of countries are those of South and Southeast Asia that performed well in both fields: economic growth and poverty reduction. These countries have reinforced the belief that per capita growth is the main force in reducing poverty.  The greatest reduction of poverty took place in the four countries with the fastest growth: China, Indonesia, Malaysia and Thailand.  The slowest countries in alleviating poverty have been Bangladesh and India, both also characterised by their poor economic performance. 

However, these same countries show two results that contradict the hypothesis of a linear relationship between growth and poverty.  A fast-growing country may have the same or a lesser rate of poverty reduction than another country that is growing at a slower rate.  Thus, Malaysia’s performance on poverty is similar to China’s, although Malaysia has a slower rate of economic growth than China.  A second contradictory result shows that growth is a necessary, but not sufficient, condition for reducing poverty.  Pakistan grew considerably in the sixties and its poverty also increased.  However, in the seventies poverty decreased although the rate of growth in those years fell by half relative to the preceding decade.  Bangladesh grew more after the mid-eighties than in previous years, but its poverty increased.  China grew very fast from the mid-eighties onwards, but the rate of poverty reduction fell in the same period.  

These countries show us that, for various reasons, an increase in GDP may not result in an increase in poor people’s income: a) this increase may be allocated to other purposes (for instance, an increase of public reserves, as in China); b) the increase may be concentrated in sectors where poverty is relatively low (for example, in the urban sector of Bangladesh); c) the increase may not compensate for the losses of certain groups, produced by an increase in relative inequity (the case of India in recent years). 

A fourth set of countries are African countries, although a difference should be made between the situation of the North African countries (Egypt, Tunisia, and Morocco) and that of the Sub-Saharan countries.  The latter present the most critical development problems and some of them are the poorest countries in the world.  Performance on social issues in Africa is, in most cases, dramatic and adjustment policies have not shown positive results in reducing poverty.  In Sub-Saharan Africa, economic reform and structural adjustment have not had a positive impact on poverty reduction and, even worse, many social indicators in the five countries under consideration have shown significant drops (for instance, life expectancy in Uganda, Zimbabwe and Malawi).

Who and how many have become impoverished?

Poverty trends and profiles vary according to countries and regions.  Poverty has decreased in some countries, increased in others, and remained unchanged in some.  Differences between countries are considerable.  Poverty affects groups, ethnic minorities, the unemployed, and people with a low educational level.  In some countries, it is the old people who are most affected, in others the children.  In some countries it is a rural phenomenon and in others an urban one.  It is worthwhile considering these differences when assessing strategies against poverty. 

In the countries of Latin America that we analysed, poverty has decreased in Chile and Costa Rica, and results are contradictory in the case of Mexico.  In the first two countries, the “lost decade” of the eighties gave rise to an increase in poverty and in both cases the subsequent economic recovery was accompanied by a reduction of poverty. In the case of Mexico, poverty seems to have remained unchanged throughout the 84-94 period and adjustment did not contribute towards its reduction.  ECLAC studies for Latin America show that most of the poor are concentrated in urban zones and that the structure of the labour market is decisive in this respect.  Unemployment and poorly paid, unskilled informal work have increased because of adjustment policies.  Furthermore, rural poverty is still high; the most important problems in rural areas are access to land, credit, infrastructure and markets. 

The countries of the former Socialist block are witnessing the emergence of a “new poverty.” The first problem to be faced, as in many countries of Latin America, is unemployment.  Its increase has had a negative impact on poverty.  Everything seems to indicate that if unemployment is here to stay (which is expected), it will be decisive for the incidence of poverty in Eastern Europe and Latin America.  In Hungary, Poland, Russia and Ukraine, households with unemployed members show more poverty.  In the first two countries, the presence of an unemployed family member doubles the level of poverty.  In the last two countries, people who live on pensions and other social benefits (such as social assistance) and those who rely on temporary income show greater levels of poverty. 

Age is also a factor associated with poverty.  In Eastern Europe, Russia and Ukraine, poverty is concentrated amongst the youngest. In Eastern Europe, poverty rates are higher for children than for adults or middle-aged people.  However, in some of these countries, poverty mainly affects older people (Uzbekistan, Kazakhstan, and Kyrgyzstan) who are used to a more egalitarian society and are not able to be “recycled” into the new market economy.  Finally, an additional and politically explosive factor in these countries is the income gap between ethnic groups (for example, Europeans and Turks, Gypsies, indigenous women) and their differentiated access to skilled jobs and to education. 

Poverty is a new phenomenon in the former Socialist block countries.  This creates opportunities that are not open to societies in which a segment of the population has lived in poverty from generation to generation.  Members of the “new poor class” are only poor for short periods (the societies lack a strongly differentiated class structure), membership is fluid and people are constantly “entering and leaving” poverty. 

South Asia and Southeast Asia have performed well regarding poverty reduction.  From 1985-1995, poverty fell in the eight countries under consideration.  However, the difference between periods and groups makes the magnitude of this decrease relative: in the Philippines at the beginning of the nineties, poverty was higher than at the beginning of the eighties and in China, urban poverty did not fall between 1988 and 1995. 

In South Asia and Southeast Asia poverty is a rural phenomenon with a strong ethnic dimension (either a minority ethnic group or a majority ethnic group, as in Malaysia).  In rural areas, there is more poverty among small farmers and landless workers.  In Thailand, there is more poverty among agricultural households.  In Bangladesh, India and Pakistan, poverty is greater among non-peasant rural groups.  In the urban sector, poverty is concentrated among informal workers. 

Trends towards an increase of poverty in Africa seem hard to overcome in the mid-term and have specific characteristics.  Poverty is generally concentrated in rural areas and related to the scant development of “human capital” in these countries.  It fluctuates highly, often depending on circumstances to do with the physical environment (such as drought or epidemics). 

In spite of the similarity of programmes, the evolution of growth and poverty in African countries is not the same.  This is due to differences introduced before the adjustment period.  Thus, the situation in North Africa is different and in general, a decrease of poverty is to be noted.  Even in this region, poverty is distributed differentially in rural and urban areas.  In Morocco, it is basically rural, while in Tunisia it is urban.  In Egypt, poverty is equally distributed among rural and urban areas.  In Tunisia, it is extreme among the unemployed, farmers and those lacking education.  In Morocco, unemployment and illiteracy are the main factors associated with poverty.

In Sub-Saharan Africa, the impact of structural adjustment has been marginal in terms of available poverty indicators.  In these countries, poverty is widespread among the whole population and does not correspond to marginal or specific segments.  Therefore, it is alleged that measures to redistribute income to eliminate significant segments of poverty would imply very high transfers of total income.  Poverty in urban areas is due to the loss of formal jobs because of adjustment policies.  However, in the Sub-Saharan African countries, poverty is mainly rural, and is associated with scant infrastructure, low agricultural productivity, low levels of education and income, deficient basic health care and lack of access to credit.  Poverty mainly affects rural landowners, large families and those with many dependents, people living in places isolated from urban centers, illiterate people, and women and young people who are heads of households. 

How to fight poverty

The effectiveness of instruments and strategies to fight poverty depend, as was stated earlier, on the specific context of application, the type of poverty and trends over time.  However, comparative studies make it possible to draw some general conclusions. 

In the first place, the most successful cases of poverty reduction show that the link between aggregate growth and improvement of poor people’s standard of living depends on a reasonably equal distribution of income.

In the second place, it has been confirmed that support for training of “human capital” and strong public spending on health and education are highly effective in the achievement of social development objectives related to the fight against poverty. 

In the third place, strategies that benefit economic development of those sectors where poverty is concentrated (either in the agricultural sector, or in the informal urban sector), based on models that highlight the intensive use of human resources, provide a sound path to poverty reduction. 

The Latin American experience can teach us some important lessons.  The three countries studied differ in the way they have used social public spending to train human capital.  They also have different approaches to sectoral development based on intensive use or not of human resources. 

Successful efforts to reduce poverty have reallocated significant resources to primary education and preventive health care (the example of Costa Rica is forceful in this respect).  Chile and Costa Rica have traditions of universal coverage of basic social services that effectively reached the poorest.  Economic reforms have reduced public expenditures in both countries, but suitable reallocation of resources for health and primary education has made it possible to maintain historical funding levels.  In Mexico, on the contrary, spending is geared to higher education and curative (not preventative) health care, with a negative or insufficient impact on poverty indices.

Labour-intensive development in the most dynamic economic sectors also differentiates Costa Rica and Chile from Mexico.  In Costa Rica, support for the agricultural sector and for tourism has  achieved economic integration of peasants and unskilled workers. Chile has expanded employment through labour-intensive industrial development.  Mexico, which is strongly dependent on foreign capital, has not managed to consolidate sustainable development. Creation of employment in agriculture and manufacturing (sectors with high concentration of poverty) has proven precarious.  The impacts of poverty reduction strategies in Mexico are limited and short-lived. 

South Asian and Southeast Asian countries can also teach us important lessons.  These countries have used various strategies with positive impact on poverty reduction: a) growth based on intensive use of human resources; b) support for the rural economy; c) investments in basic social services.  The countries analysed have combined these measures in various specific ways, with different impacts on the reduction of poverty. 

Growth based on intensive use of human resources seems to require institutional incentives to encourage investment in labour- intensive sectors and prevent concentration of investment in capital-intensive sectors.  The reduction of poverty in India in the seventies and eighties was due to the labour-intensity of the rural economy and the same may be said of China, Bangladesh, Indonesia and Malaysia in the mid-eighties.  Some countries, such as Bangladesh and India, have used public programmes for rural work to provide employment to the poorest people.  The Philippines is an exception in this respect, with a system of incentives and institutions “hostile to employment.”

Support for growth of the rural economy is another strategy used to fight poverty.  There is increasing disparity between urban and rural sectors in South Asia and Southeast Asia.  Countries have therefore been obliged to prevent discrimination against agriculture as a solution to rural poverty.  Some of the measures are: regulation of agricultural exports, prices and markets (China); policies to prevent rural to urban migration (China); and increase of public spending on the rural economy (Indonesia).  Support for “human capital” is another factor of considerable importance in strategies for the reduction of poverty in these countries. 

The rapid reduction of poverty impacts in Southeast Asia did not happen because of specific anti-poverty plans or policies for the redistribution of income.  It is rather due to public provision of social services such as primary education and basic health care.   A big difference between these countries and the South Asian countries is their investment in basic social services.  It has been much easier for the poor in Southeast Asia to improve their productivity and escape from poverty than for their peers in South Asia, with a different impact on poverty reduction.

Finally, measures for redistribution, such as the agrarian reform in China, Malaysia, Pakistan and the Philippines, have also been important.

Studies of African countries, which have performed poorly (with the exception of North African countries) in poverty reduction, show that, as in the other cases, support for the agricultural sector and reallocation of spending to universalise basic services (education and health) are the most effective strategies.  An additional problem in these countries is the lack of information on the impact of on-going programmes and the absence of data needed to assess the profile and incidence of poverty.

In North African countries, a better performance in poverty reduction went hand in hand with measures that favour access by the poorest people to productive resources and essential social services. Some specific programmes and public spending on education and health have had a positive impact.

In Sub-Saharan Africa, anti-poverty programmes and the expansion of existing basic services have proven insufficient and were applied late, following the structural adjustment policies.  Some reasons given for relative failures are lack of resources, a poor approach that on balance benefits the non-poor more than the poor (particularly in urban zones), and a high degree of centralisation whereby institutions “absorb” a major part of the resources.

The countries of the former Socialist block will also leave their legacy.  They show that “transition with equity” to a market economy may be possible, minimising the social costs of adjustment and maximising the benefits of economic stability in favour of the poorest. 

The former Socialist block countries warrant special treatment, as poverty reduction strategies in these countries are based on reestablishment of existing “social protection networks.” Unlike the Asian countries considered here, they have a legacy of strong support for the development of “human capital.” They are dealing with effects that do not go back very far (such as poverty) and are consequently little understood.  However, the transition to a market economy may dismantle the achievements of preceding decades. 

Given that the former Socialist block countries’ main goal is to regain economic growth and stability, anti-poverty objectives that are independent of growth objectives are not high on their agendas.  In some of these countries (Uzbekistan, Kazakhstan, Kyrgyzstan) governments have declared themselves formally committed to the eradication of poverty.  In the Eastern European countries, there is no record of a comprehensive approach to anti-poverty policies with explicit objectives and programmes.  The main options for dealing with poverty have included, first of all, support for growth through economic reform - with the belief that growth and market will go hand in hand and that growth will inevitably bring about the reduction of poverty.  The second option has been to support rearrangement of social protection networks to cover those most affected by transition to a market economy.

Is “transition with equity” possible? In these countries, the different ways of handling structural adjustment and the search for growth, on the one hand, and social objectives, on the other, enable us to formulate some answers to this question.  Some of the countries (Kazakhstan, Kyrgyzstan) have given priority to macro-economic stability and establishment of a market economy to generate future growth and benefit poor people through the “trickle-down” effect.  No redistribution mechanisms have been established due to budgetary costs or the expected negative impact on economic benefits.  Other countries (like Uzbekistan) have sought more consistently to maintain a standard of living through increased outlays for health and education, even at the cost of a slower transition.  Of the three countries, Uzbekistan is considered to be the most interested in an anti-poverty approach.  It may provide a model for “transition with equity.”

However, it is not the slowness of economic transition but the kind of transition that explains the relative “success” of Uzbekistan.  For instance, in Eastern Europe there was a debate between those who supported a quick transition and those who believed that a slower transition would enable people to adapt to the new rules and reduce social costs.  Hungary and Poland adopted the first option and Bulgaria and Rumania the second.  The results in all four countries were not positive but negative for disparity and poverty issues.  However, Uzbekistan shows us that other variables come into play along with the pace of transition.  These include the reallocation of resources to health and education. Contrary to Uzbekistan, their “slow transition” was accompanied by growth in spending in these areas.

A critical approach to focusing efforts

All the studies highlight the advantages of focusing efforts to fight poverty.  They stress the need to clearly identify specific groups that suffer from poverty and design strategies that will maximise advantages to them and prevent benefits from being appropriated by others.  Latin America, with its more or less successful experiences in focusing efforts (Chile and Costa Rica), and the former Socialist block countries with their experiences of rebuilding “social protection networks”, provide important lessons on advantages and disadvantages of focusing efforts.

Chile and Costa Rica show that focusing is positive where there is a pre-existing network of universal coverage.  In Chile, for example, focused social policies had a positive impact where universal coverage programmes already existed.  In Costa Rica, focusing was supported by a broad-based social policy in matters relating to education and health.

The Chilean, Mexican and Costa Rican experiences, together with those of Malaysia and Indonesia, show that success in the eradication of poverty is possible when these programmes are initiated with a reallocation of resources to provide universal coverage of basic social services, as mentioned earlier.  Only after this coverage is ensured will focusing have positive results.  The lessons from experience indicate that in the context of cutbacks, strict focusing affects the quality and extension of coverage of basic services and increases the vulnerability of major segments of the population.  The ideal situation is to start with universal coverage and focus programmes later, finally gearing efforts towards improving quality and equal access to basic services. 

For former Socialist block countries, the need for focusing has become preeminent.  In Russia and Ukraine, the absence of “social protection networks” covering the most vulnerable groups during the transition is due to the former universality of service coverage.  This absence was reflected in a lack of policies based on redistributive taxes and the provision of focused services.  Prior to the transition, everything that was needed was provided by universal coverage of basic services that did not differentiate between the poor and the non-poor, guaranteed employment, fixed prices, and non-commercial distribution of health, education and social security programmes.  Transfer of government resources did not differentiate between poor and non-poor, and in many cases the non-poor absorbed the most.

As to concrete focusing strategies, the difference between Latin American and the countries of the former Socialist block warrants mentioning.  The studies show four types of focusing strategies used by the countries in their anti-poverty programmes.  The first is what the authors call “self-focusing”.  The poor “self-select” themselves for some programmes that are not attractive for generally better-off sectors (for example, in Chile).  The second is focusing based on demand: the nature of the programmes is determined by the communities rather than by the government.  A problem regarding this type of focusing is that frequently the poor have no voice and are not well-organised.  Mexico used this type of mechanism, as did Chile.  The third option is focusing on resources for specific economic groups or economic activities.  This was successfully undertaken in Malaysia, Indonesia, Chile and Costa Rica.  Finally, under the fourth option, the government focuses on groups at which specific policies are aimed.  In this case, problems arise because the government is not always able to distinguish the poor from the non-poor and programmes are subject to the arbitrariness of decision-makers.

Effectiveness of focused social policies varies in the countries of Latin America.  Chile implemented a package of measures that included decentralisation, participation of affected groups, increased complementary measures for economic growth and reduction of poverty, and focusing.  Among the instruments used in Costa Rica was focusing on women heads of households, low-income children and traditional producers.  In Mexico, the specific anti-poverty programmes did not offset the negative effects of economic fluctuations and income contraction.

The adjustment of social protection systems in Eastern Europe was based on four instruments: a) social public assistance focused on the most underprivileged sectors; b) unemployment benefits; c) improvement of the efficiency of pension, health and social security programmes; d) implementation of minimum pensions, minimum wages, etc.; e) strengthening of the role of local authorities; f) recognition and strengthening of the role of NGOs; g) design of pro-poor programmes (support to the homeless and socially excluded).  In some cases, such as Uzbekistan, decentralisation of certain networks has successfully been applied, for example, social security.

In these countries, focused anti-poverty programmes have been difficult to implement.  On the one hand, urgent problems of a fiscal nature, linked to pressure by international funding organisations, have not allowed for long-term planning in order to create the new institutions required by transition.  On the other hand, focused programmes do not build popular support, as the middle classes and the non-poor who are the most politically active in these transitions lose benefits.

Lessons from experience

Studies coincide in recommending joint action in equity and poverty issues, given that in the context of unequal distribution the benefits of growth are minimised for the poor.  Such action likewise reduces the probability of widespread social conflict.

The success of Latin American and Asian countries in reducing poverty depends on the development model selected.  Increased disparity has a negative impact on the relationship between economic growth and poverty.  At the same time, labour-intensive growth combined with expanded access to basic services is the best guarantee for egalitarian growth.  Experience shows that support for building “human capital” (reallocation of public spending to health and education services), for the development of sectors where poverty is concentrated, and for labour-intensive growth models contributes to a positive result when dealing with poverty reduction.

Social protection measures are needed during the transition period to prevent the initial distortions produced by macro-economic policies from adversely affecting the poor.  The countries of the former Socialist block show that support for the reconstruction of social protection networks and for the prevention of serious poverty impacts (in countries where they were previously nonexistent), together with policies to protect the most vulnerable sectors of a market economy, appear to be the most appropriate in the prevailing context.  At the same time, note should be taken of the appearance of a kind of poverty that is different from the chronic poverty seen in other situations (such as in Latin America).  This “new poverty” needs to be understood, studied and assessed in order to develop effective strategies to fight it.

Experience in Africa shows the importance of macro-economic policies for agriculture (especially of the effects of adjustment and stabilisation policies on the primary sector) and, therefore, for poverty insofar as it is rural in origin.  The need to strengthen public investment in “social capital” (education and health) is also given priority in order to achieve sustained reduction of poverty in these countries.  But none of this will be achieved with the present growth rate, which is insufficient to eradicate widespread poverty.  Current adjustment and economic transition policies appear unable to solve two problems: rural development and employment generation.  Both are crucial to overcome poverty and the exclusion of important segments of the population from the goods and services market.

Our analysis shows that the success of efforts to eradicate poverty depends very largely on the development model selected.  Betting solely on economic growth is not enough.  Concern with growth, coupled with application of adjustment policies and curtailing of public social spending, has proven negative in terms of eradicating poverty.  Specific plans will only yield results insofar as they are tied to a strategy for growth with equity that gives priority to widespread access to health and education by the lowest income sectors.  This should go hand in hand with the creation of employment and economic opportunities for the sectors most affected by the economic changes that are taking place in most countries.

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