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Book Review
Alleviation of poverty
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An attempt to understand the link between public expenditure and poverty reduction
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C.T.Kurien
PUBLIC EXPENDITURE, GROWTH, AND POVERTY — Lessons From Developing Countries: Ed. by Shenggen Fan; Oxford University Press, YMCA Library Building, Jai Singh Road, New Delhi-110001. Rs. 645.
The recent renewal of interest globally in poverty alleviation can be attributed to two related factors. The first is the United Nations Millennium Summit of September 2000 attended by some 150 heads of state that resulted in the much talked about Millennium Development Goals (MDGs) outlining a global agenda for reducing poverty by 2015. It was followed in 2002 by the Monterrey Conference where rich countries renewed their pledge to increase their development assistance to 0.7 per cent of their gross domestic product so as to achieve the MDG targets. And, of course, there have been much publicised studies by well-known scholar activists (such as Jeffrey Sachs’ The End of Poverty, for instance) reassuring the global community that the targets set are, indeed, achievable. Underlying these approaches is the assumption that poverty reduction is basically a matter of income transfers across and within countries.
Public spending
The second is the discovery that even by 2007-08, which marks the midpoint of the journey from 2000 to 2015, not much has been achieved in terms of reducing poverty although global growth has been stimulated and sustained, and public spending for poverty alleviation has received a new impetus in many parts of the world.
This is the context in which the volume under review was envisaged and put together. It is an attempt through detailed field studies in different countries in Asia, Africa and Latin America to understand the links between public spending, growth and poverty. What is particularly significant is that public expenditure has been into various categories – on agricultural improvements including irrigation, roads and infrastructural developments of different kinds, public employment programmes, food subsidies, education at different levels, public health schemes, and so on – so that comparative evaluations of different forms of public expenditure could be assessed. The field studies were originally formulated and conducted by scholars at the International Food Policy Research Institute (IFPRI) in the United States. Comparative evaluations were done by some of these scholars through what came to be known as the IFPRI synthesis project which received funding also from the World Bank, the U.S. Agency for International Development and other bodies in the West, as also, and significantly, from the Natural Science Foundation of China and the Chinese Academy of Agricultural Sciences.
Key policy issues
The key policy issues addressed in the book include the following: What should be the role of the government, particularly government spending, in promoting growth and poverty reduction? Within public investment or social spending, how should these types of expenditure be allocated to maximise their impact? Are there tradeoffs between growth and poverty objectives, both within and across sectoral expenditures? A major contribution of the book is the method used to evaluate the relative contributions of different types of expenditures that scholars may wish to critically examine. The book also provides an extensive bibliography of studies done in different parts of the developing world.
Among the findings of the studies, one of the most significant is that agricultural spending, including on R&D, is a major instrument for promoting growth and alleviating poverty. Considering the fact that the majority of the world’s poor earn a large share of their income from agriculture this is hardly surprising. Agricultural spending also leads to higher rural wages and to increase in both farm and non-farm employment. By reducing food prices it can also lead to reduction in urban poverty. There are country differences in this regard. Thus, in India road construction is the highest contributor to poverty reduction and in China it is government expenditure on education that makes the largest contribution in reducing rural poverty. But in both the countries spending on agriculture occupies the second place. Spending on rural infrastructure is another top contributor to poverty reduction in most countries studied. Expenditures leading to increased non-farm employment are also major contributors to poverty reduction, though these tend to increase inequalities.
In Thailand the major contribution to poverty reduction has come from investments in rural electrification while investment in irrigation has the smallest impact on rural poverty reduction. In Uganda growth in labour productivity and increase in non-farm employment occupy top positions.
Reduction measures
Food subsidies appear to make only negligible contribution to poverty reduction, but this may just be a reflection of the manner in which the studies were conducted. The crucial question of what food prices would be in the absence of a widely applicable and properly administered public distribution system is not addressed at all.
Expenditure on public health is seen to be important in poverty reduction, especially in African countries, but the studies also indicate that relocating public monies towards primary health care may provide better results. It is stated further that there is some evidence that providing and subsidising inexpensive curative care may have a “crowding out” impact on private provision of health care.
The contribution of the book is not on what it says should be done to reduce poverty – that surely is bound to be context specific – but on suggesting how empirical studies on a range of poverty alleviation measures may be carried out and their impact assessed. It must be noted too that studies reported relate only to poverty alleviation that can be achieved through public expenditure, and not poverty eradication that calls for dealing with the systemic factors that generate poverty along with growth.
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