New development goals need to address the increasingly large numbers of poor people living in middle-income countries (MICs), including the rising economies of India and China, and should focus on empowering people, the Organisation for Economic Co-operation and Development (OECD) said in a report on Dec. 5.
The Development Co-operation Report 2013: Ending Poverty is the latest addition to the growing literature on what should follow the millennium development goals (MDGs) after 2015. The report, which is made up of a collection of essays from leading development experts, said the world needs to adapt to new challenges and move beyond the focus on economic growth, which — while crucial — is insufficient by itself to take 1.2 billion people out of poverty.
“The number and diversity of actors in development is increasing, global interdependencies are growing and inequalities are on the rise despite periods of economic growth,” OECD secretary-general Angel Gurria said in a foreword. “These trends call for broader measures that address poverty and development not only as a question of income, but also of inequality, sustainability, inclusiveness and well-being.”
Andy Sumner, co-director of King’s College London’s International Development Institute, said in his essay notes that there is a new “bottom billion” — the billion poor people living in extreme income poverty in MICs, half of them in India and China. Sumner and others question whether the World Bank’s definition of poverty — living on US$1.25 a day — remains valid with so many of the poor living in MICs.
Stephen Klasen, head of the Ibero-America Institute for Economic Research at the University of Goettingen, suggested basing the definition of a new global goal of reducing income poverty on national measurements of poverty that are internationally coordinated and consistent.
As for the new geography of poverty, Sumner argues that this is a good reason for OECD Development Assistance Committee (DAC) donors to continue development cooperation with MICs, but in a different way:
“Development cooperation could shift from grants to concessional loans [which would be cheaper than borrowing from private capital markets]; to cofinancing global or regional initiatives such as vaccination programs or green infrastructure; and to policy-related research and knowledge exchanges between MICs and other countries,” he said.
Sumner added that the post-2015 agenda needs to reflect that, over time, it is likely the increasing number of MICs will make far greater demands on traditional donors to focus on policy coherence — better coordination of trade, migration and other policies — the basis of MDG 8, a global partnership for development.
As an example of incoherence, DAC chair Erik Solheim pointed to “perverse” fossil-fuel policies around the world. These take the form of subsidies worth billions of US dollars every year for gasoline and diesel. OECD countries spend about US$55 billion to US$90 billion every year on fuel subsidies, while in sub-Saharan Africa, energy subsidies on average account for close to 3 percent of GDP — roughly the same amount that is spent on public health.
OECD Development Co-operation Directorate director Jon Lomoy said donors need to be smarter about aid at a time when official development assistance — US$130 billion last year — is being eclipsed by other financial flows (remittances last year came to US$401 billion).
Donors needed to think about smart aid. This includes using aid to strengthen tax collection systems, encourage foreign investment and engage the private sector. Smarter aid also means channeling aid money through a recipient’s own financial systems instead of using parallel donor systems. Lomoy said the advantage of working with MICs is the greater potential to use aid as a catalyst.
“It is easier to use aid to mobilize private and domestic resources in middle-income countries,” he said. “Using aid in a catalytic role is easier in practice in middle-income countries.”
The report contains several examples of successful poverty reduction strategies, including a shift from programs that target poverty to more universal approaches based on concepts of human rights, social protection policies such as national health insurance and pensions.
“This is one of the most important innovations in recent social protection policy and is a reaction to the problem of how to find and target the poor,” said Michael Samson, director of research at the Economic Policy Research Institute in Cape Town, South Africa. “Increasingly, policymakers recognize the high costs associated with poverty targeting and are aware of the important trade-offs.”
Samson cites Bangladesh as having taken the lead in moving beyond income and incentives to social protection policies that contribute to overall development.
Examples include government schemes such as the rural employment opportunities for productive assets as well as NGO programs such as BRAC’s program on poverty reduction and the Chars livelihoods program, which involves the transfer of assets to women to build their negotiating power within households and in the community. Other successful examples of social protection include Mexico’s Oportunidades and Brazil’s Bolsa-Familia, both of which are conditional cash transfer programs.