Monday, November 1, 2010

Equality is good for growth, but growth is not necessarily good for equality

Even if there is economic growth, there are no guarantees that this will help the poor. The appalling inequality can nullify all the possible wealth for the poor. Well, now some may object and say that there is a clear correlation between e.g. GDP and life expectancy. There is. But there is a much stronger correlation between income of the poor and public expenditure and life expectancy. A society with slow or no economic growth, but with equality and good public health care system will have a higher life expectancy than a society with high growth rates but with no public health care and continued poverty among large groups. Studies from Great Britain show that during the two great wars, life expectancy increased markedly. Despite a limited supply of food, undernourishment decreased. The reason for this surprising pattern is likely that solidarity, sense of community and social responsibility increased by the external pressure of the war. Public health care and support to the poor increased remarkably in the periods (Sen 1999).

Increased incomes for farmers and farm workers stimulates demand for goods and services by local artisans (blacksmiths, construction workers, seamstresses and brewers among others) and can in this way induce a virtuous cycle. A dollar in increased income, can in this way easily become two. Local wages will increase. There is a big difference in this regard between situation when growth is by hundreds of smallholders or when it is in a big plantation. When the latter increases is income, most of the money is spent on imported inputs and machinery as well as on luxury products for private consumption, with little positive impact on local trades. There is thus a strong link between equality and local economic development (FAO 2003).

Extract from Garden Earth

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