The Hindu Business Line : Growth with equity

THE COMPLEMENTARY NATURE of equity and development is the central theme of the World Development Report 2006. As in the past; the annual World Bank publication discusses facets of its core theme from different perspectives and suggests solutions. Neither the subjects chosen nor the recommendations can be considered controversial. The Reports do not claim to break new ground. Their value lies in the wealth of statistics across regions. The principal message of the 2006 Report is best summed up in the words of the Bank's Chief Economist, Mr Francois Bourguignon: "Equity is complementary to the pursuit of long-term prosperity. Greater equity is doubly good for poverty reduction. It tends to favour sustained overall development and delivers increased opportunities to the poorest groups in a society."

Equity in the context of development is best understood as a process through which individuals should be given equal opportunities to pursue a life of their choosing and be spared from extreme deprivations in incomes. Since, over the long term, equity is complementary in some fundamental respects to the pursuit of prosperity, institutions and policies that promote a level playing field contribute to sustainable growth and development. A level playing field implies that "all members of a society have a similar chance to become socially active, politically influential and economically productive." Greater equity is thus doubly good for poverty reduction in the long run: positive benefits can be documented and, second, the poor are given greater opportunities to rise in society.

Official interventions to promote equity are particularly relevant in developing economies where the markets are either inefficient or prone to failures. Healthy markets make for equitable distribution of resources but in most developing countries reform of the markets is both costly and, at best, a medium-term option. Therefore, "some form of redistribution of access to services, assets or political influence can increase economic efficiency". Besides, high levels of political and economic inequalities are self-sustaining unless checked through policy measures. There is conclusive evidence that there is no dichotomy between such equity-oriented policies and those that profess to further economic growth. Best policies for poverty reduction involve redistribution of influence, advantage or subsidies away from dominant groups.

While such policies often increase efficiency, the Report cautions against ignoring the possible trade-offs. For example, when does a steeply graded income-tax structure, justified to promote equality, become a disincentive to save and invest? In those cases it is better to fine-tune the fiscal policies than aggressively to pursue an agenda of levelling down. Providing access to education, heath, credit and promoting productivity enhancing opportunities and schemes is a better way of furthering equity than narrowing the gap between the rich and the poor. No government anywhere in the world professes to shun the equity dimension in public policy. The key question has always been one of priorities. Should equity-oriented policies come first in a scheme of poverty reduction or should economic growth be furthered at all costs? The Report effectively provides a synthesis and says both are complementary.

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Growth with equity

West Bengal must work to catch up

India's balance of payments in transition

India's water economy — World Bank prescription does not hold water

World Investment Report 2005
India: Not quite yet the investors' darling

Trade unions in IT industry

Audit systems