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Growing Employment
The best antidote to poverty is economic growth. There is much evidence linking poverty reduction to economic growth – the so-called ‘trickle down’ effect.It is assumed that economic growth will automatically lead to job creation that in turn will lead to poverty reduction.Contemporary history clearly shows that it is the private sector that is the best engine of job creation.For example, China has made the single largest contribution to global poverty reduction in the last three decades.Since the beginning of reforms in 1978, more than 250 million people have been lifted out of poverty in China. The private sector has been the fastest growing segment of the economy, growing at 20% per year for the last 25 years, more than double the economy’s average. Since 1992, the private sector has created three quarters of all jobs created, according to the International Finance Corporation. There is, of course, no simple answer to how to stimulate the growth of the private sector.The World Bank measures the ease of doing business in 183 countries by focusing on indicators in ten different areas ranging from ‘starting a business’ to ‘protecting investors’ to ‘closing a business’. This helps understanding of how various policies, laws and regulations can facilitate the growth of the private sector, especially the SME sector.
It is true that no country has significantly reduced poverty without experiencing
economic growth.But, economic growth has had widely different impact on poverty
reduction across countries.A 1 per cent increase in per capita GDP can reduce income poverty by as much as 4 per cent or as little as 1 per cent. The link between economic growth and poverty reduction is mediated by job creation.It is possible to have economic development without significant job creation, which then leads to lesser impact on poverty reduction.In recent years, many least developed countries have achieved higher rates of economic growth than in the past and even higher growth of exports. But there is a widespread sense that this is not translating effectively into poverty reduction and improved human well-being. Analyzing the recent economic history of Mexico, Zepeda concludes, “mainstream policies managed to generate growth that proved neither pro-poor nor sustainable.The Mexican experience shows the need to leave behind the blind faith in market forces and embrace employment-based policies.”