BACKGROUND PAPER MONITORING & EVALUATION OFFICE EVALUATION & MONITORING THE Rockefeller Foundation Rockefeller Equity and Inclusive Growth from a Development Perspective A.K. Shiva Kumar Financial support provided by About the author A.K. Shiva Kumar, PhD, a development economist, is policy adviser to UNICEF India and Co-Chair of the Global Learning Initiative to Stop Violence against Boys and Girls. He is also a Visiting Professor at the Indian School of Business in Hyderabad and teaches economics and public policy at Harvard University’s John F. Kennedy School of Government. His research has focused on poverty and human development, health and basic education, social policy evaluation, and the impact of development policies on children and women. He has served as a member of India’s National Advisory Council appointed by the Prime Minister’s Office to provide social policy and legislative inputs for furthering the rights of disadvantaged groups. He has been a regular contributor to UNDP’s global and national Human Development Reports. Dr. Shiva Kumar earned his M.A. in Economics from Bangalore University and his Post-Graduate Diploma in Management from Indian Institute of Management, Ahmedabad. He also has a Masters in Public Administration and a PhD in Political Economy and Government, both from Harvard University. Dr. Shiva Kumar lives in New Delhi. About The Rockefeller Foundation For more than 100 years, The Rockefeller Foundation’s mission has been to promote the well-being of humanity throughout the world. Today, The Rockefeller Foundation pursues this mission through dual goals: advancing inclusive economies that expand opportunities for more broadly shared prosperity, and building resilience by helping people, communities, and institutions prepare for, withstand, and emerge stronger from acute shocks and chronic stresses. Cover: ©Anthony Njuguna Equity and Inclusive Growth from a Development Perspective A.K. Shiva Kumar MONITORING & EVALUATION OFFICE EVALUATION & MONITORING THE Rockefeller Foundation Rockefeller Originally produced in 2013; reissued in 2016 Financial support provided by The contents of this report are the views of the authors and do not necessarily reflect the views or policies of The Rockefeller Foundation. © 2016, The Rockefeller Foundation This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 License ©Jonas Bendisken Table of Contents Acronyms iv Preface v 1 Concepts of Growth, Development and Well-being 1 1.1 Economic growth: evolution in thinking 1 1.2 Critiques of growth 6 1.3 On assessing well-being 8 1.4 Policy perspectives on growth 14 2 Poverty Concepts and Measures 17 2.1 Poverty concepts 17 2.2 Measures of poverty 22 3 Equity versus Equality 27 3.1 Defining equity and equality 27 3.2 Measures of inequality 29 3.3 Policy implications 33 References 35 Acronyms CIDA Canadian International Development Agency GDP Gross domestic product GII Gender Inequality Index GNI Gross national income GNP Gross national product HDI Human Development Index HDR Human Development Report IHDI Inequality-adjusted Human Development Index MPI Multidimensional Poverty Index NGO Non-governmental organization PPP Purchasing power parity PQLI Physical Quality of Life Index RWG Redistribution with growth iv EQUITY AND INCLUSIVE GROWTH FROM A DEVELOPMENT PERSPECTIVE Preface As The Rockefeller Foundation enters its second century of promoting the well-being of humanity, it continues to tackle some of the world’s most pressing problems. Globalization has increased access to global markets, expanding productive potential and new opportunities for shared prosperity. However, we remain mindful that the persistence of disparities in development outcomes is stark evidence that the benefits of globalization are not always realized, particularly by poor and vulnerable populations. With support from the Foundation, this report, Equity and Inclusive Growth from a Development Perspective, was written by development economist A.K. Shiva Kumar in 2013, at a time when the Foundation was trying to more fully define and operationalize its goals of what were then called Equitable Growth and Resilience (now called Inclusive Economies and Resilience). The intent of this report was two-fold: to assist staff and grantees in better understanding the evolution of thinking on equity over past decades, and to situate how the perception of growth has evolved in the last century to where it is today. Through a series of workshops and dialogues with Foundation staff and grantees in 2012 and 2013, Dr. Kumar assisted the Foundation in sharpening our knowledge and awareness of the key dimensions of equity that are important to consider in designing, implementing, monitoring and evaluating its work. Dr. Kumar’s work continues to provide valuable guidance in defining and measuring equity and inclusive growth. This report has been widely requested and distributed since it was first produced in 2013 and, as a result of its continued relevance to the Foundation’s work and new Inclusive Economies and Resilience goals, it is being reissued in 2016. Looking to the future, building the capacity of the Foundation and its grantees to use and apply these concepts, frameworks, and measures in the context of their work will enable the Foundation to better define and measure the impact and outcomes it seeks with its target populations. For more information, please contact The Rockefeller Foundation’s Evaluation Office at [email protected] Nancy MacPherson Managing Director, Evaluation The Rockefeller Foundation EQUITY AND INCLUSIVE GROWTH FROM A DEVELOPMENT PERSPECTIVE v © Jonas Bendiksen 1 Concepts of Growth, Development and Well-Being 1.1 Economic growth: energies are better directed, resources better deployed, techniques mastered and then advanced. evolution in thinking It is not just about making money. Economic growth, which refers to the annual growth rate of a country’s gross domestic product (GDP), has There has been a gradual evolution in thinking on remained central to discussions on development for economic growth over the past decades. over half a century. In these discussions, GDP is defined as the total market value of all final goods and services Growth matters. Early neo-classical development produced by a nation during a given year or, in some economists underscored the primacy of economic cases, to the growth rate of per capita GDP. growth for underdeveloped countries and propounded different theories of economic growth. For example, Why is economic growth important? Walt Whitman Rostow (1960) identified five stages of There are at least four good reasons. growth: i) the traditional society, ii) the pre-conditions for take-off, iii) the take-off, iv) the drive to maturity, • Low incomes cannot sustain reasonable living and v) the age of high mass consumption. He argued standards – even with extensive income distribution. that all developed countries had passed the stage of • Economic growth can help solve problems of public take-off into self-sustaining growth. Yet, developing debt and deficit. countries remained in the traditional society or • Economic growth generates public revenues that pre-conditions stage – largely because of inadequate can be used for advancing well-being through, investments. for example, enhanced investments in health, education, or nutrition. Many other economists also propounded theories of • A growing GDP is evidence of a society getting growth, such as the following. its collective act together. According to the Commission on Growth and Development’s Growth • The Harrod-Domar Growth model – developed Report (1960), as its economy grows, a society independently by Roy F. Harrod (1939) and becomes more tightly organized, more densely Evsey Domar (1946) – postulated that the rate of interwoven. A growing economy is one in which economic growth is determined jointly by the ability EQUITY AND INCLUSIVE GROWTH FROM A DEVELOPMENT PERSPECTIVE 1 FIGURE 1: Economic growth has remained central to economic thinking Pro-poor growth Growth matters: Growth Equitable growth Redistribution Growth with Inclusive growth balanced vs. trickles with growth equity Gender and unbalanced growth down development Sustainable growth 1950s-1960s 1970s 1980s 1990s 2000+ of the economy to save (savings ratio) and the Demand side. Take the case of a hypothetical country capital-output ratio. that begins development by building a soap factory. • Economists, including W. Arthur Lewis (1954), Land is acquired, the factory is built, equipment is put Ragnar Nurkse (1953), and Gustav Ranis and John in place, workers are employed, and production starts. C.H. Fei (1964), developed models to explain how In the process, workers’ incomes rise, and the factory industry and agriculture in a typically surplus-labour workers might buy more soap. But they certainly won’t underdeveloped economy can contribute to be able to buy all the soap that is manufactured. If growth. For instance, the Lewis development model the rest of the population consists of poor farmers focused on the process of transfer of surplus labor whose incomes have not risen, then soap will remain and the growth of output in the modern sector. unsold. The factory will not be able to carry on Lewis postulated that the process of self-sustain- profitable operations – it will have to shut down and ing growth and employment expansion continues the development effort that was initiated will fail. The in the modern sector until all of the surplus labor solution