Very poor countries need strong government for development

Some of the world’s least developed countries have achieved higher economic growth than more developed countries in recent years. But economic growth is not leading to sustained poverty reduction. Fundamental changes, led by governments, are needed for the benefits of economic growth to be shared by the poorer sections of society.

Researchfrom the University of Kent, in the UK, reviews the United Nations Conferenceon Trade and Development (UNCTAD) publication, ‘The Least Developed CountriesReport 2006: Developing Productive Capacities’. The UNCTAD report examines thebarriers to pro-poor growth in least developed countries (LDCs).

Fiftycountries are classed as ‘least developed’. These are countries with the lowestindicators in three areas: income, health and education, and economic security.The UNCTAD report argues that improving productive capacities is the best routeto development for LDCs. Productive capacities are the various elements neededfor a country to produce goods and services, such as a manufacturing industry,the infrastructure to support industry, an export sector, an educated andhealthy workforce, skills and training, and technology.

Buildingthe productive base of a country helps it to grow and develop, and createsbetter jobs. The UNCTAD report therefore calls for a radical shift in thinkingamong governments and donors, with the development of productive capacities acentral focus.

Thereport looks at why poor countries are failing to build a strong productivebase. Key reasons include weak public and private investment, slowtechnological progress, and failure to make the necessary structural changes(long-term, fundamental change in the structure of the economy). Because ofthis, unemployment, underemployment and low levels of labour productivity arepersistent problems in LDCs.

Theauthor agrees with the report’s conclusion that policymakers need to thinkagain about which development strategies work best in the world’s poorestcountries. He also agrees with the report’s focus on demand constraints:business will only thrive if there is a market for its goods and services.However, he identifies areas the report could have explored in more depth,including:

• policies to address the problems of unemployment and underemployment inLDCs (for example, promoting more labour-intensive production methods)
• ways to make better use of the potential entrepreneurship and unusedskills in LDCs
• ways to use existing capital more effectively (for example, bydeveloping better management and organisational skills)
• policies to promote higher savings in LDCs and tap intoexisting resources through the taxation of wealthy citizens.

Oneof the main challenges will be changing the attitudes of policymakers. Theprevailing Washington Consensus view promotes a minimal role for the state,trusting market forces to deliver economic growth. Donors and governments needto recognise the following:

• Structural change is essential for economic growth in the world’spoorest countries.
• Structural change cannot be left to the free market, which benefitsthose best placed to take advantage of opportunities. An active state is neededto promote pro-poor growth.