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Introduction to Macroeconomic Policy, Growth and Poverty Reduction

By Terry McKinley | United Nations Development Program | December 1, 2001

Lively controversies continue on the effect of orthodox structural adjustment policies on growth and poverty reduction. Critics argue that the macroeconomic policies associated with structural adjustment have produced neither significant growth nor poverty reduction. Often the poor are directly harmed by such policies as severe slumps in output and employment follow. Even when growth occurs, it is frequently slow and its impact mitigated by rising inequality. Much of the recent debate in development circles has centred on the relationship between growth and inequality.

The traditional position—now widely questioned—has been that some degree of inequality is a spur to growth because it motivates greater work effort, savings and investment. A more recent position argues exactly the opposite: inequality impedes growth by restricting access to such productive assets as land and human capital and lowering productivity. Most recently, the traditionalists have mounted a counter-attack, contending that “growth is good for the poor” because, in part, growth does not worsen inequality: the poor benefit as much as the rich.

No doubt, the nature of this debate clouds some of the policy issues involved— especially by positing some necessary connection between “growth in general” and “inequality in general”. The real issue is determining the set of policies that each country should implement in order to achieve both growth and greater equity. The set might contain some policies that are more conducive to growth and others that are more conducive to lowering inequality. The challenge is to construct a policy package that achieves the optimal impact in terms of reducing poverty.

The papers in this volume explore this issue in the context of determining the relationship between macroeconomic policies, on the one hand, and growth and poverty reduction, on the other. As noted in the acknowledgements, either the United Nations Development Programme or the International Labour Office has commissioned each paper in the volume. Together, the papers cover a number of regions in the world. The papers by Griffin, Griffin and Brenner, and Weeks examine sub-Saharan Africa; the papers by Alarcón and Berry examine Latin America and the Caribbean; and the paper by Khan examines Asia and the Pacific.

The papers by Griffin and Ickowitz and by McKinley explore some of the same themes as the other papers but from a more general perspective. The papers take similar approaches to determining the relationships among macroeconomic policies, growth and poverty reduction and come to many of the same conclusions. In comparison to the positions of the so-called “Washington Consensus”, these papers are noteworthy for taking a more critical or independent view of conventional wisdom. Many of the points they have raised are now more widely endorsed and are similar to those associated with what has been labelled a new “Post- Washington Consensus”. The issues raised by this volume remain timely and relevant since the positions comprising the “Post-Washington Consensus” have come under sharp attack and have yet to consolidate themselves as any kind of broad “consensus”.

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