Print Edition - 2018-03-11  |  Free the Words

Let’s have inclusive prosperity

  • Economic growth only will not reduce the poverty and inequality prevailing in Nepal
- Tara Kanel

Mar 11, 2018-

The current ruling parties have made highly ambitious election commitments for economic growth and development. The promises include uplifting Nepal to developing country status in the next five years and increasing the per capita income to $5,000 in the next 10 years. Whether these pledges will materialise or not is a serious matter that every Nepali citizen is concerned about. The parties will definitely be judged on the basis of their actions against these commitments. 

However, there is another issue: Is lifting Nepal to developing nation status and increasing the per capita income sufficient to minimise the poverty and inequality that is rampant in Nepali society? International experience shows that poverty reduction and equality are not necessarily by-products of economic growth. Economic growth alone will not suffice; rather, inclusive economic growth is a must to address Nepal’s deep rooted poverty and inequality.

For the poor

The government of Nepal has recently changed its way of measuring poverty from a single monetary dimension to multi dimensions: education, health and wellbeing. The Gini coefficient is the most common measure being used globally for the measurement of inequality. The coefficient ranges from 0, when everyone has the same income, to 100, when an individual receives all the income of a society. The higher the Gini coefficient, the greater the inequality. Nepal’s Gini coefficient is 32.8. The figure is very low in Scandinavian countries, 25 on average, and relatively high in neo-liberal countries including the US which has a score of 40.8. The high economic inequality in the US is a perfect example to demonstrate that economic growth alone is not sufficient to narrow down income inequality. 

In fact, the political ideology of a government has been proven to widen or narrow down inequality. The Scandinavian countries follow a social democratic political ideology which seeks to promote economic growth with the government playing a strong role as market regulator and redistributor of economic benefits. In contrast, neo-liberalism advocates market fundamentalism, a minimised role for the government in service delivery, de-regulation, unregulated privatisation and de-regulated labour market policies that lead to unequal labour relations including erosion of minimum wages and union bargaining power. 

The idea of inclusive economic growth is a major departure from ‘trickle down’ development thinking, which supports tax and other financial benefits for large businesses to stimulate economic growth. The trickle-down approach claims that economic growth flows down from the rich to the poor, and that poverty can be eradicated even if the poor receive only a small fraction of the total growth. In contrast, inclusive growth goes for economic policies that are deliberately biased to benefit the poor and excluded segments of society. This thinking also assumes that if economic policies are apolitical (unbiased), the rich benefit disproportionately due to their better positioning in society such as human and social capital. Therefore, economic policies need to be focused on uplifting the poor so that the state’s economic prosperity benefits all citizens equally. 

Generating growth

Inclusive economic growth is not only ethical, it is vital for sustainable economic growth too. In highly unequal societies, the poor are locked in a subsistence economy, and their purchasing power is significantly restricted resulting in the limited size of the domestic market. A small domestic market has been proven to be detrimental for sustainable economic development. Similarly, in unequal societies, the basic human rights of poor people go unrealised, resulting in a rise in crime and social unrest. Long-term conflict and social unrest tend to impair economic growth. 

Public spending on basic education, health and other basic needs; improved access to credit for the poor; promotion of small and medium enterprises; and fair and equitable labour relations are some of the characteristics of inclusive economic policies. The budget presented recently by the Indian federal government for fiscal 2018-19 has some of these features. They include a focus on the economic development of rural populations, investment in agriculture and rural development, improvement in farmers’ access to credit, public investment for health insurance, and incentives for micro and medium scale enterprises. These elements are important for employment generation and equitable sharing of the country’s economic prosperity by all citizens. 

The Poverty Analysis Report 2018, jointly published by the government of Nepal and the University of Oxford, shows that 28.6 percent of Nepal’s population is multidimensionally poor. Under-nutrition and an insufficient number of schools have been found to be the dominant factors that drive the Nepali people into the vicious circle of poverty. The report also shows a prevalence of high inequality between urban and rural populations. Poverty prevalence in urban areas is 7 percent, significantly lower than the national average of 28.6 percent. In contrast, it is significantly high, 33 percent, in rural areas. The report also highlights regional disparity. Provinces 2 and 6 are found to have the highest rate of poverty prevalence. In these provinces, one in two persons is found to be living below the poverty line. 

If the current government is committed to addressing poverty and inequality, it will need to prioritise economic growth that favours the poor and unequal citizens. Allocating sufficient resources to meet the education and health needs of the people is very important. Paying attention to the development of the rural economy is also important to narrow down urban-rural disparities. Equitable resource allocation among the provinces will help address and minimise the disproportionate poverty prevalence in Provinces 2 and 6. In addition, launching a progressive tax system, designing and implementing redistributive policies, and promoting equitable labour relations are very important for transforming Nepal’s unequal and feudal society into a more inclusive one. 

Kanel, a freelance policy analyst, holds a Master’s in Social Policy from the University of Melbourne, Australia

Published: 11-03-2018 07:42

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