Global Policy Forum

By David Woodward and Andrew Simms

"When the only tool you have is a hammer, all problems look like nails," says the old adage. This is the problem with economic growth. Whatever the issue, whether it is poverty, unemployment or an ailing environment, we are constantly told that growth is the answer. But the latest evidence contained in our new report says the opposite. Growth isn't working reveals a double dynamic of failure. Firstly, the share of economic benefits from growth reaching the poorest is drying up. At the same time, the poorest are paying a disproportionately large share of its environmental costs.

Last week the British secretary of state for international development, Hilary Benn, launched a consultation to develop a renewed approach to international development. In a speech hosted by the New Economics Foundation (Nef) he called for a new debate on economic growth.

The debate is long overdue, because the obsession of mainstream economists, policymakers and economic commentators with growth has gone unchallenged for far too long. It has become almost the sole criterion by which we judge our progress and our problems. Even health issues, from malaria, through HIV, to bird flu, are judged increasingly by their effects on growth as much as by the number of people they kill.

Growth, we are told, by every relevant government minister, is essential to reduce poverty. Developing countries, they argue, must grow ever faster if they are to reduce poverty; and developed countries in turn must grow ever faster to enable developing countries to grow. Our whole global economic system is geared to generating growth, largely ignoring, and often sacrificing in the process, the equitable distribution of income, the provision of essential social services and environmental sustainability. We are being rushed headlong into a process of economic globalisation, liberalisation and privatisation, whose sole rationale is economic efficiency and growth. But that same process is proving appallingly inefficient when measured, on the one hand, against the need to preserve a habitable planet and, on the other, to deliver economic benefits to those who need them most.

We now face unprecedented environmental challenges, particularly climate change. This means that the global economy can't continue to grow at its current rate without incurring massive, counterproductive human costs. As the "Up In Smoke" reports, produced by Nef and a coalition of the UK's leading environment and development groups, have shown, the effects of climate change are worst for the poorest people. (And yes, they will affect growth, too, with the insurance industry predicting widespread economic bankruptcy if runaway global warming is not constrained.)

Our latest research findings in Growth Isn't Working further undermine the conventional growth argument. In 1990, 23% of the world's population was below the "$1-a-day" poverty line. But between 1990 and 2001, just 60 cents of every $100 of extra income generated by global growth contributed to poverty reduction. In other words, it took an extra $166 of production and consumption, with all the associated environmental damage, to generate each $1 of poverty reduction. Still more worrying is that this is far worse even than the 80s, when the situation for most developing countries was so dire that it was dubbed the "lost decade for development". The debt crisis was at its height, interest rates astronomical, aid falling export prices collapsing, and structural adjustment in its most painful initial phase.

In the 90s, it was all meant to be different. There was debt cancellation (though not enough), a peace dividend from the end of the cold war, and much lower interest rates. The WTO was formed, to promote free trade in the name of growth, not least, if the rhetoric is to be believed, in developing countries. And developing countries should have been enjoying the hard-won rewards for their sacrifices in the name of "structural adjustment" programmes imposed by the IMF, the World Bank and creditor governments. If economic orthodoxy is to be believed, everything in the development garden should have been lovely.

The reality is very different. Not only was global growth even slower than in the 70s and 80s, and far below the 60s, but the share of the poor in the benefits of growth actually fell by nearly three-quarters. So, the share of the poor in the benefits of growth was not only microscopic to begin with, but has fallen dramatically; and their share in the environmental costs of growth is large, and increasing. How, then, can global growth be a solution - let alone the solution - to global poverty? And if growth doesn't provide an answer, then what is the alternative?

We can't just put the global economy into reverse - that would be disastrous for the poor. We have spent the last quarter of a century (and most of the previous century in Africa) creating a system designed precisely to make developing countries ever more dependent on the rich in the North getting even richer. Rather, we need to change direction in the global economic system. What we need to reverse is our ever-increasing dependency on a global growth process which is ultimately unsustainable, and turn instead towards a system which allows much faster poverty reduction without sacrificing the environment on which the poorest depend.

It is becoming accepted once again - even by the World Bank, in its latest World Development Report - that the distribution of income is significant to poverty reduction as well as growth. But such admissions are generally limited to the issue of distribution at the country level. We need to start applying that logic at the global level as well. Poverty is a result of the vast disparities between countries at least as much as inequality within them. Until we have a global economic system which will rectify this, reconciling the moral imperative of poverty eradication with the practical necessity of environmental sustainability will remain impossible.

Mr Benn is quite right to call for a serious debate about economic growth. But the main question it needs to address is why growth isn't working, and what we need to do about it. If we are really serious about global poverty reduction, this debate also needs to encompass the redistribution of income and wealth at the global level - how we need to change the global economic system to achieve such redistribution, and how the rich need to change their lifestyles to give the poor the environmental space in which to develop.

Economists say that growth, like a rising tide lifts all boats. They ask why share the cake more evenly when we can bake a bigger one? But now sea levels really are rising, as a result of global warming driven by the pollution from economic growth. And millions of the poor have no boats to rise in. And the massed ranks of orthodox economists have yet to find the ingredients, or even a recipe, to bake a spare planet to share among the world's population.

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