Income distribution key to economic growth: UNDP

Development Update #16
July-August 1996

Relatively equal income distribution promotes economic growth, according to the Human Development Report 1996, prepared by consultants for the United Nations Development Programme (UNDP). Other factors cited in the report as promoting growth are education, public health and nutrition, and job creation.

The seventh annual Human Development Report dismisses a "trickle-down" economic approach, which posits that unequal income distribution is a feature of early stages of industrial development and that benefits of growth achieved by the economic elite will eventually "trickle down" to the masses. Some proponents argue that growth can best be financed by channeling its initial benefits to large businesses and investors, who have a capacity and propensity to increase savings.

In rebuttal to the trickle-down approach, HDR 1996 cites the experience of East Asia, where there has been a positive correlation between economic growth and a relatively small gap between the high and low ends of the income scale. In the post-World War II period, Japan pioneered a form of "equitable development" that gave priority to public education, job training, job creation and job security, the report notes. Other countries, such as Malaysia and China, have followed suit, and have been able to sustain rapid rates of growth for prolonged periods.

Unfortunately, in many other areas of the world there has been a failure to develop human resources and an associated increase in inequality, the report says. Between 1961 and 1991, the share of world income of the richest 20 per cent of the world's population widened from 70 per cent to 85 per cent, while that of the poorest 20 per cent narrowed from 2.3 per cent to 1.4 per cent. Real income of some 200 million people fell between 1965 and 1980, and more than one billion experienced a loss of income between 1980 and 1993. Because HDR's economic data does not cover the years after 1993, the report does not take into account recent economic growth among the large majority of developing countries and in eastern and central Europe during 1994-1996 (see Development Update #15).

Statement for the USA Release of the 1996 Human Development Report
A speech by Mr. James Gustave Speth, Administrator, UNDP given July 16, 1996 that outlines the observations and conclusions of the report concerning the relationships between economic growth, equality and human development.

Excerpts from the UNDP Human Development Report 1996

Growth and Equity

Ruthless Growth - or Egalitarian

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