New development goals need to address the increasingly large numbers of poor people living in middle-income countries, including the rising economies of India and China, and should focus on empowering people, the Organisation for Economic Co-operation and Development (OECD) says in a report on Thursday.
The Development Co-operation Report 2013: Ending Poverty, is the latest addition to the growing literature on what should follow the millennium development goals (MDGs) after 2015. The report, which is made up of a collection of essays from leading development experts, says the world needs to adapt to new challenges and move beyond the focus on economic growth, which – while crucial – is insufficient by itself to take 1.2 billion people out of poverty.
“The number and diversity of actors in development is increasing, global inter-dependencies are growing, and inequalities are on the rise despite periods of economic growth,” says Angel Gurría, the OECD secretary general, in a foreword. “These trends call for broader measures that address poverty and development not only as a question of income, but also of inequality, sustainability, inclusiveness and wellbeing.”
Andy Sumner, co-director of King’s College London’s International Development Institute, in his essay notes that there is a new “bottom billion” – the billion poor people living in extreme income poverty in middle-income countries (MICs), half of them in India and China. Sumner and others question whether the World Bank definition of poverty – living on $1.25 a day – remains valid with so many of the poor living in MICs.
Stephen Klasen, head of the Ibero-America Institute for Economic Research at the University of Göttingen, suggests basing the definition of a new global goal of reducing income poverty on national measurements of poverty that are internationally co-ordinated and consistent.
As for the new geography of poverty, Sumner argues that this is a good reason for OECD Development Assistance Committee (Dac) donors to continue development co-operation with middle-income countries, but in a different way: “Development co-operation could shift from grants to concessional loans (which would be cheaper than borrowing from private capital markets); to co-financing global or regional initiatives such as vaccination programmes or green infrastructure; and to policy-related research and knowledge exchanges between MICs and other countries.”
Sumner adds that the post-2015 agenda needs to reflect that, over time, it is likely the increasing number of middle-income countries will make far greater demands on traditional donors to focus on policy coherence – better co-ordination of trade, migration and other policies – the basis of MDG 8, a global partnership for development.
As an example of incoherence, Erik Solheim, the OECD Dac chair, points to “perverse” fossil-fuel policies around the world. These take the form of subsidies worth billions of dollars every year for petrol and diesel. OECD countries spend about $55bn-$90bn every year on fuel subsidies, while in sub-Saharan Africa, energy subsidies on average account for close to 3% of gross domestic product – roughly the same amount that is spent on public health.
Jon Lomøy, director of the OECD Development Co-operation Directorate, says donors need to be smarter on aid at a time when official development assistance (ODA) – $130bn in 2012 – is being eclipsed by other financial flows (remittances last year came to $401bn).
Donors needed to think about smart aid. This includes using aid to strengthen tax collection systems, encourage foreign investment and engage the private sector. Smarter aid also means channelling aid money through a recipient’s own financial systems instead of using parallel donor systems. Lomøy says the advantage of working with middle-income countries is the greater potential to use aid as a catalyst.
“It is easier to use aid to mobilise private and domestic resources in middle-income countries,” he says. “Using aid in a catalytic role is easier in practice in middle-income countries.”
The report contains several examples of successful poverty reduction strategies, including a shift from programmes that target poverty to more universal approaches based on concepts of human rights, typically social protection policies such as national health insurance and pensions.