Is growth pro-poor? Or is it immiserizing growth?

Critiques of Neo-Liberal Economics, Market Failures, the Market-Friendly State Concept, and the Search for Optimum Balance-3 

Policies implemented within the framework of the Washington Consensus brought market failures in their wake, and alongside the resulting criticisms, new searches to address these shortcomings and failures have come to the fore. As a result, it has been stated that the state's complete withdrawal from the economy causes significant problems, leading to new consensuses on development. 

The Santiago Consensus, adopted in April 1998, emphasized that while development should be market-based, severe market failures should not be ignored; that as a general rule, the state should not engage in direct production; and that, alongside these, the state has an inevitable role in resolving many development issues, primarily sustainable development, public health, education, the provision of basic public goods, poverty reduction, fair income distribution, and ensuring that the poor also benefit from growth.

For this reason, in recent times, instead of a state structure that has completely retreated due to neo-liberal policies, a shift has been made toward the discourse of a “state-market partnership.” Within the framework of the “Market-Friendly State” concept, emphasis has begun to be placed on effective state policies for a strong market that seeks solutions to market failures and provides an optimum balance between the state and the market. Furthermore, in recent times, within the framework of the social state concept, views have come to the fore suggesting that the state should base its approach not only on economic growth but also on inclusive, pro-poor sustainable development and human development.

However, the “market-friendly state” approach, which centers on neo-liberal policies while lacking a developmental social state understanding, remains insufficient in solving today's problems. Blindly surrendering to the neo-liberal policies advocated under the Washington Consensus while opening markets to competition makes countries more fragile and can lead them to ruin. Therefore, an appropriate and ideal relationship between the state and the market must first be established. Both state and private sector initiatives in the market must compete with each other (with public enterprises competing with each other, with foreign companies, and with domestic private companies in the market) in a way that encourages development and must operate within a market economy.

Amartya Sen’s capability approach, with roots tracing back to Adam Smith, Marx, and Aristotle, has become the most widely used perspective on poverty, inequality, and human development. Due to the globalization process in the world, and as a result of income distribution generally worsening to the detriment of underdeveloped countries and the deepening of poverty, international organizations have shown an increasing interest in the phenomenon of development and poverty, especially starting from the 1990s. On the other hand, in his work *Development as Freedom*, published in 1999, Amartya Sen emphasizes that as countries or societies develop, individual freedoms will also expand, and with individual freedoms, development in the social structure will be achieved spontaneously.

DO THE POOR ALSO BENEFIT FROM GROWTH? IS IT PRO-POOR GROWTH OR IMMISERIZING GROWTH?

Development economists, who argue that growth alone is not sufficient for poverty reduction, have recently been focusing on a new concept: Pro-Poor Growth (PPG). However, discussions continue regarding what this concept is, how it should be measured, and more importantly, how it can be translated into political processes. 

In a broad sense, this concept is expressed as “growth that provides a significant reduction in poverty” or “growth that is good for the poor.” While Ravallion defines pro-poor growth as a poverty-reducing increase in GDP, Kakwani argues that pro-poor growth is growth that improves income distribution in cases where the poor segment benefits proportionally more than the non-poor segment.

The fact that a large segment of society cannot sufficiently benefit from economic growth and development, and that the income levels of the poor segments decrease (they become even poorer) or rise below the average increase in inverse proportion to economic growth, jeopardizes the sustainability of economic growth and development. PPG is growth that does not find economic growth alone sufficient, but focuses on the effect of growth on income distribution and reduces poverty. 

In other words, if the increasing effect of economic growth in a country on the income of the poor segment is greater than its increasing effect on the incomes of the non-poor, then we are talking about pro-poor growth in that country. Countries should aim for low-income groups to benefit more from growth through redistribution policies via taxes and transfers, without deviating from the growth target, but also by taking into account that growth should reduce inequality in income distribution.

To be continued…