Components of a Future Development Strategy The Importance of Human Development

• Author: Paul Streeten
• Position: Professor Emeritus of Economics at Boston University and Founder and Chairman of the journal World Development

Although current prospects for increased aid disbursements are not good, efforts to combat poverty could be more successful if aid were provided on conditions that included human, or social, criteria.

The IMF, the World Bank, and orthodox economists argue for full integration of the developing countries into the global economy. But to achieve a world order with a human face, integration must be accompanied by policies that guarantee the satisfaction of basic needs; correct for highly unequal asset, income, and power distribution; and prevent the growth of insecurity and social exclusion. To bring the 1.3 billion people now below the poverty line up to a minimum income level would require a fourfold increase in current aid. We know that this is not likely to happen. Although 1998 saw an increase in aid, prospects for continued increases look gloomy. But there are five hopeful signs for global antipoverty policies in the present, otherwise dismal, climate.

First, the structural adjustment programs negotiated mainly with the IMF and the World Bank have made political leaders receptive to more "targeted" programs protecting, or even advancing the interests of, some of the more vulnerable groups. In the past, these leaders had been more interested in large-scale industrialization and infrastructure projects and had dismissed the informal sector (small businesses that are not registered with the national government and do not pay taxes) as a disguised form of unemployment, not as a source of productive growth. Recent examples of successful change are India's introduction of an Integrated Rural Development Program, Kenya's having begun to pay attention to the employment report of the International Labor Organization, and Egypt's encouragement of small entrepreneurs. Shortly after its new president, James Wolfensohn, began his term in the summer of 1995, the World Bank canceled a large hydroelectric project in Nepal after a newly set-up independent inspection panel criticized it. The Bank is also scrutinizing other large projects.

Second, following the perhaps no longer quite so fashionable practice of "getting prices right" as the top priority can be a way of benefiting the informal sector, which, though it comprises some quite well-off people, also includes many poor people. Low interest rates have often meant rationing capital in favor of large firms, depriving the informal sector of funds, and encouraging capital-intensive methods of production. High wages in the organized sector have often raised unemployment and helped only a privileged labor aristocracy; low prices of publicly supplied electricity from loss-making public power stations have helped private industry and the middle class; and so on. Devaluation of overvalued currencies can help the sales of informal sector enterprises. A few years ago, Kenya began to give small manufacturers a tariff rebate for imported inputs. The popularity of Hernando de Soto's book The Other Path among high officials in the U.S. Republican Party, including former presidents George Bush and Richard Nixon, is a sign of the apparent convergence of business interests and antipoverty concerns. In fact, the book's message does not quite fit the Republican philosophy. For example, there is much more cooperation and mutual support in the informal sector than in the individualistic, competitive ethos of private enterprises in the formal sector.

Third, problems caused by a balance of payments crisis and the need to service debt can also help the poor in the informal sector. By restraining imports, exchange and trade restrictions direct demand to the products and services the informal sector supplies. Devaluations may even encourage exports from the informal sector, and if other exports are produced labor intensively, more people will find employment. The rise in the prices of imported inputs may make it worthwhile for large domestic firms to subcontract to informal sector firms.

Fourth, the current fashion for...