I am going to introduce you to a new brand of drinks in Africa. It’s called PROSPECT. And it was introduced in the African market at the end of the 90s, early 2000s. This was at the time that African economies started to grow. The PROSPECT drink embodies wealth and well-being. And it signals an expectation that this wealth and well-being will benefit all, when the economy starts growing.
The premise of PROSPECT starts with a basic piece of economic theory. A theory that is so convincing, that it has been regarded as common sense for decades. It says that when an economy – anywhere in the world – grows, this prosperity will first enrich the top layer and eventually trickle down to the rest of the society (the middle class and the poor). It suggests that in order to make a society prosperous, we just have to invest. To pour in more ’prospects’.
…does not work
We now know that this trickle-down theory does not work. Reality has shown that when investments are made, only some sections of the economy and population benefit, and others are not reached. So what happens, given the fact that there is investment and more PROSPECT does flow in? There might not be enough liquid to fill all the glasses, especially when many more glasses are added every year because of population growth. But the differences become bigger too. The top layer(s) start changing their glasses to bigger ones. And sometimes, people within the top layers start pouring PROSPECT into a different glass or a secret jar that doesn’t flow over. Trickle-down does not take place.
How can economic growth benefit the poor?
How can we make sure that economic growth and development investments do start benefitting the poor and those who are now excluded? This is where the story of INCLUDE starts. When INCLUDE, the Knowledge Platform on Inclusive Development Policies in Africa, started in 2012, it identified six policy areas that play a key role in creating more inclusive development (economic transformation, productive employment, basic services, territorial development, social protection and inclusive governance). 17 research programmes funded by NWO/WOTRO and several research-policy dialogues supported by INCLUDE focused on these areas. In each of the areas, in particular economic sectors, and within specific population groups different economic and social processes were studied. For instance regarding avocado farming in Kenya, sex-workers in Ethiopia, informal sector worker organisations in Benin and free maternal care in Kenya.
What findings were documented? To name a few:
- social protection programmes (of which cash transfers are the best known) lead to economic empowerment as well as social cohesion, self-esteem and social status;
- access to markets increases incomes of smallholder farmers in avocado, cocoa and food production;
- informal entrepreneurs develop into formal enterprises when having access to the right networks and with the right reflexive traits;
- membership organisations can be effective in pushing for change for marginal groups when there is unity in action.
That is all very relevant knowledge for policymakers, whether in African countries or in The Netherlands.
These opportunities and benefits are usually not equally distributed. So simply investing in the identified policy areas will not do the trick. Here again, the assumed trickle-down does not work. Not all new opportunities are equally accessible to all. And even when access is equal, not everyone has the same capacity to make use of the new opportunity and realize the same outcome. In other words: the empty glasses are not all the same. And the glasses of the poor or marginalized are more difficult to fill.
Food on the table
For example: Young entrepreneurs from the slums in Nairobi cannot afford to spend weeks developing a financeable business model in the IT sector. They need cash income for food on the table every day, while their middle class counterparts do have the time to experiment and think their business model over in Hubs that are established for that purpose. Where does this ‘poverty penalty’ or ‘double jeopardy’ take us? Perhaps we should just accept that such inequalities are there? That they are a fact of life? And that a more equal society is something that cannot be achieved?
A change in thinking
I do not agree. And not only on moral grounds. During the time the INCLUDE studies took place, another, also significant, change in thinking emerged. For a long time, and following the trickle-down theory, economists believed that all that mattered was to increase economic growth. Inequality was part of the growth process and ‘redistribution’ was bad for economic growth. But evidence started to show otherwise. It showed that too much inequality can actually be bad for societies. It undermines social cohesion and political stability and reduces economic growth. What’s more, redistribution is not bad for economic growth, in fact it can increase economic growth.
The World Bank and IMF now explicitly advise policymakers to consider the distributive effects of their economic policies. Not just to reduce poverty, but to prevent the emergence of inefficient unequal societies. This is a significant move away from business as usual. It is time to confront inequality and address its negative consequences. The research groups give us clues about how this can be pursued. It is about how you design policies and implement them so they benefit more people. Obviously the answers to those questions depend on where you are and what you want to achieve for what reason.
There are six general lessons, but let me focus on three here;
- Invest in specific economic (sub) sectors or geographical areas where poverty is concentrated. A project in Ghana showed that investments in cassava benefitted agricultural production of the poor, including processing capacity of women.
- Understand and take into account the needs and constraints of the most marginal groups when designing and implementing a particular policy or intervention. And use information channels that do not ‘exclude’ them, but try to pull them in. Basic literacy and numeracy training helps rural women in Uganda to use mobile services for payment and information, reducing their dependence on intermediaries.
- It is important to identify the strategic actors that can change the flow of PROSPECT to benefit more people. These can be businesses and NGOs, but also local government officials or traditional leaders – as long as they have some power and incentive to change the flow of PROSPECT.
This is not easy and there is no blueprint for how to do it. But failing to try to provide PROSPECT to the bottom layer too, will actually lead to more inequality, rather than less.