Unpacking views on equitable economic growth

On April 30 and May 2, economics and development stakeholders in Tanzania and beyond had a very rare opportunity to listen to and engage with some of the leading economists in the world.

On the 30th, Prof Joseph Stiglitz from Columbia University and Nobel Laureate in Economics together with Prof Kaushik Basu from Cornel University delivered a public lecture at the University of Dar es Salaam. On the 2nd May they were joined by Prof Sabina Alkire from Oxford University at the 7th annual conference of the Economic and Social Research Foundation (ESRF).

The theme of the conference was ‘Equitable Growth and Human Development in Resource Based Economy: Dialogue on Stockholm Statement for Tanzania’. Discussion revolved around the axis of equitable economic growth. Apart from the trio, there are other leading economists who have worked deeply on the theme of the conference. They include Prof Robert Solow, a Nobel Laureate in economics and Prof Paul Krugman. Having participated in the debates of these great minds, the author of this article interrogates the concept of equitable growth in Tanzanian context based on the Stockholm Statement.

Stockholm Statement

The Stockholm Statement of November 2016 is based on the ideas of 13 world’s leading economists, including Prof Joseph Stiglitz and four former chief economists of the World Bank. The statement has a set of principles to help frame country-level policies in a rapidly changing and globalising world. The key issues in the statement in the context of this article include the view that traditional economic thinking no longer applies. Inequality within countries is threatening social cohesion and economic progress and development needs to be seen in a broader perspective in order to achieve more equitable and sustainable results. According to the statement, inclusive economic development is the only socially and economically sustainable form of development. It emphasizes the importance of policies that tackle inequalities. It sees trickle down growth policies where the state has a minimal role and the rest is left to the market as not being sustainable.

Economic growth

Economic growth is the increase of the real output of goods and services of an economy over time. It is usually measured in monetary terms over a period of one year or even quarter. Economic growth is supposed to contribute into general prosperity of the people by way of increasing quality of life. This quality of life is measured by inter alia, the quantity and quality of goods and services consumed. Economic growth in Tanzania has been among the best in Sub Sahara Africa in the recent past. It has been posting growth to the tunes of about 7 per cent consistently over years. Policy goals include having growth of up to 8 per cent and beyond. However, economic growth should not be the end on its own. It should instead be a means of achieving other social and economic goals. What is needed inter alia, is growth that is creating jobs and reducing poverty and the same time being inclusive and equitable.

Equitable growth

Equitable economic growth means an economy that raises living standards for all. It is growth that takes into account equity between and within various groups based on space, gender, age and many other dimensions. It is growth that does dot celebrate just the posted growth figure but also what that growth has done to humanity in terms of improving livelihoods. It is people-centered growth. Equitable growth is characterized by equity or fairness; just and right as well as equitable treatment of all citizen. Equity does not come automatically without is interventions from the states. Markets are not known to be good in bringing about equity. This is due to markets failure that calls for government interventions.

Inequality

The key aim of equitable growth is to address inequality with its many negative social, economic, political and even security implications. Extreme inequalities with very high Gini Coefficient are unhealthy and should not be tolerated. For example, a Gini Coefficient of one means that one person has total control over all the income or consumption of country or region. One does not suggest a perfectly equal society economically where Gini Coefficient is one either. However, one suggests reduced inequalities where extremes tend to move towards the centre. Theoretically this can be achieved by moving up those in the lowest economic ladder or moving down those at the top or both. Pareto optimality however, requires that no one should be made better off by making others worse off. Therefore moving those at the bottom up the ladder seems to be a better option.

Issues of discussion within the inequality space include the reasons of inequality. If it is due to those at the bottom being systematically left out by the way policies, laws, regulations and practices are designed and implemented, then it is bad. If they are at the bottom for their own mistakes such as not bothering to work has to make most out of existing opportunities, they may have themselves to thank for observed inequality. However, Mother Theresa reminds us to uplift them not necessarily because they deserve but because they need it.

Government interventions

Governments can and should intervene strategically and carefully in bringing about and sustaining equitable growth. They can do this through various policies. Among these include fiscal policies and their various instruments that ensure distribution and redistribution of the grown slice of the national cake.

Taxes and subsidies are among the fiscal policy instruments to distribute and re-distribute in pursuit of equity. No one expects distribution and re-distribution that gives a Gini-Coefficient of zero that implies total inequality. Issues of discussion include how much growth should a country experience before it starts to distribute and re-distribute and what rations of the national cake should go to various expenditure posts including recurrent and development and their many sub components.