Growing and Distributing at the Same Time

Some maintain that sustained growth is the best strategy to ensure general well-being and reduce inequity and poverty. This insistently repeated claim hides half-truths and other critical issues: the point is that sometimes it is true, and many others, it isn’t, depending on the type of growth pursued.

It is a fact that in almost all the world today, global growth is headed towards the concentration of assets and income in relatively few hands; i.e., there prevails a certain type of growth (concentration-prone) having certain well-known effects and implications, some of which have been addressed in books and previous issues of Opinión Sur. United Nations and other agencies statistics are conclusive: at the international level, global wealth is concentrated in a few countries and, in addition, at the domestic level, affluent sectors are a minority that coexists with medium, low and miserable-income population majorities.

Hence, we should start by saying that the prevailing concentration-prone growth not only does not solve but also reproduces inequity and, in many cases, also poverty. At the same time, it evidences that there may exist different types of growth and, ergo, it is not appropriate to speak or praise growth purely and simply: we should specify what type of growth we are talking about if we are willing to analyze whether that particular type of growth benefits the general well-being and leads to inequity and poverty reduction.

It is also true that in certain countries or places that are not growing, or are doing it languidly, the situation may be equally challenging, with poverty increasing and inequity on the rise.

Economic growth is then a generic concept encompassing different growth types and varieties, some of which may be considered a necessary yet not sufficient condition for the attainment of fair and sustainable development

Conventional Redistribution Policies

In tackling inequity and poverty in a context of concentration-prone growth, countries usually resort to redistribution policies aimed at cushioning the most negative impacts of that type of growth. That is, the State imposes certain mechanisms (taxes, local contributions, withholdings on extraordinary income, domestic and external indebtedness) to obtain resources that it later allocates to the funding of social and economic infrastructure designed to provide disadvantaged and vulnerable sectors with basic services. The amount of resources that can be raised has clear limits: the tax burden should not render domestic production unviable, nor should the levels of indebtedness exceed the ability to pay back the debts incurred. As for its implementation, just as it happens in the private sphere or in civil society organizations, serious problems of inefficiency, corruption or patronage may occur.

Wealthy countries and some dynamic emerging economies devote significant amounts to financing redistribution policies, thus managing to reduce, to a greater or lesser extent, the poverty and indigence rates via improvements or increased coverage in education, health care, social security, environmental sanitation, dwelling solutions. What they almost never manage to reduce is inequity, because the surpluses that continue to be accumulated by affluent sectors are consistently larger than the resources allocated to redistribution policies; the results of this particular economic dynamics remain without change because its logic remains unaltered.

The social sciences explain that, when a process of asset accumulation commences, the relative advantages obtained by those who benefit from this type of growth unleash not only economic but also political, social, communicational forces that become intertwined and lead to the reproduction of the circumstances that make concentration possible. Thus, there is a convergence of economic power concentrated in certain players who are able to develop competitive advantages; oligopolic markets that allow some players to derive extraordinary gains at the expense of the rest; particular correlations of political forces preventing the adoption of deep tax reforms and maintaining the regressive nature of most tax systems; the existence of lax economic regulations allowing abusive and criminal behaviors; the permanence of mechanisms allowing certain business and criminal organizations to avoid regulations and legal responsibilities, thus maximizing benefits and laundering ill-gotten money; concentration of mass media ownership which paves the way to impose agendas and conditions upon public opinion and governmental action.

It is worth noting that redistribution policies may be used both to ameliorate the unwanted effects of concentration-prone growth without changing its nature and, contrarily, to buttress and reinforce efforts intended to transform that way of growing. Such dissimilar functionality will depend on the orientation given to national development, as it is in that context where the goals to be pursued by redistribution policies are defined.

Then, just as there are different types of economic growth, different types of redistribution policies may be adopted, a surprisingly often ignored double obviousness.

An Additional Goal of Redistribution Policies: Funding Capital Formation in Excluded Segments

Hence we wonder what can be done to ensure that redistribution policies contribute to the attainment of fair and vigorous growth that may serve as the groundwork of sustainable development.

A critically important transformative choice is to allocate a significant portion of what is intended to be redistributed to capital formation among the majorities who receive few or very few of the results of contemporary economic growth. The purpose is to mobilize the talent and productive potential existing at those absurdly neglected sectors and, thereby, accomplish several effects at the same time: contributing to local economic development, improving income distribution, and phasing out redistribution policy reliance.

This redistribution action is not merely a question of channeling funds to majority sectors: it must also be done effectively and responsively, ensuring the sustainability of the productive solutions adopted and promoting economic players that do not damage the environment or social cohesion. To accomplish this end, there exist business engineering tools and mechanisms through which today scattered small producers may become associated with strategic partners and capital contributors (all committed to a pattern of inclusive growth), in effective medium-sized businesses that can access better opportunities. This includes inclusive ventures and the developers who sponsor them, subjects that Opinion Sur has worked for some years now.

This transformative action is characterized by (i) orienting resources to the bottom of the social pyramid with a view to fostering its productive mobilization; (ii) given the magnitude of the challenges to be faced, this action must have an extended coverage rather than limited to a handful of projects; (iii) to ensure efficacy, the idea is to establish ventures in promising, profitable sectors; and (iv) boosting the emergence of responsible economic players whose actions are respectful of the environment and strengthen social cohesion. The ultimate purpose is to accomplish A massive, effective and responsible productive mobilization of today’s disadvantaged or marginalized majorities, this mobilization becoming one of the pillars of not concentration-prone growth.

Deployment of Redistribution Policies

Redistribution policies are State-managed, but for them to be effective, they need to secure the involvement of a diversity of stakeholders and, hence, be deployed at different levels: (i) at macro-economic policy level (public spending, tax, monetary, scientific and technological policies), so that their orientation may be adjusted to meet effectively the interests and needs of the bottom of the social pyramid; (ii) at the level of encouraging changes in the meso-economic behavior of production chain leaders who have a decisive bearing on wages and other labor conditions, have the capacity to foster the organic development of all its value chain and, with their operational and investment decisions, may generate positive or negative effects on the social context where they operate; (iii) at the level of direct support to marginalized sectors to properly finance and structure their access to capital formation, from which they can derive better income; and (iv) at the level of public opinion makers (the media, civil society organizations, social movements), for the purpose of ensuring citizen support for the adoption of a fair and sustainable development course.

Redistribution policies implement measures with different scopes. Some measures impact upon almost all low-income sectors, such as higher or lower spending on primary education, technical schools, health care centers and hospitals, environmental sanitation and neighborhood security. Other measures have different impacts such as salary and work condition improvements that preferably favor registered workers, only indirectly informal workers, and do not favor the unemployed or indigent who only perform occasional subsistence jobs.

As for capital formation at the bottom of the social pyramid, a lot remains to be considered. Economic policy generally places emphasis on the need to increase investment and capital formation in all sectors, sometimes prioritizing those that are deemed to be more promising and strategic for the development of the country. What is not always made explicit is which social players are to take part in this increased investment and, particularly, how majority segments may channel a portion of national savings to finance their own capital formation, thus making a contribution to inequity reduction and reinforcing the social and economic sustainability of growth.

That is why it is not just a question of determining what level of capital formation is required to sustain a certain level of growth (e.g., 5% of annual variation of the GDP), but also of considering the composition of the new capital being added to the economy. The prevailing type of capital formation will have implications on several aspects: from the degree of organic growth accomplished to how, and to what extent, different players take advantage of the effects of the new investments.

By taking into consideration this two-fold effect (on growth and income distribution) stemming from the adopted type of capital formation, we then get to work with a set of, rather than one, necessary conditions required for moving closer to the referential utopia of attaining fair and sustainable development.

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