The world’s poor need jobs, too

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I’d like to congratulate the United Nations for finally catching on to what the real world has known about alleviating poverty for decades: Poor people need good jobs. The U.N. Research Institute for Social Development released a report earlier this month called Combating Poverty and Inequality that assessed the progress made by policymakers around the world towards achieving the Millennium Development Goals (MDGs), which aim to greatly reduce poverty and hunger by 2015, In it, the institute wisely criticized ongoing development efforts for not addressing certain key issues that could help uplift the poor in a sustainable way. Governments have been too focused on targeted social welfare programs and not enough on job creation. Here’s a bit of the report:

Employment represents a crucial channel through which income derived from growth can be widely shared. If people have adequately remunerated jobs, they can lift themselves out of poverty, participate in social insurance schemes that enhance their well-being, and improve their educational and health status. In short, employment-centered growth can have a strong multiplier effect on various MDG targets.

What I found so startling as I read through the report was that anyone paying even casual attention to what’s gone on in the developing world could have come to this conclusion in the 1970s. The emerging nations that have been most successful at eradicating poverty – mainly out here in Asia – have clearly shown the importance of job creation and pointed the way towards achieving it. Apparently, segments of the global development community have remained unwilling to accept what really helps end poverty – to the detriment of the poor. And based on what I’ve read of the report, they still don’t completely get it.

There has always been something of a bias in development circles against Asia’s growth story. That’s mainly because Asia’s (varied) methods have never fit neatly into favored ideologically based prescriptions for turning poor nations rich. One strain of thought, which emerged in the 1950s and 1960s, argued that trade and free enterprise wouldn’t alleviate poverty and the state had to do the job. “Dependency” theorists believed that the world economy was rigged against poor countries, and by participating in it, they would remain reliant on their former colonial masters. The predominant thinking shifted course when free markets came back into vogue, especially from the 1980s, and poor countries were encouraged to throw themselves open to foreign trade and investment. Asia charted its own course, mixing free enterprise and state action in ways uncomfortable for many theorists. Thus, despite its obvious success, some development economists weren’t paying attention. The World Bank didn’t put out its famous “East Asian Miracle” report until 1993, forty years after Japan first began experimenting with its export-led growth model, and thirty years after South Korea and Taiwan had joined in as well.

From the very beginning, Asia’s policymakers were highly concerned about creating good jobs. For Lee Kuan Yew in Singapore, it was a near obsession. In the first few pages of his colossal memoir, From Third World to First, Lee mentions that the need to create jobs was among his earliest priorities upon Singapore’s independence in 1965. What Asia’s leaders did is connect their economies to the world economy, capitalizing on their comparative advantages – mainly cheap, plentiful labor – to woo factories from high-cost countries, thus creating millions of new, well-paying jobs. But governments weren’t idle, either. They encouraged private enterprise and foreign investment with goodies like tax breaks. Instead of wasting money on welfare programs, they funneled resources into making the economy more productive and efficient, especially by improving education and infrastructure. That helped Asian countries “move up the value chain” into higher-tech industries (ships, cars, electronics) that created yet better-paying jobs.

I’m not breaking any news on this analysis. But it appears new to the folks at the U.N., who in this current report are finally recommending such measures, including:

Government-directed investment in infrastructure; development finance to channel credit to specific productive activities; well-managed industrial and agricultural policies, such as subsidies and tax credits, extension services and redistributive land reform; the pursuit of dynamic competitive advantage by nurturing the development of strategic industries and activities; and social policies to improve the skill levels and welfare of the population, such as investments in education, training and research. Similar kinds of interventions can be used in many countries today to transform the structure of employment and encourage the development, in the longer term, of a solid foundation of decent work opportunities.

I agree with almost all of these ideas, though I think the emphasis on industrial policy is a bit exaggerated in regard to poverty alleviation. Yes, Asian government did direct funds to specific industries, and that was a factor in their rapid development. But most of the jobs that got people out of poverty were created by free trade and private investment – in other words, the forces of globalization. But the U.N. seems uncertain about the impact of globalization. More from the report;

The traditional pattern of structural change may not apply in a world with open economies and networks of globalized production and trade. Globalization weakens the organic links between agriculture and industry, since an urban population can be fed by importing food rather than by supporting domestic agricultural production. The demand for manufactured goods can also be met by increased imports rather than by expanding domestic production. And global competition in the production of manufactured goods may lead to productivity improvements, which can cause industrial employment to fall behind industrial output.

This view, in my opinion, is a complete misunderstanding of the impact of globalization on jobs for the poor. Globalized methods of production only increase the opportunities for less-developed nations to create employment for their poor as factories and jobs can so readily move about the world. The resulting exports find customers overseas, so the level of domestic demand is not as important, especially at the early stages of poverty alleviation. The jobs created by globalization help employ excess labor in the countryside while increasing the number of urban customers capable of affording locally grown agricultural produce.

It is true that Asia-style, globalization-led methods of creating jobs is far from perfect. There is the problem, for example, of the “working poor” – people who find jobs but don’t earn a living wage. But the Asian job-led method of poverty alleviation works. The only reason why other developing countries (and I mean Africa here) haven’t been able to match Asia’s success is weak governance. Their leaders haven’t been capable of putting in place the policies necessary to capitalize on the forces of globalization. They haven’t made themselves attractive for investment, either from their own citizens or international companies. Until that happens, the U.N. can write all of the reports it wants, but won’t get very far.