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Trickle down - a sticky business

There is a distinct Old Testament in the Bible of world development. Its god is economic growth; its church on earth is the free play of market forces; and its promised land is the 'trickle down' of benefits to the poor. Unfortunately its prophecies have not been fulfilled - except for the chosen few.

Certainly market forces have served economic growth. It has averaged five per cent a year in the developing world as a whole, and per capita income has doubled over the past 25 years. But somewhere something went wrong. Poverty not only persisted but grew visibly worse. And as the sixties wore on into the seventies, it became evident that it was the 'trickle down' mechanism which had failed. The poorest 40 per cent of the Third World's people had seen their incomes grow by a niggardly one dollar a year in those two decades of 'development'.

Trickle down had turned out to be a clever conceit - implying that wealth, like water, will sooner or later find its lowest level. In fact, of course, wealth has more in common with glue and tends to stick to the fingers of those who already have it.

It was at this point that a few heretics began writing development's New Testament. They began with the empirical observation that the structures which create growth are not neutral when it comes to its distribution. And they went on to attack what in conventional development economics had become almost an article of faith - that inequality was a necessary not-so-evil, because only the wealthy can save and invest in order to create the economic growth which would lead to more jobs and more money for the poor who wait at the foot of this fountain of growth.

This notion is the armour of elitism - justifying the diversion of investments, credit and technology into the hands of the wealthier and 'more productive' classes in the name of alleviating the problems of the poor. The affluent really don't like being given such a disproportionate share of the country's wealth, aid and loans. But they put up with it for the sake of development.

But soon, the heretics began pointing out that a not inconsiderable proportion of this wealth was finding its way into Swiss bank accounts and the investment portfolios of foreign companies. And much of the remainder was somehow purchasing Volvos and Philips' shavers and out-of­season table delicacies from abroad.

Cheekily, they asked what this was doing for self-reliance, for the balance of payments, for job-creation, and for the well­being of the patient poor. Emboldened by the silence which greeted this question, the heretics then took out their knives to another sacred cow - that only the rich can save and invest. When a poor person digs an irrigation ditch, buys a small winnowing machine, puts a new roof on the house, raises a few chickens, sends his or her children to school, builds a pit­latrine, buys shoes for the family, they argued, then that too is a form of saving and investment in future wellbeing and productivity. And if wealth were to be redistributed so that a great many more people had just a little extra help, then the kind of 'economic demand' which this would stimulate - for furniture or food, farm tools or education - would be more capable of being met by local resources and local skills. This in turn would do quite a lot for self-reliance, balance of payments accounts, indigenous employment - and the wellbeing of the poor.

Redistribution would therefore be both better for economic growth itself and it would short-circuit the 'trickle down' mechanism with which the elites were experiencing such annoying mechanical problems.

By 1976 the heresy had infiltrated such formerly sound bodies as the International Labour Organisation and was even lapping round the edges of the World Bank. One ILO study, for example, claimed that meeting basic human needs by the 'growth and trickle down' method would require impossible growth rates of 12 per cent a year or more. The 'redistribution with growth' method, on the other hand, might be expected to do the job on growth rates as low as eight per cent - moving the target nearer and at the same time accelerating progress towards it.

The elites were left feeling a little naked by all this stripping away of the economic justification for inequalities of which they were the reluctant beneficiaries. Even such an unlikely 'creeping socialist' as the late Senator Hubert Humphrey began saying that 'the poorest majority must share in the work of building a nation and must share more equitably in the fruits of development at the outset . . . greater equity and greater participation, instead of taking a toll on growth, support and reinforce it.'

But the most succinct of the new prophets is Pakistani economist Mahbub ul Haq (NI No. 83, January 1980) who proclaimed: 'We were taught to take care of our GNP and this would take care of our poverty. Let us now reverse this and take care of our poverty, as this will take care of our GNP.'

And so a New Testament came to be written. Meeting basic needs is its god; redistribution with growth is its church on earth; people's participation is its holy spirit. But, in case you hadn't noticed, the poor are still with us.

Peter Adamson