High levels of economic growth are not enough to eradicate poverty.
Economic growth has bee at zero percent or lower for two or three years in a row in most of the western world. Cooked government numbers say that most so-called western powers have grown at 0.2% and that the recession that began in 2009 is over.
In Europe, the Spanish government has been short of organizing a parade, because according to its officials, the crisis has ended and economic growth is an imminent outcome.
In the United States, the Obama adminstration continues to publish unreal emloyment figures that celebrate the creation of a few thousand jobs while tens or hundreds of thousands of people lose theirs every quarter.
But perhaps the direst economic situation is taking place in Latin America, a region that has historically been punished on two fronts.
First, imperialist policies imposed by Europe and the United States whose consequences are widespread poverty and misery, and second, stratospheric levels of corruptiion carried out by so-called leaders who present themselves and their fraudulent agendas as the only solution to imperialism.
Economic growth has always been measured by how high the growth domestic product of a country is or will be in the near future, however, this is a flawed strategy.
Although GDP is a reflection of Consumption, Private Investment, Government spending, Exports and Imports, it leaves out an even more important factor that must be considered when measuring real economic growth: distribution of growth.
Distribution of growth is the only figure that faithfully represents whether a country has experienced a balanced period of grwoth, with everyone, not only the large investors, speculators, importers or exporters getting a significant piece of the pie.
Because GDP leaves out distribution of growth as an important factor of economic growth in a country, a region or even a whole continent, it is not possible to measure the real levels of inequality and poverty. That is why it is common to read that a country had a strong economic growth, even though the number of unemployed people rises or the amount of people living below the poverty line increases.
For example, since 1979, the bottom 20% of the population experienced an 18% economic growth, while the top 20% enjoyed a 65% rate. During the same period, the top one percent saw their incomes increase by an astonishing 277%.
The diferences pointed out above are more apparent in Latin America than in any other place in the western world.
Despite the low economic growth that the region has had for decades, it is common to hear that such a low economic growth is ‘acceptable’ and in many cases politicians -incumbents or newly elected ones- gain the favor of the electorate when they proudly display growth rates of 1% or 2%.
After little more than a decade of what financial entities call ‘decent growth’, Latin American economies are entering a phase of strong slowdown.
The bonanza helped to achieve what politicians would say is ‘significant progress’ in social areas, but even such a progress is not enough to get tens of millions of people out of poverty. This is why GDP is a flawed starting point to measure real economic growth. Sadly, even if GDP were the correct starting point, current growth rates would make it even more evident that the type of growth we have seen in Latin America, for example, is not enough and that, therefore, it is necessary to rethink how to have economies that naturally improve the distribution of growth.
From 2003 to 2014 growth in Latin America averaged 4.6% annually, but this seemingly high percentage is skewed by unsustainable peaks experienced in a handful of nations where foreign capital flooded in after the recession that began in the early 2000s. That’s right. The recession began back then and not in 2009.
Furthermore, the figure above masks wide disparities in the performance of individual countries. On the one hand, Panama had a growth rate of 8.4% and Peru 6%. On the other hand, El Salvador had a meager 1.8% growth rate and Mexico only 2.6%.
Overall, in this decade the region benefited from macroeconomic factors, but never really broke free from being a raw material provider for the developed nations. As soon as the demand for oil, copper and soybeans, among other products, decreased, most Latin American economies plunged and real economic growth was revealed. It should be noted that the effect of revenue growth may be neutralized if the population of a country increases at a similar or higher rate than the economy.
In per capita terms, Panama and Uruguay are the countries where the average income increased more steadily, but in none of the two countries income per capita was able to compete with real inflation. Meanwhile, worse off nations such as Guatemala had a 1% increase in income and Mexico had a 1.3% increase. This distinction is obviously very relevant when determining real economic growth, which is something GDP does not show.
A recent World Bank report titled The Forgotten, 2015, documents how the growth of the last decade had almost no impact in social indicators in Latin America. Despite the fact that poverty fell by 16 percentage points between 2003 to 2012, according the the Bank’s figures, and that extreme poverty decreased from 24% to 12.3%, the study indicates that there are still 130 million chronically poor people in the region, who did not benefit from what politicians and foreign banks would call an ‘economic expansion’.
This demonstrates once again that GDP does not provide a realistic reflection of true economic growth and that not even high levels of economic growth are enough to eradicate poverty.