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Symposium 2009

Proposal - Fighting against Poverty in the Crisis Aftermath

The Challenge

Poverty reduction has become the central objective of development policy, as reflected in the United Nations’ Millennium Development Goals (MDGs). While economic growth is seen as an important ing ...

Poverty reduction has become the central objective of development policy, as reflected in the United Nations’ Millennium Development Goals (MDGs). While economic growth is seen as an important ingredient in achieving sustainable poverty reduction, the emerging consensus is that growth has to be pro-poor to reach such ambitious targets as the MDGs.

Deputy Secretary-General, OECD, Paris

Global context

Poverty is one of the biggest problems in developing countries. Many have no work, no job. Many work in the informal labour market. Many have very low wages. Many are very, very poor. In OECD countries we see, and in this crisis very visibly, the problem of relative poverty - defined as having an income below half of the median income. This concerns on average 10% of the citizens in OECD countries, (5% in the Nordics, 18% in Mexico and Turkey). The recent OECD report Growing Unequal? (2008) finds that relative poverty has increased in two out of three OECD countries since 1990.

Police responses in OECD countries

In OECD countries poverty risks changed most between age groups. Older people now have a lower risk of being poor while the risk has increased for children and young adults. Single-parent households are three times as likely to be poor as the average family. The main dividing line, however, is work. Six times as many jobless families are below the poverty line than working families, and the ratio is even higher in Northern America. Among all family constellations, access to paid work reduces poverty risks quite significantly. For social policies in OECD countries this means that active employment policies need to be complemented with welfare-in-work policies which encourage people to work and supplement the income of working families. Better training and education measures should aim to equip people with the skills they need in tomorrow’s labour market, thus creating greater equality of opportunities.

The crisis hit developing countries

The current financial crisis is a “third wave” seriously affecting low income countries, after the food and fuel price crises in 2008. Unlike in OECD countries, the employment consequences are difficult to assess due to the scale of the informal economy. But some recent reports highlight examples of the impact: China – 20 million out of work and India – 500,000 jobs lost in 3 months in export sectors.

Responding to the crisis: reinforce ODA

To respond to the challenges raised by the financial crisis, it is most urgent that Donors deliver on their ODA commitments, and adopt and implement aid effectiveness principles. This means using existing channels to deliver results, rather than creating new ones. This may also involve a fundamental rethink about who does what at both country level and sometimes across countries.

Given its counter cyclical nature, ODA can help poor people cope with the recession and contribute to aggregate demand (via spending on consumption and infrastructure) by supporting a combination of social protection (conditional cash transfers) and employment (workfare programmes). The policy statement recently endorsed by OECD-DAC Ministers encourages donors to make productive employment and decent work a key objective of development co operation and to provide adequate, long term and predictable financial assistance to underpin developing countries’ efforts to build social protection systems.

Putting more and better employment centre-stage

In developing countries, 55 % of non-agricultural jobs and the great majority of agricultural jobs in developing countries are informal, so that 1.8 bn people – roughly 60 % of the global work force - works informally. A recent study by the OECD Development Centre – Is Informal Normal? – has clearly shown that this share has grown in many developing countries, including fast-growing emerging drivers China and India (up from 76 to 83% over the past decade). Post-crisis, the lesson is hence that the creation of more jobs is not good enough, but that we need more and better jobs. In the longer term, policies to increase job quality are critical not only for growth to benefit the poor, but also for the poor to be able to contribute to growth. To this end, a “progressive formalization agenda” is needed.

Empowerment of women

Both during and after the crisis, women’s labour force participation and labour market outcomes deserve particular attention and specific policies, as they continue to hold the worst-paid and most vulnerable jobs. Gender equality as an explicit objective of education policies, in access to land and credit, and in childcare, will help level the playing field. The Gender, Institutions and Development Data-Base of the OECD measures discrimination based on social practices and norms in more than 120 countries, providing a useful starting point for a discussion in which areas to focus policy action.

Gaining from Migration

International migration can help reduce poverty. Remittances and the effects of return migration are both playing a pivotal role. The world-wide flow of remittances is estimated to have exceed three times the volume of official development assistance (ODA), reaching approx. 20 bn US-$ in Africa in 2008. Reducing transaction costs for remittances is a first policy levy and is part of the program set up by the Global Remittances Working Group, initiated by the Italian G8 Presidency and the World Bank.

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