Is growth pro-poor?

By Alex Singleton | 2 July 2005

Amit Varma who lives in Mumbai writes an excellent blog called India Uncut. In one article, he writes about the...

...cliched belief that capitalism leads to the rich getting richer and the poor getting poorer. But the evidence he presents merely shows that the rich are getting richer while there are poor people. There is a significant difference between these two statements. The poor of India are far better off than they would have been if India's economic liberalisation had not taken place, and there are far less of them than there would have been. This is not because they have died of starvation, but because of what Gurcharan Das describes, in a counterpoint to Dreze, as "the explosive growth of the middle class". Free markets aren't magic, and past inequities don't disappear as soon as the economy is opened up, but they are better than any alternative.

One of the most pernicious myths of the last two centuries is of the unequal gains from capitalism. A landmark study titled Growth Is Good for the Poor, by David Dollar and Aart Kraay, surveys available economic information from 137 countries, over four decades, and demolishes the myth of the "trickle-down effect". In an open economy, wealth does not trickle down gradually from the rich to the poor simultaneously. Instead, "incomes of the poor rise proportionately with average incomes". Read the full report for yourself, and draw your own conclusions.