Some of the world’s least developed countries have achieved higher economic growth than more developed countries in recent years. But economic growth is not leading to sustained poverty reduction. Fundamental changes, led by governments, are needed for the benefits of economic growth to be shared by the poorer sections of society.

Research from the University of Kent, in the UK, reviews the United Nations Conference on Trade and Development (UNCTAD) publication, ‘The Least Developed Countries Report 2006: Developing Productive Capacities’. The UNCTAD report examines the barriers to pro-poor growth in least developed countries (LDCs).

Fifty countries are classed as ‘least developed’. These are countries with the lowest indicators in three areas: income, health and education, and economic security. The UNCTAD report argues that improving productive capacities is the best route to development for LDCs. Productive capacities are the various elements needed for a country to produce goods and services, such as a manufacturing industry, the infrastructure to support industry, an export sector, an educated and healthy workforce, skills and training, and technology.

Building the productive base of a country helps it to grow and develop, and creates better jobs. The UNCTAD report therefore calls for a radical shift in thinking among governments and donors, with the development of productive capacities a central focus.

The report looks at why poor countries are failing to build a strong productive base. Key reasons include weak public and private investment, slow technological progress, and failure to make the necessary structural changes (long-term, fundamental change in the structure of the economy). Because of this, unemployment, underemployment and low levels of labour productivity are persistent problems in LDCs.

The author agrees with the report’s conclusion that policymakers need to think again about which development strategies work best in the world’s poorest countries. He also agrees with the report’s focus on demand constraints: business will only thrive if there is a market for its goods and services. However, he identifies areas the report could have explored in more depth, including:

• policies to address the problems of unemployment and underemployment in LDCs (for example, promoting more labour-intensive production methods)
• ways to make better use of the potential entrepreneurship and unused skills in LDCs
• ways to use existing capital more effectively (for example, by developing better management and organisational skills)
• policies to promote higher savings in LDCs and tap into existing resources through the taxation of wealthy citizens.

One of the main challenges will be changing the attitudes of policymakers. The prevailing Washington Consensus view promotes a minimal role for the state, trusting market forces to deliver economic growth. Donors and governments need to recognise the following:

• Structural change is essential for economic growth in the world’s poorest countries.
• Structural change cannot be left to the free market, which benefits those best placed to take advantage of opportunities. An active state is needed to promote pro-poor growth.

Source(s):
‘The Least Developed Countries Report, 2006: Developing Productive Capacities’, Journal of Development Studies 43 (4), pages 766 to 778, by A P Thirlwall, 2007

id21 Research Highlight: 05 June 2008

Further Information:
Tony Thirlwall
Department of Economics
Keynes College
University of Kent
Canterbury
Kent CT2 7NP
UK

Tel: +44 1227 827414
Fax: +44 1227 827850
Contact the contributor: at4@kent.ac.uk

Keynes College, University of Kent, Canterbury, UK

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