Jeffrey James

Managing the Transition to Egalitarian Development

Increasing emphasis is being placed on the need to improve the distribution of income and alleviate the worst forms of poverty in the Third World. Scholars, international agencies, bilateral aid donors and some governments in poor countries have come to advocate redistributive growth strategies. Advocacy of a strategy of meeting the basic needs of the poor by the year 2000, for example, implies a major redistribution of assets and income. Yet relatively little has been written about the problems that are likely to be encountered during the transition from an, inegalitarian to an egalitarian growth strategy.

The Wartime Analogy

We have already compared the disequilibria that are likely to arise during the transition to egalitarian development with the disequilibria that are characteristic of economies engaged in a war. Indeed the concept of a ‘disequilibrium system’ grew out of the wartime experience. This concept also sheds light, however, on the problems that are likely to occur when a country changes from one strategy of development to another, and it is arguable too that the concept may help countries in planning to overcome their transitional problems.

The Contemporary Experience of Chile, Cuba and China

Relatively few Third World countries have attempted to introduce rapid and profound structural changes of the type with which we are concerned. Three which have are Chile, Cuba and China. For this reason alone their experience is of great interest. Our interest is increased, however, because their experience is so varied. Indeed, they can be regarded as having occupied three distinct points on a continuum. At one extreme is Chile, where the failure to cope with the problems of transition was almost total and the result was a disaster. At the other extreme is China, which successfully combined supply and demand management measures and overcame most of the major problems in her transition to egalitarian development. Somewhere in between is Cuba, a country which was only partially successful in the early years but ultimately learned how to cope with her disequilibrium system.

The Need for Rapid Structural Change

Increasing emphasis is being placed on the need to improve the distribution of income and alleviate the worst forms of poverty in the Third World. Scholars, international agencies, bilateral aid donors and some governments in poor countries have come to advocate redistributive growth strategies. Yet relatively little has been written about what policies might be adopted, about what problems are likely to be encountered during the transition from an inegalitarian to an egalitarian growth strategy, or about the actual experience of countries or regions where attempts have been made to introduce radical structural change.

Alternative Forms of Redistribution

In the previous chapter we concentrated upon the disequilibrating effects of a rapid transfer of purchasing power to the poor. The analysis, however, was not concerned with precisely how the transfer was effected. This abstraction from an important aspect of reality, we may note, is not uncommon in some of the recent literature. Macroeconomic models designed to estimate the employment effects of redistributing income, for example, generally fail to consider how the income redistribution is to be achieved. Yet, ‘it must surely be significant for final factor use patterns whether it is by capital or income transfers, or by indirect taxation.’1 Similarly, those who advocate a basic needs strategy seldom consider how the redistributive process is actually to be implemented.2 Yet the manner in which the process is carried out is likely to have an important influence on the transition to egalitarian development and the degree of success achieved. For one thing, because of the structure of poverty in developing countries, alternative instruments for raising the purchasing power of the poor will have a differential impact — benefiting some of the poverty groups at the expense of others. Moreover, raising the purchasing power of the poor is only one component, namely the demand condition, of a successful redistributive strategy. Three other conditions also need to be satisfied.3

The Market and Structural Change

In the previous chapter we argued in favour of the necessity for rapid structural change if the incidence of poverty and inequality in the Third World is to be reduced significantly within a reasonable period of time. Yet rapid structural change, almost by definition, implies major disruptions and dislocations to the normal functioning of the economic system. Indeed, it is widely assumed that a rapid move in the direction of equality will lead inevitably to the disorganization of production and marketing and hence to a decline in the total volume of goods and services available for distribution. These assumptions or beliefs, in fact, have long been the cornerstone of the argument of those opposed to redistributive measures.

Transitional Supply and Demand Management Measures

In Chapter 2 we explained why the market mechanism is incapable of contending successfully with the structural changes that accompany a massive redistribution of income and wealth in favour of the poor. In the previous chapter we explained why it is so difficult for conventional policies to reach all those in poverty, even when those policies are applied with considerable vigour. Chapters 2 and 3 taken together provide the starting point for this chapter. Our purpose here is to describe how an integrated set of supply and demand management measures might be designed to cope with the structural disequilibria that inevitably will arise during the period of transition.

On the Administration of Rapid Structural Change

An obvious difficulty with any strategy of major and rapid structural change is the heavy demands it is likely to place on a country’s administrative capacity. This raises the question whether it is possible for governments of Third World countries to perform the administrative tasks that are essential for implementing a strategy of egalitarian development.