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We can only speculate about the future, taking the present as a starting point. This section examines, if only briefly the following issues:. The possible long-term consequences of the current mismatch between needs and resources. The possible impact of nation building based on full citizenship, if and when the social is individualized. Increased investment in human resources as the best means to ensure individual and collective "salvation," and the probability of this course of action.

Needs are clearly escalating. Poverty in all its forms absolute and relative, total and partial, lasting and temporary, objective and subjective has increased throughout the region as a result of mass unemployment, the need to pay world prices for consumer goods, the increasing gap between foreign and domestic wage levels, increasing inequalities in income and wealth, deteriorating health services; and what many see as a deliberate decline in the real value of most social transfers.

There is, of course, a great deal of variation in current trends in the region. In some countries e. The figures may be debated at length. For instance, the most recent World Development Report gives data about income inequality in the transition countries that are at variance both with other data in the same volume and with the results of other surveys. But there is agreement on the main trends. In others, poverty continues to escalate or deepen or both. Countervailing trends, such as a reduction in poverty, have yet to be evidenced even in countries such as Poland, where economic growth has resumed.

Meanwhile the redistributive capacity of these states is diminishing. States have fewer resources because of the overall decline in production and GDP; the privatization of the most profitable industries and activities first, with control of the "losing propositions" being retained; the declining capacity of the state to collect taxes and contributions; frequent reductions in taxes in order not to discourage capital, especially foreign capital; the growth of the black economy; incestuous relations between new economic and political elites; and the fact that people are less willing to pay taxes or make contributions for deteriorating services.

In countries that are heavily indebted, the burden of debt servicing intensifies these difficulties. The potential consequences of this gap between needs and means are unclear and varied. Until late or , the inertia of prior commitments, especially pensions, and the pressure of new needs pushed states to continue transfers at relatively high levels. As a result, the share of social transfers in declining GDPs actually increased.

However, such figures are seriously misleading. On the one hand, a higher proportion of a shrinking GDP could still mean lower levels in absolute terms. On the other hand, if the unregistered black economy is indeed producing 15 to 40 percent of GDP and going unrecorded, the real figures for the share of social outlays will be considerably reduced. More radical measures to lower family benefits, pensions, and sick pay have been initiated since , and the results are already visible, both in terms of diminishing the proportion of social transfers relative to overall GDP and their real value see Table for Hungary.

It should be recognized, however, that stringent measures in some fields increase the need for social assistance. It seems almost impossible to devise a system of social assistance that will be both efficient and effective. This is because there is insufficient money to fund a decent safety net and insufficient administrative capacity to target the truly needy.

This issue is so crucial that it merits a slightly more systematic discussion. The main difficulties hampering the implementation of an efficient and effective social assistance scheme are discussed below. The average official wage is so low that recipients barely manage to stay above even a modest poverty line. If the poverty line is maintained at a decent level, there will be substantial disincentives to work. This clearly presents an unemployment trap, one that may be impossible to overcome as long as wages remain low.

It is impossible to determine the truly needy because of both the widespread resort to subsistence agricultural production and the prevalence of the. Production and incomes from household plots are difficult to calculate, while the black market is ubiquitous. The well-to-do use it to avoid taxes and perpetrate various fraudulent practices for example, the self-employed and small-scale ventures can declare incomes that are sufficiently low to qualify for means-tested benefits.

The poor use the black market to survive by accepting risky, dangerous, unprotected, and low-paid jobs old forms of exploitation are indeed coming back. They also apply for assistance on the basis of their official, low incomes. However, the fraudulent poor are more visible than the cheating rich and invite closer scrutiny. As local authorities take on a greater role, the applications of the poor may be more frequently rejected, not only because of greater local knowledge, but also because discretion favors those who are closer to the administrators making the decisions.

There is an increasing reliance on workfare—making assistance after the expiration of unemployment insurance conditional on work e. The poor may not take this ''opportunity. No one should count on the poor's undertaking complex calculations of the long-term opportunity costs of this behavior. Rather, it should be anticipated that large numbers will lose their entitlements.

It is also worth noting that a culture of social rights is generally lacking in Central and Eastern Europe. Such a culture scarcely existed under the former system. It is interesting to note, however, that the "clients" are learning about claim rights more rapidly than the administrators.

The latter love their discretionary power and are afraid of being accused of squandering money by helping those who are not "truly needy. The administrators also prefer behavior tests and home visits, which make them feel more secure in their decisions. Such intrusive measures, however, are detrimental to the development of a self-assured citizenry.

There is also a general lack of administrative capacity and know-how: social policy and social work became acknowledged disciplines only after the transition; budget cuts have hit local authorities hard, and they are unable to engage enough qualified people to administer complex assistance schemes. This has meant the emergence of extremely debatable solutions, such as contracting out home visits.

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Administrators also sometimes appeal to the populace to denounce frauds and encourage anonymous informants. There are also widespread shortages of funds at the local level. Responsibility for some types of assistance may be shared with central authorities, but very often the locality is solely responsible, and its activities are funded by a block grant.

Since there are many competing claims for. According to some evidence World Bank, b; Ferge et al. Of course, this is not meant as an indictment of local autonomy. The regaining of local autonomy after decades of stifling overcentralization is a fundamental achievement, and it is revitalizing localities.

However, its success is contingent on adequate funding. In sum, because of a whole series of problems, the level of poverty assistance is generally too low, and the procedures being developed for administering it are too often demeaning. The proud shy away from applying. Both client awareness of opportunities and the authorities' willingness to offer genuine help may be deficient. In the old system, poverty was taboo and therefore unaddressed; now it is seen as "natural" and perennial, making efforts to eradicate it seem futile.

As a result, few if any officials, at the level of either discourse or institution building, are paying attention to issues of poverty or exclusion, albeit there were some positive changes in This does not mean there are no efforts to discover alternatives. Many NGOs, particularly Western foundations, are dedicated to finding innovative solutions that will abolish long-term unemployment and reduce the worst aspects of workfare. However, these efforts reach only a tiny minority.

The dominant political tendency is described by Standing —harsh workfare with many disincentives. The foreseeable if not necessary or inevitable consequence of the gap between means and needs is lasting poverty and various forms of disaffiliation or exclusion. Although this may not necessarily produce a distinct underclass, the processes outlined above deeply harm social integration.

In countries with a large deprived minority, such as the Romanis in Hungary or Slovakia, exclusion is already well advanced, strengthening racial prejudices. One objective of the European welfare states was to forge a more integrated society, to induce a general sense of belonging based on full citizenship, and to recognize the equal dignity of all. The reduction of inequalities in individuals' physical and social life chances was also an objective.

Hence importance was attached not only to negative freedom from , but also to positive freedom to freedoms, that is, to civil, political, economic, and social rights Sen, ; Dasgupta, Public instruments to accomplish these goals included such nondiscriminatory transfers as social insurance and universal health benefits. These objectives were never fully attained anywhere, but headway was certainly made. It is also worth emphasizing that this project. The importance of nation building or community building is not out of place in this discussion of trends in the "new democracies.

Although social policy will never eliminate these new cleavages, appropriate measures can soften the edges. However, current trends in social policy reform neither endorse nor promote such efforts. Some of the reforms may accelerate these divisive processes, and it appears likely that a two-tier health and educational system will emerge in the post-communist states. A particularly divisive strategy seems to be the rejection of the former unwritten contract between generations. While many deny the legitimacy or rationale for such a contract, which they largely deem fictive, there are many rational reasons to maintain it Kohli, ; Walker, Judging from a recent Eurobarometer survey, the majority of citizens in Western countries have no intention of reneging on this obligation.

When asked whether they agreed with the statement "Those in employment have a duty to ensure, through contributions or taxes, that older people have a decent standard of living," 85 percent of the respondents in 12 countries agreed, either strongly or slightly.


Only 15 percent disagreed slightly or strongly reproduced in Walker, In the Central and Eastern European countries, however, changes in family benefit schemes and pension reforms both those that have been adopted and those still under consideration tend to undermine the intergenerational contract. This contract implies a continuity between generations and a common stake in the process of social reproduction. The abolition of universal family benefits has already damaged one side of this contract.

Providing help only to the truly needy involves an institutionalized differentiation among children. It also makes it clear that the community does not see all children as potentially equal future social actors. The other side of the contract is even more problematic. Space here does not permit discussion of the intricacies of the two- and three-pillar schemes that are now on the agenda everywhere one of the most elaborate versions is to be found in World Bank, The relative merits and demerits of pay-as-you-go versus funded schemes are also not particularly relevant from the.

There has been relatively little attention to how adversely totalitarianism affected spontaneous microsolidarities and how it atomized society by confining freedom to the narrowest private sphere if it was permitted at all. Not all forms of lowering family benefits would have harmed the generational contract see World Bank, b, proposals for group targeting and benefit taxing.

It is the so-called mandatory privately managed pillar that embodies the most disturbing elements. Optionally elected private saving contracts represent a positive development and enhance individuals' free choice in determining the use of their savings. This picture changes, however, when these contracts become mandatory and an integral part of retirement security, as is currently being proposed not only by the private banking and insurance sector, but by many supranational agencies as well.

There are problems associated with money markets, and these are exacerbated in countries with fragile and inflation-prone economies, as well as underdeveloped banking systems. Slow economic growth and public commitments to those already on pensions may make the transition extremely expensive for both taxpayers and pensioners. Summarizing the experiences with privately funded schemes, it is often observed that they have low potential coverage never more than two-thirds of the population and often less ; that the risk of noncoverage is particularly high for the chronically sick and disabled, as well as the long-term unemployed; and that, especially in the take-off period, but even beyond, they are much more costly than public schemes Townsend and Walker, ; Myers, ; Kritzer, From the perspective of solidarity and integration, certain further elements should be mentioned.

First, the benefit that will be received, particularly if it takes the form of an annuity, may suffer from the absence of solidarity. Annuities are actuarially calculated. Hence, women and men with exactly the same working careers will receive different benefits. A further divisive characteristic is the fact that the benefits one receives can potentially be related to prices, but they can never be related to wages.

Thus the gap between the incomes of active and retired people may fluctuate or increase depending on prevailing economic trends. Many different means are being used to bring home to people the message that the intergenerational contract should be abolished.

IMF Policy Discussion Papers

The potential for conflict between the old and the young was noted by the demographer Samuel Preston over a decade ago when he suggested that "the social security system was becoming increasingly generous to the elderly while adopting a more severe attitude towards.

In quite a few Organization for Economic Cooperation and Development OECD countries, at least some pensioners have indeed fared comparatively well recently because of relatively generous earnings related to pensions, but some of these advantages may not be sustainable over the long run. The poverty of children may have increased recently as well as a result of increased unemployment and parsimonious child benefits. Increasingly, the idea is being ad-. This logic would hold that the elderly must be worse off for children to be better off, or that the problem is not that children are doing too badly, but that the aged are treated too well.

A second disturbing aspect of this argument is that it has returned 10 years later, in the debate in the transition countries. Commenting on the poverty of children in Central and Eastern Europe, a World Bank expert declared: "I tell people in Eastern Europe that their pension policy is impoverishing their children. The demands of pensioners are taking food out of the mouths of working people's children" Murphy, No doubt the situation of children is deteriorating, partly because of the destruction of the former family benefit system.

However, the data must be analyzed in more detail. In the less turbulent countries of Central and Eastern Europe, pensioners are better off, in terms of equivalent income, than households where the head is unemployed; however, they are worse off than families where the head is an active earner. The income difference is lower if there are children: the equivalent income of pensioners is about 20 percent less, even if there are children. In other words, pensioners may not be among the main losers, but they are among the losers.

The majority of pensioners are on the verge of poverty, and they are largely unrepresented in the top quintile of the population see Table , and Ferge et al. Evidence abounds regarding the hardships faced by the majority of pensioners. The solution so often recommended—to lower pensions further or to target the relatively higher pensions for reductions—not only undermines the relative security of those involved, but also damages the contractual element that was enforced through earnings-related contributions.

These recommendations also ignore the fact that citizens in Central and Eastern Europe are still very much in favor of maintaining solidarity with the elderly, as is clear from many surveys. The foreseeable, if not necessary or inevitable, consequences of the individualization of the social are manifold. Differentiated and divisive health, pension, and other social systems may evolve. The poverty of children or discrimination against them may increase even the positive discrimination entailed by sharpened targeting is divisive in that it accentuates the differences among children.

The coverage of the elderly by social insurance may easily shrink if access to pensions becomes much more restrictive. This in turn may entail large inequalities among the elderly and the poverty of all those with. The initial results are presented in Ferge et al. Women may be particularly hard hit.

Other forms of social solidarity—between generations and between the employed and unemployed—may be further weakened. It is widely recognized that the educational legacy of the countries of Central and Eastern Europe is largely positive. They had well-developed preschool networks and nearly universal and relatively good-quality basic educational institutions, and their students exhibited high levels of achievement in many fields.

The weaknesses in this inheritance flow from the same source as do the weaknesses in social policy and the economy in general: the system was antidemocratic; overcentralized; overregulated; rife with inefficiencies; and, as a result of demands to meet the immediate "needs" of the economy, overspecialized Barr, The importance of education and training, both in promoting wealth formation on the national level and in improving each individual's opportunities, is too well known to be addressed here.

In fact, some of the most rapidly developing countries e. The evidence regarding the current situation in education in the region is somewhat controversial. On the one hand, the share of GDP spent on public education is by and large on a par with expenditures in Western countries between 3 and 7 percent, averaging around 5 percent. In some countries, Hungary for instance, this share even increased between and —from 7. This increased share is somewhat misleading, however. The real value of educational expenditures has declined everywhere, although the decrease may not have been proportional to the decline in GDP as a whole.

On the other hand, many indicators show that similar shares of GDP may be yielding very different results, largely because the absolute levels may be much lower. Thus the secondary and tertiary enrollment ratios lag behind those of the OECD countries, although they remain very high if compared with those of the developing countries Esping-Andersen, ; World Bank, a Adult education and training are considered part of the package of social investment policies being used against unemployment, but they do not correspond very well to the needs of economic restructuring.

Rates of enrollment appear not to be significantly different than those in the West, but if they are compared with the needs for retraining that flow from the previously distorted structure of skills, they are rather low. Among recent developments in the field of education, some merit special attention:. In most countries, there has been a huge decline in preschool facilities, nurseries, and kindergartens. This is detrimental to both the current wellbeing and the future opportunities of children from the most deprived strata.

EconPapers: IMF Policy Discussion Papers

It also constrains women's opportunities to pursue gainful occupations, albeit many probably the culturally better endowed have found ways of combining household responsibilities with work by initiating or participating in home-based ventures. Scarce resources and the decentralization of financing have made it difficult to maintain the existing stock of educational institutions, and have rendered new investments or the expansion of the existing infrastructure practically impossible.

The wages of those working in the care-giving and teaching professions—doctors and nurses, teachers, and professors—were always low, but not dramatically lower than other wages.

Over the course of the transition, significant differentiations have occurred between the private and public spheres and within the public sphere among various sectors. Those working in the care-giving and teaching professions in the public sector are now among the worst paid. Low wages and the threat of becoming redundant have driven many professionals out of these fields.

The resulting brain drain has lowered standards and dampened the enthusiasm of those remaining. The introduction of relatively high fees for school meals and so-called extracurricular activities with a high educational value e. Since children know everything about their peers, it will be difficult for those receiving assistance to overcome its stigmatizing effects. A more serious consequence may be increasing drop-out rates for the most deprived children, such as Romany children in Hungary. The increasing need for the money these children can earn—the opportunity cost to parents of keeping their children in school—will only aggravate this problem.

The introduction of fees in higher education, combined with price increases for all school-related equipment and facilities, will most probably increase the already existing inequalities in access. Private or nonstate educational institutions and training courses are cropping up relatively quickly at all levels. A temporary problem stems from the lack of methods and institutions for accreditation: many of these courses represent quick profit-making ventures that provide no real benefit to their clients. However, the issue of increasing inequality of educational opportunity represents a much more serious and probably lasting problem.

For-profit schools may offer better opportunities for success in later life. To prepare for the future, these countries must not only overcome the inherited backwardness of their populations' skills, but also encourage new abilities and innovative thinking among the next generation of students. This is a must if the growing economic and social gaps among different parts of Europe are to be overcome. The basis for acceptably high growth—particularly in countries with scant natural resources—is a healthy and well-educated work force. Hence the soundest possible investments are in education, training, and health.

That is no longer the case. If there is continued deterioration in public education which is likely to remain dominant even if the private tier grows rapidly , the deleterious effects may be incalculable. The opportunities missed now will be very difficult to overcome later. There are foreseeable, if not necessary or inevitable, consequences of the increased costs to the individual of procuring a quality education, the neglect.

Both the education and health systems are discussed in detail in several chapters in this volume. From the perspective of the future, the two have similar implications. I have singled out education because it has more direct connections with both the immediate plight of children and the structuring forces of the future. One of the consequences on the macro level is that the full potential of the children of the less well off will remain untapped and therefore effectively be wasted.

At the individual level, the consequence will be the further differentiation of opportunities. According to Marris , uncertainty is a fundamental condition of human life. But uncertainty also breeds anxiety, which can produce real suffering Ferge, a, b. Some anxious feelings can be termed "essential anxieties" in that they arise from our biological or mortal nature, while others can be considered "existential anxieties" since they stem from social conditions.

Both, it should be noted, are, in Freud's terms, "real" anxieties, not pathological or neurotic symptoms. One of the consequences of anxiety may be a paralysis of action. If one cannot be sure of being able to make the payments on one's home or tuition fees for one's children, one may forego attempting to maintain the home or to encourage the children to study.

Another consequence of anxiety may be actions to reduce it. When with the advent of capitalism risks multiplied and the former agents of existential security weakened, new institutions emerged. The most important of these were insurance companies. The market failures of the insurance market Barr, , coupled with the financial weakness of individuals and small communities, made imperative the creation of larger institutions, in which the state assumed some role in defraying the risks. Indeed, social insurance has been an appropriate societal response to the anxieties associated with industrialization and an increasingly dominant market.

These new institutions, collectively called social security, developed to a rather high level in the West European welfare states. They also made important headway in the totalitarian state socialist systems of the post-communist states, which started to implement these systems early in the twentieth century.

Inasmuch as the former system of social security is still valued, this is precisely because of the existential security it offered to its "subjects" they were not genuine citizens as they were deprived of civil rights without stigma. People value their new freedoms, particularly the liberation from political oppression.

But if they are unable to build up their defenses against uncertainty, they will not be able to enjoy or fully utilize these new freedoms. When the transition was first initiated, freedom which previously had been jeopardized or curtailed was deemed at least as important as existential securities. Since then, however, freedom seems to have become an accepted part of social reality, and according to the SOCO results, people now feel it is securely established. In sharp contrast, there is a pervasive sentiment in all. In fact, the SOCO results show a significant deficit in desired securities.

This deficit is most pronounced with regard to public safety, but is also strong with regard to incomes and children's futures see Table The "security gap" is visible with respect to the full range of securities. When the difference between the importance attached to freedoms and to securities is calculated for each individual, it turns out that security is never treated lightly: it is of utmost importance even to those who value freedom above all. It also appears that the high value attached to existential security is not confined to Central and Eastern Europe; it is pervasive throughout Europe.

It may be surmised that the need for existential security is historically and culturally constructed and may therefore be "deconstructed," that is, that people can be resocialized to accord greater value to self-reliance and the absence of state intervention see Green, ; Marsland, However, the success of such a project is doubtful.

We can use the case of freedom as an analogy. Societies endured peacefully for millennia with individuals not experiencing freedom in its modern sense, but once freedom was discovered and tasted, people's desire for it could not be eradicated. If this analogy is valid, the debate over existential security becomes a matter of form, not of content; the debate can only be about how it will be ensured. One school of thought contends that collectivist solutions that rely on a substantial measure of state responsibility should be maintained, with the proviso that they be better adjusted to the new economic and social environment.

Many reform plans for existing public pay-as-you-go schemes fall into. It should be added that at the beginning of the transition, Atkinson suggested that a basic income scheme in the Central and Eastern European countries would help overcome the major difficulties of social dislocation, prevent the worst forms of poverty, and facilitate small-scale entrepreneurship.

Others reject these arguments, advocating individualized and privatized solutions. All parties to the debate recognize that security is important, but the question remains whether it will be available to all or only to those who can afford it. A different question concerns the most appropriate role for the state in providing or ensuring security.

One would expect that people in the region, having experienced hated and oppressive party-states for decades, would reject any hint of state interference. It seems, however, that while people hated the party-state, they are willing to empower a democratic state. The SOCO data suggest that in all five countries, people would turn more willingly to public authorities when in need than to churches, nongovernmental organizations, or charitable institutions see Figure Undoubtedly, the populations of different countries and those within each country will differ in their expectations, and the anticipated role for the state will vary depending on the issue involved.

Yet in all five countries, the populations expect the state to be least involved in the provision of day care for preschool children, the defraying of expenses associated with child rearing and with secondary and tertiary education, and the purchase of first homes. Similarly, in all of these countries a major role is accorded the state with respect to care for the handicapped, pensions, health care, primary education, and jobs, with pensions and care for the handicapped almost invariably ranking highest see Table Citizens in Western Europe also accord great importance to the state's role in the provision of health, education, and pensions.

This enthusiasm is maintained even where people are fully aware that they must pay more to receive better services or benefits. On the other hand, growth occurred at the expense of an important human development variable i. World economic growth was well sustained in the last decade, although many industrialised countries, western European in particular, did not experience fast growth. Emerging economies EEs , such as low-to-middle per capita income economies, and transition economies TEs , such as former communist countries, are experiencing a process of fast growth and institutional change in most cases.

This paper aims first of all to explore the social sustainability and the quality of such growth in those countries. The economic growth that occurred in emerging and transition economies ETEs during the period — was, on average, 4. Secondly, the paper addresses important issues of the economic development process, such as the dynamics of life expectancy and education, and of human development variables more generally.

In particular the paper tries to understand whether or not economic growth increased human development in ETEs. Such an issue is crucial to the identification of a process of economic growth with a process of economic development. In their widely quoted economic development book, Perkins et al. Cypher and Dietz also make such a differentiation between economic growth and economic development. This differentiation must not be confused with that discussed among institutional economists 1 who perceive economic growth as a static phenomenon and economic development as a wider perspective of development that includes structural and institutional change, social dynamics and cultural change Myrdal However, it has to be said that these two perspectives of economic development the one put forward by Perkins et al.

Through a series of cross-country regressions, using OLS models, the paper assesses the type of development in a sample of 50 ETEs. Economic growth during — is regressed against poverty, inequality and human development variables. The main findings are that growth did not reduce poverty and that inequality increased, on average, among ETEs during this period. Moreover, economic growth occurred at the expense of an important human development variable i. HQG should promote greater equity and equality of opportunity. Hence, great emphasis is put on reduction in levels of poverty and inequality, together with the pursuit of social goals, such as improved health and education, which should increase accordingly during the process of economic growth.

Poverty and inequality are key concerns nowadays among economists of development. However, social attitudes towards poverty and inequality can change through time, basically because tolerance of high levels of poverty and inequality varies across countries, cultures, and times. Western societies have become less tolerant against poverty over time; East Asia, mainly following Confucianism, does not, in general, tolerate high economic inequality.

Unfortunately this promising field of research has not produced many cross-cultural studies. Alexander and Kumaran studied culture and development in India. They discovered that the lowest tolerance of inequality is not in the richest States of India, but in those with the highest education levels. If it were possible to make some generalization on the basis of this, one could say that variation in values that concern inequality is influenced by education. Indeed within both developed and less developed countries, those which have achieved higher levels of education seem to show less tolerance towards inequality and poverty Cypher and Dietz Gary Fields reviewed all the major empirical studies on growth, inequality and poverty and found out that there is no general predictable relationship between inequality and GDP growth; the relationship can work in both ways round.

Nevertheless, there seems to be some evidence of poverty reduction associated with economic growth. However, he did not conclude that economic growth reduces poverty. However, eradicating poverty can take generations and it is not only a matter of economic growth. Moreover, social policies and income distribution are, as will be shown below, strictly linked to poverty reduction. Hence, as Myrdal and many others, such as Pronk and Street argue, a holistic approach is required to defeat poverty.

Poverty has a social and political dimension; both should be addressed in order to arrive at a deeper understanding of the meaning of poverty, its causes and its consequences. Poverty alleviation comes as a result of a complex analysis and of the implementation of strategies that bring together both different disciplines and the poor themselves in the process of policy-making. Over time, however, WB policies on poverty have changed consistently. During the s the WB understood the need to develop the rural sector in LDCs as a vehicle for both economic growth and poverty reduction.

In the s the WB embraced a more general approach to combat poverty involving investments in human capital, macroeconomic adjustment, fostering economic growth, environment attention, etc. PRSPs set policies and agendas to reduce poverty and integrate economic, social and environmental issues into a general framework. They are developed in a participatory way, with the involvement of individuals, NGOs, international organisations, local and national authorities Marcus and Wilkinson So far the aim of defeating world poverty has not been achieved; from the analysis in this paper it has emerged that growth did not contribute to poverty reduction between and Most of the criticism directed at the WB and the IMF lies in the fact that the approach they adopted towards LDCs during the s and the s relied exclusively on structural adjustment and economic growth, transplanting policies and institutions from developed countries.

In Sub-Saharan Africa and in many other LDCs the main problem causing poverty seems to be deprivation of basic human necessities such as food, basic medicines, water, illiteracy etc. Cypher and Dietz In richer countries, such as ETEs with low-to-middle per capita income, the main problem causing poverty seems to be also deprivation Sen ; however, different forms of deprivation are prevalent here, such as education, nourishment, health, employment etc.

Such deprivations, in both groups of countries, do not allow people to develop their capabilities and to achieve liberation from poverty. In fact, the poverty gap appears to be relatively modest in size when compared to current income in LDCs. Theoretically, the poverty gap can be interpreted as the amount of income that must be created and received by the poor in order to bring income above the poverty line Cypher and Dietz , p. These figures underline that in the final analysis eradicating poverty is a political economy matter and not a technical one.

However, it has to be added that distribution alone would not be enough for a permanent poverty reduction; a process of development would have to reproduce basic need satisfactions, goods and jobs. The very foundation of the problem of inequality is the concept of social welfare. According to the utilitarian approach, social welfare is the sum of individual welfare. On the other hand, an egalitarian approach would consider re-distribution of resources to avoid the situation where an individual could become richer by taking advantage of the fact that the other is in poor health or in poor education, or is handicapped Sen In this latter approach, the application of the Rawls criterion would be the best policy; the aim is not individual welfare but the level of welfare in the society.

In Rawlsian thinking, inequalities have to be adjusted following two principles: 1 offices and positions must be open to everyone under conditions of fair equality of opportunity ; 2 they have to be of greatest benefits for the least-advantaged members of the society Rawls , p. To be applied, these criteria require more than meritocracy. The application of these principles would, in the end, produce much greater advantages for the society as a whole. Another way to look at the problem of inequality is through social peace and cohesion.

Sen saw inequality as strictly linked to the concept of rebellion and indeed the two phenomena are linked in both ways. Inequality causes rebellion, but it may happen that income inequality may increase after a rebellion where it brings power to a specific apparatus or a nomenclature or a social class; this has happened many times in history when, for instance, rebellions were led by army generals or by elites of nobles.

In some African countries, such as Congo, Sudan etc. The link between political stability and inequality is demonstrated in numerous empirical works such as Alesina and Perotti and Easterly , where it emerges that income inequality increases during political instability. An interesting explanation of inequality in the Americas is put forward by Sokoloff and Engerman , who, in order to explain inequality in wealth, human capital and political power, suggest an institutional explanation, historically founded, which lies in the initial roots of the factors of endowment of the respective colonies.

In general, political institutions set up by the Spaniards and Portuguese in Latin America were different from the ones set up by the British in North America. Moreover, the latter sent educated people and skilled work forces, along with the lords, to the New World, and these started to build their own future; while the Spaniards and the Portuguese did not encourage massive migration from the motherland, but sent landlords who basically exploited slaves from Africa.

One of the first cross-country works on inequality was made by Kuznets He showed that in the early stage of economic growth income tends to be unequally distributed among individuals. In the early stage of a growth process, over time, the distribution of income worsens.

In the later stages, national income starts to be more equally distributed. Several later empirical studies confirmed this relationship Chenery and Syrquin ; Ahluwalia An alterative hypothesis to explain why income inequality differs among countries is put forward by Milanovic , who shows that inequality decreases in richer societies because social attitudes towards inequality change as those societies get richer, and inequality is less tolerated.

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Birdsall and Sabot showed, contrary to the Kuznets hypothesis, that inequality may be a constraint for growth and, if inequality is lowered, then a country could have a GDP per capita 8. A similar hypothesis is suggested by Voitchovsky , p. Moreover, empirical evidence in cross-country analysis, from Latin American to East Asian Countries, would pose the question why Latin America has high inequality and low growth and, on the contrary, why East Asia has high growth and low inequality. Birdsall and Sabot suggest that it is a matter of policies and social attitude towards inequality.

In Latin America, dictators, generals and the ruling classes acted, for a long time after WWII, with little respect for the poorest part of their society, implementing fiscal and trade policies that provided few benefits to the poor. On the contrary, in East Asia the ruling classes were more aware of social needs, and implemented policies such as land reforms, public housing, public investments in rural infrastructures and public education which had a positive effect on both growth and income distribution; better educated people can get a better job and earn more; public investment in the rural sector can bring farmer productivity and income higher; public housing and other social services can increase the purchasing power of people, and so forth.

Emerging and transition economies are countries which are experiencing a huge process of institutional change, involving both a social and cultural transformation and a political and economic reform Kornai ; Mauro Moreover, and most importantly, the change has to guarantee equal gains to people who otherwise would resist the transformation. Inertia towards a new institutional framework occurs when the social benefits of transformation are not universal and where many people, during the transformation, become losers in terms of unemployment, purchasing power, education, etc.

Tridico Therefore the change should be radical and should involve as well relationships between the various powers, and lobbies Mabogunje which are able to change political institutions. My assumption, concerning political institutions, is that a country which is governed more democratically and where political institutions are oriented towards freedom guarantees, people participation and political rights, is a country where citizens can have some power and can make some lobbying on the governors.

Consequently public decisions, in this country, would be more oriented towards collective benefits than a country where the level of democracy and freedom is less marked. The country which enjoys better democracy, freedom and political rights would extend people opportunities more easily than a country where these rights are restricted. Such a restriction would cause lower level of human development and lower economic growth. Following this approach, development might be defined as a process that involves economic growth and institutional change Toye As Kuznets , p. Secondly, it has to guarantee the distribution of growth and of the social benefits of development.

It is crucial therefore to know how to change institutions and how to enforce a new institutional deal which will bring about economic development i. Hence, institutional policies and an active role of the State are needed during such a transformation in order to guarantee a stable and sustainable economic development.

Such a definition of change, strictly connected with the process of economic development, can be summarised by a graph where, on the vertical axis there is the level of institutional change, which involves social, cultural and political change; on the horizontal axis there is the speed of economic growth.

These two variables, institutional change and economic growth, identify the path of the development process which, if the speed of change of the two variables is appropriate and consistent, will be positively inclined, as shown approximately in Fig. This path of development is the one that many current industrialised countries experienced after WWII. In these countries, economic growth, together with a process of institutional change in the system of values, the culture and the society, brought about economic development also, in the sense that poverty was defeated or substantially reduced, inequality was reduced, political democracy was achieved and human development improved, because social policies were implemented and simultaneously an important Welfare State was created.

Will ETEs replicate such a development path? I maintain that the type of development will not necessarily be the same, in the sense that institutions and strategies for development can be different. Informal institutions are also different. However, insofar as the specific country strategy includes an appropriate institutional change with consistent social institutions, accompanied by economic growth, the trend of the path could be replicated, although with different policy prescriptions.

Given the concept of institutions as including both formal and informal institutions, changing formal institutions alone in order to achieve another system is no longer sufficient. If the formal economic institutions are neglected, informal institutions and processes of spontaneous forces prevail. These forces fill the power vacuum of the system. Consequently, the transformation would favour better organised groups, elites, the better educated and the groups in a dominant position. Simultaneously, it would cause disadvantages to less organised groups, unskilled workers, the poor and the less well educated.

As a consequence, economic growth, if it occurs, will not be distributed, inequality will rise and poverty will not be defeated. Development would therefore be uneven, opportunities and capabilities for many people would decrease, and there would be many more losers than winners. Moreover, this informal institutionalisation may also be parastatal or illegal. Hence, such uncontrolled transformation strongly favours the emergence of organised crime, corrupt bureaucracy, informal economies, negative informal economic networks, rent-seeking, illegal lobbies and so forth. Secondly, all transition economies experienced a huge recession at the beginning of the s, hence economic growth started in many countries in the second half of the s.

Therefore, most of the studies on poverty and inequality in transition economies, focus on the worsening of these two variables during the recession period Atkinson and Miklewright ; Milanovic , ; Gradstein and Milanovic , and not really on their evolution during a process of growth acceleration. This paper tries to fill this hole and examines, empirically, poverty, inequality and growth in a wide sample of ETEs.

Of course Emerging Economies and Transition Economies are very different from each other, from many different points of view, historically, socially and economically. However, they are often considered, by international financial organisations such as Morgan Stanley, Grant Thornton, Goldman Sachs and The Economist group, as part of the group of Emerging Economies, broadly speaking, in the sense that they are experiencing a process of reform and of institutional change.

Nevertheless, I would say that although Transition Economies can be considered, in some ways, as Emerging Economies, the opposite is not true. Transition economics is a very specific concept that was applied to former communist countries which, after the fall of the Berlin Wall and the dissolution of the former Soviet Union, began transition from a planned to a market economy. In general, most of these countries were already industrialised and middle per capita income economies.

Taking the beginning of the s as a starting point, most of them had better initial conditions than the Emerging economies, in terms of both infrastructure and quality of life captured by life expectancy, poverty levels, infant mortality, education, etc. Emerging economies can be small, medium and large, and, in general, they appear on the global scene because they are becoming more open, in terms of trade and flows of foreign investments.

Brazil, China and Tunisia, for instance, are part of the category of emerging economies because they have been experiencing a process of reform over the past decade, with openness, economic growth, institutional and structural change. By this definition, some European countries, such as Spain and Ireland, could have been considered as emerging economies in the s and s when they experienced fast growth and structural change.

For this reason I include them in this analysis as reference countries for current emerging economies. A growth acceleration is defined by Rodrik et al. Average growth in these countries during — was 4. This section deals with the specific path of development in ETEs. Firstly, I analyse whether ETEs experienced, together with a growth acceleration process, a reduction of poverty, an increase of political democracy, and an improvement of the human development variables. The second part of this section will focus on income distribution. In other words I will explore whether those countries experienced development or just economic growth.

In order to answer to this question I used the sample of 50 ETEs described above. In the first regression below I found that economic growth in — was associated with more poverty, less democracy, as underlined by the coefficient voice and accountability, more authoritarianism, as underlined by the coefficient government effectiveness, and with negative variation of life expectancy during the period — Standard Errors in parenthesis are heteroschedasticity—robust after White test. Multicollinearity not relevant. Source: own elaboration on Heston et al. An example would explain better this case which seems a truism.

Hence, average of poverty variation can be very high although average poverty level is falling. By contrast, a process of development of quality, High Quality Growth, is brought about when there is an improvement in human development variables, causing an increasing of the Human Development Index HDI ; this is an alternative means of measuring well being to GDP per capita UNDP The first one is life expectancy at birth which also reflects infant mortality; the second is educational attainment which is a combination of primary, secondary and tertiary educational levels and adult literacy rate.