Friday, March 10, 2017

Distributive Justice and Economic Development: The Case of Chile and Developing Countries by Andrés Solimano, Eduardo Aninat, and Nancy Birdsall (editors)University of Michigan Press, Ann Arbor, Michigan, 2000, x + 206 pp., $49.50 (cloth).

It is said that "timing is everything." In view of the considerable attention being devoted to the problem of poverty, this book is well timed to influence the debate on the policies that are most likely to reduce poverty and income inequality. It focuses on the Chilean experience during the 1990s for two important reasons. First, Chile is widely seen as a pioneer for its efforts to combine market-oriented reforms with a socially progressive policy framework. A retrospective look at whether it has been able to reduce poverty rates and bring about socially acceptable patterns of income distribution and wealth is thus welcome. Second, although, like much of Latin America, Chile is a middle-income country, it is nonetheless characterized by high poverty rates and unequal income distribution. The book also brings an unusual perspective—contributors include respected academic scholars of economic development as well as key Chilean ministers and researchers who were involved in formulating and implementing social policy in the 1990s.

The papers concentrate on two principal themes. The first is the relationship between growth and macroeconomic stability and that between poverty and income distribution. These topics have been well plumbed, but the passage of time has made them more amenable to further refinement and more insightful empirical analyses. The second theme is the impact that specific sectoral policies—in education and other social spheres and in the labor market—can have on improving the equality of access to wealth-producing assets (for example, land and education) and their associated effects on poverty rates and income distribution.

The principal conclusions can be presented briefly. First, the papers by Michael Bruno (the last paper he wrote before his death), Martin Ravallion, Lyn Squire, and Lance Taylor suggest that there is no trade-off between policies that foster economic growth and poverty reduction: growth is poverty reducing, and there is no evidence that it worsens income distribution. These authors describe the reasons for questioning, and even displacing, the traditional view that an unequal distribution of income is necessary for growth. Indeed, one important conclusion of one of the papers in the volume is that the higher the level of asset inequality, the lower the gains of growth to the poor. Second, the papers underscore the importance of fiscal and financial stability for both growth and poverty reduction.

Third, ambitious social policies that are intended to give poor people from rural and urban areas equal access to education, credit, land, health care, and other productive assets are a key element in the desirable mix of poverty-reduction measures. Chile's educational reform is seen as an important experiment in seeking efficiency and distributive justice through an improved educational system. Social safety nets, targeted subsidies, and an adequate food supply are considered equally important, not only to protect the poor and provide a context within which they can take advantage of opportunities for asset creation, but also because these mechanisms help ensure political and social stability during economic downturns. A paper by Vito Tanzi emphasizes that in fostering progressive social policies, the state must grapple with how to prevent the middle- and upper-income classes from capturing the benefits, an outcome that is all too common in many developing countries.

Finally, several papers underscore the importance of maintaining a balance between meeting social objectives and respecting macroeconomic and political realities. This position supports two tenets of the current emphasis of the poverty-reduction strategies in the IMF and World Bank's enhanced Heavily Indebted Poor Countries Initiative—namely, that a sound fiscal position is central to achieving macroeconomic stability and that social policies need to be "owned" by their key beneficiaries and supported through their social organizations and political representatives.

Chile has made good progress, particularly in reducing poverty rates. Reducing inequalities in the distribution of wealth has proved to be a more substantial challenge, one that this thought-provoking book suggests is a "pending objective for the twenty-first century."

Peter S. Heller

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