Managing Globalization: To reduce poverty, money isn't everything

from The International Herald Tribune

By Daniel Altman

How much can governments do to fight poverty? In South America, a couple of answers are emerging in the growing economies of Venezuela and Brazil. Both governments have publicly pledged billions of dollars to raise living standards - but have they succeeded?

Overall income is moving upward in both countries, if for different reasons. Venezuela is riding the black tide of high-priced oil, while Brazil's relatively firm economic policies have built confidence in its business prospects among both locals and foreigners.

The president of Venezuela, Hugo Chávez, has portrayed himself as an ardent socialist and a disciple of Fidel Castro. Reducing inequality is fundamental to his agenda, whether by dividing up Venezuela's oil wealth or, as he has obliquely suggested this month, through land reform. His consolidation of executive power has brought Venezuela closer to a centrally planned economy and, as such, has given him the opportunity to invest heavily in social programs.

But identifying the results isn't easy. The poverty rate in Venezuela was about 50 percent when Chávez's presidency began in 1999, according to the government's own figures. Since then, roughly equal numbers of people have fallen into and out of poverty at various times, with a spike to more than 60 percent in 2003 and a drop below 40 percent in 2005.

Notably, the figures have followed the path of Venezuela's economic growth more closely than they have followed the level of investment by the Chávez government. This isn't too surprising, given that the economic ups and downs have been spectacular: a deep recession and the more recent record-breaking boom.

"The reduction in poverty is the expectable result of growth, which is the expectable result of an oil boom," said Francisco Rodríguez, an assistant professor of economics and Latin American studies at Wesleyan University in Connecticut, via an e-mail exchange.

Rodríguez also questioned whether Chávez's programs could be completely effective because of the way they were managed. Some of the world's most successful initiatives for improving the well-being of the poor, he said, linked families' benefit payments to useful actions like their children's attendance in school or visits to the doctor. In Venezuela, he said, the link is to political loyalty instead.

"The level of political polarization has become so high that not only is loyalty to the regime the key determinant of your access to benefits, it is also the key determinant of your capacity to be involved in the administration of those benefits to others," Rodríguez said.

One example of this problem was a program intended to improve literacy. "The government had no system of accountability to monitor performance other than the reports of its own administrators," Rodríguez said. "When program administrators learned that it was more important to show loyalty to the regime than to effectively run the program, any incentives that they had to administer resources efficiently, from a social point of view, disappeared."

The picture in Venezuela also changes depending on how you measure poverty. The government's index depends on the amount of income a family has to buy a basket of commonly consumed goods. Yet that measure might be flawed, Rodríguez said, if shortages resulting from the government's price controls forced poor people onto the black market to buy the goods in the basket.

Another potential objection is more fundamental. Many experts on poverty prefer to measure outcomes like literacy, infant mortality and life expectancy, rather than - or in addition to - purchasing power.

By those metrics, which are similar to the ones used in the World Bank's Human Development Index, Venezuela's progress isn't too dramatic. Its reduction in infant mortality through 2004, Rodríguez said, was just below the regional average of 17 percent, and the percentage of babies born underweight or under height has increased since Chávez took office. He added that his own research showed only a small decline in illiteracy, with most of the drop due to changing demographics.

Meanwhile, in Brazil, progress appears to have been more widespread. Figures compiled last year by Rômulo Paes de Sousa of the Ministry of Social Development and Fight Against Hunger, covering the period from 1999 through 2004, painted a rosy picture: School attendance was up, while illiteracy was down. Life expectancy was up, but hospital visits were down. Employment was up, and child labor was down.

Again, however, it's difficult to say with certainty where the credit should go. To the vicissitudes of economic fluctuations? To Fernando Henrique Cardoso, the previous president, who installed many of Brazil's bedrock economic policies? To Luis Inácio Lula da Silva, the president since 2003, who stuck with those policies and expanded antipoverty programs? Or to the simple fact that Brazil's monetary benefits for families are indeed linked to actions like attendance in school, prenatal care and childhood vaccinations?

More evidence may be on the way, since the number of people receiving the primary family benefit has gone up by more than half since 2004, when Paes de Sousa's numbers ended. One thing is clear, though: When it comes to reducing poverty, money isn't everything.

E-mail: daltman@iht.com