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‘Growth at the heart of development’ - Speech by Douglas Alexander, Secretary of State for International Development, on Monday 31st March 2008, at the Institute of Directors, London

31 March 2008

Douglas Alexander, Secretary of State for International Development

Varda (Shine, Managing Director of De Beers’ Diamond Trading Company), thank you very much indeed for that kind introduction. I would also like to say a warm thank you to both Business Action for Africa and the Overseas Development Institute for hosting tonight’s event.

Business Action for Africa, as we’ve heard, demonstrates the knowledge and the commitment that many businesses – from large multinational corporations to small businesses – have to the continent of Africa.

And I pay tribute to its work - an example of exactly the kind of effort we will need to see more of from across the private sector, governments, civil society and faith groups if we are to meet the Millennium Development Goals by 2015.

Let me also say a word about Simon Maxwell - and the Overseas Development Institute - who I’ve come to know well since becoming International Development Secretary last Summer. Simon always has a valuable contribution to make to any debate on development issues – I’m sure we’ll hear as he chairs the session later – and the ODI has an excellent record of stimulating lively discussion, notably, and as he said earlier, opening up discussion in its recent series of events on growth, which I’m sure many of you will have attended. So let me also thank Simon and the ODI for their participation this evening.

Growth at the heart of development

My remarks today will focus on the importance of economic growth as a vital tool for tackling poverty and reducing suffering. And in this view I judge I’m in good company, as the Prime Minister said last July in an address to the United Nations, and I quote: “For too long we have talked the language of development without defining its starting point in wealth creation.”

Tackling poverty brought me into politics more than 20 years ago. Over those years we’ve been reminded of what many of us had always known - that a job is the surest route out of personal poverty. In the same way, we have also affirmed that economic growth is the surest route out of poverty for nations. Indeed, growth has accounted for as much as 80% of the poverty reduction around the world since 1980 – helping as many as half a billion people to lift themselves out of poverty in those decades.

Indeed, I’d be surprised if anyone in this room would argue against the contribution that economic growth can make to human development. Yet I believe that many people who care most about development still feels somewhat uncomfortable about arguing the progressive case for growth. I’ve thought about this since my appointment and I’d venture to suggest three reasons for this lack of comfort within the community.

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First, as a response to the development orthodoxy of the 1980s and early 90s, which is often seen as having pursued economic growth as an end in itself – indeed to the detriment of the people and the communities it was supposed to benefit.

Second, some in the development community are uncomfortable discussing economic growth without caveats such as ‘sustainable’ and ‘pro-poor’. And let me say that concern for the equitable distribution of scarce resources is also, of course, central to my politics. Yet as Paul Collier has argued, the great problem of the bottom billion is not that they have had the wrong type of growth, it is that they have not had any growth in many circumstances.

And third, the other explanation for the lack of comfort is the lexicon of economic growth – of GDP levels, growth indicators and economic analysis – does not lend itself to building support among the general public in the same way as those issues we can all immediately relate to. Giving every child a right to education. Giving a mother the care she needs to ensure that her baby is delivered safely. Ensuring that no child goes to bed on an empty stomach.

My contention this evening is not that we should value economic growth as an end in itself. Indeed, as Aristotle wrote, “wealth is evidently not the good we are seeking; for it is merely useful and for the sake of something else.”

Rather, I believe that - as Amartya Sen has argued - we must clearly understand and articulate the role of economic growth in advancing development. We must ensure that we give appropriate prominence to economic freedoms alongside political and social freedoms.

Now of course, the social and political environment will play a major role in either constraining or enhancing economic opportunities. But extending opportunities for individuals to increase their prosperity will be central to overcoming the inequality that still persists in the world today.

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I would suggest that the pursuit of this trinity of freedoms - social, political and economic - lies at the heart of social justice. And these three, beyond their intrinsic value, are mutually reinforcing. Political liberties help to provide the stability necessary for economic growth. The provision of basic social services, from health care to education and social protection, help to facilitate economic participation. And the proceeds of economic growth help finance the public services that so many of us see as crucial to human development.

So the Department for International Development will continue to put support for good governance at the heart of what we do. And we will of course continue to support our partners to extend social opportunities – indeed at least half of all our direct support to developing countries will go to public services.

But in the remainder of my remarks this evening I will set out specifically how we will support our partners to extend economic opportunities. For this is what developing countries have asked us on many occasions for many years. And supporting economic growth is vital to ensuring that our aid is used as it should be – to make further aid redundant over time.

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A hierarchy of needs

The priorities for action will of course depend on the country’s particular circumstances – for history has demonstrated that there is no single ‘model’ for economic growth.

For the countries identified by Paul Collier as home to the world’s “bottom billion” people, trapped in poverty, a priority must be, as I suggested, to stimulate growth. For those economies have been in reverse for a generation – poorer indeed in the year 2000 than they were back in 1970.

For countries that are beginning to achieve growth, the priority is surely to sustain it. Recent years have seen strong growth in Africa – with 17 countries growing at more than 5% a year and another seven countries at more than 7% a year in the 10 years to 2005.

In many countries, this growth has been stimulated by good economic policies. But much of this growth has been driven by high commodity prices – vulnerable to changes in global markets, it cannot be a sure guide to future success. African countries will therefore need support to ensure this promising growth lasts not for years but for generations.

And finally, for those developing countries that are successfully sustaining growth, the priority should be to build inclusion – both to ensure that as many people as possible are pulled out of poverty, and to strengthen growth’s virtuous circle by increasing productivity across the entire economy, not just in sectors and pockets.

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India has sustained high growth rates yet remains home to some 390 million people living on less than a dollar a day. I welcome the focus therefore on inclusive growth in the Indian Government’s Budget last month, and the United Kingdom is supporting it by providing major programmes of support to rural livelihoods, microfinance and education.

Indeed, each developing country – whether India or Sierra Leone – will need to take the right policy decisions specific to its own circumstances in order to stimulate growth and tackle poverty.

Yet I would suggest that the international community can support developing countries in two important ways: first by creating a global environment in which they can compete and succeed; and second by supporting countries to overcome their internal barriers to growth.

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Global environment for growth

There are two international negotiations currently underway that are of course critical to the opportunities of every country – whether developed or developing – to increase their prosperity. Those are the Doha talks at the World Trade Organisation, and the climate change negotiations to create a post-Kyoto deal.

The United Kingdom is committed to fulfilling the on-going promise of the Doha development trade round. An ambitious, balanced Doha deal could bring significant gains to the global economy and boost growth and jobs across entire continents. The next few weeks are vital if we are to achieve success - the window of opportunity is small but also closing.

The time for technical negotiations is now drawing to an end, and the decisions that now need to be made are often going to be made at ministerial and political levels. The Prime Minister has been at the forefront of the global drive to secure a deal, and is in regular touch with President Bush, President Lula of Brazil and Prime Minister Singh of India to push efforts forward. I have similarly discussed with Peter Mandelson, US Trade Representative Susan Schwab and WTO Secretary General Pascal Lamy. And we helped to organise and fund a conference very recently in Lesotho for Trade Ministers from the least developed countries to meet and agree what they – representing a third of the WTO’s membership – actually wanted to see from a deal that could be concluded.

So I call on all countries now to support Pascal Lamy in bringing Ministers together in the weeks ahead to forge an agreement that could provide a much needed boost for the global economy.

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Indeed, beyond the benefits that such a deal would bring for all, world leaders have a duty to address the protectionism that prevents developing countries from playing a full part in global markets today. For although the global flow of trade has more than doubled since 1990, protectionism and trade-distorting subsidies have resulted in developing countries losing some $24 billion a year in agricultural income alone.

At the same time, as I reflected at the introduction to this section, the international community must meet the urgent challenge of climate change. I outlined my views on development and climate change in a speech at the LSE last month – when I argued that unless we address the challenges presented by climate change we threaten to see undone much of the progress made in recent years in tackling poverty.

Doing so will require the creation of global low-carbon economy that enables sustainable long-term growth in both developed and developing countries. The building blocks of such an economy will be major institutional reform at both national and international levels; the establishment of a global carbon market that increases the flow of finance to the least developed countries; and policies to support the development of new technologies.

Trade and climate change are two truly global issues with local impacts. The private sector, as an engine of growth, can bring both global and local opportunities – which the Department for International Development will of course support.

Globally, through helping major businesses to strengthen their links with developing countries, we can help to increase investment and to create jobs within these marketplaces.

That is why I will join business leaders from around the world at an event in May to discuss how the private sector can use its expertise to support growth and help developing countries to accelerate their progress towards meeting the Millennium Development Goals.

Locally, we will support developing countries to develop more competitive markets and improve access to economic opportunities for the poor within these countries.

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Local environment for growth

This will be a part of our broader efforts to support developing countries to create a positive local environment for growth.

Firstly, countries need the right political and institutional environment to stimulate investment and prevent corruption. Of course the principal responsibility for this lies with the government, civil society and citizens of each country – yet we can provide help.

The Extractive Industries Transparency Initiative, launched of course by the United Kingdom, brings together global business, governments and NGOs to show how much money governments receive from oil, gas and mining contracts. The Nigerian Government estimates that in one year alone, this new transparency saved $1 billion that would have been lost otherwise through corruption.

Secondly, the international community must ensure that we provide aid in order that developing countries can invest in the capacity necessary to grow. That is why the United Kingdom has committed to spend $750 million on aid for trade each year by 2010 – to build the infrastructure, the communications and the skills needed to take advantage of trading opportunities.

But thirdly, and most importantly, we can support developing countries to develop their own growth strategies. We have learned that there is no ‘one size fits all’ approach that can be applied from country to country.

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So the reforms, as I suggested earlier, needed in Sierra Leone – where the cost of opening a current account is more than half of the average annual income – will be different to those needed in Nigeria, where less than a third of the population have access to electricity. And the needs will be different again in Burundi – where it takes on average 71 days to comply with all import procedures.

These collective requirements – policy reforms, institutional reforms and investment in infrastructure – must be driven by developing countries themselves. Yet we can, and we will, provide the support necessary to drive growth.

And that is why I can announce this evening that the Department for International Development will commit at least 37 million over the next three years to establish a new International Growth Centre. This virtual network of world experts on growth, from academics to investors, will provide we believe a world-class resource for Governments of developing countries.

The Growth Centre will not push a – I would suggest – ‘one size fits all’ approach to growth – but will instead support governments to address their own particular needs, whether that means: stimulating growth for countries emerging from conflict; sustaining periods of rapid economic growth; or ensuring that poor people can participate in and benefit from the economic growth that is achieved.

So whether the priorities are increasing agricultural yields or extending financial services, expanding the energy sector or ensuring that the next generation has the skills it needs to compete, the growth centre will help countries to put in place the hard analysis needed in order to make often difficult choices.

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Let me close my remarks this evening on a note of optimism. The proportion of the world’s population living on less than a dollar a day has fallen from a third in 1990 to a fifth today.

Of course much of this progress has been made in East Asia. Indeed China alone has seen over 450 million people out of poverty since 1979. India’s impressive growth since the mid-1990s is set to continue. Over 400 million new jobs have been created globally since the early 1990s, almost all of them in developing countries.

So, economic growth is not, I would suggest, simply an area of academic interest. It is a critical debate for anyone who cares about development. I believe that the growth centre that we are launching this evening can and will play a critical role in helping more people around the world to lift themselves out of poverty. Indeed, I would suggest in conclusion that economic growth is not the enemy, but an ally in the fight to make poverty history.

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