The gap between the rich nations and the so called ‘developing nations’ is one huge gulf. You only need to look at the consumption and productivity from any two countries in these two groups (the G8 and the Less Developed Countries) to appreciate the fact.
The question is; how do we bridge this gap? Two approaches; the popular one is poverty reduction and the other is wealth creation.
Typically, the phrase ‘poverty reduction’ is presumed to be synonymous to wealth creation. After all, as a poor person improves their economic condition, s/he gets wealthier! Strategies and programs are put in place to reduce poverty.
This is very good, but it is not adequate. Poverty reduction is great as a short term strategy, nay, basis of laying foundation for long term economic growth strategy.
The next question is whether it is better to adopt a short-run or long-run strategy. It is a potential chicken-egg scenario that calls for trade-offs.
At the beginning of the short- run (five to ten years), a poverty reduction strategy will work very well. It will achieve short-run goals (such as, lifting off the part of the population that lives on less than a dollar a day).
Once these objectives are achieved, an absence of a wealth creation strategy will be telling. What to do? May be embark on another more ambitious ‘poverty reduction’ strategy?
Ambition is the word. We should be ambitious from the start. We should start this business of economic growth with an end in sight. We should define the ‘heaven and paradise’ of economic growth. What should being ‘developed’ be like? This is why vision 2020 is good.
Starting from here alone will inform us that all sectors should be incorporated from the very beginning to the end. Ambition, even too much ambition is not a bad thing here.
If we put together an ambitious strategy and have the discipline to follow it through, we will always end up at a better place than we would otherwise be.
At best, poverty reduction strategies, no matter how good, would be projects or a program; that is, they will have a definite time span within which to be achieved. Wealth creation on the other hand has an element of ‘a going concern’ as accountants would call it.
It is presumed that the business or the economy in this case (as we would call the country) will keep existing over time.
This is important because it not only prepares you for the long run, but also properly shapes the short-run planning to gear up towards the ultimate goal(s) in nation building.
One key shortcoming of poverty reduction strategy is in its very strength; it targets the poor. True, aiming to uplift the poor is ethical, logical and economically sensible and viable.
But if this ‘do good’ act is made into ‘the strategy’ in nation building, it just does not work. How else would you explain the collapse of socialism and communism?
Having wealth creation as the dominant strategy has the advantage of bringing everyone on board. The rich and middle classes (especially the latter) are the engines that drive an economy. Sound policies should be put in place to encourage them to invest.
One thing though; we should endeavor to make this investment as domestic/regional in its origin. Do not shift focus from foreign investment, in fact we should work to increase it, but a higher percentage of our investment should be domestic.
This is good for economic stability.
We should teach our people to fish rather than just giving them fish. Interventions under poverty reduction strategies have often been undertaken by everyone other than the target group. A wealth creation approach would change this.
In a nutshell, poverty reduction should be used only as a part of a wider strategy of wealth creation. Let‘s get ambitious here.
Sam Kebongo is a skills and business advisory services consultant. He also teaches entrepreneurship at Rwanda Tourism University College.