Policies to improve the governance of the labour market based on the decent work approach can create and enlarge the channels that ensure that sustainable growth yields the largest possible reduction in poverty. However, a large proportion of people experiencing extreme poverty live in countries that are themselves economically and socially excluded. In 1999 the average per capita GDP of the 49 least developed countries (LDCs), using current exchange rates, for that year was US$288, or about 79 cents per day. This is not strictly comparable with the $1 a day measure of extreme poverty, which is based on the value of the dollar in 1985 adjusted to take account of different purchasing powers in different countries. Nevertheless, it dramatically illustrates that the poorest countries of the world are caught in an international poverty trap.
Over the decade of the 1990s, the average per capita growth of the LDCs was only 1.1 per cent and, in most countries of this group, was negative.
The rise in both the absolute numbers and the share of the population living in extreme poverty in sub-Saharan African countries is directly related to the failure of economic growth to stay ahead of the expansion of the population.
Where virtually whole countries are living in poverty, domestic savings and investment are low and the provision of public services, such as education and health, the efficient and fair governance of markets or law and order, is inadequate. The structure of the economy remains locked in survival activities and the capacity to rebound from climatic or external shocks is minimal.
Understandably, the least developed countries save, and thus invest from domestic sources, proportionately less of their GDP than other developing countries and developed countries. In the world’s 26 poorest countries, most of which are in sub-Saharan Africa, the domestic savings rate is on average no more than about 2-3 per cent of GDP.
This leaves a gap to be filled by international financial flows, which during the 1990s varied between 7.6 and 10.2 per cent of LDCs’ GDP.
Most of the inflow of funds to LDCs was in the form of official development assistance (ODA), since they attracted little private investment.
However, even with this assistance their investment ratios were low by comparison with faster growing developing countries. Reducing poverty requires a combination of increased aid, a further drastic reduction in debt servicing, greater access to private sources of international finance and a pickup in domestic savings.
As well as having low domestic savings, the poorest countries spend only about 12 per cent of national income on government services: in the period 1995-99 per capita expenditure on key public services was on average only about US$37 per person per year, while health spending amounted to US$14 per person per year. In the LDCs as a whole during the same period, only 15 cents per person per day was available to spend on private capital formation, public investment in infrastructure, and the running of vital public services such as health, education and administration, as well as law and order.The overall effect of these trends is to make the world’s poorest countries heavily dependent on foreign aid to finance a large share of government spending, as well as their investment needs.
For many developing countries, remittances of earnings by nationals working overseas are an additional and vital source of income. In 2000, at least nine countries received remittances from abroad amounting to more than 10 per cent of their GDP. In 2002, 7.3 million Filipinos working overseas (nearly 10 per cent of the population of the country) remitted more than US$8 billion back to families at home – almost as much as the total output of the country’s agriculture, fishery, and forestry sectors and up by 15.5 per cent compared to 2001.
With the labour force of low-income countries expanding much more rapidly than opportunities to work, and most industrialized countries experiencing an increase in the share of elderly people in the population, the number of migrants is likely to rise above the estimated total of 158 million today. During the second half of the 1990s developed countries received an average of 2.3 million migrants each year from less developed regions.
Both international and internal migration are part of the survival strategies of families in poor communities. Migrants rarely break off family ties, and many in fact simply live and work away from their homes for relatively short periods. Others return less frequently but send money back regularly.
Studies of households in China that sent out members to work elsewhere in the country show that they increased their income by between 14 and 30 per cent as a result of remittances.
Most migrants plan to return one day, even if many never do. Freer international movement of labour, alongside a major drive to create employment opportunities in developing countries, is likely to figure increasingly on the international agenda and, with the appropriate policies in sending and receiving countries, could represent a major component of the international drive to reduce poverty. The International Labour Conference will focus on these issues at its 92nd Session in 2004, when it will hold a general discussion on migrant workers.
To learn more about this author, visit International Labour Organization's Website.
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