Effective promotion of inclusive growth in developing countries starts at home

Written by Oladiran Bello and Niels Keijzer

The debates on how to reduce poverty and inequality in developing countries intersect recent economic and political challenges in Europe on at least two broad levels.

First, swinging budget cuts and reduction in social welfare spending within the EU are contributing to rising domestic poverty in the short- and medium-term. Compared to a 1985 baseline, inequality had increased in 2008 for 17 out of 22 OECD members, and Eurostat measures that in 2009 16.3% of the EU population was at risk of poverty. Second, the management of the Euro-zone’s sovereign debt crisis amidst the constant struggle to balance fiscal retrenchment with needed stimulus also hold obvious implications for economic wellbeing in some of the EU’s poorest trading partners. The EU’s Charter of Fundamental Rights emphasises that “(…) the Union is founded on the indivisible, universal values of human dignity, freedom, equality and solidarity”, and various instruments such as earmarked funds seek to promote internal economic cohesion. However, as the Euro-crisis provokes political opposition and outright resistance to cohesion and solidarity in Europe, promoting global solidarity as the raison d’être of European development policy has become a harder sell.

The challenges of forging common European approaches to the financial crisis, domestic poverty and global inequality are therefore increasingly intertwined. How they are interlinked – as well as the overall question how the EU could address rising inequality in developing countries – will be up for discussion at the panel the European Think Tank Group is organising at this year’s European Development Days.

Ongoing domestic political debates in Europe have crystallized some of the implications for foreign policy, showing an increasing geo-economic edge. The European Commission itself has been locked in controversy with Africa’s Regional Economic Communities over the deadlocked Economic Partnership Agreement (EPA) negotiations. European development cooperation and global poverty reduction efforts are increasingly shaped by member states’ national perspectives in addition to the priorities defined at the EU level.

On the bright side, improved development effectiveness and greater intra-European coordination are being explored as cost-saving approaches at a time when Official Development Assistance budgets have come under stress. Capitalising on the opportunities these present to advance towards modernisation of the EU and member states’ development policies can deliver efficiency gains whilst promoting the development dimension of ‘global public goods’. This is shown in the EU’s ‘Agenda for Change’ to modernise development policy, which draws inspiration from the Union’s ‘Europe 2020 strategy’ and its objective of transforming Europe’s economy to one that promotes smart, sustainable and inclusive growth.

With the unremitting economic and financial crisis now entering its fifth year – and the European project itself facing an existential threat – serious questions remain. Can European taxpayers be mobilised behind continuing investment in poverty reduction efforts abroad when there are competing and pressing priorities at home? Amidst the waning domestic policy consensus, can shared understandings such as those embodied in the European Consensus on Development be sustained or even renewed? With the EU’s commitment to provide 0.7% of its collective income as Official Development Assistance out of reach, will the EU be motivated to more radically reform its own policies to more development-friendly ones that in the long term benefit both European citizens and global development?

If European actors can somehow see beyond the immediate (financial and macro-economic) challenges, the crisis can offer renewed momentum for improvement in EU legislation, structures and processes devoted to tackling internal poverty.  They can also work to clarify the connections between the domestic wellbeing in Europe and successful development cooperation efforts abroad. Success in delivering efficiency gains within existing budgetary constraints and under greater democratic oversight can help win the confidence of European taxpayers and further underpin the legitimacy of development cooperation. As the rollback of the welfare state continues to impact disproportionately on specific groups in European member states, do European leaders possess the political vision to leverage ongoing changes for renewal at home? Such renewal would provide an essential base and strong political support to promote inclusive growth outside the EU’s borders.