One potentially favorable policy is a training-for-jobs program. In various ways, governments can agree to provide training for workers that are needed by investors in return for the creation of jobs by those investors. While such a program can reduce investors’ costs and thereby serve the same sort of incentive function as tax concessions, the implications are rather different. A training-for-jobs program, first of all, carries with it an upgrading of the work force. It pushes the economy in the direction of creating more skilled jobs. Instead of attracting investors with low-wage labor, it is a program that places a greater reliance on attracting investors with relatively skilled labor. Furthermore, in an era when firms ‘cash in’ their incentives and then move on to other locations, a training-for-jobs program assures that some gains remain even if firms leave. While workers may have been trained for jobs specific to a particular firm, the fact that they have gone through a training program means that they have expanded their ability to adapt. When firms leave, workers still have both the specific and the general skills.47
Other examples could be provided of the ways in which policy would be affected by giving income distribution a central role in efforts to reduce poverty. Employment programs, in particular, would be given a greater emphasis, for, as Khan (2005) and others have pointed out, employment expansion appears to have a greater impact on absolute poverty reduction through its impact on income distribution than through its impact on growth. The recognition of the importance of income distribution in poverty reduction may come from seeing this responsiveness of absolute poverty to a more equal distribution of income. Or it may come from accepting the argument that poverty itself is at least partly defined in terms of income distribution. Or the recognition may emerge from both of these sources. In any case, once the importance of income distribution is recognized, a different sort of approach to policy becomes necessary.
An objection to an emphasis on income distribution in poverty alleviation programs is commonly raised by posing the question as to which of the following two options is preferable: Option I – a 10 increase in the income of the poor combined with a 20 percent increase in the income of the rich; or Option II – a 10 percent reduction in the income of the poor combined with a 20 percent reduction in the income of the rich? In Option II, the distribution is more equal, but it is unlikely that anyone – rich, poor, or external policy maker – would designate Option II as preferable.
But the argument implicit in this question is a canard, an attempt to establish a thoroughly misleading story by suggesting that a more equal distribution of income is somehow necessarily in conflict with more rapid economic growth. The idea that a trade-off must exist between equality and growth (the so-called equity-efficiency trade-off) has a long history, and, ironically, has had support across the ideological spectrum.
47 The Sachs Report, as noted above, does advocate training programs as part of a package that would attract and keep investors. However, the Report seems to see the value of training as a means of helping tax concessions work, and not as a leading program in itself.