Alternative Forms of Redistribution

In the previous chapter we concentrated upon the disequilibrating effects of a rapid transfer of purchasing power to the poor. The analysis, however, was not concerned with precisely how the transfer was effected. This abstraction from an important aspect of reality, we may note, is not uncommon in some of the recent literature. Macroeconomic models designed to estimate the employment effects of redistributing income, for example, generally fail to consider how the income redistribution is to be achieved. Yet, ‘it must surely be significant for final factor use patterns whether it is by capital or income transfers, or by indirect taxation.’1 Similarly, those who advocate a basic needs strategy seldom consider how the redistributive process is actually to be implemented.2 Yet the manner in which the process is carried out is likely to have an important influence on the transition to egalitarian development and the degree of success achieved. For one thing, because of the structure of poverty in developing countries, alternative instruments for raising the purchasing power of the poor will have a differential impact — benefiting some of the poverty groups at the expense of others. Moreover, raising the purchasing power of the poor is only one component, namely the demand condition, of a successful redistributive strategy. Three other conditions also need to be satisfied.3