This is the final is a three-part series.

THE extent to which governments are able to create conditions to foster relative equanimity between the rates of progress in human capital and technology as proposed by the RIPREC (Resource Induced Poverty Reducing Economic Condition) represents one of the clearest reasons for the modern divergence of developing countries and one of the clearest ways in which a State can lift itself out of poverty.

Based on the collective findings, developing states best facilitate the creation of this RIPREC condition by way of strong social and economic governance, which is exemplified by inclusive institutions of governance, rule of law, lean shares of GDP so as to encourage private capital investments while militating against State corruption, strong State lead investments in health and education and macroeconomic stability.

In light of the findings outlined in parts one and two of this series, I strongly recommend a modern, endogenous poverty alleviation and development model which consists of the components below, aimed at fostering strong social and economic governance and an attendant system of incentives which will aggressively assemble and maximise the resource potential of a State. These prescriptions can be applied universally in changing the fortunes of any poverty-stricken nation:

1. Since the findings have shown that the rule of law is of primary importance in creating the preconditions for the success of a State, I recommend a strong and independent judiciary which ensures transparency and accountability of State officials, significantly reducing the opportunities for extractive rent-seeking practices and creates a climate for investor confidence and the binding rule of law. This must be seen as a starting point for the transformation of corrupt and extractive States such as Jamaica, Haiti and Zimbabwe. It will lay the foundation for inclusiveness and fairness in judicial processes and promote social harmony and stability.

2. Strong emphasis on building economic resilience through (i) microeconomic efficiency and (ii) macroeconomic stability.

With respect to microeconomic efficiency, I recommend a moderately sized Government which is sensitive to critical development needs while providing adequate incentives and freedoms for trade, including favourable tax policies, energy diversification, limited entrepreneurial bureaucracy, and access to funding. A constitutional lower and upper limit on government share of GDP of under normal operating conditions is hereby recommended and a bi-cameral approval system to accommodate changes to this range in the event that the nation has extraordinary needs in a given period. This will encourage microeconomic efficiency even when a country has an acute shortage of natural resources. Government corruption has been cited as a key basis of development impairment. A lean government share of GDP will not only encourage freedoms to trade, but also limits the opportunities for government pilferage and corruption, which has the potential of distorting resource allocations and breeding inefficiency.

With respect to macroeconomic stability, I recommend sound management characterised by low inflation, low interest rates, manageable debt burden which is at no point greater than the size of GDP. This can be facilitated by having technocrats function semi-independently of elected officials in managing central banks and ministries of finance.

3. I propose that economic openness must be a critical part of the poverty alleviation mechanism employed. This is shown to have the potential of increasing welfare and wealth creation which has positive effects on development and poverty reduction. Economic openness aids in maximising wealth creation because it creates incentives for increased freedoms to trade, which are critical to microeconomic efficiency. Limited bureaucracy in setting up business, limited taxes on international trade, and reduced taxes of capital goods relative to consumer goods are central in this respect.

4. I also propose that developing states prioritise human capital investments and incentives for research and development and technological innovation which have been shown to be vital to long-run development and in breaking the cycle of poverty. Human capital investments should therefore constitute a comparatively large fraction of a government’s share in GDP. In this respect, I strongly propose that countries aim for 100 per cent gross secondary enrolment at both the primary and secondary levels and allocate priority funding for tertiary level education, including technical and vocational training and scientific research and development. Universal access to basic preventative and curative health care is also proposed for all citizens to aid in optimally extracting the human capital potential of citizens.

5. With respect to import dependence, a strong energy-diversification policy aimed at reducing strategic import dependence as well as a viable domestic agricultural policy is proposed. This will create incentives for private sector activity and may aid in engendering microeconomic efficiencies. This can be facilitated by a combination of direct state action and private-public sector partnerships.

6. The findings demonstrate that as developing countries start to ‘take off’ there is likely to be an initial widened inequality in the persistence of relatively high levels of poverty. While the researcher accepts that widened inequality is probably an inevitable result, over time as the economy starts to experience rapid growth by applying the microeconomic efficiency and social governance model prescribed above, it must also undertake meaningful tax reforms to augment redistribution programmes without creating disincentives for the optimal engagement of private capital. The researcher proposes that if the expected social inclusions do not happen the ability of the State to sustain rule of law will be strongly challenged and might result in social instabilities. Such redistributions must, however, be undertaken with sufficient care and moderation so as not to destroy the incentives for the productive engagement of private capital interests.

When the above conditions hold then there is an increased likelihood of perpetuating increased stability, robust rates of growth in output, technology and human capital, driven by a combination of direct State action and sufficient private sector incentives and freedoms to trade. As outlined, government action should be the principal driver for human capital progress, while the private sector should be the principal driver for the rate of technological progress. This will ensure that a state of relative parity is reached in the long run, where both rates of progress are sufficiently high and neither is markedly higher/lower than the other. When this is attained, a developing country reaches the proposed RIPREC and there is predominantly increasing returns to scale for both human capital and technology. Because the rates of increase in both variables are heavily linked to each other, then a natural state of long run relative equilibrium can be attained where the society’s resources are been optimally employed.

As demonstrated in part two of this series, the RIPREC can be used to determine the required level of long run investments in technology based on the current rate of progress in technology and human capital, and the actual level of current investments in human capital and vice versa. These required levels of investments should not be necessarily facilitated by large sums of aid or massive, direct cash injection, but rather be an incremental process based on the conditions of sound social and economic governance. The main reason the RIPREC will work is that it brings a society to the point where it can optimise on the creation of new ideas. And, as Paul Romer puts it, ‘new recipes’ which will drive sustained growth and development.

The RIPREC facilitates a ‘virtuous cycle’ of development and thus increases the likelihood that a developing state will break away from poverty and depravation. When a society’s capital resources are optimised, a strong middle class and more egalitarian society will emerge, which in turn reduces patronage style redistributive orientation of governments and reduces the extractive course of a state which usually manifests by way of punitive tax policies that can destroy the incentives for private sector innovation.

Denarto Dennis is a lecturer in the Department of Economics at the University of the West Indies, Mona. Comments to denarto.dennis02@uwimona.edu.jm.