The Economics of Poverty Elimination

Jon D. Erickson

Department of Economics

Rensselaer Polytechnic Institute

Troy, New York, USA

The Economics of Poverty Elimination

I. World Development as Growth Policy

II. Growth as Cumulative Causation

III. Examples

IV. If Not Growth, then What?

I. World Development as Growth Policy

Rationale: the world economy can grow its way out of poverty and environmental degradation

Dominant Strategy: unbalanced, industrial, directly productive, export-led growth.

Recipe: technological progress, market com-patible institutions, available resources, capital markets, and entrepreneurship

. . . World development as market expansion . . .

“In a market economy, the price

system ensures that no one can consume

resources without first creating some of

equal or greater value.”

~ N. Gregory Mankiw

II. Growth as Cumulative Causation

1950 1992

Over 5x increase in global output

Nearly 12x increase in world trade

Income

82.7%

11.7%

2.3%

1.9%

1.4%

Population

20%

20%

20%

20%

20%

1950 – Haves 30x over the Have Nots1950 – Haves 30x over the Have Nots

1989 – Haves 60x over the Have Nots1989 – Haves 60x over the Have Nots

Cumulative Causation

A self-reinforcing process whereby

the disproportionate rewards of

economic development attract further

disproportionate development.

Progressive Modernization of Poverty

III. Examples

20 buyers and 160+ sellers

To attract companies like yours . . . We

have felled mountains, razed jungles, moved

rivers, relocated towns . . . all to make it

easier for you to do business here.

~ Philippine government ad in

Fortune, 1975

Redistribution of pollution Pharmaceutical markets Creating demand for debt and technology

“. . . most of these systems were installed not because there was a local consumer demand for them but because a Northern entrepreneur was able to find a Northern aid agency to support their establishment as ‘demonstration’ projects.” ~ Anil Agarwal et al.

The development industry

III. Examples

IV. If Not Growth, then What?

Many alternatives: Steady-state economy (Daly), an economics as if people mattered (Schumacher), people-centered development (Korten), ecological economics? Sense of stability Sense of limits Need for local voice

Align agency interests with the poor’s interests Compatible community development Think in terms of socio-ecological classes

Earth’s Three Socioecological ClassesEarth’s Three Socioecological Classes

Overconsumers

1.1 billion

> US$7,500 per capita

Sustainers

3.3 billion

US$700-7,500 per capita

Excluded

1.1 billion

< US$700 per capita

Travel by car and air Travel by bicycle and public surface transport

Travel by foot or donkey

Eat high-fat, high-calorie, meat-based diets

Eat healthy diets of grains, veg., &some meat

Eat nutritionally inadequate diets

Drink bottled water and soft drinks

Drink clean water plus some tea and coffee

Drink contaminated water

Use throwaway prod. & discard substantial wastes

Use unpackaged goods and recycled wastes

Use local biomass and produce negligible wastes

Live in spacious, climate-controlled, 1-fam. homes

Live in modest, vented, multiple-family homes

Live in rudimentary shelters or in the open

Maintain image-conscious wardrobes

Wear functional clothing Wear secondhand clothing or scraps