The Economics of Poverty Elimination

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The Economics of Poverty Elimination

• Jon D. Erickson
• Department of Economics
• Rensselaer Polytechnic Institute
• Troy, New York, USA

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The Economics of Poverty Elimination

• World Development as Growth Policy
• Growth as Cumulative Causation
• Examples
• If Not Growth, then What?

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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
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. . . 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

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II. Growth as Cumulative Causation

• 1950 ? 1992
• Over 5x increase in global output
• Nearly 12x increase in world trade

1950 Haves 30x over the Have Nots 1989
Haves 60x over the Have Nots
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Cumulative Causation
A self-reinforcing process whereby the
disproportionate rewards of economic development
attract further disproportionate development.
Progressive Modernization of Poverty
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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
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III. Examples

• 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

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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 poors interests
• Compatible community development
• Think in terms of socio-ecological classes

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Earths Three Socioecological Classes
Overconsumers 1.1 billion gt US7,500 per capita Sustainers 3.3 billion US700-7,500 per capita Excluded 1.1 billion lt US700 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