This page is part of the site Global Development, dedicated to promoting a new approach to eliminating poverty, reversing environmental deterioration and generating sustained economic growth that benefits all of humanity. The site has been developed by Frans Doorman. No copy rights are claimed, but those using material are kindly requested to name the source.
Ending global poverty
Sustainable development is aimed, by definition, at the elimination of poverty. Currently between two and three billion people, more than half the global population, live in poverty.
Question: How can global poverty be ended?
Answer: Eliminating poverty in a sustainable manner requires 1) satisfying the basic needs of the entire global population and 2) generating sustained economic growth.Question: How can the basic needs of the poor be met?
Answer: By carrying out a global program for sustainable development, leading to a situation in which governments the world over ensure that 1) All their citizens get access to adequate basic education and health care, as well as clean drinking water and sanitation, and 2) All households will receive a minimum income that will enable them to provide in their basic subsistence needs, i.e., food, clothing and shelter. This minimum income can be provided in the form of child support (for women with children*), pensions (for those over 60), and employment programs (for able-bodied men and women without children). These employment programs should focus on environmental improvement and infra-structural development.See also: Global Development - CHAPTER VII: FIGHTING POVERTY and more specifically Chapter VI: A global investment program for sustainable development
* Note: child support should not turn into an incentive for having many children. Therefore, it should only be made available for the first two children, and only after a woman has reached the age of 21. Convincing stimuli should be given to limit the number of children to two. For example, as long as no third child is born, a 50% bonus could be given on child support payments; for sterilization, a 100% bonus could be awarded. Parallel to these measures family planning, i.e., giving all women information on and access to means for birth control, must become a focal point in basic health care. See also Global Development - Chapter VII: A subsistence incomeQuestion: And how can the economies of poor nations be set on a path of sustained economic growth?
Answer: By stimulating domestic demand through increasing the purchasing power of the poor.Question: Economists, politicians and other opinion leaders seem to advocate free trade and export led-growth for poor countries. What about that?
Answer: Export-led growth is a feasible option only for a limited number of countries:Economic growth engines: exports, foreign investment, domestic demand
Exports and foreign investment
Over the past two decades most poor nations have had only limited economic growth; some economies have actually shrunk. Countries that have grown strongly, such as China, have done so primarily through massive foreign investment and exports. Indeed, foreign investment and export-oriented production are what the international financial institutions and experts recommend as the way to growth for poor countries.
However, there are limits to both the amount of investment the international market can provide and the amount of products and services it can absorb. In most countries exports account for only a fairly small percentage of economic activity. Competition in international markets is fierce, and is dominated by the rich nations (including the so-called "Asian tigers") and by a limited number of poor countries. Competitive poor countries combine the following characteristics: low wages, a reasonably educated and disciplined (not to say suppressed) work force, an adequate infrastructure, political stability, and a favorable location. Only a handful of countries complies with those conditions, the remainder is not interesting for international investors.
The problem is worsened by the trade barriers imposed by the rich nations on a range of agricultural and manufacturing products, and on the same countries subsidizing exports, especially of agricultural produce. These unfair and harmful practices should be stopped. However, the main beneficiaries would be other rich countries and the limited number of poor countries that are already able to compete internationally. And even there the number of people who would profit would be relatively small, with most of the benefits going to the already better off.
In short, foreign investment and exports can contribute to economic growth, especially in a handful of countries with strong comparative advantages. However, most poor nations have too little export potential for exports and foreign investment to become the motor of economic growth. Furthermore, even in countries where foreign investment and exports do drive economic growth the benefits are so unevenly distributed that it hardly makes a dent in poverty levels. This is the case particularly for large countries where those involved in export production make up a relatively small part of the total (working) population. Again, China is a good example, but also, Brazil, India, Indonesia, and Bangla Desh.
For more click on: From free trade to free and fair trade and Foster foreign investment, or protect local entrepreneurs?
Domestic demand
If export production and foreign investment are unable to do the job, economic growth will have to be driven by domestic demand. Interestingly, the same international financial institutions and experts that advocate foreign investment and exports as the path to growth for poor countries propagate stimulation of domestic demand for the rich nations. The reason for not advocating this same recipe for poor nations is not clear. Perhaps economists consider it a non-starter: after all it is the very poverty of poor countries, i.e., their lack of money, that causes the lack of demand. Therefore, it is argued, money will have to be attracted from the outside (through foreign investment) and/or earned (through exports). Only then can it be spent and thus, be used to push domestic demand.
The shortage of money is worsened by two factors. First, in many poor countries a significant part of local financial assets, held primarily by a small political and economic elite, is moved abroad, to safer places where higher returns can be obtained at lower risk. Second, there is the debt problem. Many countries spend up to half of their export income to service their debts. These two outflows make the shortage of money in the local economy even more acute.
See also: Global Development - Fostering local demand and production
The quagmire of poverty
Thus we have, on the one hand, the continued emphasis on foreign investment and exports as the path to growth. On the other there is, for most poor countries, the lack of export potential and consequent limited attractiveness for foreign investors. Consequence of this discrepancy is that most poor countries are stuck in poverty. Exports and foreign investment are insufficient to drive economic growth. And domestic demand cannot drive economic growth because there is no money.
It is lack of money, therefore, that keeps countries from fully utilizing their production potential. Labor is in ample supply, as are skills and knowledge: in almost all poor countries there is massive unemployment and underemployment among unskilled as well as skilled workers. With all production factors but capital in ample supply, most nations have a much higher production potential then is actually used. But without money there is no incentive to produce goods and services, since people can’t pay for them. Therefore production potential remains unused or underused. Moreover, what is produced has to be sold at low prices, depressing both wages and profits. That increases poverty and the outflow of investment capital even further. Thus poor countries are caught in a downward spiral of poverty.
As if economic constraints weren’t enough things are worsened through bad government. Corrupt, self-serving political and economic leaders and bureaucrats drain the already limited local capital supply, and manage to stifle economic initiative and business. Many well-educated, entrepreneurial people with the potential to become political or economic leaders leave to try their luck elsewhere, further diminishing the prospects for change for the better at home.
In conclusion, it is an illusion to think that free trade and capital flows, and the economic growth generated by it, will draw more than a minor proportion of the billions of people now living in poverty into the modern economy. Moreover, in the poor countries low skilled workers that are now in the modern economy or will enter it in the coming years do not escape poverty either: wages remain dismally low, and worker benefits minimal or nil. Thus, in today’s status quo, a large part of humanity will continue to live in extreme poverty. Worse, due to population growth and environmental deterioration, the number of poor is likely to increase rather than diminish.
See also: Global Development: CHAPTER II: POVERTY
Question: So how should a process of sustained economic growth be generated?
Answer: By jumpstarting the economies of poor countries through integrated poverty alleviation programs and raising the purchasing power of the poor.Jumpstarting sustainable, equitable economic growth
Orthodox economics and conventional economic policy do not present a way out of the above- described dilemma’s. Yet the answer to both alleviating poverty and jumpstarting economic growth is simple. Implementation of the already indicated measures of direct income support through child support, pensions and wages from employment programs would kill two birds with one stone. First, it would eliminate poverty. Second, it would generate the demand required to jumpstart economic growth. The income transfers would create increased demand for food, clothing, housing materials, most of which can be produced locally. Also, it would cause a surge in the demand for simple appliances and means of transportation, providing incentives for local production as well as foreign investment. Increased local production and foreign investment would generate new jobs, profits and demand, thus further stimulating economic growth. Improved education and health care would create the skilled and healthy work force needed to further develop production. Thus a program for poverty alleviation could jumpstart a process of sustained, and sustainable economic growth. The latter would be strengthened through the implementation of programs aimed at environmental and infra-structural improvement, which would double as employment generators. Such programs would aim, among others, at fighting erosion and desertification, recuperation of eroded land, reforestation, and the construction of infrastructure for water management and transport.
See also: Global Development: CHAPTER VI: SUSTAINABLE ECONOMIC GROWTH and CHAPTER VII: FIGHTING POVERTY
Question: Sounds fine – and expensive. Where would the money to finance such a sustainable development program come from?
Answer: Part of the funding could be generated in conventional ways. The remainder will have to be financed through money creation.
For more, click on:
Financing sustainable development - the conventional way
Money creation for sustainable development
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