Can Identifying the Causes of Poverty Give Insight into Eliminating Poverty?

1. Can Identifying the Causes of Poverty Give Insight into Eliminating Poverty? IDEA’s Conference “Development Experiences and Policy Options for a Changing World” Tsinghua University, Beijing 7 June 2007 Jan Kregel Senior Scholar, Levy Economics Institute of Bard College Distinguished Professor, Center for Full Employment and Price Stability, University of Missouri, Kansas City

2. How Does WB Measure Poverty? • Surviving on less that $1.00 per day • Why $1.00? • We don’t have an analytical measure of Poverty • The mid-point of National Poverty Lines of 10 Developing Countries chosen by the World Bank • Expenditure in national currency reported in national household expenditure surveys • Converted to $US at PPP exchange rates

3. Poverty Reduction as Development Strategy • NGO’s Target Poverty • Pro-Poor policies • World Bank Targets Poverty • The MDGs Target Poverty • The IMG Targets Poverty • The main tool of Policy is the Poverty Reduction Strategy

4. We have to know what it is before we know what causes it • Like US Supreme Court on Pornography • I know it when I see it • The World Bank tells me what it is • Governments Decide what it is • NGO’s decide what it is

5. Alternative Measures? • Physical • Caloric Intake • Basic Needs • Social -- Demonstration Effect • Political • Universal Declaration of Human Rights • Social Inclusion/Exclusion • Economic • Marginalisation • Participation in the Production Process • Self-Subsistence • Are Indigenous Peoples in Poverty?

6. How to Eliminate WB/MDGPoverty? • GlobalWelfare Programme • – Moral Responsibility • Official Development Assistance • Income Transfers – to Increase Incomes • External Provision of Social-Medical Services • Creates: • Aid Dependency • Aid Fatigue • Has not produced results

7. But this does not tell us what Causes Poverty • There are Poor People in Rich Countries • There are Rich People in Poor Countries • Is it an income distribution problem? • Would redistribution make everyone poor? • People in Rich Countries would still be richer than the People in Poor Countries • Is it a Problem of the Level of Development?

8. Linking Poverty and Development • “Poverty is neither a synonym for underdevelopment nor a cause of underdevelopment; it is only more symptomatic of a more general problem. • Poverty forms part of a culture. … Most frequently the culture of poverty develops when a stratified social and economic system is breaking down or is being replaced by another… • Often it results from Imperial conquest in which the native social and economic structure is smashed and the natives are maintained in a servile colonial status, sometimes for many generations. … • The culture of poverty is not identical in all settings ….it varies from place to place and from one era to another.” Keith Griffin, Underdevelopment in Spanish America, Cambridge Massachusetts, MIT Press, 1969

9. Globalisation and the Culture of Poverty • Globalisation • Insertion in the International Trade and Financial System • Washington Consensus • Introduction of Monoeconomic Policy • Structural Adjustment Policies • Market Friendly Policies • Shifting from Government Provision to Individual Responsibility &Market provision • Profit Based Performance Criteria

10. Globalisation, Development and Poverty • Does poverty result from rapid integration into the global economy that dismantles the existing social and economic structure? • Those without marketable skills are marginalised and become socially excluded? • Joan Robinson – What if the General Equilibrium model produces an equilibrium wage that is below subsistence?

11. National Development Strategies • Mandated in 2005 Global Summit Outcome • To Include All Internationally Agreed Development Goals from the UN Conferences and Summits of the 1990s • To Move Beyond MDGs • To Move Beyond PRSPs • To Provide Alternative Approaches for real national policy space • To see Poverty as part of the integral process of Economic and Social Development • National Reponsibility for Poverty Reduction

12. Major Addition to Development Goals -- Employment • 2005 World Summit Paragraph on Employment • High-level segment of the 2006 substantive session of the Economic and Social Council Ministerial Declaration • Make full and productive employment and decent work for all, including for women and young people, a central objective of relevant national and international policies and national development strategies and to be part of efforts to achieve the internationally agreed development goals, including the Millennium Development Goals.

13. Creating National Policy Space • Fiscal Policy Space • To support Social Safety Nets • To support economic growth • To support employment • Monetary Policy Space • Central Bank Policy supports Fiscal Policy • Domestically directed interest rate policy • Exchange Rate Policy • Contribution of Foreign Investment

14. National Policy Space requires Fiscal Sovereignty • Is running a government fiscal surplus sound resource mobilsation policy? • Government spending creates private sector assets in the banking system • Taxation creates private sector debts to the government that must be financed with those assets • If taxes exceed government spending the private sector is in net deficit, i.e. Insolvent • We no longer use debtors prison as punishment – just poverty • If the private sector holds assets for other convenience purposes financial stability requires a government deficit over time equal to the private sector’s demand for money balances • Government Deficit is Required for Growth

15. Domestic Policy Space requires Monetary Sovereignty • Government deficit spending increases unborrowed bank reserves • Excess reserves drive interbank bid rates to zero • To keep interest rates positive the government must borrow • As borrower of last resort it can always fix the interest rate and the tenor at which it borrows • Interest rates are thus not constrained by private sector willingness to buy government debt or the size of the deficit • The government does not have to borrow or issue debt in order to deficit spend • It follows that the government can always set the short term policy interest rate independently of the size of the deficit • Did large government debt and government deficit cause interest rates to rise in Japan over the last 10 years?

16. What are the Limits to Sovereignty? • Servicing External Borrowing Creates Need for Negative Net Resource Flows • Creates need for Emergency Liquidity • Creates need for IMF programme • Imposes short-term Structural Adjustment and externally determined changes in domestic economic and political structure • Indonesia, Korea • Argentina • Leads to Increased Poverty • National Monetary Sovereignty eliminates need to borrow externally – mobilisation of domestic resources

17. How to use policy space to support mobilisation of domestic labour resources? • If private sector development is insufficient to provide full employment • Government takes responsibility to provide employment to all those willing and able to work at or marginally below the prevailing informal sector wage

18. What does “work” mean? • Different according to level of development • Primary goals: • Maintain and improve skill level of the labour force – basic educational skills • Provide social safety net – income maintenance • Provide social inclusion for the unemployed/unemployable – social services • Meet the needs of female heads of households to combine work with family responsibilities • Improve the well-being of society – useful public works • Eliminating the Culture of Poverty

19. Can it be done? • Argentina experience – Jefes programme • Education at all levels an integral part of the programme – primary to occupational • Interministerial cooperation – Labour, Eduction and Social Development ministries cooperate in providing educational programme • Promotes work practice and experience • Provides vocational skills • Integrates marginal communities • Supports Gender Equality • Creates entrepreneurial Skills • Counters Culture of Poverty

20. Is Jefes a relevant example? • Verified examples of success • Verified examples of fraud and corruption • Depends heavily on local government for implementation • Depends heavily on individuals • Depends on Federal government for financing • Constrained by government budget goals– but need not be given monetary and fiscal sovereignty that Argentina currently possesses

21. Jefes is not ELR • The Jefes programme was close to the ELR proposal but was an emergency response to the crisis • A suitably designed ELR can build on the success of Jefes • It can be designed to integrate the MDGs as well as the other Internationally Agreed Development Goals to be included in the National Development Strategies mandated at the 2005 Global Summit • It Can Contribute to the Elimination of the Culture of Poverty

22. ELR as an MDG/Poverty Reduction programme • A suitably designed ELR programme to provide employment can also be designed to satisfy: • MDG Goal 1: Eradicate Extreme Hunger and Poverty • MDG Goal2: Universal Primary Education • MDG Goal 3: Promote Gender Equality and Empower Women • MDG 4 and 5 Reduce Child Mortality and Improve Maternal Health