How to make poverty history?

"no society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable“ Adam Smith , 1776

Content

Introduction

The politics of poverty

Causes of poverty

The verdict of aid

conclusion

How bad is the problem?Every year, eight million people die because they are too poor

to survive

Every morning, more than 20,000 people perish because of extreme poverty that is equivalent to sixteen September 11, 2001 disasters.

Every three seconds a child dies of extreme poverty. They die namelessly, and their stories rarely get written

Despite our immense scientific and technological advancements, we continue to fail to save the 20,000 children who will starve by this time tomorrow.

• On July 2, 2005, at the time of the (G-8) summit in Scotland, rock musician Bob Geldof organized the Live 8 series of concerts around the globe to lobby the world leaders for more aid to Africa.

• In his words:

Many top artists and groups participated in the Live 8 concerts.• The passionate plea by rock stars and other advocates for more aid and

debt forgiveness assumes that aid programs have been effective and that more money will further their admirable goals. Unfortunately, neither assumption is justified.

. . . But at Best Ineffective, and at Worst Counterproductive

• Soon after the Live 8 concert, Jean-Claude Shanda Tonme, a journalist from Cameroon, wrote an op-ed piece that was published in the New York Times on July 15, 2005.He said:

•

-proportion of the world’s population living in extreme poverty has declined since 1980 (most of the decline taken place in china -incomes have become more unequal over time

- There is disagreement about the correct measurement of income in poor countries (exchange rate, purchasing power parity and inequality)

The cure for poverty is economicgrowth. A bit of growth in poorcountries buys quit a lot ofimprovement in other HD indicator.

So the question about causes andcures for poverty is a questionabout what cause economicgrowth, or explain its failure.

world income distribution is more unequal than the distribution in any country

Inequality has more clearly diminished when it comes to indicator other than income

The politics of poverty

They ignored technology and population growth and strictly excised any political or historical context from their analysis

Paul Rosentein-Rodan(1943) argued that industrial development could not occur without a big push because no individual industry would have any incentive to invest and expand unless all the others were doing at the same time. There is a need to be balanced growth. Neoclassical economists in 1950s and 60s explain absence of growth in LDCs as a simple technical problem. The problem with LDCs was that

No domestic saving no investment no growth

• Radical and Marxist economists inspired by Raul Peribisch argued that colonialism had distorted the structure of poor economies.

• It fossilized them in a pattern of export of basic commodities to developed countries in return for manufactured goods on unfavorable terms.

• Many poor countries adopted planning and other strategies recommended by left wing economists, with dismissal result.

Is poverty predestined?

• Economists run growth regression in different countries over time and they seem to support endogenous growth model by confirming the importance of education level (conditional convergence).

• But other variables are thought to important in explaining how well an economy performs i.e Geography and history

Geography• Jeff Sachs pointed out that nearly all of the world poorest

countries while temperate countries are almost rich. reasons

technology (do not transfer across climate zone),

social factor such as demographic transition and the colonial legacy, and climate in debilitating disease

The discovery of a lucrative resource has paradoxically adverse effect on the economy as well known as the curse of natural resource

History

• Douglass emphasized in the historical context the vital importance of institution to growth.

In case of developing countries, flaws in political, legal, and economic institutions are increasingly thought to play an important part in the failure to grow

corruption, absence of clear title to property for poor people in developing countries and colonial experience.

Acemoglu et al argues that the tropical colonies failed to industrialize because of the colonial institutions through which they have been governed. European settler found tropical countries uncomfortable and disease prone, so they set up institution such as plantation or large scale mining, extracting the resources with relatively few European managers and administrators.

• Endogenous growth theory suggests that lack of coordination in key decision as the reason for growth failures.

• As people in poor country have low expectations about future prospects, they are unwilling to take risk of setting up a business, or investing in their children’s education.

Which policies Work?

clever push rather than the big push. looking for policies designed to coordinate individual as absence of banks and credit for poor people.

Democracy

Civil war is bad for growth

Governments should clamp down corruption

Governments need to run their finances and set interest rates so that inflation stay low and budget deficit never gets too big

Is globalization is good?

increase in trade and foreign investment

There is little dispute that many economies have benefited from ever free trade

The question concerns the impact of poor countries.

Rich countries impose high tariffs on imports of agricultural productsfrom poor countries and heavily subsidize their own farmers. $ 300 billion.

It makes no sense for rich countries to give aid to poor countries, whileat the same time restricting food imports from those countries.

• Protectionism by poor countries is also a serious problem. Poor-country tariffs on industrial products can be five to ten times higher than those imposed by rich countries.

Rodrick argue that openness to trade is in fact important for economic growth, but indirectly so. Countries which are open to international trade have a firmer rule of law which raises growth.

The verdict of aid

Aid

boosted growth in those countries which had good economic policies

Retard growth in those countries which had good economic policies

Burnside and Dollar

adverse effects on economy even when given to the government with good economic policies

Rajan & Submarine

dependent on foreign assistance

Dutch diseases

aid investment

Economic growth

the incentive to increase domestic saving reduced.

aid bred corruption and undermined democracy by helping elites to stay in power

incentive aid gives to recipient governments is to prolong poverty rather than ending it.

Easterly

Why aid is ineffective?

• Aid is often politically motivated• Commercial interests are also a strong motivation

for aid: tied• Aid is subject to budgetary pressures in the donor

countries, and is therefore unreliable• Aid tends to promote corruption in the receiving

countries.• Aid encourages a culture of dependency.

And so the answer is?

Macro economic and political stability

institution and the rule of law

innovation in development economics The poor themselves can create a poverty-free world – all be have to do is to free them from the chains that we put around themPoverty is not created by people who are poor – they are the victims. It is the failure at the tophttp://www.youtube.com/watch?v=2FqU9_u7B-s&context=C371139fADOEgsToPDskLkQlL--uLUZuECX8RIS197

conclusion• Rising labor-force participation, especially among

women• Rising educational attainment.• High levels of savings and investment• Resource mobility.• Trade• Technology transfer• Low inflation and fiscal prudence• Good (or better) governance• Peace

The End