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
How Does WB Measure Poverty?
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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
Poverty Reduction as Development
Strategy
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NGO’s Target Poverty
• Pro-Poor policies
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World Bank Targets Poverty
The MDGs Target Poverty
The IMG Targets Poverty
The main tool of Policy is the Poverty
Reduction Strategy
We have to know what it is before
we know what causes it
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Like US Supreme Court on Pornography
I know it when I see it
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The World Bank tells me what it is
Governments Decide what it is
NGO’s decide what it is
Alternative Measures?
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Physical
• Caloric Intake
• Basic Needs
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Social -- Demonstration Effect
Political
• Universal Declaration of Human Rights
• Social Inclusion/Exclusion
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Economic
• Marginalisation
• Participation in the Production Process
• Self-Subsistence
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Are Indigenous Peoples in Poverty?
How to Eliminate WB/MDGPoverty?
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GlobalWelfare Programme
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– Moral Responsibility
Official Development Assistance
Income Transfers – to Increase Incomes
External Provision of Social-Medical Services
Creates:
• Aid Dependency
• Aid Fatigue
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Has not produced results
But this does not tell us what Causes
Poverty
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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?
Linking Poverty and Development
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“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
Globalisation and the Culture of
Poverty
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Globalisation
• Insertion in the International Trade and Financial
System
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Washington Consensus
• Introduction of Monoeconomic Policy
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Structural Adjustment Policies
• Market Friendly Policies
• Shifting from Government Provision to Individual
Responsibility &Market provision
• Profit Based Performance Criteria
Globalisation, Development and
Poverty
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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?
National Development Strategies
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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
Major Addition to Development
Goals -- Employment
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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.
Creating National Policy Space
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Fiscal Policy Space
• To support Social Safety Nets
• To support economic growth
• To support employment
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Monetary Policy Space
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Central Bank Policy supports Fiscal Policy
Domestically directed interest rate policy
Exchange Rate Policy
Contribution of Foreign Investment
National Policy Space requires Fiscal
Sovereignty
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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
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Government Deficit is Required for Growth
Domestic Policy Space requires
Monetary Sovereignty
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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?
What are the Limits to Sovereignty?
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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
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National Monetary Sovereignty eliminates need to
borrow externally – mobilisation of domestic
resources
How to use policy space to
support mobilisation of domestic
labour resources?
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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
What does “work” mean?
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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
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Eliminating the Culture of Poverty
Can it be done?
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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
Is Jefes a relevant example?
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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
Jefes is not ELR
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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
ELR as an MDG/Poverty
Reduction programme
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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