Policies Aimed at Raising the
Income of the Poor
Text extracted from:
The World Food Problem
Leathers & Foster, 2004
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Poverty and Inequity
• Are poverty and inequity inevitable?
• Must there be an elite?
Elite
– In U.S. we are an elite
• Traditional values:
– Dominate or be dominated
– Work hard to be among the elite
• Alternative is terrible
• Is inequity a moral good?
– Or morally unacceptable?
Poor
• How can inequity be diminished?
– To achieve a better life for everyone?
The Hungry are Poor
• Policies to alleviate
poverty:
– Redistribute income or
wealth from the rich to
the poor
• Progressive taxation
• Land Reform
http://news.bbc.co.uk/2/hi/south_asia/3535018.stm
Bangladesh Garment Factory
– Promote general
economic growth
Taxation
• Progressive Taxation
– Wealthy pay greater percentage
of income than poor
– Income tax
– Sales tax in developing world
• Poor often barter for goods
• Sales taxes come from wealthy
• To redistribute wealth
http://jetcityjimbo.com/awful_wonderful/photos/emmasmarket.html
Bartering in Zaire outside of
the taxable economy
– Governments have to spend tax
money on the poor
Inflation due to income elasticity
of Demand
• If one rupee taken from
top 5% in India
– Reduces food demand by
.003 rupees
• If government gives the
rupee to the poor in
bottom 20%
http://www.tribalbazaar.com/merchadise/Pictures/w.8.jpg
India market stall
– Increases food demand by
.58 rupees
– Therefore inflationary
• Market economy removes
some of the benefit
Tax land use value
http://www.meridianholidays.com/Can_bali_sing_super_holiday.html
• Tax on some large land
owners small
• No incentive to farm
efficiently
• If tax land use, inefficient
farmers will be forced to
sell
– Land redistributed without
displacing good farmers
Minimum wage laws
• May help the poor
– Can be enforced in urban areas
• Results in mass migration to
cities in developing countries
• May not help the poor
http://www.globaleye.org.uk/secondary_summer/oncamera/india-factory.html
Clothing Factory, India
– Wait for a good job can take a
long time
– Family undernourished while
waiting for employment
– Employers motivated to
substitute captial for labor
• Invest in machines
• Reduce number of jobs
Hope for Land Reform
• Credited with helping
reconstruction of Japan, Taiwan
• Inequity in land can be extreme
– Columbia: 10% of owners
controlled 80% of land (1988)
• Tenant farmers pay 50% to
landlord
• If small farmers own land,
motivated to
http://news.bbc.co.uk/2/hi/south_asia/2322387.stm
Tenant farmers, India
– Work long hours
– Invest in fences, irrigation
– Increase productivity
Problems with land reform
• Socialist elimination of property
ownership causes problems
– China
– Russia
• “Land to the tiller” reforms did
not benefit poorest people
– Puru
• May reduce investment in
agriculture by wealthy
http://www.thebigquestion.co.za/Default.aspx?tabid=743
Land Reform in South Africa
– Afraid of losing land
• Policy may be “anti-agricultural”
form of urban bias
Economic Growth
• Private sector must grow to
provide jobs
– Government projects don’t
create jobs efficiently
• Per capita income in Taiwan:
– 1960: $1,200
– 1998: $12,000
• Per capita income in
Democratic Republic of
Congo:
– 1960: $489
– 1998: $197
http://www.globaleye.org.uk/secondary_summer/oncamera/t
aiwan-factory.html
How to promote growth
• Recommendations of World
Bank and IMF:
– High savings leading to
increased capital stock
• Good macroeconomic policy
– High labor productivity
• Education
• Health
• Anti-poverty
– Adoption of new technology
• Market orientation
http://www.thenoelfoundation.org/pinternational.html
Good Macroeconomic Policy
• Objectives:
– Low inflation
• Encourages savings
• Keep central Bank out of
political process
– More confidence in
savings
– Low budget deficits
• Prevents printing more
money and inflation
• Reduces borrowing by
governments
– Stable exchange rates
http://news.bbc.co.uk/2/hi/programmes/from_our_own_correspondent/1874755.stm
McDonald’s in China
• Attract foreign investors
Market Orientation
• Promote open and free
trade
– reduce government
distortion of supply and
demand
• Assign and enforce
property rights
– To increase ownership
– Motivates productivity
http://bara.arizona.edu/research/pro-ranching-mexico.htm
• Eliminate corruption
Agricultural Development
• Promote growth of the
agricultural sector
– Increased productivity
• Stimulates economic growth
• Low food prices
– allow low wages to be paid in
factories
– but workers live well
http://www.provost.uncc.edu/LatinoInitiative/Photos.htm
Market stall, Mexico
• Can buy more non-food items
– Stimulates employment
Globalization
• Definition: increasing integration
of countries in the world economy
– Opening borders
– Adopting macroeconomic policies
• in order to get IMF loans
– Adopting market-oriented
agricultural and industrial policies
• In order to get IMF loans
– Reducing restriction on foreign
investment
– Adopting labor and environmental
policies that will attract foreign
investment
http://www.uwm.edu/Dept/CIE/Resources/globalization/ima
ges/globefull169.gif
http://www.foreignpolicy.com/wwwboard/g-index.php
Criticisms of Globalization
• Policies encourage
– Low wages
– Poor working conditions
– Poor environmental quality
• Fiscal policies imposed by IMF
– Reduce health programs
– Reduce education
– Reduce poverty alleviation programs
• IMF policies are antidemocratic
– IMF can countermand decisions by
democratic governments
http://www.zazona.com/ShameH1B/JobDestructionHumor.htm
• Multinational corporations benefit
– At expense of ordinary people
http://www.foreignpolicy.com/wwwboard/g-index.php
http://www.foreignpolicy.com/wwwboard/g-index.php
Joseph Stiglitz
• Nobel Prize in economics 2002
• Policies imposed by IMF
– don’t take into account special
circumstances of each country
• Private sector solutions
– require infrastructure that may
not be there
• Globalization policies
– need to be reformed to help poor
countries grow
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