The
End of Economic Growth
By Adam Parsons
27 April, 2007
Countercurrents.org
“Economic growth cuts poverty!”
is forever the inveterate, unrelenting dictum of World Bank statisticians.
These four simple words, stale and contentious as they are, were in
fact the title of a recent Forbes magazine article based on World Bank
predictions for eliminating poverty in South East Asia[1]. As reported
in the American journal that speaks to the super-rich, if economic growth
continues to increase in this region of the world with the largest concentration
of poor people, then “poverty can be significantly reduced, if
not eliminated, within a generation.”
This prognosis, made by the
bank’s Operations Director for South Asia, was shortly followed
by their World Development Indicators for 2007[2] and the apparently
good news that absolute poverty levels have fallen beneath one billion
people. The bank’s Chief Economist, François Bourguignon,
was careful to point out that these figures “go beyond growth”
to ask how income is distributed and whether health care and education
are conjointly improving, but the unspoken assumptions remained clear;
globalisation is good, free trade and liberalisation is a prerequisite
for ending poverty, and the only answer to human needs is a market-based
world economy as defined by the Washington Consensus.
The release of the annual
figures, which this year seemed to be almost swept under the carpet
by the international media, is still crucially important for two reasons;
not only are the World Bank’s statistics the only view we have
on whether the incomes of poor people are rising or falling, but the
implied success they demonstrate in tackling poverty is used as powerful
ammunition by the rich nations who seek to perpetuate and defend the
existing economic architecture which is inherently biased in their favour.
The basic motivation for the World Bank to continue propagating these
figures, according to many interpreters[3], is to vindicate their policies
and prove they are working. It is worthwhile, in this context, to repeatedly
examine and demystify the basic arguments of the pro-globalisation thinkers
and so-called ‘trickle-down theorists’.
How Not to Count
the Poor
In 2002, a report titled
How not to count the poor was published by two US academics, Sanjay
Reddy and Thomas Pogge, who contended that the World Bank figures on
how many poor people there are in the world were “misleading and
innaccurate”, “neither meaningful nor reliable”, and
extrapolated “incorrectly from limited data”[4]. So conclusive
and unequivocal was this assessment that the United Nations followed
it up with their own damning summary of faulty methodology and “conceptual
errors”[5].
When the annual figures on
world income were released in the following year, many activists and
NGOs naturally didn’t hesitate to question them; the arguments
weren’t simply focused on the technical minutiae of ‘conversion
factors’ and ‘Purchasing Power Parity’ measurements,
however, but on the underlying implications of what such shoddily researched
yet supposedly authoritative information really means. As one commentator
in the UK wrote[6]: “That the key global economic statistic has
for so long been derived by means which are patently useless is a telling
indication of how little the men who run the world care about the impact
of their policies. If they cannot be bothered even to produce a meaningful
measure of global poverty, we have no reason to believe their claim
that they wish to address it.”
The latest World Bank figures
are more cautiously presented, with a notable emphasis this year on
the inclusion of China and India. In the first two World Development
Reports in 1990 and 2000/01 these two largest nations on earth were
embarrassingly not even mentioned, which was consequently a major argument
against the reports lack of veracity, although they are now both referred
to as a chief reason for a decrease in world poverty levels –
even when you consider developing countries “without these two
giants”, we are told, “you still find very high growth rates.”[7]
Putative Successes
The survey of data goes on
to quote a number of putative successes; real per capita income growth
in Sub-Saharan Africa has been stronger in the period since 2000 “than
any time since the 1960s”, it says, alongside higher growth rates
in middle income countries, and there is no hesitation in asserting
that “one factor behind this performance is strong macroeconomic
polices”, in other words, those policies known collectively as
economic liberalism. This growth in low-income countries, it goes on
to brazenly attest, has “clearly resulted” in lower poverty
incidence.
Some of the other improvements
need not be questioned in the same way, such as the 34 million children
in the developing world who gained the chance to attend primary school,
the nearly doubling of external financing for health and education,
and the “significant progress” made on Millennium Goal 7
to halve the proportion of people without access to safe drinking water
by 2015, but the overall picture that the report portrays needs to be
permanently kept in mind. Extreme poverty is “increasingly concentrated
in fragile states”, it says, which comprise 35 stricken countries
like Gaza, Zimbabwe, Afghanistan, the Congo and Sudan, although Sub-Saharan
Africa is more stricken in general than any other corner of the earth;
the share of the region’s people living in extreme poverty may
well have dropped 4.7 percentage points between 1999 and 2004, but it
still results in 41 percent of the entire population left struggling
to survive on less than one dollar a day, and a world in which an estimated
16,000 children die daily from hunger-related causes. Sub-Saharan Africa
now accounts for 30 percent of the world’s extreme poor, says
the report, compared with 19 percent in 1990, and “only 11 percent”
in 1981, still an almost 300 percent difference in less than three decades.
Does the “rapid global
growth” in 2006, in this context, really provide cause for the
“optimism about progress in advancing the Millennium Development
Goals” as the World Bank continues to submit? Is just under one
billion people living in extreme poverty, about a sixth of the human
population, with almost half of the remaining developing world living
on two dollars a day, really cause for a note of “optimism”
at all?
Depressing Contradictions
For a report that seeks to
subtly toot its own horn, it is amazing how many depressing contradictions
can be found when comparing its findings to concurrent happenings in
the world. On the day after the World Bank’s poverty figures were
released, Ban Ki-moon, the new Secretary-General of the United Nations,
visited East Africa to reflect on the fact that the number of slum-dwellers
worldwide is set to reach a new high in 2007. Speaking in Nairobi, a
city that boasts the largest slum in Sub-Saharan Africa, the U.N. emphasised
that unless more private sector help is provided then the developing
country governments alone will be increasingly overwhelmed by the challenge
to provide adequate housing for the poorest of the poor.
This year has also seen the
release of a number of independent and disquieting studies into poverty
and wealth distribution; according to the recent McClatchy Newspapers
analysis of 2005 census figures in the US, for example, the number of
poor Americans living in deep or severe poverty has reached a 32-year
high, growing by 26 percent from 2000 to 2005, what they described as
“a distressing sidebar to an unusual economic expansion.”[8]
Poverty levels are falling, says the World Bank. Poverty levels, at
least on a national basis in the richest countries, are actually increasing
like never before, say the independent studies. In the UK, even the
latest official figures show that poverty has increased for the first
time since Tony Blair came to power in 1997.[9]
Crisis of Inequality
The key issue concerns not
just poverty levels and the misleading ‘dollar a day’ measure,
but the corresponding crisis of inequality. The World Bank report freely
admitted that despite abject poverty being on an apparent decline in
global terms, inequality among citizens in the same country is on the
rise. In the past decade, it also admits, poverty reduction was not
always or everywhere commensurate with income growth. As contemporary
studies have shown[10], inequality is in fact harmful to economic growth,
and income distribution is not only worsening year-on-year, but it results
in the paradox of overall decreasing poverty levels and a simultaneous
increase in the number of people living in extreme poverty.
The income gap has so widened,
according to a recent analysis of tax data in the US[11], that the top
10 percent of Americans have reached a level of national income share
not seen since before the Wall Street Crash of 1929. The top one percent
of wage earners, it showed, saw an increase of 14 percent, compared
to an overall percentage decrease in earnings for 90 percent of the
country. The income gap is growing faster in the US, as other figures
reveal[12], than in any other developed nation.
Corporate Greed
The ongoing squabble in Congress
concerning CEO pay is a like an allegory to help understand the question
of corporate greed; members of a powerful lobby group called the Business
Round Table[13] are hotly contending proposed measures to rein in CEO
compensation. The members of the Round Table, it turned out[14], received
50 percent more than even the average Chief Executive – about
nine million dollars each compared to the average CEO annual salary
of six million dollars – and still they bitterly fight to keep
their salaries growing.
The US government, meanwhile,
continues to argue that its tax policies, benefiting the top one percent
of the country more than anyone else, are not adding to the widening
income gap but are simply “more progressive”[15]. Higher
taxes for the rich, they argue, would cause top earners to work less
and take fewer risks, thereby stifling the deity of economic growth
and threatening the goose that lays the golden eggs, a claim left unsupported
by a shred of economic theory or empirical evidence[16]. It doesn’t
require any study or national survey to comprehend the reason why corporations
are so keen on maintaining the status quo; in the words of the late
British economist Sir Dudley Seers, “Those with high incomes…
will inevitably try to find ways of maintaining privilege, resorting…
to political violence rather than giving it up[17].”
Growth Isn't Working
The pursuit of economic growth
as a sole measure of national success is not, despite the dogmas of
the World Bank, a foregone conclusion or an inevitable assumption. The
mounting evidence is unassailable; as written in the recent New Economics
Foundation report entitled Growth Isn’t Working[18], if one billion
dollars in overseas aid truly lifted 434,000 people out of extreme poverty,
as claimed by a separate World Bank report[19], and if the developed
country governments had kept their 1970 pledge to provide 0.7 percent
of national income in aid, then the world would be an altogether different
place. Rather than setting the Millennium Development Goals and merely
aiming to halve poverty below the one-dollar-a-day line by 2015, world
leaders could instead have been celebrating its complete eradication.
We would now be six years into a programme to eradicate two-dollar-a-day
poverty.
The reality, of course, is
far from a fairy tale ending; the shortfall of aid from the 1970 target
is over $150 billion, and even in the past two years, despite G8 promises
made in 2005 to increase aid by 50 billion dollars before the end of
the decade, overall aid levels have continued to fall[20]. Global priorities,
despite the World Bank’s disingenuous “optimism” and
rhetoric, are clearly more aligned with hegemony and primacy than a
sincere pledge to eradicate poverty. Patronage-aid, as concluded by
the NEF report[21], mainly serves as a power tool for developed country
governments and international institutions like the World Bank and IMF,
thereby entrenching further “the inequitable structures of the
global economic system which underlies the more fundamental problem.”
Hackneyed Metaphors
The ‘trickle-down theorists’,
in no short number, argue with the same few hackneyed metaphors to illustrate
their obsession with economic growth, like the rising tide that lifts
all boats, or that, rather than share the cake more evenly, it is better
to bake an even larger one. It is almost universally accepted amongst
economists and governments that if more national and global income is
created through economic growth, then a trickle-down effect will follow,
thereby enabling the poorest members of society to increase their proportion
of total income. As the rich man eats more cake, you might say, the
poor man scrambles for a few more crumbs. What this complacent premise
fails to account for is the billions of people earning less than two
dollars a day who are fortunate to own a corrugated shelter, let alone
a ‘cake’ or a ‘boat’ to rise in. Poverty eradication
is a nice enough idea, the lesson seems to be, so long as it remains
consistent with the assumption of the rich getting richer.
To plead for a redistribution
of wealth, even for a one percent redistribution of the incomes of the
richest 20 percent to the poorest 20 percent, is tantamount to asking
for a magic wand so long as the existing macroeconomic polices drive
international politics. A belief in the panacea of economic growth could
be called the noumena of today’s world leaders, as without it
the ideological premise of the Washington Consensus and it’s ‘ten
prescriptions’ would crumble before our eyes; liberalisation and
privatisation only make sense if market forces are continually unleashed
in the blind pursuit of infinite expansion. Another rudimentary metaphor
to add to the trickle-down theorists limited repertoire, in this sense,
might be the description of a cancerous tumour.
To borrow a quote from a
key U.N. paper on the ignominies of poverty reduction[22]; “There
are times when the enunciation of the most elementary common sense,”
said the late Keynesian economist J.K. Galbraith, “has an aspect
of eccentricity, irrationality, even mild insanity.” One might
hope that the Neoliberalists disavowal of those who dare to question
the profit motive will one day be viewed in a similar vein to the arrest
of Galileo when he affirmed that the sun doesn’t orbit the earth.
The only certainty is that a paradigm shift in thinking is required
if our obsession with outmoded orthodox economics is ever to be overcome,
if our “failure to make what is important measurable rather than
making what is measurable important”[23] is ever to be understood,
and if the truly panacean solution of the principle of sharing is ever
to govern economic affairs. The only question then remaining is how
far we continue on a path towards disaster before the wake up call is
heard.
Adam W. Parsons
is the editor of Share The World’s Resources (www.stwr.net),
an NGO campaigning for global economic and social justice. Adam can
be reached [email protected]
[1] Chisaki Watanabe. 2007.
“World Bank: Economic Growth Cuts Poverty.” (Forbes Magazine)
4 April.
[2] World Bank, 2007. “World
Development Indicators.” Washington D.C. (The World Bank) 13 April.
[3] For example: Chakravarthi
Raghavan. 2002. “World Bank poverty data, methodology faulted”.
Third World Network.
[4] Sanjay G. Reddy &
Thomas W. Pogge, 2005. “How Not to Count the Poor” (Colombia
University) Version 6.2.3. 29 October.
[5] Chakravarthi Raghavan.
2002. Ibid.
[6] George Monbiot, 2003.
“Poor, but pedicured: It appears that those at the bottom are
getting richer - but sadly the maths just doesn't add up.” (The
Guardian) 6 May.
[7] World Bank, 2007. “World
Development Indicators.” Washington D.C. (The World Bank) 13 April.
[8] Tony Pugh, 2007. “U.S
Economy Leaving Record Numbers in Severe Poverty.” (McClatchy
Newspapers) 22 February.
[9] Mike Brewer, Alissa Goodman,
Alastair Muriel & Luke Sibieta, 2007. “Poverty and inequality
in the UK: 2007.” (The Institute for Fiscal Studies: IFS Briefing
Note No. 73). 27 March.
[10] For example: Jan Vandemoortele,
2002. “Are we really reducing global poverty?” (United Nations
Development Programme: Bureau for Development Policy) New York, July
2002.
[11] Thomas Piketty and Emmanuel
Saez. “Income Inequality in the United States: 1913-1998,”
(Quarterly Journal of Economics). February 2003. Data updated in March
2007. The updated data series is available at http://elsa.berkeley.edu/~saez/TabFig2005prel.xls
[12] Figures reported in
Paul Buchheit, 2007. “The Income Gap: Profits Up 93%, CEO Pay
Up 571% -- Worker Salaries Stagnant.” (Counterpunch.org). 28 February.
[13] Sarah Anderson, Sam
Pizzigati, Chuck Collins, John Cavanagh and Charlie Cray. 2007. “Selfish
Interest: How Much Business Roundtable CEOs Stand to Lose from Real
Reform of Runaway Executive Pay.” (Institute for Policy Studies).
10 April.
[14] Chris Frates, 2007.
“Highest-Paid CEOs Fight Compensation Reform.” (The Politico).
11 April.
[15] Paul Buchheit, 2007.
(Counterpunch.org). Ibid.
[16] Robert H. Frank, 2007.
“In the Real World of Work and Wages, Trickle-Down Theories Don't
Hold Up.” (The New York Times). 12 April.
[17] Seers, Dudley. 1969.
The Meaning of Development. International Development Review 11(4).
[18] David Woodward and Andrew
Simms, 2006. “Growth isn't working: the unbalanced distribution
of costs and benefits from economic growth.” (New Economics Foundation).
23 January.
[19] Goldin, I. et al (2002)
“The role and effectiveness of development assistance: lessons
from World Bank experience” (World Bank: Washington DC) 18 March.
[20] Organisation for Economic
Co-operation and Development. 2007. “Development aid from OECD
countries fell 5.1% in 2006.” (OECD). 3 April.
[21] David Woodward and Andrew
Simms, 2006. Ibid.
[22] Jan Vandemoortele, 2002.
Ibid.
[23] David Woodward and Andrew
Simms, 2006. Ibid. See 'Conclusion'.
Copyright Share The World's
Resources (www.stwr.net) 2007
Digg
it! And spread the word!
Here is a unique chance to help this article to be read by thousands
of people more. You just Digg it, and it will appear in the home page
of Digg.com and thousands more will read it. Digg is nothing but an
vote, the article with most votes will go to the top of the page. So,
as you read just give a digg and help thousands more to read this article.
Click
here to comment
on this article