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

Eliminating Poverty?Eliminating Poverty?

IDEA’s Conference “Development IDEA’s Conference “Development Experiences and Policy Options for a Experiences and Policy Options for a

Changing World”Changing World”Tsinghua University, Beijing 7 June 2007Tsinghua University, Beijing 7 June 2007

Jan KregelJan KregelSenior Scholar, Levy Economics Institute of Senior Scholar, Levy Economics Institute of

Bard CollegeBard CollegeDistinguished Professor, Center for Full Distinguished Professor, Center for Full

Employment and Price Stability, Employment and Price Stability, University of Missouri, Kansas CityUniversity of Missouri, Kansas City

How Does WB Measure How Does WB Measure Poverty?Poverty?

Surviving on less that $1.00 per daySurviving on less that $1.00 per day Why $1.00? Why $1.00? We don’t have an analytical measure of We don’t have an analytical measure of

PovertyPoverty The mid-point of National Poverty Lines of 10 The mid-point of National Poverty Lines of 10

Developing Countries chosen by the World Developing Countries chosen by the World BankBank

Expenditure in national currency reported in Expenditure in national currency reported in national household expenditure surveysnational household expenditure surveys

Converted to $US at PPP exchange ratesConverted to $US at PPP exchange rates

Poverty Reduction as Poverty Reduction as Development StrategyDevelopment Strategy

NGO’s Target PovertyNGO’s Target Poverty• Pro-Poor policiesPro-Poor policies

World Bank Targets PovertyWorld Bank Targets Poverty The MDGs Target PovertyThe MDGs Target Poverty The IMG Targets PovertyThe IMG Targets Poverty The main tool of Policy is the Poverty The main tool of Policy is the Poverty

Reduction StrategyReduction Strategy

We have to know what it is We have to know what it is before we know what causes before we know what causes

itit Like US Supreme Court on Like US Supreme Court on

Pornography Pornography I know it when I see itI know it when I see it

The World Bank tells me what it isThe World Bank tells me what it is Governments Decide what it isGovernments Decide what it is NGO’s decide what it isNGO’s decide what it is

Alternative Measures?Alternative Measures? Physical Physical

• Caloric IntakeCaloric Intake• Basic NeedsBasic Needs

Social -- Demonstration EffectSocial -- Demonstration Effect PoliticalPolitical

• Universal Declaration of Human RightsUniversal Declaration of Human Rights• Social Inclusion/ExclusionSocial Inclusion/Exclusion

EconomicEconomic• MarginalisationMarginalisation• Participation in the Production ProcessParticipation in the Production Process• Self-SubsistenceSelf-Subsistence

Are Indigenous Peoples in Poverty?Are Indigenous Peoples in Poverty?

How to Eliminate How to Eliminate WB/MDGPoverty?WB/MDGPoverty?

GlobalWelfare Programme GlobalWelfare Programme • – – Moral ResponsibilityMoral Responsibility• Official Development Assistance Official Development Assistance • Income Transfers – to Increase IncomesIncome Transfers – to Increase Incomes• External Provision of Social-Medical External Provision of Social-Medical

ServicesServices Creates:Creates:

• Aid DependencyAid Dependency• Aid FatigueAid Fatigue

Has not produced resultsHas not produced results

But this does not tell us what But this does not tell us what Causes PovertyCauses Poverty

There are Poor People in Rich CountriesThere are Poor People in Rich Countries There are Rich People in Poor CountriesThere are Rich People in Poor Countries Is it an income distribution problem?Is it an income distribution problem? Would redistribution make everyone poor?Would redistribution make everyone poor? People in Rich Countries would still be richer People in Rich Countries would still be richer

than the People in Poor Countriesthan the People in Poor Countries Is it a Problem of the Level of Development?Is it a Problem of the Level of Development?

Linking Poverty and Linking Poverty and DevelopmentDevelopment

““Poverty is neither a synonym for underdevelopment Poverty is neither a synonym for underdevelopment nor a cause of underdevelopment; it is only more nor a cause of underdevelopment; it is only more symptomatic of a more general problem. symptomatic of a more general problem.

Poverty forms part of a culture. … Most frequently the Poverty forms part of a culture. … Most frequently the culture of poverty develops when a stratified social and culture of poverty develops when a stratified social and economic system is breaking down or is being replaced economic system is breaking down or is being replaced by another…by another…

Often it results from Imperial conquest in which the Often it results from Imperial conquest in which the native social and economic structure is smashed and native social and economic structure is smashed and the natives are maintained in a servile colonial status, the natives are maintained in a servile colonial status, sometimes for many generations. … sometimes for many generations. …

The culture of poverty is not identical in all settings The culture of poverty is not identical in all settings ….it varies from place to place and from one era to ….it varies from place to place and from one era to another.”another.”

Keith Griffin, Keith Griffin, Underdevelopment in Spanish AmericaUnderdevelopment in Spanish America, Cambridge Massachusetts, MIT Press, 1969, Cambridge Massachusetts, MIT Press, 1969

Globalisation and the Culture Globalisation and the Culture of Povertyof Poverty

Globalisation Globalisation • Insertion in the International Trade and Insertion in the International Trade and

Financial SystemFinancial System Washington ConsensusWashington Consensus

• Introduction of Monoeconomic PolicyIntroduction of Monoeconomic Policy Structural Adjustment PoliciesStructural Adjustment Policies

• Market Friendly PoliciesMarket Friendly Policies• Shifting from Government Provision to Shifting from Government Provision to

Individual Responsibility &Market provisionIndividual Responsibility &Market provision• Profit Based Performance CriteriaProfit Based Performance Criteria

Globalisation, Development Globalisation, Development and Povertyand Poverty

Does poverty result from rapid integration Does poverty result from rapid integration into the global economy that dismantles into the global economy that dismantles the existing social and economic structure?the existing social and economic structure?

Those without marketable skills are Those without marketable skills are marginalised and become socially marginalised and become socially excluded?excluded?

Joan Robinson – What if the General Joan Robinson – What if the General Equilibrium model produces an equilibrium Equilibrium model produces an equilibrium wage that is below subsistence?wage that is below subsistence?

National Development National Development StrategiesStrategies

Mandated in 2005 Global Summit OutcomeMandated in 2005 Global Summit Outcome To Include All Internationally Agreed To Include All Internationally Agreed

Development Goals from the UN Development Goals from the UN Conferences and Summits of the 1990sConferences and Summits of the 1990s

To Move Beyond MDGsTo Move Beyond MDGs To Move Beyond PRSPsTo Move Beyond PRSPs To Provide Alternative Approaches for real To Provide Alternative Approaches for real

national policy spacenational policy space To see Poverty as part of the integral To see Poverty as part of the integral

process of Economic and Social process of Economic and Social DevelopmentDevelopment

National Reponsibility for Poverty ReductionNational Reponsibility for Poverty Reduction

Major Addition to Major Addition to Development Goals -- Development Goals --

Employment Employment 2005 World Summit Paragraph on 2005 World Summit Paragraph on EmploymentEmployment

High-level segment of the 2006 High-level segment of the 2006 substantive session of the Economic and substantive session of the Economic and Social Council Ministerial Declaration Social Council Ministerial Declaration

Make full and productive employment and Make full and productive employment and decent work for all, including for women decent work for all, including for women and young people, a central objective of and young people, a central objective of relevant national and international policies relevant national and international policies and national development strategies and and national development strategies and to be part of efforts to achieve the to be part of efforts to achieve the internationally agreed development goals, internationally agreed development goals, including the Millennium Development including the Millennium Development Goals. Goals.

Creating National Policy Creating National Policy SpaceSpace

Fiscal Policy SpaceFiscal Policy Space• To support Social Safety NetsTo support Social Safety Nets• To support economic growthTo support economic growth• To support employmentTo support employment

Monetary Policy SpaceMonetary Policy Space• Central Bank Policy supports Fiscal PolicyCentral Bank Policy supports Fiscal Policy• Domestically directed interest rate policyDomestically directed interest rate policy• Exchange Rate PolicyExchange Rate Policy• Contribution of Foreign InvestmentContribution of Foreign Investment

National Policy Space requires National Policy Space requires Fiscal SovereigntyFiscal Sovereignty

Is running a government fiscal surplus sound Is running a government fiscal surplus sound resource mobilsation policy?resource mobilsation policy?• Government spending creates private sector Government spending creates private sector

assets in the banking systemassets in the banking system• Taxation creates private sector debts to the Taxation creates private sector debts to the

government that must be financed with those government that must be financed with those assetsassets

• If taxes exceed government spending the If taxes exceed government spending the private sector is in net deficit, i.e. Insolvent private sector is in net deficit, i.e. Insolvent

• We no longer use debtors prison as punishment We no longer use debtors prison as punishment – just poverty– just poverty

• If the private sector holds assets for other If the private sector holds assets for other convenience purposes financial stability requires convenience purposes financial stability requires a government deficit over time equal to the a government deficit over time equal to the private sector’s demand for money balances private sector’s demand for money balances

Government Deficit is Required for GrowthGovernment Deficit is Required for Growth

Domestic Policy Space requires Domestic Policy Space requires Monetary SovereigntyMonetary Sovereignty

Government deficit spending increases unborrowed bank Government deficit spending increases unborrowed bank reservesreserves

Excess reserves drive interbank bid rates to zeroExcess reserves drive interbank bid rates to zero To keep interest rates positive the government must borrowTo keep interest rates positive the government must borrow As borrower of last resort it can always fix the interest rate As borrower of last resort it can always fix the interest rate

and the tenor at which it borrowsand the tenor at which it borrows Interest rates are thus not constrained by private sector Interest rates are thus not constrained by private sector

willingness to buy government debt or the size of the deficitwillingness to buy government debt or the size of the deficit The government does not have to borrow or issue debt in The government does not have to borrow or issue debt in

order to deficit spendorder to deficit spend It follows that the government can always set the short term It follows that the government can always set the short term

policy interest rate independently of the size of the deficit policy interest rate independently of the size of the deficit • Did large government debt and government deficit cause Did large government debt and government deficit cause

interest rates to rise in Japan over the last 10 years?interest rates to rise in Japan over the last 10 years?

What are the Limits to What are the Limits to Sovereignty?Sovereignty?

Servicing External Borrowing Creates Need Servicing External Borrowing Creates Need for Negative Net Resource Flowsfor Negative Net Resource Flows

Creates need for Emergency LiquidityCreates need for Emergency Liquidity Creates need for IMF programmeCreates need for IMF programme Imposes short-term Structural Adjustment Imposes short-term Structural Adjustment

and externally determined changes in and externally determined changes in domestic economic and political structuredomestic economic and political structure• Indonesia, KoreaIndonesia, Korea• ArgentinaArgentina• Leads to Increased PovertyLeads to Increased Poverty

National Monetary Sovereignty eliminates National Monetary Sovereignty eliminates need to borrow externally – mobilisation of need to borrow externally – mobilisation of domestic resourcesdomestic resources

How to use policy space to How to use policy space to support mobilisation of support mobilisation of

domestic labour resources?domestic labour resources? If private sector development is If private sector development is

insufficient to provide full insufficient to provide full employmentemployment

Government takes responsibility to Government takes responsibility to provide employment to all those provide employment to all those willing and able to work at or willing and able to work at or marginally below the prevailing marginally below the prevailing informal sector wageinformal sector wage

What does “work” What does “work” mean?mean?

Different according to level of Different according to level of developmentdevelopment

Primary goals: Primary goals: • Maintain and improve skill level of the labour Maintain and improve skill level of the labour

force – basic educational skillsforce – basic educational skills• Provide social safety net – income maintenanceProvide social safety net – income maintenance• Provide social inclusion for the Provide social inclusion for the

unemployed/unemployable – social servicesunemployed/unemployable – social services• Meet the needs of female heads of households Meet the needs of female heads of households

to combine work with family responsibilitiesto combine work with family responsibilities• Improve the well-being of society – useful Improve the well-being of society – useful

public workspublic works Eliminating the Culture of PovertyEliminating the Culture of Poverty

Can it be done?Can it be done? Argentina experience – Jefes programmeArgentina experience – Jefes programme

• Education at all levels an integral part of Education at all levels an integral part of the programme – primary to occupationalthe programme – primary to occupational

• Interministerial cooperation – Labour, Interministerial cooperation – Labour, Eduction and Social Development Eduction and Social Development ministries cooperate in providing ministries cooperate in providing educational programmeeducational programme

• Promotes work practice and experiencePromotes work practice and experience• Provides vocational skillsProvides vocational skills• Integrates marginal communitiesIntegrates marginal communities• Supports Gender EqualitySupports Gender Equality• Creates entrepreneurial SkillsCreates entrepreneurial Skills• Counters Culture of PovertyCounters Culture of Poverty

Is Jefes a relevant Is Jefes a relevant example?example?

Verified examples of successVerified examples of success Verified examples of fraud and corruptionVerified examples of fraud and corruption Depends heavily on local government for Depends heavily on local government for

implementationimplementation Depends heavily on individualsDepends heavily on individuals Depends on Federal government for Depends on Federal government for

financingfinancing Constrained by government budget goals– Constrained by government budget goals–

but need not be given monetary and fiscal but need not be given monetary and fiscal sovereignty that Argentina currently sovereignty that Argentina currently possessespossesses

Jefes is not ELRJefes is not ELR The Jefes programme was close to the ELR The Jefes programme was close to the ELR

proposal but was an emergency response proposal but was an emergency response to the crisisto the crisis

A suitably designed ELR can build on the A suitably designed ELR can build on the success of Jefessuccess of Jefes

It can be designed to integrate the MDGs It can be designed to integrate the MDGs as well as the other Internationally Agreed as well as the other Internationally Agreed Development Goals to be included in the Development Goals to be included in the National Development Strategies National Development Strategies mandated at the 2005 Global Summitmandated at the 2005 Global Summit

It Can Contribute to the Elimination of the It Can Contribute to the Elimination of the Culture of PovertyCulture of Poverty

ELR as an MDG/Poverty ELR as an MDG/Poverty Reduction programmeReduction programme

A suitably designed ELR programme to A suitably designed ELR programme to provide employment can also be designed provide employment can also be designed to satisfy:to satisfy:

MDG Goal 1: Eradicate Extreme Hunger MDG Goal 1: Eradicate Extreme Hunger and Poverty and Poverty

MDG Goal2: Universal Primary EducationMDG Goal2: Universal Primary Education MDG Goal 3: Promote Gender Equality and MDG Goal 3: Promote Gender Equality and

Empower WomenEmpower Women MDG 4 and 5 Reduce Child Mortality and MDG 4 and 5 Reduce Child Mortality and

Improve Maternal HealthImprove Maternal Health