Is poverty the problem? No, it is the wealth!

Henri Valot
GCAP Organisational Development Advisor

If you read the economic and development co-operation literature, you will clearly note a call for pro-poor policies. But one should now question: is poverty the problem? Or is it the alarming rate of wealth and inequality growth that is undermining poverty alleviation measures? There is something wrong and the fault does not lie with the Least Developed Countries or the poorest segments of our societies. The problem is not the poverty; the problem is the greed and the fact that speculation became dominant.

Wealth is not necessarily a problem, and it is the most common, universal quest. Right. But for all of us trying to understand what is going on, how do we make sense of the diversity of information we receive?
•    The wealthy, and the extremely wealthy are now everywhere in the media. We are flooded with important questions, such as: how do they spend their money? Who are the new extremely wealthy from India, Russia, China? What are the problems and challenges in the lives of the extremely wealthy?
•    European presidential salaries are usually around 20,000 euros a month. This would be the measure of remuneration for someone who is in charge of the public good in a country. But we hear that the remuneration of the captains of industry is significantly higher. Add their salaries, their stock options, and levels are reached that are simply unimaginable. It indicates that their job and responsibility is viewed as being more important than the public good. We regularly hear that these captains have been fired with a golden parachute of millions of dollars. Usually, he/she failed, cut jobs, lost markets but is able to secure a golden retirement.
•    But those European presidential salaries can be limited to 20,000 euros monthly, because many of them are in fact in collusion with the global capital. Some, like Berlusconi, are major industry captains or others have clear allegiance to global capital.
•    In 2004, for the first time since the end of the Cold War, military spending globally exceeded US$1 trillion. According to the 2005 Human Development Report, just the increase in military spending since 2000 would have been more than sufficient for all donors to reach the 0.7% target for aid spending (See ROA 2006).
•    “Bankers saved, human rights sacrificed” write Eric Toussaint and Damien Millet, from CADTM: “On the one hand, the amount of Official Development Assistance (ODA) distributed by the rich countries in 2007 is approximately 100 billion dollars. On the other hand, according to the International Monetary Fund (IMF), the potential cost of the current international crisis is approximately 1,000 billion dollars, a result of the so-called 'subprime' crisis that emerged in the summer of 2007 and continues to wreak havoc.” .
•    Africa leaks: Contrary to a commonly accepted view, Africa is a net exporter of capital, says the economist Charles Abugre.  Between 1970 and 2000, whereas Africa received about $100bn in aid (including loans), it lost $274bn in capital flight induced by debt, trade mis-invoicing and imputed interest. Christian Aid calculated that over the past 2 decades, Africa lost in income terms the equivalent of over $270bn from the negative growth effects alone of trade liberalisation. This amount alone more than matches the accumulated value of grants, loans and net FDI channelled into the continent. It is also estimated that at least $11.5 trillion is currently held in about 74 tax havens – lost to tax authorities – by wealthy individuals. As is obvious from above, Africa is not as poor or as helpless as is often presented. Instead, it is a continent that leaks heavily. We have an obligation to plug the leaks, and to rely on domestic sources for financing development, which in turn also provide a more conducive environment for promoting democratic accountability than the dependence on aid, concludes Abugre.

There is something crazy going on. Add the cost of the Iraq and Afghanistan wars, the so-called sub-prime crisis, and the fact that a trader can lose US$ 5 billion in half a day; then compare it to the actual cost of universal basic essential services (800 billion US$, according to UNDP).  Compare the fact that North Americans and Europeans spend more yearly on ice-cream than on official aid. Have in mind that 80% of the income of half the world’s population  is used to buy food and you will understand why people are in the streets as the price of rice rises.  As the UN says, it is not a famine per se, it is a new phenomenon: there is food everywhere in the large cities of the world, what happens is that the poorest and the most vulnerable inhabitants just cannot afford to buy it.

The rise of inequality

We all know the 80/20 law - 20% of the richest people own 80% of the wealth. But this is already outdated. While the richest 10% of adults in the world own 85% of global household wealth, the bottom half collectively owns barely 1%. Even more striking, the average person in the top 10% owns nearly 3,000 times the wealth of the average person in the bottom 10%. These are some of the results that emerge from a new UNU-WIDER study of the distribution of household wealth.

Global household wealth in the year 2000 amounted to $125 trillion, equivalent to roughly three times global GDP or to $20,500 per citizen of the world, by official exchange rates. In terms of PPP dollars, the corresponding world value was PPP$26,000 per capita, roughly the same as the average level in Poland or Turkey. Wealth levels vary widely across nations. Among the richest countries, mean wealth was $144,000 per person in the USA and $181,000 in Japan. Lower down among countries with wealth data are India, with per capita assets of $1,100, and Indonesia with $1,400 per capita (See The challenge of Inequality)

Social Watch therefore rightly asks “When will dignity for all be achieved? What is the bare minimum for a decent life for all? The world leaders who signed the Declaration did not define it clearly but its principles are embedded in the commitment to achieve certain targets by 2015. When will we achieve the basic standards of material dignity for the entire world’s people? Not in a hundred years unless we substantially accelerate the current trends of progress in social areas”!

With regard to Sub-Saharan Africa:
•    In food security (child malnutrition and under-nourishment in children younger than 5): 50% of the region registers no progress and at the current pace, the goal would be reached by 2282
•    In women’s reproductive health (births attended by skilled personnel): 32% of the region registers no progress and at the current pace, the goal would be reached by 2130
•    In basic education (adult literacy and primary and secondary school enrolment ratio): 21% of the region registers no progress and at the current pace, the goal would be reached by 2079
•    In child mortality: 41% of the region registers no progress and at the current pace, the goal would be reached by 2155
•    In water and sanitation: 28% of the region registers no progress and at the current pace, the goal would be reached by 2159.

This increasing inequality damages our common humanity, and places all societies in danger. It has an impact on our common understanding of social justice; it also has severe consequences on growth and efficiency and on political legitimacy.

Social justice: The view that there are limits to tolerable deprivation is fundamental to most societies and value systems. All major religions express concerns about equity and place obligations on their adherents to address extreme deprivation as a moral duty. Public ideas reflect wider normative concerns. Surveys show strong opinions in many countries that the gap between rich and poor is too large, thus indicating an underlying perception of social injustice.

Growth and efficiency: Extreme inequality is not just bad for poverty reduction, it is also bad for growth. In the long run, efficiency and greater equity can be complementary. Poor people remain poor partly because they cannot borrow against future earnings to invest in production, the education of their children and assets to reduce their vulnerability. Land insecurity and limited access to justice can create further barriers to investment and pro-poor growth.

Political legitimacy: Extreme inequalities also weaken political legitimacy and corrode institutions. Inequalities in income and human capabilities often reflect inequalities in political power. Poor people (especially women), rural populations and indigenous communities are disadvantaged partly because they have a weak political voice, and vice versa. Where political institutions are seen as perpetuating inequalities or advancing the interests of elites, democracy and stability can be undermined.

The MDGs or more ambitious economic policies needed

We could ask ourselves if the resolution adopted by the General Assembly-2005 World Summit Outcome, “To adopt, by 2006, and implement comprehensive national development strategies to achieve the internationally agreed development goals and objectives, including the Millennium Development Goals (MDGs)” has in fact happened.

Being unrealistic about the MDGs in our public rhetoric and campaigns “runs the risk of creating a climate of inaccurate pessimism about development and aid”, adds Brian Tomlinson.  Indeed, in the absence of radical reforms to foster greater global equality on the part of developed countries, beyond delivering more aid, an exclusive emphasis on MDG targets potentially sets up poor people and poor countries to take the blame once again for “their failure” to achieve the unachievable. Yet again, it will be said that these countries failed to take the advice of the international community and squandered billions of dollars of aid and debt relief without reaching the Goals”.

Commitment to the MDGs is no doubt worthy. However, we need to be wary of allowing them to be used as an excuse for avoiding difficult political issues, and ignoring the very real complexity of human development in its widest understanding. We need to ensure that we maintain a vision of social justice, gender equity, and human development that relates to more than just the MDGs.  To achieve the MDGs, economic policies have to be bolder and more expansionary, advocates Terry Mc Kinley.  Fiscal policies should be focused on substantially scaling up public investment, financial policies geared to channelling considerably more lending to productive private investment and monetary policies reshaped to target not just inflation, but also real economic variables, such as increases in incomes and jobs and meaningful reductions in poverty.

The call for substantially larger Official Development Assistance (ODA) contributions to many developing countries, especially in Africa, necessarily involves making Poverty Reduction Strategy Papers (PRSP) objectives much more ambitious. Such an injection of funds should rapidly scale up public investment in physical and social infrastructure.  A sizeable share should be targeted, upfront, to enlarging ‘absorptive capacity’ - i.e., each country’s ability to effectively disburse these monies for development purposes (Nebie, 2004). Otherwise, national ownership of poverty reduction strategies will be sacrificed in the process.

Growth alone will not be sufficient to eradicate income poverty within a reasonable time-frame of two or three decades. Eradicating poverty requires reducing inequality through direct redistribution. It is not a matter of choosing between labour and transfer strategies, but of recognising them as complementary. As the work of Amartya Sen demonstrates, people-centred development for poverty eradication is ultimately about recognising the rights of the vulnerable in transforming the power relations, as well as affecting the cultural and social interests that sustain inequality. The poor are not objects to be acted upon by development officials who “deliver” the MDGs. The impoverishment  of large numbers of people in the South has been the consequence of complex national and international economic, social and political processes. The challenge of combating poverty therefore is not so much “political will” of donor governments, as it is strengthening the means to address unequal power, capacity, and access to resources for those whose rights are systematically denied - the poor, impoverished women and children, and other marginalised peoples.

Most societies see reducing poverty and addressing inequality and economic injustice as important goals for public policy. Extreme disparities undermine the pursuit of these goals, and limit the rate at which growth can be converted into poverty reduction. Similarly, extreme disparities in health and education reduce the scope of disadvantaged groups to take advantage of opportunities for improving their welfare. The appropriate response is to ensure that inequality and the measures to overcome disparities in life chances figure more prominently in the design of poverty reduction strategies. National income is not a good measure of welfare, because it ignores the distribution of income.

International finances and GDP as public good

More than ever, we have the technology and the financial means to reduce poverty. To do so, civil society must be attentive to:
•    Developing the major agenda of national ownership and capacity development (See the current discussions on the Paris Declaration at betteraid.org)
•    Supporting and disseminating, through our Open Universities the work of alternative economists, and promoting our alternative indices and indicators
•    Supporting the reflection on “Innovative sources of finances”, including taxation of international financial movements
•    Supporting campaigns aimed at corporate transparency
•    Campaigning against tax concessions and for progressive tax policies
•    Working with relevant networks to campaign for the end to banking secrecy and tax havens
•    Advocating for participatory budgeting at all levels and linking all the innovative participatory budgeting experiences being held everywhere (see some Budget Tracking and Poverty Expenditure monitoring tools)