The economics of poverty

A year-end reflection

By: Mel Watkins

  In the name of fighting the excessive sentimentalism that masks the excessive commercialism of these days, I've put on my economist's cap and sat down to write on the economics of poverty.
  I must begin by saying something about the poverty of economics. The discourse of my profession, now so widely used by the rich and the powerful, is a central part of the problem of dealing with poverty - and so many other of the bad things of this world.
  Economics teaches one to be hard-headed and that is good, but it does not require one to be hard-hearted, though that is too often the result of sustained contact with the subject.
  Fundamental to orthodox economics, and among its fatal flaws, are its preoccupation with behaviouralism, its emphasis on behavioural modification through incentives, its relentless insistence on the centrality of choice.
  But people do not choose to be poor; rather they are poor because they have no choice.
 

People will look back on our current income gap between wealthy and poor countries and ask how it could ever have been allowed to exist - just the way we look back on slavery

  Being poor, they cannot afford to be serious consumers. They are excluded from the most sanctified role in our society, something we are particularly aware of at this time of year. They are condemned at best - in that ancient imagery - to press their faces against the windows cluttered with goods; at worst, literally to sit on the sidewalk with their backs to the window, begging bowl outstretched.
  We have made, in a very basic sense, slight progress since Dickens. It remains the best of time - but only for the few - and the worst of time for - from any global perspective - the many.
  The political right actually believes that providing decent sustenance for the unemployed and the unemployable would wipe out the incentive to work rather than wipe out poverty. One is reminded of the trenchant remark by the immortal John Kenneth Galbraith that it is passing strange that the rich must be paid more to make them perform better while the poor must be paid less to bring them up to par. You have to be stupidly rich to truly believe such self-serving nonsense.
  In what passes these days for serious discussions of economic growth, less is made of tax incentives that so enthrall the right and more is made of the fact that we live in a knowledge-based economy. (We always have actually; the Industrial Revolution was based on great inventions that were certainly knowledge-expanding, but I digress.) Neglecting the poor and letting children live in poverty, even in hunger, is bad for both the body and the mind and is inconsistent with the achievement of a first-best knowledge-based economy and certainly with one that is egalitarian and morally grounded.
  As we underfund higher education and throw the burden on to students and their parents we lessen access to colleges and universities of those from low-income families and reproduce poverty. It is harder today for a student from a low-income background to go to university than it was when I was a student fifty years ago. This is a damning indictment of our society.
  And, of course, whatever the maldistribution of income within countries, it is worse by another order of magnitude between countries. Many years ago the great Swedish economist and social democrat Gunnar Myrdal argued that the very notion of the contemporary nation-state as a community hinged on the redistribution of income that took place within it, on the existence of the welfare-state and of social citizenship
  Myrdal then went on to insist that a global community would exist when a redistribution of income likewise took place at the global level. That was the powerful rationale for foreign aid but it has mostly been ignored. Instead we have built globalization without a global community in Myrdal's sense and we are uncertain whether globalization so built can survive or should survive.
  I heard someone remark the other day that when we look back now on slavery we are inclined to wonder how it could ever have been allowed to exist, and went on to wonder what people in the future would likewise find incomprehensible about our time. Any short list would have to include the existence of extreme poverty within rich countries and the pervasiveness of poverty globally.
  I've been around a while, long enough to have written on this very topic in 1966, under the title "Poverty: What Should Be Done". Obviously it wasn't done and we are still having to think about this.
  Telling you I did all this in the last century risks making the very exercise I'm engaged in seem hopeless but that is not at all the message I wish to convey. Karl Marx (if I am allowed to write his name; think of him as the oldest of the Marx brothers) got one thing right, namely, that left to its own market devices, income distribution under capitalism does not only not get better over time, it gets worse.
  The struggle to redistribute is essential and never ending, but it is also successful, albeit within limits. Linda McQuaig recently reminded us that the market distribution of income is such that the top 20% get 27 times the income of the bottom 20%. When we allow for taxes and social transfers (actually, mostly the latter: pensions, unemployment insurance and such like) the gap narrows to the top group getting 8.5 times what the bottom group gets. Add in the financial benefit of public services, like health care and education, and the top is only 3.9 times the bottom. McQuaig's conclusion: "In fact, Canada's tax and social welfare systems have a huge impact on redistributing resources."
  How did this come to pass? Not, you can be certain, at the insistence of the rich and the powerful. Rather by the non-market behaviour AKA class struggle by shit disturbers who argued and whined and raged and guilted and shamed and put those "systems" in place.
  McQuaig goes on to say that in the recent federal election "We voted essentially to move back closer to the market distribution of income." Would that were not so. But it is, so the struggle must continue, with the knowledge that it will bear some fruit.
  And what did I say in 1966 should be done? That the problem of poverty was so deeply a part of capitalism that it could only be countered if governments, in every policy they pursued, gave a priority to its implications for lessening poverty. There is no grand solution. (I was already a postmodernist!) There is a myriad of ways all of which must be pursued.
  What must not be forgotten, then, is that income can be redistributed in a good way. I ask you: Is there anything we can do with our time that is more useful than trying to make that happen?

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