Against nature man can claim no right, but once society is established poverty immediately takes the form of a wrong done to one class by another. The important question of how poverty is to be abolished is one of the most disturbing problems which agitate modem society.--Georg Hegel(1)
POVERTY: THEORY AND POLICY
Poverty, is still growing in the majority of least developed countries (LDCs). Structural adjustment programs have improved macroeconomic management in some countries, but political failures in many LDCs have led to falling per capita incomes, while war and economic collapse have reduced the weakest to near-destitution. Although in some LDCs growth has reduced poverty for many and brought luxury to some, in most others hundreds of millions still lack the security, employment, shelter, health care, education and mobility needed for a decent life. Providing the poor with opportunities for economic security and personal autonomy is surely the most important and difficult goal of development policy and practice.
Development theorists have always had to recognize the distributional implications of their policy and institutional recommendations. The dominant Marxist or neo-Marxist paradigms of the 1960s and 1970s attributed poverty and uneven development to private ownership and competitive markets, and they believed that state intervention could secure redistribution by fostering growth. The command economies tried to eliminate market competition, while structuralist and social democratic systems accepted some of the advantages of private ownership but felt that markets should be treated as servants rather than masters. They allowed the state to control foreign trade and the commanding heights of industry and to provide safety nets to build infant industries, guarantee full employment and universalize welfare services.
Poverty declined during the post-war boom in the most successful of these countries, but these gains were seriously compromised by the financial, fiscal and balance of payments crises that emerged when the boom ended in the 1970s. This restored the credibility of neoclassical economic theory, which linked state control to monopoly power and information overload, and thus to economic inefficiency and oppression. Its primary concern was growth rather than equality, but it also attributed poverty to irrational economic policies and the rents created by state monopolies, rather than private ownership and competitive markets. These views were dominant by the early 1980s and were spread across the globe in the form of the structural adjustment programs (SAPs) forced onto most LDCs by economic crises. This theoretical and policy revolution culminated with the communist collapse in 1989 and the market-driven transformations that followed. Thus, poverty is now addressed in a policy environment that rejects state controls and gives priority to economic efficiency and monetary stability over full employment and welfare rights.
Neoclassical theorists prioritize efficiency and price stability, but they also claim that competitive markets deliver equity as well as growth. They argue that liberalization will reduce the global and national inequalities created by protectionism in developed countries, as well as the rigidities, price distortions and monopoly rents stemming from state intervention in LDCs. They claim that free trade will shift industry from high- to low-wage countries, and that rational prices and free markets will increase the rate of profit and incentive to invest, thus increasing employment and, in the long run, wages. They attribute growth and poverty reduction in formerly poor Asian countries to the export opportunities created by lower global tariffs and to their emphasis on private ownership and market forces.
The World Bank and International Monetary Fund (the International Financial Institutions, or IFIs) are now taking this liberal agenda into the poorest countries, whose welfare depends greatly on their success. …