From poverty to power - Oxfam-Québec
From poverty to power - Oxfam-Québec From poverty to power - Oxfam-Québec
3 POVERTY AND WEALTH A TWENTY-FIRST CENTURY ECONOMICSorganise, they can use their increased scale and bargaining power toreduce costs, negotiate better prices or wages, and expand their sales.When they are organised, people can also convince authorities toalter the structure and rules governing markets to ensure that they geta fair deal. To marshal the power of markets to meet the grand challengesof this century will require action by both states and citizens,and a new approach to the main tool used to understand markets: economics.Time is short: the global economy needs to move rapidly to a‘smart’ course of pro-poor, sustainable growth, or else climate changeand natural resource constraints will become increasingly disruptive,undermining growth and exacerbating poverty and inequality.ECONOMICSEconomics is a broad but divided discipline, comprising dozens ofschools of thought covering almost every aspect of human existenceand spanning the political and philosophical spectrum. However, thisrich diversity of analysis and insight is seldom visible in the economicdebates at the centres of power.For much of the twentieth century, two such schools, the neoclassicaland the Keynesian, battled for intellectual supremacy and forthe ear of decision-makers. In recent decades, the neoclassical schoolhas been in the ascendant. Within the neoclassical school, there havebeen many thoughtful efforts to engage with the deep nuance andcomplexity of development, but in practice, economic policy makingis often dominated by a much cruder, ‘dumbed-down’ version thatargues for simplistic solutions to complex problems (liberalise, privatise,avoid a fiscal deficit at all costs). While some economists undoubtedlypander to this need for simple messages, others squirm. TheInternational Monetary Fund’s disastrous response to the Asianfinancial crisis of the late 1990s drove an exasperated Joseph Stiglitz(Nobel laureate turned World Bank chief economist) to lament the‘third-rank students from first-rate universities’ who were runningthe Fund. 2The dominance of this version of the neoclassical school rests notsolely on the frequently inquisitorial attitude it takes toward otherapproaches, but also on the simple, compelling, yet deeply flawed109
FROM POVERTY TO POWERpicture it offers of the world: that of people and institutions asindividual actors relentlessly pursuing their own self-interest.Assuming human society to consist of atomistic, utility-maximisingindividuals with fixed preferences enables neoclassical economists todevelop the complex mathematical models that give their disciplinethe appearance of an ‘objective’ science. Such models in turn allowpolicy makers to make predictions – implement policy Y and theeconomy should grow by X – which then justify the allocation ofscarce resources, although economists themselves often place heavyhealth warnings on any effort to predict the future.The assumptions behind these models often ignore the complexitiesof real life, in which attitudes, beliefs, and social and political relationsinfluence behaviour as much as does individual self-interest. 3 Marketsare often assumed to be natural, when in fact they are governed bydetailed rules on contracts, access to credit, competition, collectivebargaining,and so on.Such rules are not arrived at in a political vacuum:they reflect the relative strength of those involved in, or excludedfrom, negotiating them. Prevailing attitudes about the value of particularwork are also fundamental, and are often unquestioned byconventional economic thinking.By making income a proxy for utility (or happiness), the neoclassicalapproach views development primarily as being about generatingrising incomes, and sheds little light on how markets can achievedevelopment in the broader sense, based on rights and dignity. 4 Evenwithin the realm of income, the conventional view focuses on absoluterather than relative incomes, either at a national or individual level,thus often downplaying issues of equity. 5 In this view of the world,poverty reduction takes place as a spin-off of wider economic growthand redistribution, as an afterthought rather than as a central tenet ofeconomic policy making.Two essential shortcomings of the use of mainstream economicsin development are, first, its failure to measure and value unpaid workin the home, rearing children or caring for the sick and elderly; andsecond, its tendency to downplay environmental degradation. Bothfailings spring from a reluctance to engage with the non-monetaryeconomy, and both must be remedied if policies are to achieve environmentaland social sustainability.110
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3 POVERTY AND WEALTH A TWENTY-FIRST CENTURY ECONOMICSorganise, they can use their increased scale and bargaining <strong>power</strong> <strong>to</strong>reduce costs, negotiate better prices or wages, and expand their sales.When they are organised, people can also convince authorities <strong>to</strong>alter the structure and rules governing markets <strong>to</strong> ensure that they geta fair deal. To marshal the <strong>power</strong> of markets <strong>to</strong> meet the grand challengesof this century will require action by both states and citizens,and a new approach <strong>to</strong> the main <strong>to</strong>ol used <strong>to</strong> understand markets: economics.Time is short: the global economy needs <strong>to</strong> move rapidly <strong>to</strong> a‘smart’ course of pro-poor, sustainable growth, or else climate changeand natural resource constraints will become increasingly disruptive,undermining growth and exacerbating <strong>poverty</strong> and inequality.ECONOMICSEconomics is a broad but divided discipline, comprising dozens ofschools of thought covering almost every aspect of human existenceand spanning the political and philosophical spectrum. However, thisrich diversity of analysis and insight is seldom visible in the economicdebates at the centres of <strong>power</strong>.For much of the twentieth century, two such schools, the neoclassicaland the Keynesian, battled for intellectual supremacy and forthe ear of decision-makers. In recent decades, the neoclassical schoolhas been in the ascendant. Within the neoclassical school, there havebeen many thoughtful efforts <strong>to</strong> engage with the deep nuance andcomplexity of development, but in practice, economic policy makingis often dominated by a much cruder, ‘dumbed-down’ version thatargues for simplistic solutions <strong>to</strong> complex problems (liberalise, privatise,avoid a fiscal deficit at all costs). While some economists undoubtedlypander <strong>to</strong> this need for simple messages, others squirm. TheInternational Monetary Fund’s disastrous response <strong>to</strong> the Asianfinancial crisis of the late 1990s drove an exasperated Joseph Stiglitz(Nobel laureate turned World Bank chief economist) <strong>to</strong> lament the‘third-rank students from first-rate universities’ who were runningthe Fund. 2The dominance of this version of the neoclassical school rests notsolely on the frequently inquisi<strong>to</strong>rial attitude it takes <strong>to</strong>ward otherapproaches, but also on the simple, compelling, yet deeply flawed109
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