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"le déséquilibre entre les riches et les pauvres est la plus ancienne et la plus fatale des maladies des républiques"
- Plutarque

Sunday, January 19, 2014

The Poverty of Economics

Although it might come as a surprise, poverty reduction over the past twenty years owes more to the policies of the governments of emerging countries than to western intellectual leadership. Contrary to what we might believe, western economic theory is sadly silent on the subject of poverty alleviation. This at least is the conclusion of a recent study carried out by Martin Ravallion, former research director at the World Bank and economics professor at Georgetown University (The Economist). The study in question, “The Idea of Antipoverty Policy” published in July 2013, should be a wake-up call for the economics profession, at a time when a combination of bad political decisions and adverse economic circumstances have pushed entire western nations to the brink of destitution. According to Professor Ravallion, for more than 200 years leading economists believed poverty to be socially useful. As 18th century economist Bernard de Mandeville explained,
“in a free nation where slaves are not allow’d of, the surest wealth consists in a multitude of laborious poor”.
Economists like Malthus and even Ricardo firmly believed that large numbers of poor people were essential to fostering economic development and that no action should be taken to better their conditions. In truth, no major economist has since focused on a coherent strategy to lift people out of poverty for good.

As a student in 1984, I became interested in the issue of poverty alleviation and in the way the problem had been dealt with by leading economists. To further my research on the matter, I enrolled in a master of economic history programme at the University of Sydney with Stephen Salisbury, a Harvard-trained economist, as my supervisor. In the heyday of greed apologists, the subject was so popular that my seminar paper “Poverty as an Economic Issue” enjoyed an audience of two (one of which was my professor), although in a personal letter my paper was appreciated as important by John Kenneth Galbraith, one of the few economists who happened to care for the plight of the poor in India. Before 1985, not even Martin Ravallion, then of the Australian National University in Canberra, had dealt with the issue of poverty.

The objective of poverty reduction has become trendy only since the 1990’s, when it was conceded that that the existence of widespread poverty adversely affects both investment and innovation. Oddly, this new line of thinking among economists was torpedoed in the west by the policies followed by the leaders of the New Left. The consequence of these policies was the emergence within rich countries like Germany or the US of tens of millions of “working poor”, an outcome that would have made de Mandeville proud …

Today’s economists are dutybound to finally make poverty and its alleviation a core subject of their research and studies. After all, wealth creation and wealth redistribution are but two sides of the same coin. Failing this, their profession is in danger of losing its relevance as a useful social science.

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