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We can’t grow our way out of poverty

Poverty
Economy
Illustration by Pete Reynolds

Everything is about to change in the field of international development.

In 2018, the UN’s Intergovernmental Panel on Climate Change (IPCC) grabbed the world’s attention with its report stating that to avert dangerous climate breakdown we need to cut global emissions in half by 2030 and reach zero by 2050. It would be difficult to overstate how dramatic this trajectory is; the challenge is staggering in its scale.

We know it’s possible to accomplish rapid emissions reductions with co-ordinated government policy action, ratcheting down fossil fuels and rolling out renewable energy infrastructure. But there’s a problem. IPCC scientists have made it clear that it’s not feasible to transition quickly enough to stay within the carbon budget if we continue to grow the global economy at existing rates.

More growth means more energy demand, and more energy demand makes it all the more difficult to create enough renewable capacity to meet it.

Think about it this way. With business-as-usual growth, the global economy is set to roughly triple in size by the middle of the century – that’s three times more extraction, production and consumption than at present, all of which will suck up nearly three times as much energy. It will be unimaginably difficult for us to decarbonize the existing global economy; impossible to do it three times over in the short time we have left.

If we want to have any chance of meeting our climate goals, we cannot continue to pursue aggregate global economic growth. That might sound wild, but there is a striking consensus forming around this conclusion. In 2018, 238 scientists articulated this argument in an open letter to the European Commission.

The following year, a further 11,000 scientists published similar claims in the journal BioScience, capturing headlines around the world.

We could end poverty at a stroke and still leave the richest with average annual incomes of nearly $180,000 per year – more than anyone could ever reasonably need

Difficult questions

All of this opens up difficult questions about our prospects for ending poverty in the 21st century. Because here too, the scale of the problem is breathtaking – much worse than conventional narratives would have us believe. We’re used to thinking about poverty according to the usual $1.90 per day poverty line (as used by the World Bank and the United Nations). About 897 million people live on less than this amount; roughly 13 per cent of the world’s population.

But, remarkably for a metric that has become so normalized in public discourse, the $1.90 per day line has no empirical grounding in terms of actual human needs. It is arbitrary and meaningless as a measure of deprivation. Over and over again, studies find that $1.90 is inadequate to cover even the minimal requirements for decent nutrition, to say nothing of basic needs like housing, healthcare and transportation.

In fact, even the World Bank itself warns against using this measure to inform policy.

Researchers who study poverty insist that people need at least $7.40 per day to achieve good nutrition and normal human life expectancy. When we use this more empirically meaningful metric, the story changes completely: World Bank data shows that more than 4.2 billion people live on less than this amount. That’s nearly 55 per cent of the human population.

Faced with the scale of this problem, the orthodox response is to double down on the call for growth. Indeed, the goal of ending poverty has come to be the single greatest defence for growth-at-all-cost thinking, with economists insisting that we have a moral imperative to do everything we can to clear the way for capital.

This approach is wildly out of step with our planet’s ecology. A study by the economist David Woodward in the journal World Economic Review found that, given the prevailing distribution of new income from growth, it will take no less than 200 years to bring everyone in the world above the poverty line.4 And to get there we will need to grow the global GDP to 175 times its present size.

That’s 175 times more extraction, production and consumption than we’re already doing. It is horrifying to contemplate. As Woodward puts it: ‘There is simply no way this can be achieved without triggering truly catastrophic climate change – which, apart from anything else, would obliterate any potential gains from poverty reduction.’

We have options

How can we hope to respond to the crisis of global poverty at a time when aggregate growth is no longer an option? Do we just sacrifice the poor for the sake of the planet, as the rising tide of eco-fascists is so eager for us do?

Fortunately, there is another way. We can end poverty, right now, without any additional aggregate economic growth at all. The key here is to recognize that we don’t live in a poor world. On the contrary, we live in an incredibly rich world. Global poverty is a product not of any actual scarcity, but rather of the systematic creation of artificial scarcity.

This becomes clear when we approach the problem of poverty through the lens of inequality. The poorest 60 per cent of humanity contribute the vast majority of the labour and resources that go into the global economy. They are tightly integrated into the circuits of international capital accumulation. And yet in return they receive only about five per cent of total global income. Meanwhile, the richest one per cent alone capture some $19 trillion every year, nearly a quarter of global GDP.

To put that in perspective, the income of the richest one per cent, according to World Bank GDP figures, adds up to more than the GDP of the ‘poorest’ 169 countries combined – a list that includes Norway, Sweden, Switzerland, Argentina, all of the Middle East and the entire continent of Africa. The disparities are truly breathtaking.

Based on calculations from the World Bank’s PovcalNet database, to bring everyone in the world above the poverty line of $7.40 per day would require about $6 trillion. That’s a significant sum, on the face of it. But notice that it’s only one third of the annual income of the richest one per cent. By shifting even just this portion of excess income from the richest one per cent to the poorest 4.2 billion people, we could end poverty at a stroke and still leave the richest with average annual incomes of nearly $180,000 per year – more than anyone could ever reasonably need.

Poverty isn’t natural or inevitable. It is an artifact of the very same policies that have been designed to syphon the lion’s share of global income into the pockets of the rich. Poverty is, at base, a problem of distribution.

One conceptually easy way to fix this would be to use direct cash transfers – a kind of basic income for the global poor – funded by a tax on the incomes of the world’s richest, or on accumulated wealth, or on financial transactions, resource extraction, or carbon emissions. None of this would be particularly difficult to implement, and there are a number of credible proposals for how to do it.

Of course, this approach wouldn’t solve the underlying inequities that are generated by the global economy in the first place. For that we would need a more structural approach – we would need to change the rules of the economy to make it fundamentally fairer for the world’s majority, allowing them to claim an equitable share of the income they produce.

What might that look like? Probably the most impactful intervention would be to set a floor on international wages. Researchers estimate that workers in the Global South lose anywhere between $2 trillion and $4 trillion in underpaid wages each year, compared to the value of the labour they contribute to international trade. A global minimum wage, pegged to each country’s median income so as not to disrupt existing patterns of comparative advantage, would go a long way toward redressing this imbalance.

We could do something about illicit financial flows, too. Some $1 trillion is stolen out of Global South countries each year and stashed in offshore secrecy jurisdictions, mostly by transnational corporations seeking to evade taxes. This system could be shut down in no time at all with a few simple laws related to cross-border trade and corporate accounting. Restoring that money to the countries from which it was extracted would make a significant dent in global poverty.

Perhaps most importantly, we could democratize the institutions of global economic governance – the World Bank, the International Monetary Fund and the World Trade Organization – to give poor countries greater voice in the decisions that affect them, and greater control over their own economic policy. The UN estimates that fairer trade rules could allow poor countries to earn well over $1 trillion in additional export revenues each year.

There are any number of other interventions we might consider. We could cancel the odious debts that force so many Global South countries to render endless tribute to big international banks; we could put an end to corporate land grabs; we could loosen patent lock-downs on essential medicines and technologies; we could reform the subsidy regimes that give rich countries an unfair advantage in agricultural trade.

All of these changes would enable the South to capture a greater share of existing global GDP, shifting income from the very richest to the world’s majority.

Face up to change

Henry Wallich, a former member of the US Federal Reserve Board, once pointed out that ‘Growth is a substitute for equality of income.’ And it’s true: it’s politically easier to rev up the GDP and hope some of it trickles down to the poor than it is to distribute existing income more fairly.

But we can flip Wallich’s logic around: if growth is a substitute for equality, then equality can be a substitute for growth. We live on an abundant planet and have an economy that produces more than enough for all of us. If we can find ways to share what we already have more fairly, we won’t need to plunder the Earth for more. Justice is the antidote to the ecological madness of the growth imperative.

Of course, none of this will be easy. It will require an enormous struggle against those who benefit so prodigiously from the status quo. But that’s a good thing. Those who care about global poverty have for too long ceded their political imagination – and their political agency – to the lazy calculus of growth.

As a result, the battle against global poverty has become apolitical in the extreme, which is precisely why it has failed for so many decades to deliver meaningful results. The climate emergency changes this. It forces us for the first time to face up to the brutal inequities of the global economy. It forces us into the zone of political contestation. It forces, at last, a reckoning.

New Internationalist issue 524 magazine cover This article is from the March-April 2020 issue of New Internationalist.
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