There has been a considerable amount of noise about the new directions for international development under the coalition government – not least the keenness it has shown in ringfencing the GDP aid target as part of keeping up its ethical and progressive image, and the enthusiasm it has seemingly shown in pushing for fairer trade practices within the context of the Doha round of negotiations. Last night, in a policy-focused speech to a packed Sheikh Zayed Theatre at the LSE, the new Minister for International Development, Andrew Mitchell, laid out his vision for poverty reduction through mechanisms of growth and wealth creation, which would be driven through the encouragement of the private sector in the context of pursuing the Millennium Development Goals. This policy would be centred around a re-orientation towards private-sector driven growth and enterprise, through which the poorest in developing countries could ‘lift themselves out of poverty’.
He began, as many speeches do at the LSE, with an aphorism attributed to George Bernard Shaw: “The greatest of evils and worst of crimes is poverty”, a phrase dripping with urgent moral responsibility and irreproachable purpose, before going on to promise that the new government’s international development strategy would be ‘non-ideological’ and committed to ‘what works’ in poverty reduction. It is a very great shame, however, that he did not begin with some basic definitions of poverty, since this would have clearly exposed the intellectual, and ultimately political, black hole at the centre of a poverty reduction strategy based primarily on growth.
Put very, very simply it is this: Poverty, if it means anything at all, is by definition a relational concept¸ defined in terms of relative purchasing power within an economy. This, in a very general sense, is a function of income, i.e. how much money you have, and price, i.e. how much stuff costs in the marketplace. Prices reflect the basic interaction of demand, i.e. what people are willing and able to pay for things, and supply, what things cost to produce. The key element here is about the relationship between incomes and prices as defining relative purchasing power in the economy.
Many of the critiques of contemporary poverty reduction strategies, from the groves of academe to the streets of African capitals highlight exactly this critical point – increases in income mean nothing if the prices of the goods you need increase disproportionately to this. This is most critical around the issue of food prices, but also relates to questions of fuel, housing, transport and education. When there is economic growth in terms of GDP that is not equitably distributed, the relative purchasing power of the poorest falls in real terms.
For example, the recent troubles that Mozambique has been experiencing around the impact of rising food prices must be set in the context of its own strategy for growth which has prioritised the production of biofuels for export. Whilst the effect on the economy may show an increased value of goods produced, and thus higher GDP figures, the net effect has been an increase in poverty because the relative ability of the poor to purchase food has decreased. This is in part because the gains from biofuel production are unequally shared, meaning that the rise in food prices caused by decreased supply is not offset by a broad-based increase in income levels, i.e. purchasing power.
Occupying a central position in the assumptions around this debate is the example of China as a model for poverty reduction through economic growth. The Minister related with enthusiasm that China had managed to lift more than 400 million out of poverty over the last two decades, and enthused that this had come about through their engagement with the global economy. Yet, this claim is rendered vacuous by the World Bank’s own research on the causes of poverty reduction in China, which demonstrate that growth alone did not reduce poverty, and that external trade had little immediate impact; rather policies which actively attempted to reduce inequalities through local government spending were key in reducing rural poverty, which accounts for the majority of poverty reduction.
The new poverty reduction policy ruthlessly ignores, however, of all of the many years of detailed research that have been spent on defining and understanding what poverty is and how it works, and how recent ‘successes’ in poverty reduction have been achieved. The answer to the problem of global poverty for this government is through the exciting innovations of the private sector – mobile phone banking, the private provision of maternity hospitals in India, the involvement of non-governmental organisations in public service provision. The main premise is that private sector growth creates jobs through which people ‘can lift themselves out of poverty’ and not rely on hand-outs [because, of course, when you have any sort of job, you are not poor].* Yet, if we look again at the definition of poverty as a relational concept, the generation of economic growth is simply no effective strategy of poverty reduction unless the relative incomes and purchasing power of the poorest are improved.
At last night’s lecture, after a few captains of industry in the front rows wrestled to congratulate the Minister on this new policy direction, I was fortunate enough through some determined hand-waving to put this question to him: if the basic definition of poverty is about improving the relative purchasing power of the poor, why is it that your policy to reduce poverty does not address the distribution of incomes within or between countries?
The Minister, unsurprisingly, simply dodged the question of the logical fallacy, returning instead to his report of having been in a village in Ethiopia, where a family had, as a result of the Millennium Development Goals activism by ActionAid and others, been able to send children to school, access electricity and so forth. Nonetheless, according to our caring Minister, they remained ‘grindingly poor’ and would do so until able to lift themselves out of poverty in the context of a free and fair market.
If Shaw was right to say that the worst of evils and greatest of crimes is poverty, this government’s deliberate attempt to avoid dealing with its logical requirements whilst claiming the momentum of its moral purpose in the name of our international ethical commitments cannot be too far behind.
* A whole new absurd level of irony was reached immediately afterwards in the Minister’s trenchant critique of the previous activities of the Commonwealth Development Corporation, who had apparently been too focused on profits, remuneration and low-risk returns to invest in projects with real developmental impact on the poor, such as transport and infrastructure. As a member of the audience pointed out, this was somewhat confusing given that he had spent the previous fifteen minutes extolling the virtues of the private sector as the only source of ultimately sustainable development.