Part 3, Chapter 8 Growth, Inequality and Poverty

Transcript:Part 3, Chapter 8 Growth, Inequality and Poverty:
Part 3, Chapter 8 Growth, Inequality and Poverty Martin Ravallion Georgetown University course ECON 156: Poverty and Inequality Lecture notes to accompany Ravallion’s The Economics of Poverty 2 We have seen a huge increase in aggregate output World GDP started to rise more quickly from early C18th 3 Source: Angus Madison; Nice graphical analysis by Max Roser found here. 4 The questions for this segment: Have poor people participated in this growth? Has inequality risen or fallen? Recall that the Classical Economists were pessimistic about “growth with equity” Prominent early Classical economists, such as Malthus and Ricardo, were decidedly pessimistic on the prospects for even reducing poverty, suggesting that they anticipated rising inequality from a growing capitalist economy. The socialist movement that emerged toward the middle of the 19th century shared the same view, but took it to be a damning criticism of capitalism. This pessimism about the scope for pro-poor growth continues today. 5 The debate continued in the C20th In America, during the Second Poverty Enlightenment, J.K. Galbraith and Robert Lampman (prominent advisor to the War on Poverty) had very different views on the scope for poverty reducing growth: Lampman: post WW2 growth had reduced poverty and this would continue (helped by better social policies) Galbraith: poverty was now concentrated among sub-groups that would not be able to participate much in future growth. Redistribution is essential. 6 Conflicting views on growth and poverty “There is plenty of evidence that current patterns of growth and globalization are widening income disparities and hence acting as a brake on poverty reduction.” (Justin Forsyth, Oxfam UK.) “Globalization policies have contributed to increased poverty, increased inequality between and within nations.” (International Forum for Globalization.) “…one cannot predict with any confidence that economic growth will translate into reductions in poverty.” (Jeff Shantz) “It is in the nature of ‘development’ not only to make an overabundance of goods available to consumers but also to produce inequality and exclusion. All the texts on ‘development’ are unanimous in concluding that the gap between North and South (but also between rich and poor in each) is continually widening.” (Gilbert Rist) 7 Conflicting views cont., “Growth really does help the poor: in fact it raises their incomes by about as much as it raises the incomes of everybody else. Globalization raises incomes, and the poor participate fully.” (The Economist, based on Dollar and Kraay, ‘Growth is Good for the