Policies Aimed at Raising the Income of the Poor

Text extracted from:

The World Food Problem

Leathers & Foster, 2004

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Poverty and Inequity

• Are poverty and inequity inevitable?

• Must there be an elite?– In U.S. we are an elite

• Traditional values:– Dominate or be dominated

– Work hard to be among the elite• Alternative is terrible

• Is inequity a moral good?– Or morally unacceptable?

• How can inequity be diminished?– To achieve a better life for everyone?Poor

Elite

The Hungry are Poor

• Policies to alleviate poverty:– Redistribute income or

wealth from the rich to the poor

• Progressive taxation

• Land Reform

– Promote general economic growth

Bangladesh Garment Factory

http://news.bbc.co.uk/2/hi/south_asia/3535018.stm

Taxation

• Progressive Taxation– Wealthy pay greater percentage

of income than poor

– Income tax

– Sales tax in developing world• Poor often barter for goods

• Sales taxes come from wealthy

• To redistribute wealth– Governments have to spend tax

money on the poor

Bartering in Zaire outside of the taxable economy

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Inflation due to income elasticity of Demand

• If one rupee taken from top 5% in India– Reduces food demand

by .003 rupees

• If government gives the rupee to the poor in bottom 20%– Increases food demand

by .58 rupees– Therefore inflationary

• Market economy removes some of the benefit

http://www.tribalbazaar.com/merchadise/Pictures/w.8.jpg

India market stall

Tax land use value

• Tax on some large land owners small

• No incentive to farm efficiently

• If tax land use, inefficient farmers will be forced to sell – Land redistributed without

displacing good farmers

http://www.meridianholidays.com/Can_bali_sing_super_holiday.html

Minimum wage laws

• May help the poor– Can be enforced in urban areas

• Results in mass migration to cities in developing countries

• May not help the poor– Wait for a good job can take a

long time– Family undernourished while

waiting for employment– Employers motivated to

substitute captial for labor• Invest in machines• Reduce number of jobs

http://www.globaleye.org.uk/secondary_summer/oncamera/india-factory.html

Clothing Factory, India

Hope for Land Reform

• Credited with helping reconstruction of Japan, Taiwan

• Inequity in land can be extreme– Columbia: 10% of owners

controlled 80% of land (1988)

• Tenant farmers pay 50% to landlord

• If small farmers own land, motivated to– Work long hours– Invest in fences, irrigation– Increase productivity

  

                                          

 

Tenant farmers, India

http://news.bbc.co.uk/2/hi/south_asia/2322387.stm

Problems with land reform

• Socialist elimination of property ownership causes problems– China– Russia

• “Land to the tiller” reforms did not benefit poorest people – Puru

• May reduce investment in agriculture by wealthy– Afraid of losing land

• Policy may be “anti-agricultural” form of urban bias

                                                                                              

                     

Land Reform in South Africa

http://www.thebigquestion.co.za/Default.aspx?tabid=743

Economic Growth

• Private sector must grow to provide jobs– Government projects don’t

create jobs efficiently

• Per capita income in Taiwan:– 1960: $1,200– 1998: $12,000

• Per capita income in Democratic Republic of Congo:– 1960: $489– 1998: $197

http://www.globaleye.org.uk/secondary_summer/oncamera/taiwan-factory.html

How to promote growth

• Recommendations of World Bank and IMF:– High savings leading to

increased capital stock• Good macroeconomic policy

– High labor productivity• Education• Health• Anti-poverty

– Adoption of new technology• Market orientation

http://www.thenoelfoundation.org/pinternational.html

Good Macroeconomic Policy

• Objectives:– Low inflation

• Encourages savings• Keep central Bank out of

political process– More confidence in

savings

– Low budget deficits• Prevents printing more

money and inflation• Reduces borrowing by

governments

– Stable exchange rates• Attract foreign investorshttp://news.bbc.co.uk/2/hi/programmes/from_our_own_correspondent/1874755.stm

McDonald’s in China

Market Orientation

• Promote open and free trade – reduce government

distortion of supply and demand

• Assign and enforce property rights– To increase ownership– Motivates productivity

• Eliminate corruptionhttp://bara.arizona.edu/research/pro-ranching-mexico.htm

Agricultural Development

• Promote growth of the agricultural sector– Increased productivity

• Stimulates economic growth

• Low food prices – allow low wages to be paid in

factories– but workers live well

• Can buy more non-food items

– Stimulates employmenthttp://www.provost.uncc.edu/LatinoInitiative/Photos.htm

Market stall, Mexico

Globalization

• Definition: increasing integration of countries in the world economy– Opening borders– Adopting macroeconomic policies

• in order to get IMF loans

– Adopting market-oriented agricultural and industrial policies

• In order to get IMF loans

– Reducing restriction on foreign investment

– Adopting labor and environmental policies that will attract foreign investment

http://www.uwm.edu/Dept/CIE/Resources/globalization/images/globefull169.gif

http://www.foreignpolicy.com/wwwboard/g-index.php

Criticisms of Globalization• Policies encourage

– Low wages– Poor working conditions– Poor environmental quality

• Fiscal policies imposed by IMF– Reduce health programs– Reduce education– Reduce poverty alleviation programs

• IMF policies are antidemocratic– IMF can countermand decisions by

democratic governments

• Multinational corporations benefit– At expense of ordinary people

http://www.zazona.com/ShameH1B/JobDestructionHumor.htm

http://www.foreignpolicy.com/wwwboard/g-index.php

http://www.foreignpolicy.com/wwwboard/g-index.php

Joseph Stiglitz

• Nobel Prize in economics 2002

• Policies imposed by IMF – don’t take into account special

circumstances of each country

• Private sector solutions – require infrastructure that may

not be there

• Globalization policies– need to be reformed to help poor

countries grow

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