The dogma of economic growth as poverty reduction

One of the main tenets of neoliberal economics is that main purpose of government is to facilitate economic growth, specifically by reducing regulations, marginalizing unions and promoting freer trade. The principle behind this is that economic growth necessarily reduces poverty and raise living standards. The simple analogy commonly used is "A rising tide lifts all boats."

There was a problem with that analogy. If you add water to a lake or a swimming pool, the water level rises in a more or less equal fashion. Government policies from the Great Depression through the 1970s constituted modest attempts, not to completely equalize wealth among all citizens, but to smooth out capitalism's roughest edges. If 'a rising tide lifts all boats' is a result of the laws of physics, progressive governments attempted to have a similiar impact on the laws of economics.

However, the "Reagan Revolution" started to dismantle these policies. President Bill Clinton essentially accepted the basic tenets of these policies, even if he used nicer rhetoric in selling it. When a Democratic president essentially completed the agenda of the most economically and socially regressive president in generations (before the present one), it marked not Clinton's triumph but Reagan's.

The ultimate success of Reagan is not economic, but linguistic. He changed the basic assumptions that had underpinned American society for a half century. Economic growth is now the be all and end all. It is now heretical to suggest that there is any other component than money to that amorphous ideal we call 'quality of life.'

Reagan's linguistic triumph has become so thorough that few bother to examine whether its main premise is actually true in practice. Specifically, does economic growth necessarily reduce poverty and raise living standards?

In 2003, the gap between the rich and poor was the widest for 70 years. Not coincidentally, 70 years before 2003 was the beginning of the New Deal.

This research was not done by some liberal activist group or union-funded organization with an axe to grind. But by the non-partisan Congressional Budget Office.

It showed that that the top 1% of Americans - who earn an average of $862,000 each after tax (or $1.3m before tax) - receive more money than the 110m Americans in the bottom 40% of the income distribution, whose income averages $21,350 each year.

It also noted: The income going to the richest 1% has gone up threefold in real terms in the past twenty years, while the income of the poorest 40% went up by a more modest 11%.

And it's not just the situation in the US that's casting doubt on the 'growth=higher living standards' dogma.

The UK-based New Economics Foundation issued a report that noted that the world's poorest received almost no benefit from economic growth.

They gained only 60 cents for every $100 of growth in the world's income per person between 1990 and 2001, a 73 percent drop from the $2.20 they had gained during the 1980s.

And In Asia, the proportion of income generated by economic growth which contributed to poverty reduction fell to 2.9 percent in 1990-2001 from 10.2 percent in 1981-1990, the NEF said.

It's not coincidental that the positive effect of economic growth on the world's poor was significantly reduced if not eliminated, in the 1990s. It was during that decade that the International Monetary Fund really pushed Asian, Latin American and African countries to blindly and hastily implement neoliberal economics, known as structural adjustment policies. These policies forced governments to pretty much privatize everything, open up their industries to foreign investment (or exploitation, depending on your perspective). Governments, who wanted IMF money, obliged. The US and Britain also used their foreign and aid policies to pressure governments to the same ends.

With the markets forcibly opened, multinational corporations, in turn, pressured governments to weaken environmental and worker safety laws and to either smash unions or change laws to allow the multinationals to do it themselves.

Many governments who who followed the IMF's diktats were thrown out of office, especially in populist Latin America. Latin America and Asia suffered a serious economic crash in the late 90s, after those policies were implemented. Structural adjustment was hardly a pancea to African countries either, even though they were touted as key to the continent's revival. In fact, some argue that the policies had a particularly devastating effect on African women.

The group also pointed out the effect of climate change on the poorest. This can be seen many once fertile African countries which now suffer drought and thus hunger emergencies due to vanishing or erratic rains.

The report said relying on growth to lift the poorest out of poverty was economically and environmentally inefficient.

Until I looked at the report, I was not completely aware of just how economically efficient this quest for growth at all costs was, but I knew how environmentally devastating it was. From the rape of the Niger Delta by oil companies, to the destruction of Liberia's environment to fund the former (one hopes) warring parties, to the vanishing oil money in Congo-Brazzaville and many other countries, the quest for unrestrained economic growth at any costs has caused unquantifiable devastation with limited benefit to ordinary people.