August 1, 2012

Economic Growth Alone will Not Eradicate Poverty

In a recent piece from the Fraser Institute, Mark Milke states that we do not have to accept poverty as an inevitable part of life.  He points out that economic growth has done wonders for poverty eradication throughout the world over the past 200 years.  Through reliance on innovation, free trade and resource exploitation, the living standards of billions of people have lifted far above subsistence.  As a result we have healthier, happier and live longer.

He is not wrong.  In developing nations, economic growth is an important tool for poverty reduction.  Innovation and access to markets have done wonders for the standards of living of all of us.  There is much evidence, however, that in wealthy nations, it is no longer enough to rely on economic growth to produce increased well-being,either for the rich or for the poor.

Research from the equality trust indicates that, in wealthy countries, there is no relationship between increased growth and increases in overall well-being.  Instead increases in well-being come from being more connected to our communities; from treating all people with dignity and respect and recognizing the contributions we all make to our communities.

The Resolution Foundation, an independent organization which conducts research into the lives of low to middle income people in the UK, reports that people at the low to middle portion of the income distribution are no longer gaining anything from economic growth.

This is true for many leading economies including Germany, the US, the UK and Canada.  In fact, people are working harder and producing more, without any gains to their income, which means they are not receiving any monetary gains from economic growth.  Nor are they gaining from the increased time they spend working and contributing to economic growth. 

The growth Milke is talking about took place over the course of 300 years!  In today’s world, expecting economic growth alone to reduce poverty is unhelpful and unrealistic.  In Canada, growth has slowed and millions of people are living on less than they did 20 years ago.  More and more people are relying on food banks and shelters, on charity and on a declining social safety net to meet their basic needs—and this after 200 years of unprecedented economic growth.  This is not because people have gotten lazier and stopped working hard for the money they earn or to find the job that suits their skills and needs, but is the result of growing inequality where the benefits of economic growth disproportionately reward the contributions of capital over the contributions of labour in the process of wealth creation.

The worst part is that growing inequality will result in all of us being worse off.  Societies with higher inequality, whether they are wealthy or developing, tend to have higher levels of mental illness, higher levels of crime and lower levels of trust.  And so, we must be intentional about poverty reduction, even during times of economic growth, to ensure a higher quality of life for everyone in our society.    

 A blind push for economic growth without intentional attention to how that growth is actually benefiting everyone in our society is not the answer to poverty eradication.  We must ensure that all contributions to society, whether they come from janitors, executives, volunteers, stay-at-home care-givers, people with disabilities or those who have been convicted of a crime, are rewarded for the contributions we all make to our society.

Milke is right, we do not have to accept poverty as a normal part of life.  We must, however, make intentional efforts to eradicate poverty and to ensure that the benefits of previous and future economic growth are benefiting everyone.

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