REBUILDING
GLOBAL ECONOMY
By Kazi Anwarul Masud (former Secretary and ambassador)
Professor Sherry Berman in a critique of Jeffrey Sachs’ End of Poverty and Cambridge University Professor Gareth Jones’ An End to Poverty remarked that from time immemorial human beings have lived at or near the subsistence level and poverty was therefore inevitable and natural but so was the responsibility of the society to ameliorate the situation. This reinforces the belief of Scottish philosopher Robert Owen that it was necessary for a large part of the society to live in poverty so that the other part could continue to enjoy the wealth and privileges that it had customarily enjoyed. The advent of Marxism and the end of feudalism refuted the premise that some men are born more equal than the others and insisted that societal wealth must be distributed among the people so that the basic needs of all can be met. Jeffrey Sachs is confident that poverty can be eliminated because if a portion of the vast material wealth possessed by the developed countries can be made available to developing countries. While theoretically this may be true in practice it has been found that the developed countries are yet to give 0.7% of the GDP they had promised to give to the developing countries decades back. Gareth Jones thinks that if the existential gap between the promise and delivery by the developed world is eliminated then a sort of equity can be brought about in the global economy.
Economic historian Karl Polyani’s demand of “the right to live” and Amartya Sen.’s thesis that development is a fundamental right are not given due credence if one were to look at the final statement of the Fifth World Water Forum issued at Istanbul where more than 100 countries could not be unanimous whether to use the phrase that water is a “basic human need” or a “basic human right”. About 20 countries including Bangladesh had to issue a separate statement. This intra and inter-world conflicts belie the basic fact, as written by Adam Smith in his Wealth of Nations, that “no society can surely be flourishing and happy, of which a far greater part of the members are poor and miserable. It but equity, besides, that they who fed, clothe and lodge the whole body of people, should have such a share of the produce of their own labor as to be themselves tolerably well fed, clothed and lodged”.
In case of the US, Nobel laureate Paul Krugman lamented that the fruits of growth has been remarkably small for most Americans-people are perhaps materially better off than they were before but nearly not as much as they should have been given the extent of more productive US economy. By the end of the World War II US had become a middle class society with a much more equal society but by 1970s US had become a pre-tax and transfer society with an inequality comparable to what had existed at the time of 1929 crash. CEOs and High School teachers who had almost the same number of years of formal education have vast disparity in income. The ability of the bottom 80% of the population to get a better share of the pie would have to take the US to a more egalitarian society. Nobel laureate Joseph Stiglitz saw the US growth having powerful demonstration effect in the sense that growth not only increased supply but also peoples’ aspirations. Stiglitz, however, cautioned that “market economy did not automatically guarantee growth, social justice, or even economic efficiency; achieving those ends requires that government play an important role” and consequently advocated for “moral growth”. While conventional wisdom states that democracy being more accountable to the masses should have more possibility to reduce poverty, both Milton Friedman and Joseph Stiglitz are skeptical that democracy can be sustained in poor countries unless these countries achieve rapid growth. This accords with the views expressed by Stanford University Professor Larry Diamond that the Third World is witnessing a democracy recession due to serious problems of governance with pockets of dissatisfaction, and unless income inequality is reduced, freedom is guaranteed, and economic growth is generated many of the struggling democracies would eventually lean towards authoritarianism. Political theorist Benjamin Barber termed the Western style of capitalism as “infantilisation”: money is made to satisfy infantile desires that in an orderly society would be seen as childish exuberance for extravagance. Barber’s criticism rests on his argument that while early capitalism encouraged virtues with the working men’s “robust motion of agency and spirited grittiness” while the decay that spells later day capitalism suffers from a paradox “the needy are without income and the well heeled are without needs”. According to analysts the people trapped in the culture of poverty have a strong feeling of marginality, helplessness, dependency, and the feeling of alienation within one’s own society. Closely associated with the concept of culture of poverty is cycle of poverty also known as “development trap” denoting low income, poor education, poor housing and poor health. Since these disadvantages work in a circular fashion it becomes difficult to break out of this cycle. Francis Fukuyama thinks that basically four conditions have to exist to facilitate democratic transition:- (a) the level of development, (b) culture, (c) neighborhood effect, and (d) ideas. Virtually all industrialized economies are functioning democracies while relatively very few poor countries are democracies. There are of course exceptions. It is true that barring exceptions virtually all industrialized countries are functioning democracies. Indeed once a country attains per capita GDP of US dollars six thousand it transforms itself from an agricultural society to an industrialized one and the country attains sustainable democracy. Empirically it has been found that not a single country which became democracy ever reverted back to authoritarianism. Perhaps because of the growth of the middle class owning private property makes them a of Ideology strong stake holder in the sustenance of democracy. Harvard University Professor Daniel Bell in his End of Ideology wrote: “The ideologist--Communist, existentialist, religionist-- wants to live at some extreme, and criticizes the ordinary man for failing to live at the level of grandeur. One can try to do so if there is the genuine possibility that the next moment could be actually, a "transforming moment" when salvation or revolution or genuine passion could be achieved. Max Weber in a poignant essay entitled "Politics as a Vocation," posed the problem as one of accepting the "ethics of responsibility" or the "ethics of ultimate ends." For the latter--the "true believer” all sacrifices, all means, are acceptable for the achievement of one's belief. But for those who take on responsibility, who forgo the sin of pride, of assuming they know how life should be ordered or how the blueprint of the new society should read, one's role can be only to reject all absolutes and accept pragmatic compromise.” In gist, the state must ensure that the system and services needed for a market economy to function efficiently exist. Importantly the legal system embodying the commercial and corporate law must exist. The state must also ensure an environment of competition which both Adam Smith and Karl Marx agreed that capitalists naturally do not want competition and try to avoid it. The basic infrastructure and social services must also be provided by the state. In the final analysis there is no unique constellation of conditions that would require the state to play its role which would vary according to the stage of development an economy is already in. This strand of argument was further confirmed by Harvard University Professor David Scott as follows: - “Economic development requires the transformation of institutions as well as the freeing of prices, which in turn requires political and social modernization as well as economic reform. The state plays a key role in this process; without it, developmental strategies have little hope of succeeding. The creation of effective states in the developing World will not be driven by familiar market forces, even if pressures from capital markets can force fiscal and monetary discipline. And in a world still governed by "states rights," real progress in achieving accountable governments will require reforms beyond the mandate of multilateral institutions”.
By Kazi Anwarul Masud (former Secretary and ambassador)
Professor Sherry Berman in a critique of Jeffrey Sachs’ End of Poverty and Cambridge University Professor Gareth Jones’ An End to Poverty remarked that from time immemorial human beings have lived at or near the subsistence level and poverty was therefore inevitable and natural but so was the responsibility of the society to ameliorate the situation. This reinforces the belief of Scottish philosopher Robert Owen that it was necessary for a large part of the society to live in poverty so that the other part could continue to enjoy the wealth and privileges that it had customarily enjoyed. The advent of Marxism and the end of feudalism refuted the premise that some men are born more equal than the others and insisted that societal wealth must be distributed among the people so that the basic needs of all can be met. Jeffrey Sachs is confident that poverty can be eliminated because if a portion of the vast material wealth possessed by the developed countries can be made available to developing countries. While theoretically this may be true in practice it has been found that the developed countries are yet to give 0.7% of the GDP they had promised to give to the developing countries decades back. Gareth Jones thinks that if the existential gap between the promise and delivery by the developed world is eliminated then a sort of equity can be brought about in the global economy.
Economic historian Karl Polyani’s demand of “the right to live” and Amartya Sen.’s thesis that development is a fundamental right are not given due credence if one were to look at the final statement of the Fifth World Water Forum issued at Istanbul where more than 100 countries could not be unanimous whether to use the phrase that water is a “basic human need” or a “basic human right”. About 20 countries including Bangladesh had to issue a separate statement. This intra and inter-world conflicts belie the basic fact, as written by Adam Smith in his Wealth of Nations, that “no society can surely be flourishing and happy, of which a far greater part of the members are poor and miserable. It but equity, besides, that they who fed, clothe and lodge the whole body of people, should have such a share of the produce of their own labor as to be themselves tolerably well fed, clothed and lodged”.
In case of the US, Nobel laureate Paul Krugman lamented that the fruits of growth has been remarkably small for most Americans-people are perhaps materially better off than they were before but nearly not as much as they should have been given the extent of more productive US economy. By the end of the World War II US had become a middle class society with a much more equal society but by 1970s US had become a pre-tax and transfer society with an inequality comparable to what had existed at the time of 1929 crash. CEOs and High School teachers who had almost the same number of years of formal education have vast disparity in income. The ability of the bottom 80% of the population to get a better share of the pie would have to take the US to a more egalitarian society. Nobel laureate Joseph Stiglitz saw the US growth having powerful demonstration effect in the sense that growth not only increased supply but also peoples’ aspirations. Stiglitz, however, cautioned that “market economy did not automatically guarantee growth, social justice, or even economic efficiency; achieving those ends requires that government play an important role” and consequently advocated for “moral growth”. While conventional wisdom states that democracy being more accountable to the masses should have more possibility to reduce poverty, both Milton Friedman and Joseph Stiglitz are skeptical that democracy can be sustained in poor countries unless these countries achieve rapid growth. This accords with the views expressed by Stanford University Professor Larry Diamond that the Third World is witnessing a democracy recession due to serious problems of governance with pockets of dissatisfaction, and unless income inequality is reduced, freedom is guaranteed, and economic growth is generated many of the struggling democracies would eventually lean towards authoritarianism. Political theorist Benjamin Barber termed the Western style of capitalism as “infantilisation”: money is made to satisfy infantile desires that in an orderly society would be seen as childish exuberance for extravagance. Barber’s criticism rests on his argument that while early capitalism encouraged virtues with the working men’s “robust motion of agency and spirited grittiness” while the decay that spells later day capitalism suffers from a paradox “the needy are without income and the well heeled are without needs”. According to analysts the people trapped in the culture of poverty have a strong feeling of marginality, helplessness, dependency, and the feeling of alienation within one’s own society. Closely associated with the concept of culture of poverty is cycle of poverty also known as “development trap” denoting low income, poor education, poor housing and poor health. Since these disadvantages work in a circular fashion it becomes difficult to break out of this cycle. Francis Fukuyama thinks that basically four conditions have to exist to facilitate democratic transition:- (a) the level of development, (b) culture, (c) neighborhood effect, and (d) ideas. Virtually all industrialized economies are functioning democracies while relatively very few poor countries are democracies. There are of course exceptions. It is true that barring exceptions virtually all industrialized countries are functioning democracies. Indeed once a country attains per capita GDP of US dollars six thousand it transforms itself from an agricultural society to an industrialized one and the country attains sustainable democracy. Empirically it has been found that not a single country which became democracy ever reverted back to authoritarianism. Perhaps because of the growth of the middle class owning private property makes them a of Ideology strong stake holder in the sustenance of democracy. Harvard University Professor Daniel Bell in his End of Ideology wrote: “The ideologist--Communist, existentialist, religionist-- wants to live at some extreme, and criticizes the ordinary man for failing to live at the level of grandeur. One can try to do so if there is the genuine possibility that the next moment could be actually, a "transforming moment" when salvation or revolution or genuine passion could be achieved. Max Weber in a poignant essay entitled "Politics as a Vocation," posed the problem as one of accepting the "ethics of responsibility" or the "ethics of ultimate ends." For the latter--the "true believer” all sacrifices, all means, are acceptable for the achievement of one's belief. But for those who take on responsibility, who forgo the sin of pride, of assuming they know how life should be ordered or how the blueprint of the new society should read, one's role can be only to reject all absolutes and accept pragmatic compromise.” In gist, the state must ensure that the system and services needed for a market economy to function efficiently exist. Importantly the legal system embodying the commercial and corporate law must exist. The state must also ensure an environment of competition which both Adam Smith and Karl Marx agreed that capitalists naturally do not want competition and try to avoid it. The basic infrastructure and social services must also be provided by the state. In the final analysis there is no unique constellation of conditions that would require the state to play its role which would vary according to the stage of development an economy is already in. This strand of argument was further confirmed by Harvard University Professor David Scott as follows: - “Economic development requires the transformation of institutions as well as the freeing of prices, which in turn requires political and social modernization as well as economic reform. The state plays a key role in this process; without it, developmental strategies have little hope of succeeding. The creation of effective states in the developing World will not be driven by familiar market forces, even if pressures from capital markets can force fiscal and monetary discipline. And in a world still governed by "states rights," real progress in achieving accountable governments will require reforms beyond the mandate of multilateral institutions”.
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