Tag Archives economic growth

EADI/ISS Series | Rethinking inequalities, growth limits and social injustice

Posted on 4 min read

By Rogelio Madrueño Aguilar, José María Larrú and David Castells-Quintana

Inequality is above all a multidimensional problem. Yet, the key question is whether it is possible to reduce inequality and to what extent. Recent evidence suggests that the growing divide between rich and poor threatens to destabilize democracies, undermines states’ economies and fuels a variety of injustices, either economically, socially, politically or ecologically. Despite certain variations, this holds true not only for rich economies, but also for low and middle income countries.

Inequality is above all a multidimensional problem. It is by all means a complex issue that requires global solutions in accordance with the challenges imposed by the 2030 Agenda for Sustainable Development. As stated in this agenda “the achievement of inclusive and sustainable economic growth […] will only be possible if wealth is shared and income inequality is addressed”.

Yet, the key question is whether it is possible to reduce inequality and to what extent. Recent evidence suggests that the growing divide between rich and poor threatens to destabilize democracies, undermines states’ economies and fuels a variety of injustices, either economically, socially, politically or ecologically. Despite certain variations, this holds true not only for rich economies, but also for low and middle income countries.

When looking a little more closely at the ongoing popular upheavals, protests and street disturbances in different countries, they have something in common: the dissatisfaction of people, mostly youths, with the uneven distribution of opportunities, limited social mobility and issues of environmental sustainability in their societies, to name only a few. After 2008, all these reasons have triggered a wave of global protest in a growing number of countries, such as Chile, Haiti, Ecuador, Spain, etc.

In particular, there seems to be a lack of confidence in the political class and the institutional setting, and their capacity to reverse these negative trends. More importantly, there is a clear awareness that the concentration of market power and wealth in the hands of the rich with linkages to political power is a fundamental problem.

Institutional solutions versus social mobilization

The open question now is whether we should pave the way for reducing inequality through the normal functioning of institutions, or through different types of mobilization and social protest? In fact, we are indeed witnessing many cases which show a preference for the second option.

Again, the aim of fighting inequality faces a daunting challenge: the combination of rising inequalities within countries and an apparent inequality trap seems to be a vicious cycle that is difficult to break; especially in the light of prevalent inconsistencies in policy objectives and institutional implementation at the national and global level: on the one hand there are mechanisms in place that reinforce economic, political or social structures that lead to persisting inequality. On the other hand, efforts are being made to connect the fight against corruption, crime and tax evasion, which may lead to a reduction of social inequalities.

This lack of policy coherence is affecting economic growth and redistribution as two key conditions to reduce the gap between the richest and the poorest. It is not only that several regions experience weak growth in per capita income, but there has also been a strong opposition to the introduction of a capital gains tax for the wealthiest across countries, who have become even richer over the past decades. This, however, translates into an emerging pattern where inequality is strongly linked with less sustained growth. At the same time the goal of economic growth itself is increasingly being questioned. Particularly in countries of the global north there are serious doubts about its compatibility with ecological sustainability.

Persisting inequalities or paradigm shift?

For all of these reasons we find ourselves facing a tough situation in which class struggle settings are becoming more frequent and severe in many areas of the world. It seems that we are either moving towards a problem of persistent inequalities or standing on the threshold of a new paradigm shift.

Therefore, there is an urging need to examine and assess the different impacts that the spiral of inequality is causing around the world. While acknowledging that some inequalities might be socially fair to a certain extent, others claim asymmetric responses in order to favour socially disadvantaged groups such as women and children. Markets alone are unable to reach an economically efficient outcome or to create a level playing field for all members of society. This means moving ahead towards a balanced social agenda that takes into account the multidimensionality of inequalities as well as the historical, legal, social, economic, climatic and intergenerational perspective.

If you are you interested in discussing global inequalities, please, consider submitting to our seed panel “Rethinking inequalities in the era of growth limits and social injustice” at the EADI/ISS General Conference 2020.

Our panel aims to find new understandings to the notion of inequalities in order to enrich the contemporary development discourse and explore global cooperative solutions. This involves new ideas, dimensions and approaches, including critical voices from the global south.

This article is part of a series launched by the EADI (European Association of Development Research and Training Institutes) and the ISS in preparation for the 2020 EADI/ISS General Conference “Solidarity, Peace and Social Justice”. It was also published on the EADI blog.

Image Credit: Alicia Nijdam on Wikicommons

RMadrueñoAbout the authors:

Rogelio Madrueño Aguilar is Research Associate at the Ibero-America Institute for Economic Research, Georg-August-Universität Göttingen, the Complutense Institute of International Studies, and the Spanish Network of Development Studies (REEDES).josemalarru.jpg

José María Larrú is Professor of Economics at the Universidad San Pablo CEU, Madrid.

foto_davidcastellsDavid Castells-Quintana is visiting professor in the Department of Applied Economics at the Autonomous University of Barcelona.

 

Food security, agricultural policies and economic growth through the eyes of Niek Koning by Dorothea Hilhorst

Posted on 3 min read

One of the pleasures of summertime is that I get to read some of the books that have piled up over the years and this is how I came to read Niek Koning’s monumental monograph on: ‘Food security, agricultural policies and economic growth: Long-term dynamics in the past, present and future’. For someone like me, who usually finds herself working around the immediacy of crises, disaster and displacement, the book gives me a solid reminder of how the critical moments of emergencies are interlinked with each other and emerge from global histories and contexts.

Food security is today increasingly linked to climate change but this book spells out how throughout history it is especially interlinked with agricultural policies and economic growth. If there is one lesson the book brings out, it is that policy matters! Good or bad policies make a crucial difference for whether people have or have not enough to eat to sustain themselves. Economics – to say it once more – is not a value-free science and requires clear policy goals and values behind them.

Niek Koning is driven by some pertinent questions, such as “Why has Asia surpassed Africa in economic development? Why have social reform experiments failed in Latin America? Why has communist China achieved miracle growth whereas the Soviet Union collapsed?” Unlike most authors that focus on such big questions, Koning does not provide a monocausal explanation (such as the absence or presence of a ‘Protestant’ ethic, the inclusivity of institutions or different leadership styles), but he puts together a framework that covers several aspects of world history. He starts with secular cycles and techno-institutional change. Looking through that lens, he zooms in on the fossil fuel revolution that has enabled modern economic growth and has entailed a demographic transition. He analyses how the socio-political fabric of societies, international power relations and changing political tides have induced different policy responses to the problems that were involved in modern growth, with vast consequences for both the fate of nations and global population growth. And yes, he also talks about what may happen when fossil fuels will be exhausted. A major message of the book is that agricultural policies have failed to ‘use’ the springboard that was created with the fossil fuel revolution to transform the global economy for a sustainable future.

This is not a book review and I am skipping some major parts of the book, showing how different ideologies and histories have created different outcomes. They are a good read – often more like a novel than an economic textbook – with among other a long conversation between Thomas Malthus and Karl Marx. Browsing through the chapters, one realises that indeed politics matter, and the political views of the author shine clearly through. In his view, supporting self-employed farmers are indispensable for obtaining and maintaining food security. Agricultural and industrial development going hand in hand would be an effective approach, coupled to more explicit pro-poor politics, including social safety nets. He is clearly opposing the neo-liberal trade models and analyzes how these are driven by self-interest of strong countries.

The book is not just an amazingly resourced piece of scholarly work, it is also in many ways a long essay. In the eyes of Koning, the impending exhaustion of fossil fuel create major risks to forge global food scarcity that will exacerbate the food insecurity of the poor. In his view, several things are needed to mitigate this threat. Claims on farmland for luxury foods and urbanization should be limited. New breakthroughs should make the economy less carbon-dependent to prevent a dramatic increase in the demand of the affluent for bio-energy and bio-materials. Biological and ICT-based innovations should overcome limits in land productivity. However, a vital overall condition is that global food and energy markets are stabilized to enable timely investment in innovations that enable poor countries to protect their farmers while securing economic growth. The propositions coming from the book may be agreeable or disagreeable, but coming from decades of deep scholarly work, they merit a lot of discussion.

Koning, N. (2017). Food security, agricultural policies and economic growth: Long-term dynamics in the past, present and future. Routledge.

 

Thea
About the author:

Dorothea Hilhorst is Professor of Humanitarian Aid and Reconstruction at the International Institute of Social Studies of Erasmus University Rotterdam.

She is a regular author for Bliss. Read all her posts here. 

 

 

No choice but to grow: debt and economic growth in rural Colombia by Lorenza Arango Vásquez

Posted on 4 min read

A majority of Colombia’s rural areas now hold large levels of interest-bearing debt as a result of the increased popularity of bank credits. This article through interviews with debtor peasants shows that their lives have been transformed by the debts they have incurred—debt has generated an imperative to grow. In producing the necessary amount to fulfil debt, small-scale producers are pressed to follow principles of accumulation and profit maximisation that characterises the capitalist society.

The boom of bank credit and debt

Across rural Colombia, bank credit has become the major instrument for financing productive activities. This boom is relatively recent and it was marked by the 1989 National System of Agricultural Credit (Sistema Nacional de Crédito Agropecuario: SNCA), a law aimed to increase the availability of bank credit in the countryside.

In 2016, as part of my previous collaboration with rural credit institutions, I was sent to El Carmen de Chucurí (Colombia) to attest the expansion of bank credit and to document the types of creditors in the area. El Carmen de Chucurí is a municipality located in the northeast of the country that had recently been named Colombia’s most important hub for cocoa production. During my stay, I found that the rising production of cocoa had to do with specific rural development policies, but also and more generally with the necessity to produce in order to repay loans.

For debtor peasants in El Carmen de Chucurí, debt repayment is a constant source of fatigue and concern. The majority of their time and efforts is devoted to growing cocoa, a “commodity” that represents the necessary “liquidity” to fulfil their credit obligations. While the expansion of rural bank credit continues to be the subject of many studies, discussions of the nature of debt and being a debtor are neglected.

The growth-imperative debate: a research topic

In my MA research paper, I focused on the expansion of interest-bearing debt in El Carmen de Chucurí rather than on that of credit. I interviewed a number of cocoa growers – all members of a local cocoa marketing association– whose lives have been forever transformed by their relationship with debt. In order to repay the principal and the interests of the bank credits, debtor peasants have been forced to increase the quantity of their cocoa produce and its value. Put another way, debt has generated an imperative to grow.

This apparent straightforward correlation is at the core of an ongoing scholarly debate on the role of credit interests for economic growth[i] (Strunz et al., 2015). While some scholars argue for a nexus between credit interests and economic growth, the more standard narrative on money and growth seems to largely neglect this relation. Still within the first current, there are differentiated stances. One set of scholarly work is based on the assumption that there exists a natural propensity towards growth and that credit is only the conduct through which the latter materialises[ii] [iii](King and Levine, 1993; Schumpeter 1983). Another body of academic literature more critically engages with this correlation and departs from the recognition that there is nothing natural or inherent in modern paths of economic growth. Instead, the imperative to growth relates to a very specific mode of production, capitalism, that was marked by “deep and painful social transformations”[iv] (Wood, 2009: 37).

Debt as a disciplining device

The research found that in the case of El Carmen de Chucurí (Colombia), the pressures to repay and remain solvent have significantly transformed the lives of peasants. They have been forced to adopt “maximizing strategies” based on a specific (capitalist) form of economic rationality, which I labelled as a transformation of their mindsets. In parallel, debtor peasants have also been pressed to intensify their work routines at the expense of their health, as part of turning debtors into “flexible and docile” to meet repayment deadlines. I called this a transformation of their bodies. Theoretically, I argued that these changes could be understood as part of the overarching disciplining effects of debt.

Debt and development trajectories

The behavioural and social changes in the lives of debtor peasants have, in turn, shaped their own trajectories of development. In producing the necessary amount to fulfil debt, they are pressed to follow principles of accumulation and profit maximisation that characterises the capitalist society. Rather than an odd case in which rural household indebtedness commingles with high productivity margins and large rates of returns, this reading is pertinent to other contexts where debt, too, constitutes a mechanism that propels capitalist logic. In an attempt to unpack the disciplining effects of debt, my research tried to point at the close ties between debt repayment and economic growth, and among this correlation and the expansion of capitalism more broadly.

References
[i] Strunz S, Bartkowski B and Schindler H (2015) Is There a Monetary Growth Imperative? In: Leipzig, 2015. UFZ. Available at: http://www.ufz.de/export/data/global/67091_DP_05_2015_Strunzetal.pdf.
[ii] King R and Levine R (1993a) Finance and Growth: Schumpeter Might Be Right. The Quarterly Journal of Economics 108(3): 717–737. DOI: 10.2307/2118406.
[iii] Schumpeter JA, Opie R and Elliott JE (1983) The Theory of Economic Development: An Inquiry into Profits, Capital, Credit, Interest, and the Business Cycle. New Brunswick, New Jersey: Transaction Publishers.
[iv] Wood E (2009) Peasants and the Market Imperative: The Origins of Capitalism. In: Akram-Lodhi AH and Kay C (eds) Peasants and Globalization: Political Economy, Rural Transformation and the Agrarian Question, pp. 38-56. London: Routledge.

Image Credit: Alice Pasqual on Unsplash

About the author:

lorenzaLorenza Arango Vásquez is a recent master graduate from the ISS (December 2018).