Poverty Reduction and Ecological Resilience through Genuine Development Jon D. Erickson Rubenstein School of Environment & Natural Resources Gund Institute for Ecological Economics University of Vermont, Burlington, Vermont USA jon.erickson@uvm.edu • www.uvm.edu/~jdericks/

Poverty Reduction and Ecological Resilience through Genuine Development Legacy of the Washington Consensus Income Convergence or Cumulative Causation Genuine Development Alternative Strategies toward Genuine Development Implications on Retooling Macroeconomic Policy

Legacy of the Washington Consensus Bretton Woods mission drift Harry Dexter White and John Maynard Keynes GENERAL AGREEMENT ON TARIFFS AND TRADE

Legacy of the Washington Consensus Consensus of IMF, World Bank, and US Treasury Fiscal Austerity Privatization Market Liberalization Application of the Consensus Top-down Industrial / resource extraction oriented Export-led Theory behind the Consensus  National growth would lead to trickle down development

Income Convergence or Cumulative Causation Kaldor-Kuznets-Solow consensus Marginal propensity to save of the wealthy Inequality lead to growth Income gap between rich and poor  Greater incentives  Greater labor productivity Growth-Inequality development paths  Evidence from US and UK  Growth path eventually leads to greater equality Income convergence between nations due to decreasing marginal returns

http://www.cr1.dircon.co.uk/TB/2/dreturns.htm

Income Convergence or Cumulative Causation Possibility of increasing returns (Smith, Marx, Young, Myrdal) Uneven development Future development depends more on past investment (path dependency) In the normal case a change does not call forth countervailing changes but, instead, supporting changes, which move the system in the same direction as the first change, but much further. Because of such circular causation a social process tends to become cumulative and often to gather speed at an accelerating rate. (Myrdal, 1957, p. 13)

Income Convergence or Cumulative Causation Theoretical critique Nelson (1956): Low-level equilibrium traps Arrow (1962): Learning by doing Romer (1986): Growth rates as function of attained level of development Arthur (1999): Technology lock-ins Galor (1996) and Quah (1996): Growth clubs

Income Convergence or Cumulative Causation Empirical critique Persson and Tabellini (1994): Inequality as impediment to growth Benabou (1996): Inequality stunts national growth rates Aghion et al. (1999): Redistribution towards equity would increase domestic investment and stimulate growth Skott and Auerbach (1995): Low income countries not catching up. Bourgninon and Morrison (2002): Income divergence at best decelerated over last 50 years. Global gini has increased by 30%.

Income Convergence or Cumulative Causation Empirical critique Barro (2000): Poor countries have had lower growth rates. Exceptions due to human capital investment. Easterly and Levine (1997): Low income countries have similar characteristics such as low levels of schooling, political instability, and insufficient infrastructure.

Growth as Cumulative Causation Income 82.7% 11.7% 2.3% 1.9% 1.4% Population 20% 1950  1992 Over 5x increase in global output Nearly 12x increase in world trade 1950 – Haves 30x over the Have Nots 1989 – Haves 60x over the Have Nots

Genuine Development Alternative Genuine Development Indicators Genuine Progress Indicator Human Development Index UN Millennium development goals: Eradicate extreme poverty and hunger Achieve universal primary education Promote gender equality and empower women Reduce child mortality Improve maternal health Combat HIV/AIDS, malaria and other diseases Ensure environmental sustainability Develop a global partnership for development.

Genuine Development Alternative

Genuine Development Alternative

Genuine Development Alternative

Genuine Development Alternative

Genuine Development Alternative

Genuine Development Alternative Ecological economic capital assets approach Household Fir ms (production F actor services Goods I n v e s t m ( 3 ) P r o a l c u p i 4 S g 5 E x 2 G d T Go er nment Financial mar k ets Other countr ies W , f 1

Genuine Development Alternative Ecological economic capital assets approach

Genuine Development Alternative Ecological economic capital assets approach

Genuine Development Alternative Ecological economic capital assets approach

Genuine Development Alternative Genuine Savings

Genuine Development Alternative Natural Resource Curse Sachs and Warner, 2001

Strategies toward Genuine Development Reversing the resource curse through investing royalties in directed poverty eradication Investing in natural capital through payments for ecosystem services Capturing the carbon dividend Human and social capital investment National debt for international services Regional economic development

Retooling Macroeconomic Policy Fiscal Policies that invest broadly in natural, social, human, and built capital. Monetary Policies that expand the role of local currency, increase internal velocity of money and plug the leaks of regional economies, favor domestic investment opportunities for long-term economic capacity. Trade Policies that balance self-sufficiency and sectoral diversity with comparative advantage and export opportunities, and restrict capital mobility so that comparative advantages remain.