Economic solutions alone won't win war on poverty

Maddaremmeng A.Panennungi, Visiting Scholar, George Mason University, Virginia, USA

On Jan 23 and 29, the economists Ari A. Perdana and Ahmad Rizal Shidiq wrote in this newspaper about poverty and how to help the poor. Both raised arguments regarding economic tools and the role of the government as an active agent.

It seems we still hope for too much from the government in taking the biggest part in poverty reduction. A long-term war on poverty would minimize the government's role through the development of civil liberties, reducing corruption, and a revolution in education.

The earlier articles focused on managing poverty in both the short term and long term, through a social security system, pension benefit, education, and price and income stability. A survey by Page and Shapiro in a 1992 book, The Rational Public, also found solutions in the most popular social welfare programs: Social security, employment, and income maintenance.

As poverty is just the tip of the iceberg of a society's problems, economics clearly lack solutions. Economics alone has surrendered in explaining, for instance, why the trickle down effect of national income has not happened in the real world.

The prominent economist Milton Friedman proposed a very famous agenda on poverty: "Instead of giving complicated help for the poor, just give them negative income tax!" The negative income tax is a simple solution for the poor from the economists' point of view: "They are poor because they do not have income. So, just give them income! If they work, they will pay tax to the government, but if they don't work, the government pays them." And would poverty vanish? No!

Managing people out of poverty leads to conflicts. For example, where most of the poor in urban areas are in cheap, industrial labor, their unions would demand higher wages. Here then lies a dilemma from the economist's point of view: Increasing wages reduces employment!

Economists also get frustrated with the vicious circle of poverty. The poor are further punished with lables of being unskilled or having a low rate of productivity, without realizing why they become poor, unskilled, or have low productivity.

Reducing poverty both in the short term and long term needs other tools beyond economics.

First, civil liberties. This is inspired by Amartya Sen's Development as Freedom (1999). The struggle of the blacks, women and workers in the U.S. for civil rights played a significant role in reducing the incidence of poverty among them. Distribution of income would be even worse in the U.S. without such developments.

The examples above do not mean to provoke the poor and the labor unions to demonstrate in order to get what they want. The big picture is just that welfare does not come from the sky, but needs a fight to get it.

Hence the role of the government in reducing poverty is only as a facilitator, to guarantee liberties. The poor themselves should be active in fightiong for their rights. Economists are also assured that prosperity is good for democracy.

Another measure to reduce poverty in the long run is reducing corruption. Some economists say corruption is just an issue of "income transfer". On the other hand in 1998 the International Monetary Fund, in its report titled "Does corruption affect inequality and poverty?", provided econometric evidence that the higher the level of corruption, the higher the incidence of inequality and poverty. Reducing corruption cannot wait for the government, which is mainly concerned in gaining votes in the next elections.

A third long-term way out of poverty is the "silent revolution" -- a revolution in education. The untold story of the Japan miracle, for instance, was a revolution in education. There is much evidence which correlates the level of poverty and the level of education of society. Education, in a broad sense, is the prime way to escape from poverty.

If improvements in education fail, we may be stuck in this crisis for the long term. Urgent measures include improving teacher's welfare; primary and secondary education rather than tertiary education; publications of books and improving libraries and laboratories instead of buildings; improving teaching skills and the learning process, apart from debating the national curriculum and the evaluation system.

Poverty, especially relative poverty, is everywhere. The poet W.S. Rendra gives us some insight in his collection titled "Portrait of development in poetry" (Potret pembangunan dalam puisi).

It's a good start to really understand poverty and starting the long bumpy road to correcting it.