WEALTH AND POVERTY

WEALTH AND POVERTY

Planet Earth is a unique and immensely rich supporter of biological
life-forms.
The most successful life-form is, of course, humankind and it has
exploited the planet’s richness to spread rapidly across the globe – and
it has also, for some, developed lifestyles that are unprecedentedly
sophisticated and luxurious.
Dominant though the species has become, however, two important
observations must be made:
First, however richly endowed the Earth may be, its resources
are not limitless. It is becoming increasingly apparent that the
exponential growth in human activity is damaging to the
planet’s ecology. As more resources are commandeered for
human consumption so not only do other life-forms lose out
in direct competition but also there is the danger that future
generations of humankind itself will be deprived.
Second, just as other species have been unable to compete for the
control of Earth’s resources against the dominant life-form, so
within humankind there are great differences in the ability of
some to compete and succeed. A relatively small minority of the
peoples on the globe enjoy great riches. A very much larger
fraction of humankind survives in comparative poverty.
Terms in capital letters are included in the Glossary.
© 2004 Tony Cleaver
Unlike primitive plants and animals, however, what makes
humankind different from all other species on the planet is our
capacity for choice.We are not driven solely by instinct to the ends
we find ourselves occupying. We can choose our own destiny.
Acting on our own as individuals or acting together in society, we
are blessed with the capacity to influence future outcomes.
Economics has been described as the science of choice. In the face
of limited resources, human society has evolved systems of decisionmaking
that choose whose wants are to have priority, in what
manner resources are to be exploited and whether – in the end – we
make guns or bread and butter.
Whichever decision-making system society employs, however, it
is in the nature of economics that the answers it comes up with
cannot please all of the people, all of the time. Because fundamental
issues and disagreements are at stake here, they have excited
the passions of humankind throughout history. Revolutions have
erupted, wars have been won and lost and demonstrations continue
to this day in various cities and nations of the world about
the proper distribution, use and abuse of the fruits of the planet.
This text attempts to study these things dispassionately, to
analyse and achieve an objective understanding of the basic
economic questions that concern us all: how wealth is created, how
it is distributed amongst us and what is sacrificed in the process.
We begin by considering market, command and traditional
forms of economic organisation. In later chapters, we go on to study
the role of prices, the nature of production, and issues of inflation,
unemployment and international trade. In so doing we adopt the
economists’ rational, scientific approach to our subject matter but –
as I hope you will see – throughout this analysis we never stray far
from issues of topical and controversial interest that economics is
designed to illuminate.
In this respect, consider the criticism implied earlier. Some
observers allege that we have squandered the riches of the Earth in
creating inequitable opulence – catering for the greed of a few
powerful parties whilst ignoring the needs of all other inhabitants
of the planet. Is this true? If so, how has it come about? And what,
if anything, should be done about it?
In order to address these questions, it is worth pointing out at
the outset the difference between matters of fact and those of
© 2004 Tony Cleaver
opinion. That is, between questions of POSITIVE ECONOMICS, which
can be answered by resort to hard evidence and those of NORMATIVE
ECONOMICS, which require the application of value judgement.
Modern economists attempt to redefine most questions so that they
may be couched in terms of the former, avoiding the latter (or at
least identifying their own biases) so that the reader can make up
his/her own mind.
That the Earth’s riches are consumed more by some than by
others can be quickly demonstrated. Consider an A to Z of the
world’s nations: One quick measure of relative wealth is the
purchasing power of the average citizen in, say, Austria compared to
Zambia; Bangladesh compared to the USA. The World Bank gives
the data as shown in Figures 1.1 and 1.2 for the year 2000.
24,600
1,530
31,910
720
Austria Bangladesh USA Zambia
Figure 1.1 US$ average income per capita (purchasing power parity).
3.14
0.1
8.35
0.14
Austria Bangladesh USA Africa*
Figure 1.2 Primary energy consumed per person (tons of oil equivalent).
Note
* Figures for Zambia are unavailable. The average for all African countries except
Algeria, Egypt and the Republic of South Africa given instead.
© 2004 Tony Cleaver
Another yardstick would be to compare the consumption of
primary energy sources of the average person in each country –
since this is a direct measure of how much of a basic and essential
resource (such as oil) is being used up by differing peoples.
These are crude measures. Many more sophisticated and more
accurate surveys can be quoted but the basic point is made: there
exist great extremes of wealth and poverty amongst the peoples of
the planet.
How such an unequal distribution has come about is a much
more difficult question of positive economics. It is, in fact, an
inquiry that will run all through this book as an undercurrent that
flows behind the various theories and analyses which form the
backbone of this subject.
What, if anything, should be done about global inequality is, of
course, not a question of positive economics at all. Like a scientist
studying the workings of the solar system, or the internal organs of
some animal, the economist is responsible for publishing the
evidence and identifying what might happen if you make this
change or that to economic systems but he/she has no more right
than anyone else to say what ought to happen in this world.
It is always easy to ask important questions in economics. It is
easy also to make colourful and outrageous claims about the nature
and conduct of economic affairs. (Have certain people really squandered
the riches of Earth?) It is not always easy, however, to give
balanced, objective and accurate responses to such questions and
assertions. That is nonetheless the challenge of positive economics.