Say’s Law, Poverty Persistence, and Employment Neglect

Abstract

Grass roots methods of poverty alleviation will fail unless jobs are created or stimulated by governments (whether central or local). In the presence of high unemployment at all levels, improving the capabilities of job seekers (making them better fed and housed and educated) will only lead to more unemployment and not to more paid employment or self‐employment above the subsistence level (call this the ‘Kerala Effect’). To believe that improving only the supply side of the labor market is enough to reduce poverty without also improving the demand side, and investing in jobs, is logically flawed and subject to the same error as Say’s Law — that ‘supply creates its own demand’. Healthcare and other benefits provided through grass roots anti‐poverty programs may improve the quality of life (measured by rising life expectancy). But as population growth rises, diminishing returns sets in, in Malthusian fashion, and poverty does not fall, as shown by the data provided in the article.

Key words:

• Employment generation
• Poverty alleviation
• Say’s Law
• Grass‐roots
• Volunteerism

Notes

1 More than five years after the Millennium Developments Goals had been adopted, World Leaders at the World Summit, at the United Nations in September 2005, undertook the commitment to make the goals of ‘full and productive employment and decent work for all’ a central objective of (their) relevant national and international policies. This was followed by a ministerial declaration at the United Nations Economic and Social Council (ECOSOC) High‐level segment in July 2006 expressing the same and the inclusion of a new target, echoing the commitment of the 2005 World Summit, under Millennium Development Goal Number 1 (Eradicate Extreme Poverty and Hunger). See United Nations (2007).

2 Studies that obtain other results typically compare micro‐enterprises in both sectors, which miss the point — the formal sector has succeeded in building larger, professionally managed enterprises whose productivity may be higher than a micro‐enterprise located in either sector (Gelb et al., 2009).

3 For an excellent overview of the relationship between jobs and poverty, see Khan (2007).

4 ILO LABORSTA [www.laborsta.ilo.org].

5 For the underground industrial policies that have emerged as a result of restrictions on industrial policies by the World Trade Organization, see Amsden and Hikino (2000).

6 Rural electrification, despite its centrality to fighting poverty, has made notable gains in China, although little is written about this possibly because China’s approach was not bottom up (Stanford University Program on Energy and Sustainable Development, 2006).

7 For the machine tool industry, see Amsden (1977).

8 A number of World Bank investment reports are mentioned in The Bottom Billion, which argues that the poorest countries are poor due to war but can be saved from free trade. Unfortunately, most world trade is now conducted within the confines of regional trade agreements, and many poor countries are not a part of any viable agreement. See Collier (2007).

9 Some grass‐roots groups, of course, like OXFAM, do worry about the demand side.

10 One of the best studies, which combined poverty alleviation and job promotion, was done in Kenya by the International Labour Office (1974). It was experimental and tried to open the doors to new ideas. One was that if income is re‐distributed to the poor, employment will increase faster because the poor consume a bundle of goods made with more labor‐intensive technologies than the rich.