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Poverty, development and hunger in the 21st century- Has Neo-Liberalism failed?

Over the course of the years, the term future has been unequivocally associated with

progress and a higher quality of life. Far from it, though we may be living in the 21 st

century, we seem to have returned to the economic situation of the 19th, where wealth

was overwhelmingly concentrated in the hands of a few owners and astute speculators.

Almost everywhere we have the phenomenon of an underclass caught between welfare

entitlement and low wages, an increasingly indebted middle class that relies heavily on

job and pension security and a new class of extremely rich that have managed to be

untouched by the rules of taxation and who function regardless of the community. We

are now in 2013, and achieving the goal of eradication of extreme poverty has apparently

moved down the agenda. 1 In an effort to pinpoint the apparent reasons that have

contributed to such serious setbacks, this paper will investigate the related issues of

poverty, hunger and development and the different approaches towards solutions from

1945 and on.

After the end of World War II most of the Western allies shared the belief that

overblown and ineffective states and the imposition of protectionist clauses, heavily

contributed to the outbreak of war. In order to deal and prevent another conflict of that

scale, the Breton Woods conference resulted in the establishment of four international

organizations: the United Nation (UN), the International Monetary Fund (IMF), the

General Agreement on Trades and Tariffs (GATT), which later became the World Trade

Organization (WTO) and the World Bank. 2These institutions were founded under liberal

political ideologies and the three latter dominated the post-war economic order,

advocating free market liberalization. Heavily state controlled economies were deemed to

1
Goal: Eradicate extreme poverty and hunger". Millenium Development Goals. UNICEF. 2013.
21/05/2013. < http://writecite.com/students/mla/ >
2
Baylis, John, Steve Smith, and Patricia Owens. The Globalization of World Politics: An Introduction to
International Relations. New York: Oxford University Press, 2011. Print.
2

stifle private initiative and hinder development, and the promise of unlimited economics

growth could be achieved only through free movement of capital, foreign investments

and privatizations.

During the Cold War period, the so called Third World or else Global South which

included more or less the decolonized countries-remains of the formerly great European

empires, served as the stage front for the conflicts among the U.S.A and its allies and the

U.S.S.R. and its satellites. The two superpowers, in an intense effort to avoid a full-

fledged confrontation and to gain allies, fought through proxies in the former colonies of

the South. Apart from few exceptions such as Cuba, the West prevailed, and most

developing countries in the effort to be integrated into the global community, had to

adopt free market policies.

The progress of fiscal reforms and transaction to free market economies was in most

cases overseen by the IMF and the World Bank. As these institutions preached economic

liberalization, they required that the state should decrease to the absolute minimum,

promoted a number of privatization and implemented a series of structural lending,

which translated into austere fiscal policies. When the Communist Bloc collapsed in the

late 1980s, Neo-liberalism was believed to have emerged victorious, and free market

liberalization is the ultimate tool of the globalization process. Therefore, the neoliberal

perception towards poverty, hunger and development has come to be considered as

mainstream or orthodox approach and the alterative understanding of the issues is the

critical approach.

When dealing with the issue of poverty, both approaches agree on the material aspect of

it, that is lack of food, clean water and sanitation. The basic disagreement between the

two approaches lie on the importance they place on non-material needs. Whereas the

orthodox approach places its sole emphasis on income poverty, the critical approach also
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considers the aspect of human poverty, which entails loss of dignity and lack of

opportunities. Apart from that, the mainstream approach views poverty as an economic

condition dependent on cash transaction that takes place within the market place. Simply

put, lack of income immediately translates into poverty. Even if one is in a position to be

self sufficient, if he or she function outside the market, they are considered poor. The

solution to such a situation can only come through further integration of the global

economy, under the concept of free market liberalization.3 The alternative approach has a

very different understanding of the solution as it locates the main problem on the lack of

access to community regulated common resources, and advocate a more widely

distributed ownership and use of assets.

The two approaches maintain the same structure when dealing with the issue of hunger.

The orthodox approach, very simplistically, claims that there is simply not enough food

for everyone, and the situation will only intensify as the global population rises. Such a

phenomenon can be observed in overpopulated countries that seem to be the most

affected. The critical approach addresses the issue of entitlement and supports this

statement as in most free market economies access to food is dependent on wage labor.

Moreover, the role of food in a capitalist economy is no longer just a basic need but a

fully marketed commodity. 4As in providing a solution for the case of poverty, the critical

approach emphasizes that the problem lies in the factors of distribution. This can be

better perceived as we have developing countries with large agricultural output but whose

population has limited access to food.

3
Dini, Ali and V.Lippit. Poverty, from Orthodox to Heterodox Approaches: a Methodological Comparison
Survey. University Of California. Riverside. 2009. 20. Pdf. 22/05/2013. <
http://economics.ucr.edu/repec/ucr/wpaper/09-10.pdf >

4
Robbins, Richard H. Global Problems and the Culture of Capitalism. Upper Saddle River, N.J: Pearson
Prentice Hall, 2011. Print.
4

In order to illustrate such a case, the example of Guatemala provides an excellent

example. Guatemala is a country in Central America that due to the biodiversity of the

climate and environment can produce a variety of crops. However, 90% of the land is

owned by 10% of the population and they choose to cultivate oil palms, rubber tree and

sugar cane. The majority of the output is exported to the markets of Europe and the

U.S.A. and as the demand for biofuels rises; more areas undergo intense deforestation in

order to satisfy it. That excludes the majority of the population from food, as the limited

production maintains the prices perpetually high. One out of two children dies from

undernourishment.5 Considering a critical approach to the issue, many have proposed an

agricultural reform and redistribution of the land among the farmers, who seem to be the

most affected by hunger. However, there has to be considered that the land might not be

enough to satisfy the demand and that the farmers may not have the means to acquire

efficient methods of production and May therefore find themselves excluded from the

market.

As previously mentioned, most of the developing countries who sought to be integrated

in the global market had to embrace IMF-sponsored neo-liberalism. That would entail

states to undergo through intense privatizations and to seek foreign investment. When

targeting poverty and hunger, the idea of combating them is based on the start-up of the

economy and real production, which are the main concepts of development. The

orthodox approach advocated by neo-liberals supports that there is unlimited economic

growth within the free market, therefore any development plans should aim for the

production of surplus that would be reallocated within the economy and reinvested. As

they firmly believe in private initiative, they propose capital infusions that will be invested

on large scale projects that would serve as take-off point for the economy and the

5
Y.Avgeropoulos. "Wonderful Macroeconomics". Yiannis Biliris, Anna Prokou. Ed. Athens: Small
Planet. 2010. DVD.
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creation of revenues will allow wealth to trickle down. 6 The orthodox top-down

approach previously described relies heavily on expert knowledge that usually derives

from the developed West.

The critical approach refuses to consider indices as the GDP in order to interpret the real

economy. They propose a democratic, wide based distribution of opportunities tailored

to each specific communities need. Liberal institutions such as IMF have been accused in

the past of a democratic deficit, as their involvement in state affairs has imposed

unwanted austerity measures on citizens. To counter this, the critical approach proposes

a bottom-up, participatory approach, that includes small scale investments and the

protection of the common resources.

Whether neo-liberalism failed is yet to be decided. After the collapse of the Soviet Union,

the Russian Federation inherited the legacy of a one-time superpower. In the attempt to

convert to the free market from the state controlled economy, the Yeltsin administration

implemented a series of austerity measures in order to secure the necessary funds from

the IMF. 7The transition however succeeded in mash impoverishment, the creation of a

hugely wealthy oligarchy that benefited from the unregulated privatizations and the

eventual rise of a very centralized government. During the 1970s Latin American

countries engaged in large scale borrowing in order to secure a spot in the free market

trying to overcome the effects of the Oil Crisis, hoping for the influx of foreign capital

that never materialized. They managed to accumulate debt that they could not repay as

the same protectionist clauses that were abolished by the West in the 1945 were

6
Baylis, John, Steve Smith, and Patricia Owens. The Globalization of World Politics: An Introduction to
International Relations. New York: Oxford University Press, 2011. Print.

7
Erlanger, Steven. "Bowing to I.M.F., Yeltsin Takes New Steps to Fight Spending and Corruption". The
New York TImes. 03/02/1995. n.pag. Http://www.nytimes.com/1995/03/02/world/bowing-to-imf-
yeltsin-takes-new-steps-to-fight-spending-and-corruption.html.
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reintroduced and forbade them from entering the free market.8 However, the East Asian

Tigers (Singapore, South Korea, Taiwan and Hong Kong) pursued a free market

liberalization policy though strictly regulated and state assisted and managed to succeed.

The issue remains that poverty and hunger form a vicious cycle and when combined with

unregulated market liberalization can be very difficult to break. Neo-liberal policies have

been associated with unserviceable debt and harbor great inequalities. The small scale

investments that are proposed by the critical approach entail the danger of lack of

commitment and therefore are not deemed secure. Whether a widely distributed

ownership and use of not only assets but also credit and capital would resolve the

conflict and breach the inequalities is a viable solution is yet to be explored.

8
Huber Evelyn. "Successes and Failures of Neoliberalism. ". Latin America Research Review. 39. 3.
(2004): 15.
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Bibliography

Goal: Eradicate extreme poverty and hunger". Millennium Development Goals. UNICEF. 2013.
21/05/2013. < http://writecite.com/students/mla/

Baylis, John, Steve Smith, and Patricia Owens. The Globalization of World Politics: An Introduction to
International Relations. New York: Oxford University Press, 2011. Print.

Dini, Ali and V.Lippit. Poverty, from Orthodox to Heterodox Approaches: a Methodological Comparison
Survey. University Of California. Riverside. 2009. 20. Pdf. 22/05/2013. <
http://economics.ucr.edu/repec/ucr/wpaper/09-10.pdf

Robbins, Richard H. Global Problems and the Culture of Capitalism. Upper Saddle River, N.J: Pearson
Prentice Hall, 2011. Print.

Y.Avgeropoulos. "Wonderful Macroeconomics". Yiannis Biliris, Anna Prokou. Ed. Athens: Small Planet.
2010. DVD.

Baylis, John, Steve Smith, and Patricia Owens. The Globalization of World Politics: An Introduction to
International Relations. New York: Oxford University Press, 2011. Print.

Erlanger, Steven. "Bowing to I.M.F., Yeltsin Takes New Steps to Fight Spending and Corruption". The
New York Times. 03/02/1995. n.pag. Http://www.nytimes.com/1995/03/02/world/bowing-to-imf-
yeltsin-takes-new-steps-to-fight-spending-and-corruption.html.

Huber Evelyn. "Successes and Failures of Neo-liberalism. Latin America Research Review. 39. 3.
(2004): 15.

Katerina Rigas