Tuesday, May 31, 2011

Thomas Pogge on the Past, Present and Future of Global Poverty

by Keane Bhatt

Thomas Pogge holds a PhD in philosophy from Harvard University and is the director of the Global Justice Program at Yale University. In this interview, Pogge provides an introduction to world poverty and advocates for his latest initiative to provide the world's poor with better access to medicine.

Keane Bhatt: Could you begin by outlining the key issues of global poverty and why you consider its existence the gravest violation of human rights?

Thomas Pogge: We live in a world where economic positions - income and wealth - are very unevenly distributed, and this leads to the widespread persistence of poverty. The bottom half of humanity is living in severe poverty; not all of them are malnourished or severely deprived now, but they are extremely vulnerable to even small upsets in their income or in the prices they face of basic necessities, and when something like this happens, they can be thrown off kilter in terms of a disease of a family member or a change in food prices; anything like that can throw them into destitution.

The collective income of all these people - the bottom half - is less than three percent of global household income, and so there is a grotesque maldistribution of income and wealth. The bottom quarter of the human population has only three-quarters of one percent of global household income, about one thirty-second of the average income in the world, whereas the people in the top five percent have nine times the average income. So the ratio between the averages in the top five percent and the bottom quarter is somewhere around 300 to one - a huge inequality that also gives you a sense of how easily poverty could be avoided.

Given the total income and wealth available in the world today, we could easily overcome poverty, which would require raising the share of the bottom half from three to roughly five percent. Unfortunately, the trend is going in the opposite direction. Over the period from 1988 to 2005, the income share of the top five percent has grown by about 3.5 percent of global household income, and the shares of all the other groups have diminished. The greatest relative reduction was in the bottom quarter, which lost about one third of its share of global household income, declining from 1.155 to 0.775 percent, and now is even more marginalized.

The increase in the global average income cannot make up for this one-third loss in its income share that the poorest quarter experienced over a mere 17 years. So poverty persists, essentially, because the people at the bottom - the bottom quarter and also the bottom half - see the gains from the rising global average income wiped out by severe declines in their relative share.

KB: I've read similarly grim figures on income by Branko Milanovic of the World Bank. Isn't the disparity in wealth even more severe? A United Nations report found that the top two percent owns over 50 percent of the world's wealth.

TP: I also rely on Milanovic for my figures; he is doing the best, most independent work on this. And, yes, wealth disparities are indeed even larger, though income inequality matters more on a day-to-day basis. Wealth matters more for political influence.

You asked about the violation of human rights; I see a violation not in the mere fact that people don't have enough to eat and that they are very vulnerable, but I see it in the fact that the economic institutional order of the world is associated with this very persistent poverty and that different institutional arrangements at the supranational level could stop and even reverse the slide towards ever-greater income disparities.

KB: You've written that at a cost of two-thirds of the US military's expenditures, we could largely eradicate poverty. This includes all cases of extreme poverty, which according to the World Bank's scandalously narrow definition, are those who live on $1.25 a day or less. But those who subsist on double that level would also be lifted out of poverty. This $2.50-a-day poverty line is not even typically talked about.

TP: The collective shortfall of the 3.08 billion people (47 percent of world population) who, in 2005, lived below $2.50 per day was $507 billion per annum, which indeed comes to about two-thirds of the present US military budget. This gives us a rough sense of how much the eradication of poverty would cost. But I would stress that we should not think of poverty eradication as a matter of collecting money and giving it to the poor so much as of reforming the global rules that are disadvantaging the poor and making it impossible for them to fend for themselves. Such reforms would bring opportunity costs for the affluent, which might be larger or smaller than the sought $507 billion gain in the incomes of the poor.

KB: Let's talk more in detail about that, because your framework for understanding poverty is distinct from that of other philosophers. Some focus on a moral obligation to devote a great deal of our personal incomes to nongovernmental organizations as a duty to help, because not donating money to saving the lives of the global poor is akin to walking past a child drowning in a pond and not wishing to ruin one's shoes. You, however, say our duty to the poor is to stop actively harming them, which strikes most people as bizarre or counterintuitive. You say that as citizens of rich countries, you and I are responsible for this suffering and we should be working to minimize our role in their impoverishment. Can you explain this controversial position?

TP: Yes, it's certainly controversial and I've been attacked by people on the right end of the spectrum and also from the left for this supposedly much-exaggerated claim. Let me respond by saying, first, that I don't disagree with the duty-to-help argument; it's just an argument that has been made, and made effectively, by Peter Singer, Peter Unger and others. So, rather than add my own voice to the chorus, I have developed a different argument, and this argument - counterintuitive as it may be - really consists of very simple and pretty intuitive steps.

One point is that our global institutional arrangements - the basic ground rules that govern our world economy - are human-made. They don't exist naturally, nor are they God-given. We make these rules, those of the WTO [World Trade Organization] Treaty for instance, which fill tens of thousands of pages. These words have been strung together by human beings and are also interpreted and enforced by human beings.

The second point is that such global institutional design decisions have effects on how much inequality there will be, on how much poverty there will be, and on much else. This is a relatively straightforward point. People are fighting quite hard over these rules - different countries and corporations are trying to influence this rulemaking process. And they wouldn't be fighting so hard over them if they didn't know that the design of these rules makes a difference to their own economic position.

Once you recognize those two pretty undeniable facts - that these rules are made by human beings and that they have distributional effects - you naturally get to the responsibility question.

KB: One thing that's striking is that these points are intuitive, whereas your work mentions the "demanding" task of conceiving "institutional morality." We're all familiar with assigning blame to an individual for hitting someone's car, but not with assessing the morality of the speed limit or lack of a stoplight. Are you saying that the rules themselves can be moral or immoral?

TP: Yes, social rules are susceptible to moral analysis. This is, again, relatively familiar in the domestic case, where we now condemn slavery as unjust. And when we affirm this judgment, we're not merely saying that all those people who owned slaves were unethical people; they shouldn't have done that. We do believe this, but that's only part of the point. We also believe that the fugitive slave laws were unjust. The state should never have instituted and enforced legal property rights in persons, and should not have been in the business of returning runaway slaves to their "rightful owners." The whole institution of property in human beings was an unjust social institution and should not have been maintained in existence. It is this sort of thought that I'm appealing to at the supranational level.

Feudalism is another example. It's an economic system where a few people own all the land and the others have no option but to be serfs on such a feudal estate. We now condemn feudalism. We condemn not merely the feudal lords but we condemn the whole structure of rules that sustained feudalism. I am asking people to think similarly about the world economy. We should condemn as unjust a global economic order that leads to ever-increasing economic disparities - provided this effect is foreseeable and provided it is also avoidable through some alternative institutional design that would foreseeably lead to much less poverty and inequality. If I am right to claim that these two provisos are satisfied (something that, of course, can be empirically disputed), then those involved in designing or imposing the existing rules are collectively responsible for the resulting excess deprivations and human rights deficits.

KB: So how is it that you and I are culpable? We didn't design the rules or actively advance this system.

TP: Governments and their hired negotiators are designing these supranational rules and pressing for their adoption and for compliance - and the US government first and foremost. These governments are elected by us, funded by us, acting on our behalf, sensitive to our will, and so, we are not mere bystanders observing the injustice. To be sure, one citizen, or a few, may be powerless if all the rest are determined to benefit from the imposition of unjust supranational rules. But this excuse cannot work for large numbers. Just imagine 10 million US citizens saying in unison: "I am just one powerless citizen. There is nothing I can do to change my government's policies!"

KB: One novel insight of your theory of global justice is that prior to this, at least within mainstream academia, international relations were understood in narrow terms between two featureless agents. The justice of dealings between, say, a country and a corporation would be evaluated in terms of the sanctity of legal contracts. But you say that we must scrutinize this and the international legal framework that gives such negotiations blanket approval. So in analyzing supranational arrangements, you're actually demanding that we also look at domestic power structures too, right?

TP: Yes, indeed, these two are closely connected in both directions. Thus, domestic power structures are shaped in good part by global arrangements. As I analyze in one chapter of my "World Poverty" book, dictatorial regimes often manage to keep themselves in power because they are recognized by foreigners as representing the state and its people, and therefore as entitled to sell the country's natural resources and to borrow money in its people's name. These privileges conferred by foreigners keep autocrats in power despite the fact that they were not elected and do not rule in the interest of the population. Conversely, the domestic power structure - how power is exercised in the United States, for instance - also greatly influences the structure of international institutions. So, for example, the Clinton administration was very influential in shaping the WTO treaty, and, because of the way the US domestic political system works, this meant that corporations could use the US government to wield a huge influence.

KB: It's interesting to apply this to mainstream discussions. Many prominent voices on global poverty, like New York University economist William Easterly or the British newsmagazine The Economist, blame kleptocratic regimes, endemic corruption and "bad government" for poverty's persistence in the third world. But if the ascendance of dictators like Marcos, Suharto, Sese Seko, Sani Abacha or the Duvaliers is incentivized by what you've just described, then the policy-shapers who defend the current global arrangement are implicated in the very ills that they denounce.

TP: Right. If we offer a prize, so to speak, to anyone who manages to bring a country under his physical control - namely, that they can then sell the country's resources and borrow in its name - then it's not surprising that generals or guerrilla movements will want to compete for this prize. But that the prize is there is really not the fault of the insiders. It is the fault of the dominant states and of the system of international law they maintain. They create this disturbing fact that, if only you manage to bring a national territory under your physical control, then you will be recognized worldwide as its legitimate government: entitled to sell its people's natural resources, to borrow and sign treaties in their name, and entitled also to import the weapons you need to keep yourself in power.

KB: Could you talk more about their right to borrow money? So many poor countries' citizens end up paying off odious debt over decades despite having had no say in acquiring it.

TP: The fact that oppressive and corrupt regimes can borrow money in the name of the whole country means that the country's future generations will be weighed down by interest and repayment burdens, even if the money has been frittered away in some frivolous way, embezzled or used for weapons to suppress the country's population. A dramatic example is Rwanda, which borrowed a lot of money. Some of this was used by the Habyarimana government to fund the genocide which killed some 800,000 Tutsi. In the end, the Tutsi resistance managed to overthrow the government - and then the successor government was asked to repay Rwanda's debt! The government complied, lest Rwanda be excluded from future borrowing. This was highlighted in the Organization of African Unity report on the behavior of the various countries and who did what in the Rwanda episode, "Rwanda: The Preventable Genocide," especially sections 17.30 and 17.33.

KB: Are there any other examples of perverse incentives that arise out of this legal and economic framework?

TP: As for supranational incentives that corrupt and undermine domestic processes, the resource and borrowing privileges are the main ones. But I should also mention our international banking system. It allows banks to accept funds gained from tax evasion and other crimes and thereby facilitates and encourages embezzlement by public officials, especially in developing countries, as well as tax evasion and tax avoidance by multinational corporations. Countries compete in offering easy working conditions to their banks. In many jurisdictions, you can deposit money anonymously with no questions asked, even if the accepting bank knows that it derives from criminal activities. In the United States, for example, there are only two exceptions: banks have to report deposits they suspect to be related to either terrorism or drug trafficking. But if your funds derive from trafficking women and children for sexual exploitation, for example, or from illegal arms trafficking or any other illegal activity, then banks in the US are legally free to accept your money and are not required to report your deposit to the authorities.

KB: But again, globally influential groups provide cover for this. For example, Transparency International puts out a list of the most corrupt states, and it always features easy targets like Chad, Somalia and Sudan. You never see Switzerland in the top ten.

TP: That's right, the massive corruption common in so many developing countries would be quite impossible if Western countries did not provide convenient opportunities to ship ill-gotten funds out of the country. It wouldn't make much sense for a ruler to store in his basement large quantities of stolen cash in his own country's currency. A corrupt ruler wants to be able to keep this money safe and to be able to spend it. And for this, he needs to convert it into a Western currency and store it in a bank abroad, where it can also earn investment returns and be bequeathed to his heirs. Global Financial Integrity estimates that less-developed countries have lost at least $342 billion per annum in this way during the 2000 to 2008 period.

KB: Up until the economic crisis that took place a couple of years back, many people did not look to institutional moral analysis to explain a wide range of phenomena, like why someone might not have a job, for example. Individual responsibility was constantly invoked. In the wake of irrefutably structural events like sudden surges in unemployment and food insecurity that have blighted the lives of even the "virtuous" individuals, do you see this as an opportunity to cultivate or reanimate people's institutional awareness?

TP: Yes, the global financial crisis is a great opportunity to showcase and propagate both causal and moral institutional analysis. The crisis shows major flaws in the way the US financial system is regulated and, more importantly, in our political system, which is essentially a bazaar of legalized bribery where financial institutions can buy themselves the governmental regulations they want, along with the regulators who routinely receive lucrative jobs in the industry whose oversight had formerly been their responsibility, the so-called revolving-door practice.

Perhaps the most egregious example of regulatory capture is the special tax rate for hedge fund managers - they pay federal income taxes of maximally 15 percent on their income even while the maximum income tax rate in all other professions is 35 percent. Why? Because hedge fund managers pay legislators to have this special perk - not cash delivered secretly in brown paper bags, but money given in bright daylight through official channels.

Our Supreme Court has even lifted this practice of buying legislation to the level of a constitutional principle by repeatedly protecting corporate spending for and against political candidates, as well as promises and threats of such spending to bribe and blackmail such candidates, by appeal to the free-speech clause of the First Amendment. I think that many citizens understand how our system works, or rather, fails to work, for structural reasons. But who has the capacity and the incentives to bring change? The banks and other corporations love the system because it allows them to buy legislation that serves their own interests even at the expense of the vast majority of citizens. Incumbent politicians love the system because it allows them to raise millions of dollars toward defending their seats. And the politicians, of course, get to appoint the judges who decide whether our constitutional protection of free speech also protects a bank's purchase of legislation.

The extremely low respect Congress enjoys among the population - Gallup polls record about three times more disapproval than approval - indicates that the citizens understand broadly what's going on. But the lack of a realistic political reform path leads to apathy and the kind of mindless frustration that manifests itself in the Tea Party-style hatred of any and all government.

Institutional analysis is needed also for understanding what goes on in supranational institutional design. This is subject to the same sorts of regulatory capture which then drives the persistence of severe poverty I mentioned earlier. There is at the global level a very small number of actors who can meaningfully weigh in on global institutional design, who are able - through powerful governments and most effectively (for reasons just discussed) through the government of the United States - to exert substantial influence on international negotiations, which are routinely conducted behind closed doors. These large multinational corporations, often acting through their industry lobbies, also exert a powerful influence on the formulation of domestic rules and on their application - but their influence on supranational institutional design is even larger because it faces practically no opposition there.

Drafts of domestic legislation must be published, debated and publicly voted on, which gives ample opportunities to civil society organizations and ordinary citizens to at least understand what's being proposed and to voice and to organize opposition before the decision is made. Though often vastly more important, international agreements are not routinely published in draft form or publicly debated, and civil society organizations and ordinary citizens often learn of important global institutional design decisions only after they have already been finalized and adopted. The only reliable way to be kept informed and to exert timely influence is by lobbying and paying the politicians and their negotiators. On this route, corporations can even initiate whole new institutional regimes, as exemplified by the TRIPS [Trade-Related Aspects of Intellectual Property Rights] agreement, which would not have come into being but for intense efforts by the software, entertainment, pharmaceutical and agribusiness lobbies.

Domestic and supranational regulatory capture leads to two things: on the one hand, to an inequality spiral where the rich get richer because they can influence rulemaking and rule application in their favor; on the other hand, it also leads to instability. This is so because the relatively few organizations capable of influencing supranational rulemaking through the lobbying of major governments have diverse interests. This will, in some cases, lead to compromises. The TRIPS agreement was such a compromise among industries eager to maximize their revenues from intellectual property. But it will also lead to spheres of influence. Each powerful player, or coalition of players, will make concessions in areas where it has relatively less at stake in exchange for other such players making reciprocal concessions in other areas where it has relatively more at stake. Such trades are collectively rational insofar as they get each of the powerful players more of what it wants. But such trades are also dangerous because, insofar as various pieces of supranational regulation are shaped by different sets of players with diverse special interests, the whole international rule-system will become incoherent and therefore vulnerable to crises that will continue to become increasingly severe.

KB: Usually, the people that criticize "crony capitalism" - but only the third-world kind - differ with you on the past 20 to 30 years of economic trends. While you talk about half the world's population being in dire straits, they typically speak in upbeat terms of the progress made in alleviating poverty. You've taken The Economist to task and dismantled its portrayal of recent economic history. Talk about the logical and empirical problems with this view, as you see them.

TP: The World Bank is the monopoly provider of poverty data and, partly due to a leadership change there, the World Bank's reporting has been heavily on the rosy side since about 2000. The Bank's cultivation of an upbeat picture affords a very interesting lesson in statistics and how you can, depending on which numbers you present and how you present them, create a more positive or more negative impression of the evolution of poverty.

The first thing to appreciate here is that the poverty trend is very sensitive to how high or how low the poverty line is fixed. The World Bank uses the outrageously low poverty line of $1.25 per person per day, in US dollars of the year 2005. Adjusting for inflation, this means that a household located in the United States would count as poor in 2010 only if its entire spending in that year had been below $510 per household member. In poorer countries, the amount the Bank deems sufficient to escape poverty is much lower still. This is because the Bank converts US dollars at purchasing power parities, or PPPs, a kind of exchange rate that takes account of the prices of household consumption goods and services in the various countries.

While in 2005, $1.25 was equivalent to about 55 Indian rupees at the going currency exchange rate, for example, the Bank reckons that an Indian family needed only 19.50 Indian rupees per person in 2005 in order to be non-poor. With such an extremely low poverty line, the Bank finds a mild decline in the number of poor people, which puts us on track toward achieving the 27 percent reduction in this number that the first Millennium Development Goal promises for the 1990-2015 period. But the World Bank's own data show that, if they had chosen a more adequate poverty line, perhaps one twice as high at $2.50 per person per day, US dollars of the year 2005 converted at purchasing power parities, then they would have found a slight increase in the number of poor people between 1990 and 2005, the last year for which full data are now available.

So it is essential to the World Bank's upbeat picture that it chooses an extremely low poverty line. As every resident of the US can confirm, you could not have met your basic needs here in 2010 on $1.40 per day or $510 per year.

Let me add that the Bank's entire methodology is flawed insofar as purchasing power parities are not a reasonable method for comparing households across countries or currencies. The reason for this is simply that PPPs are sensitive to the prices of all the commodities, goods and services, that households are consuming worldwide, with each commodity weighted in the calculations according to its share in international household consumption expenditure. So car prices play a large role in calculating PPPs even while they play no role whatsoever in the consumption or consumption needs of the poor. And the prices of rice, bread and beans play a small role in calculating PPPs even though they play a huge role in meeting the consumption needs of the poor. So the World Bank's method of comparing and converting everything at general purchasing power parities into US dollars is highly distorting within an exercise whose purpose it is to determine whether households are or are not capable of meeting their basic consumption needs.

Read the rest of the article at Truthout

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