You Are Poorer Than You Think

We must thank Olivier de Schutter, UN Special Rapporteur on extreme poverty and human rights, for writing a book called The Poverty of Growth. We must also thank, sarcastically, the Scotia Bank of Canada, for reminding us for years that we are richer than we think. I am going to discuss why economic growth is making us poorer, how we are poorer than we think, and how we can be richer but not how bankers tell us.

It’s easy to call Scotia Bank’s slogan stupid. Considering the stupendous levels of wealth inequality in the world between nations, and between social classes inside each nation, a statement like you are richer than you think looks ridiculous, ignorant, condescending, and moronic.

Absolute and Relative Poverty

Absolute poverty is when a human cannot meet their basic needs to live, from safe housing, to proper nutrition, and quality healthcare. Relative poverty is when humans compare themselves to others, and through this comparison they appear to have less wealth, they appear to be of a lower status, their lived experiences are limited, and their natural potential to thrive and grow is suppressed.

The World is Poorer Today Thanks to (you guessed it!)… Capitalism

In 2021, China declared that it has eradicated extreme poverty according to the national poverty threshold, lifting 770 million people out of poverty since 1978. The threshold used to be $1.90 per day, then it was increased to $2.40 per day. We must thank the World Bank for those generous thresholds. If we ignore China, in fact there are 140 million more people in poverty in sub-Saharan Africa and the Middle East. In 2022, a total of 712 million people globally were living in extreme poverty, an increase of 23 million people compared to 2019. That roughly equivalent to the entire population of Taiwan, and more than the entire population of Chile.

The cost of basic needs (CBN) approach

According to cost of basic needs approach, humans are poor if their income is insufficient to meet the costs of a basket of food and non-food items considered essential to be an active participant in society. Not starving and having a roof over your head is not enough to make you not poor. If you are unable to meet social expectations, such as providing a decent wedding for your children, you may still be poor. If you have an income but you cannot buy freedom with it, you may also be poor. In communist Romania, having a job was virtually guaranteed by the state. Differentials between the lowest and highest income were not extreme. There were not as many goods to buy as in capitalist countries, so from the perspective of freedom to choose, Romania in the 1980s may have been considered poor.

The Multidimensional Approach to Poverty…

…sees poverty both as the cause and as the outcome of a range of deprivations across the entire range of human rights: civil, cultural, economic, political, social. According to de Schutter this approach has limitations. Achievements in improving health, education, standard of living can be measured with quantitative indicators, such as the number of doctors per thousand people, or how many children graduate high school. Qualitative indicators are more difficult to capture. If the focus stays only on quantitative metrics and quality is ignored, then we fall into a race of multiplying the number of doctors or teachers, but not ensuring that they are able to do a meaningful job for society.

Another problem is that if we think poverty can be solved by increasing access to goods and services on the market or provided by the state, then the race becomes about having more and more economic growth. Produce more to consume more. Give people a bit of income to spend and boom!, poverty solved.

Enter Economic Growth, the Fix-it-All Super Hero

As a politician you would be considered crazy to say that your country does NOT need economic growth. GDP is a god that needs constant appeasement with blood sacrifice of millions on the altar of hard work. When GDP does not grow, governments panic and lose elections, the stock market goes crazy, unemployment increases, fascism rises. At the same time, we’ve known from Richard Easterlin since the 1970s, that when GDP goes up, improvement in subjective wellbeing does not go up as well. There is no causality and not even correlation between GDP and the wellbeing of humans.

A side effect of economic growth is that when material opulence increases, so do desire and expectation. When you have more, you are getting used to wanting more, and when you don’t get it, you are faced with new forms of dissatisfaction. When social expectations keep rising so will social exclusion. Always buying the newest gadgets, upgrading your house with the newest trends in design, dressing in the newest fashion trends, will always exclude those who cannot keep up with the pressure of growth, with the fetish for the new and better. Even the notion of new is conflated to mean better. Capitalists never tell us about the strings attached, the price to pay not just in money, but in negative emotions and environmental footprint. The general rise of affluence can worsen the individual experience of being left behind.

Development Based on Exports (and trade in general)

When you base the development of your country on exports, you risk entering the complicated web of global supply chains, which are overloaded with intermediaries between the extraction of natural resources and the product in your hands. The longer and bigger the supply chain is the higher risk for: more and more extraction of materials, consumers not caring for what goes into their products, intermediaries making more and more money on the backs of workers. Think about it: every intermediary needs to make a profit to exist, they have to make more money than they spend, which forces them to pay workers as little as possible.

The global supply chains and development based on exports are extremely unequal. They favor players who use economies of scale, players who can use technologies that can produce large volumes at low costs, preferably by using as few humans as possible. There are many failures in this game, and winners benefit not just from getting richer but also from getting more powerful.

The Dependence Effect

Economist John Kenneth Galbraith found that while production is meant to satisfy the needs of consumers, it also creates new needs with a legitimate expectation for many humans to enjoy what used to be a privilege of the elites. Comparing yourself to others in a better position makes you dependent on wanting change and growth in the quantity and quality of what you consume. Even if nothing bad happens to your situation, even if you are comfortable already, you may still experience a loss in your wellbeing if you see you are stagnant in your position compared to others. And if others accumulate faster than you, or if everyone is improving but at different speeds, that may not be good enough for many humans. They remain dependent, unsatisfied regardless of how much growth there is overall in society.

Other Psychological Effects

Hirschman and Rothschild have described the tunnel effect, when a driver sees the lane next to theirs moving forward, they may feel an increase in happiness: the driver anticipates their turn will come next. When you see others getting richer you may think, hey maybe I will be next too. This is the entire sales pitch of the American Dream. You have to be asleep to believe it!

The rebound effect is when we see an increase in efficiency and we consume more instead of consuming the same or less. It’s when you change to led light bulbs that are more efficient, but you keep them on all the time, and overall your energy consumption stays the same or even increases.

The revenue effect happens when efficiency-enhancing technologies save people money on some products or services but leads them to spend that money on something else. This comes from the reality that the consumer society does not teach us about self-limitation. Everything is about efficiency while nothing is about sufficiency. Capitalism is so insidious we can now see ads about making sufficiency itself efficient. Buy this cute little thingy, you won’t need anything else!

The compartmentalization effect is driving a hybrid car and because of that you feel you are entitled to travel by air to exotic holiday destinations. Shifting ethics and cognitive dissonance in the mind is a routine game in the consumer society, played by liberals and conservatives alike.

The lock-in effect refers to tendency to keep a more efficient technology in place once it is discovered and installed. We discovered electric cars, and instead of asking how about more electric free public transit we moved as a society to thinking that we must replace gas-fueled cars with electric cars.

The middle-class effect happens when average income per person reaches approximately $6,000 per year. Beyond that threshold more people can afford to buy stuff beyond the basic necessities. The additional income creates demand in the economy for more stuff, therefore a demand for growth. The point was reached by Egypt in 2011. Indonesia, India, Philippines, Vietnam reached the point between 2015 and 2019. Pakistan reached it 2024. Nigeria will reach it 2025.

Is this sustainable? No, it is not. Can we deny more comfort to so many humans? Of course not. What needs to happen? A drastic degrowth of consumption of those making significantly more that the $6000 limit. If all humans converge towards a simpler pattern of consumption and production, then bad effects can be phased out, and sustainable wellbeing can be phased in, for all humans.

Poor People Are the Most Affected

Poor people are the first victims of air pollution, because they generally live closer to the sources of pollution or because they live in small, overcrowded dwellings that are more difficult to ventilate properly. They suffer more from landslides or flooding, because they are forced to live wherever they can afford housing.  They are more dependent on ecosystems for their livelihoods. Globally, 1.2 billion jobs (40 per cent of total world employment), most of which are in Africa and Asia and the Pacific, rely directly on the effective management and sustainability of a healthy environment.

Your Lifestyle Is Making You Poorer

Olivier de Schutter writes:

Often people feel they must sacrifice elements of their current lifestyle in order to make limits work, or they may feel that limits are imposed on them, be it by governments, employers, or others. However, if as individuals and societies, we limit ourselves willingly in pursuit of a larger goal, the imposition of such limits becomes an act of freedom. Self-chosen limits set people free.

That sounds noble, doesn’t it? Does it work? Go ask a hard-core businessman to give up their mega mansion, their multiple properties and adopt self-limits. Most of them will never do it, unless they have a massive spiritual awakening. I am not saying it cannot happen. It is unlikely to happen if everyone thinks, why should I do it first, let my neighbor do it first. Yet again, this is an example of dependence effect, comparing yourself to others. Remember poverty is absolute, but in most cases it is relative.

There are many benefits to adopting sufficiency voluntarily, before your neighbor. The simple fact is that sufficiency is FOR YOU first, not for your neighbor. Sufficiency is meant to make YOU happier, not your neighbor. Sufficiency is a liberation from the pressures of social comparison, an escape from the dependence effect, and from the rebound effect. Freedom is about having a sense you are in charge to pursue your own thinking. Sufficiency gives you that space because it empowers you to know about when enough is enough, empowers you to internalize that what lies beyond those limits carries severe negative effects that reduce your freedoms.

Solutions: Triple-dividend measures

According to de Schutter these are measures that (1) reduce the environmental impact of production and consumption, while at the same time (2) create employment opportunities for people with lower levels of qualification, and (3) make the goods and services necessary for a life in dignity affordable for low-income households.

740 million people do not have access to electricity and 2.4 billion people still lack access to clean-cooking solutions and are exposed to dangerous levels of air pollution, causing millions of deaths each year, mostly among women and children. Each $1 million spent on energy efficiency supports 7.72 jobs, while similar expenditures in the renewable and fossil fuel sectors create 7.49 and 2.65 jobs. So, let’s create some jobs and give electricity to people!

With the right policies and technologies, energy consumption in both new and existing buildings could be cut by 30 to 80 per cent. Let’s create jobs in making the stock of buildings energy efficient!

Solutions: Combating Inequality

“Each class envies and emulates the class next above it in the social scale, while it rarely compares itself with those below or with those who are considerably in advance” wrote Thorstein Veblen in 1899. The race of climbing to the top of the food chain pyramid intensifies the more this inequality between classes exists.

With more equality, with limits to production and consumption, as advocated by degrowth, we have the option to signal our positions in society not with fancier stuff, opulence and expensive style, but with non-material achievements. In StarTrek status was signaled by competence, moral values, effort, not by who had the shiniest suit, glitziest car, or largest house.

Inequality Leads to Inefficiency… and Insufficiency, Obviously

Markets are stupid. They don’t provide what people actually need. Markets see potential consumers having money so it throws at them an overwhelming amount of moronic stuff, hoping some of it will stick.

The marketplace is a plutocracy: it is “the rule of the rich, where each consumer’s influence on what gets produced depends on how much he spends”. This is incredibly inefficient! “Deciding with your dollar” what stays on the market and what doesn’t, is incredibly stupid, because you have to have that dollar first, in order to do something with it. It’s not about having a need that requires satisfaction; it’s about having the dollar. This is how markets are created, not around actual needs, but around moving money around by putting prices on stuff. No wonder this model is insufficient. The needs of so many humans are ignored because they don’t have the money to dictate what should be produced for them.

Solutions: Phase out meritocracy

Meritocracy is a counter-productive, and dare I say it, moronic philosophy. It reduces empathy towards humans that, allegedly, do not have merit, ignoring of course their life circumstances. It suggests inequality is something inevitable and even desirable because not everyone merits the same reward as dictated by the market. If there is no demand for a poet, as talented as she is, she does not have merit in the eyes of society, unless perhaps she becomes a hip-hop artist and sells a lot of records. But what if she does not want to become a hip-hop artist?

When a society is organized to reward merit, the losers will not be forgiven for their failures, and the winners will be convinced that their successes are caused 100% by their efforts alone.

What can we have instead of meritocracy are very small differences in wealth and income, based on effort, personal risk, value to society and other criteria, decided democratically.

Solutions: The Right to Paid Work

If you want to work there should be a job for you. No competition with other job-seekers, no fake resumes, no fake interviews, no fake job titles and job descriptions, no nepotism, no bullshit jobs, no wage theft. This is the job guarantee. There is a lot of work that needs to be done, that is socially valuable,

not just productive, which is what the market values.

Solutions: Workplace Democracy

Should all workplaces be democratic, without exception? Yes, without a doubt. What if there is a company that produces microscopes and the workers decide that a certain lens should be used, instead of what the experts in optical physics recommend? Well, experts can be allowed to decide on expert matters, with the consent of the collective. Workplace democracy doesn’t mean everyone decides on everything, but rather everyone is fully involved in all decisions that are relevant to them.

In 2017 in Europe, in the firms with the highest average wages, the bottom 1 per cent of workers were paid on average €7.10 per hour while the top 1 per cent earned an average €844 per hour. Why is this possible in the first place? Because there is no workplace democracy. There should be no hesitation that one solid solution to eliminate poverty is more democracy.

Solutions: Reduction Of Working Hours

Working less, up to 20 hours per week in the productive economy has three benefits: it increases gender equality, workers can spend time doing anything else except productive work, and reduces the pressure of economic activity on the ecosystem.

A study comparing 29 high-income countries from 1970 to 2007 showed that a decline in working hours reduces (1) ecological footprints in general, measured as land required to meet consumption of food, housing, transportation, consumer goods, and services, both to provide resources and to absorb waste, (2) the carbon footprint, including the carbon embedded in imports and exports, and (3) carbon emissions (produced within the territorial unit concerned).

Working less breaks the vicious cycle of having to work more in order to consume more, or consuming more because you work more. However, working less does not immediately make you less poor. All that free extra time would be filled with public transit, not flying more for vacation, eating healthier locally either at home or in the community, and whatever fancies your mind, that does not require old-fashioned consumerism.

What is missing from the Poverty of Growth

Olivier de Schutter is a champion for the poor. Which is great! He defines his solutions as a “post growth approach". Post-growth is not quite the same as degrowth. The major doozy is that we cannot keep the current levels of consumption and production. To get to any of the solutions mentioned, and there are many more, we cannot avoid talking about reductions, limits, sufficiency, rationing, and a new way of understanding freedom. Degrowth is unavoidable.

Now, we know we are poorer that we think. We also know how we can redistribute wellbeing and prosperity.  Let’s get to business!