Economics For Ecclesiastics Entrepreneurs, Firms, Growth and Poverty

ECONOMICS FOR ECCLESIASTICS
Entrepreneurs, Firms, Growth and Poverty

Growth, inequality and poverty
Antonio Argandoa
Emeritus Professor of Economics
la Caixa Chair of Corporate Social Responsibility
and Corporate Governance
MCE Research Center
Rome, November 28 December 1, 2014
Growth
Prof. Antonio Argandoa
Cuba
Jamaica
Haiti
Puerto Rico
Cuba
Jamaica
Haiti
Puerto Rico
Shanghai Pu Dong District in 1996
Shanghai Pu Dong District in 2004
10
11
12
A short history of growth
13
14
In many European nations, until the mid-nineteenth century the

production of food was so scarce that the poor classes were
always undernourished (...) High rates of disease in that time
were (...), largely a result of a diet extremely poor.
Robert W. Fogel, 1994
Adults in the 18th century and much of the 19th must have been
very short, according to the current standards, and less
physically active.
Robert W. Fogel, 1999
15
Innovation waves
1785-1845: hydraulic energy, textile and iron (bridges, construction)
1845-1900: steam, railroads, steel
1900-1950: electricity (lighting, engines: assembly line), chemistry,
internal combustion engine (car: motorways, supermarkets)
1950-1990: electronics, petrochemicals (plastics, pharmacy),
aviation
1990-...: technologies of information and communications,
nanotechnology, new materials, biotechnology,...
Many potential innovations prepared to make breakthrough
16
Some facts
Big differences in the rates of growth among countries and along
time
Relatively recent: 200 years
High rates of growth are not sustainable during many years
The newcomers have higher rates of growth
Catching up (convergence)
The first steps are easy
The advantage of imitation
Miracles are possible

Big impact of growth in our life
Growth is related to inequality
17
How to mesasure growth
18
The Gross Domestic Prouct (GDP)
The Gross Domestic Product (GDP) is the value of the final

production of good and services in a country in a certain
period, at market prices
19
GDP does not include the health of our children, the quality of
their education, or the joy experienced when playing. It does
not value the beauty of our poetry, the strength of our
marriages, the intelligence of the public debate or the integrity
of our politicians. You can not measure our value, our wisdom
or our devotion to our country. Measures everything, in short,
except that which really makes the life worth living,
and tells us all about the United States, except why we
are proud to be Americans.
Senator Robert Kennedy, 1968
20
New dimensions of growth

Material growth
Multidimensional growth
The Human Development Index
Income per capita
Child mortality
Years of schooling and school attendance
Illiteracy
Life expectancy
The capabilities approach

Freedom, which freedom?
21
22
23
24
25
26
27
28
The growth process
29
Why some countries grow and others dont?
North Korea
South Korea
Japan
30
What is growth?
Gross Domestic Product (GDP) growth =
Growth of employement +
+ Growth of productivity
Gross Domestic Product (GDP)

Labor productivity = -------------------------------------------------Employed people
31
Productivity is important
Higher productivity allows higher wages or lower labor costs
Higher productivity means a higher GDP (a higher standard of
living)
Greater productivity growth implies an increasing GDP growth
(faster standard of living growth)
32
33
The process of growth

Growth means change and change is difficult
Creating opportunities and taking advantage of them
Producing "more of the same" is not a good strategy

Resource depletion
Deterioration of the environment
The economy progresses through waves of "creative destruction"

Importance of flexibility
The temptation to delay change
Transition of some products and sectors to others

Leaving products in which productivity is low and pass to others
with higher productivity (from agriculture to industry and services)
To grow is to climb up the value-added ladder

The role of knowledge and technology
34
"Catching up" or convergence: the use of the technologies and

processes invented by others increases productivity
Most of the productivity growth is due to the entry of new
producers
People respond to incentives
Grow means to promote appropriate incentives
Growth has costs: social change, urbanization, sectors and areas

in decline,...: there are winners and losers
Man is the ultimate resource (Julian Simon)
Until the industrial revolution, we grew up based on labor and
capital. Since then, we have grown based on ideas
(technology and human capital)
35
36
How to grow
37
Factors of growth
Investment in physical capital
Labor availability
Human capital
Access to technology
Organization, empreneurship
Finance
Institutions
Incentives
Other factors (geography)
38
Panaceas that didnt work

Industrialization
Aid
Infrastructures
Investment in education
Population control
Credit
Debt cancelation
39
Physical capital
40
Human capital
41
Human capital
42
Finance capital
43
Geography
44
45
Authentic human development concerns the whole of the

person in every single dimension.
Benedict XVI, Caritas in veritate, 11
Institutions by themselves are not enough, because integral

human development is primarily a vocation, and therefore it
involves a free assumption of responsibility in solidarity on the
part of everyone.
Id., 11
Paul VI had already warned against the technocratic ideology

so prevalent today (), fully aware of the great danger of
entrusting the entire process of development to technology
alone, because in that way it would lack direction.
Id., 14
The essential quality of authentic development () must be

integral, that is, it has to promote the good of every man
and of the whole man
Id., 18
46
Economic aid () must be distributed with the involvement not

only of the governments of receiving countries, but also local
economic agents and the bearers of culture within civil
society, including local Churches. (
Id., 58
Indeed, the most valuable resources in countries receiving

development aid are human resources: herein lies the real
capital that needs to accumulate in order to guarantee a truly
autonomous future for the poorest countries.
Id., 58
In the economic sphere, the principal form of assistance needed

by developing countries is that of allowing and encouraging
the gradual penetration of their products into international
markets.
Id., 58
47
Inequality and poverty
48
Germany : US$ 500 / week
49
308X
Tchad, Africa: US$ 1.62 / week
50
51
52
53
54
What can we do?
55
Functions of the State

Addressing Market Failure
Improving Equity
Providing pure public goods:
Intermediate
Functions
Activist
Functions
Protecting the
poor:
Defense
Law and order
Property rights
Macroeconomic management
Public health
Minimal
Functions
Addressing
externalities:
Basic education
Environmental
protection
Regulating
monopoly:
Utility regulation
Antitrust policy
Antipoverty programs
Disaster relief
Overcoming
imperfect
information:
Insurance (health,
life, pensions)
Financial regulation
Consumer protection
Coordinating private activity:

Fostering markets
Cluster initiatives
Providing social
insurance:
Redistributive
pensions
Family allowances
Unemployment
insurance
Redistribution:
Asset redistribution
56
Development is impossible without upright men and women,

without financiers and politicians whose consciences are
finely attuned to the requirements of the common good. Both
professional competence and moral consistency are
necessary.
Benedict XVI, Caritas in veritate, 71
57
Thank you!
argandona@iese.edu
blog.iese.edu/antonioargandona

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ECONOMICS FOR ECCLESIASTICS

Entrepreneurs, Firms, Growth and Poverty

Prof. Antonio Argandoa

Prof. Antonio Argandoa

Prof. Antonio Argandoa

Prof. Antonio Argandoa

Prof. Antonio Argandoa

Prof. Antonio Argandoa

Prof. Antonio Argandoa

Prof. Antonio Argandoa

Shanghai Pu Dong District in 1996

Shanghai Pu Dong District in 2004

Prof. Antonio Argandoa

Prof. Antonio Argandoa

Prof. Antonio Argandoa

A short history of growth

Prof. Antonio Argandoa

Prof. Antonio Argandoa

In many European nations, until the mid-nineteenth century the

Prof. Antonio Argandoa

Prof. Antonio Argandoa

Miracles are possible

Prof. Antonio Argandoa

How to mesasure growth

Prof. Antonio Argandoa

The Gross Domestic Prouct (GDP)

The Gross Domestic Product (GDP) is the value of the final

Prof. Antonio Argandoa

Prof. Antonio Argandoa

New dimensions of growth

The capabilities approach

Prof. Antonio Argandoa

Prof. Antonio Argandoa

Prof. Antonio Argandoa

Prof. Antonio Argandoa

Prof. Antonio Argandoa

Prof. Antonio Argandoa

Prof. Antonio Argandoa

Prof. Antonio Argandoa

The growth process

Prof. Antonio Argandoa

Why some countries grow and others dont?

Prof. Antonio Argandoa

Gross Domestic Product (GDP)

Prof. Antonio Argandoa

Prof. Antonio Argandoa

Prof. Antonio Argandoa

The process of growth

Producing "more of the same" is not a good strategy

The economy progresses through waves of "creative destruction"

Transition of some products and sectors to others

To grow is to climb up the value-added ladder

Prof. Antonio Argandoa

"Catching up" or convergence: the use of the technologies and

Growth has costs: social change, urbanization, sectors and areas

Prof. Antonio Argandoa

Prof. Antonio Argandoa

Prof. Antonio Argandoa

Prof. Antonio Argandoa

Panaceas that didnt work

Prof. Antonio Argandoa

Prof. Antonio Argandoa

Prof. Antonio Argandoa