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

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Cuba

Jamaica Haiti Puerto Rico

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Cuba

Jamaica Haiti Puerto Rico

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Shanghai Pu Dong District in 1996

Shanghai Pu Dong District in 2004

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A short history of growth

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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

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 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

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 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

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How to mesasure growth

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 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

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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

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 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?

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The growth process

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Why some countries grow and others dont?

North Korea

South Korea Japan

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 What is growth?

Gross Domestic Product (GDP) growth =

Growth of employement +
+ Growth of productivity

Gross Domestic Product (GDP)

Labor productivity = --------------------------------------------------
Employed people

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 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)

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 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

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"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)

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How to grow

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 Factors of growth

Investment in physical capital

Labor availability
Human capital
Access to technology
Organization, empreneurship
Finance
Institutions
Incentives
Other factors (geography)

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 Panaceas that didnt work

Industrialization
Aid
Infrastructures
Investment in education
Population control
Credit
Debt cancelation

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Physical capital

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Human capital

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Human capital

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Finance capital

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Geography

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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

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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

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Inequality and poverty

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Germany : US$ 500 / week

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 308X
Tchad, Africa: US$ 1.62 / week

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What can we do?

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 Functions of the State
Addressing Market Failure Improving Equity

Providing pure public goods:

Defense Protecting the
Minimal poor:
Functions Law and order
Property rights Antipoverty programs
Macroeconomic management Disaster relief
Public health

Overcoming Providing social

Addressing imperfect insurance:
Intermediate Regulating information:
externalities:
Functions monopoly: Redistributive
Basic education Insurance (health, pensions
Utility regulation life, pensions)
Environmental Family allowances
Antitrust policy Financial regulation
protection Unemployment
Consumer protection insurance

Activist
Functions Coordinating private activity:
Redistribution:
Fostering markets
Asset redistribution
Cluster initiatives

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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

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Thank you!

argandona@iese.edu
blog.iese.edu/antonioargandona