Hunger as the Primary Economic Problem
By Asad Zaman
If any group of concerned citizens would gather to discuss economic problems, it would seem natural to begin with problem of feeding the hungry. Strangely enough, one would not encounter this problem within a standard course of study of economic theory at any of the leading universities throughout the world. This is due to two major mistakes made in formulation of conventional economic theories currently being taught and practiced throughout the globe.
The first mistake is the idea that the goal of an economic system is the production of wealth, broadly defined. For example, Adam Smith takes the fundamental economic problem to be the production of wealth. The accumulation of capital, and maximization of GNP per capita is currently the core of economic growth theory. Human beings are important only to the extent that they are producers of wealth. The value of human life can be evaluated in terms of how much wealth the human can produce. This also accounts for the use of the degrading term “human resource”. Human lives are inputs into the production function, and they get paid wages equal to their marginal product, exactly on par with other inputs into the production function.
A revolution in economic theory would result if we replace this completely mistaken idea with its opposite: The goal of an economic system is to increase human welfare. Wealth is important only to the extent that it can bring about increases in human welfare. In conjunction with wealth, many other types of invisible inputs, such as social capital, cultural norms, and institutional structures, also play an important role in determining human welfare, broadly understood in terms of all dimensions of life which contribute to our collective well-being. Wealth, capital, and production of goods and services are resources to be used to help improve human lives. A central goal of economics should be the relation between resources, and their relative efficiency at contributing to human welfare. In particular, providing food to the hungry is clearly the single most important and universal invariant in production of human welfare. Exactly the same amount of resources can lead to vastly different outcomes in terms of human welfare. The fundamental economic problem is to study how to use a given amount of wealth to produce the maximum amount of welfare.
The second mistake, engendered by the first, is the idea that investment in physical capital is the main source of growth and development. Mahbubul Haq (2003) pioneered the replacement of GNP by the Human Development index. Amartya Sen (1999) follows up by arguing, at book length, that progress is about the development of human capabilities. The United Nations now defines development as the ability “to lead long and healthy lives, to be knowledgeable, to have access to the resources needed for a decent standard of living and to be able to participate in the life of the community.” Of course, food is the sine-qua-non of human development. Wealth, capital, goods and services, must all be evaluated in terms of their effects on human welfare. Many factors not usually considered by economists come into play in such an evaluation. The importance of social norms, trust, cooperation and other soft factors is gradually gaining recognition as important contributors to welfare.
Conventional economic theories are responsible for a huge amount of misery. In the Reagan era in the USA, these theories led to tax cuts for rich, financed by increased taxes on the poor and reduced social services. The idea was that the rich are more efficient producers of wealth, while providing food to the poor would create a drag on the economy. More recently, trillions of bailouts were given to the financial industry, while hunger and homelessness reached record levels since virtually no relief was provided to mortgage holders in distress. Similarly, developing economies all over the world invest massively in industrialization and fancy mega-projects, while not providing basic social services to the poor. A recent UNICEF report shows that the costs of these misguided policies are paid by the children, who are stunted, malnourished and die in large numbers, to allow repayments of interest on debt; see Child Rights Governance for related literature and references
A revolution in planning for growth would result from taking seriously the idea that humans being have far more capabilities and potential than any kind of machine. History gives us many examples of human beings who have changed the world, for the better or worse. Given the right environment and training, all children have the potential for extraordinary genius. It is our collective task as a society, to ensure that all children get the opportunity to develop this potential. The economic system is valuable only as a means to achieving this goal. This means that providing basic necessities like food, healthcare, and education is actually the most valuable investment we can make. Unfortunately, conventional theories of growth, currently routinely being applied throughout the world, do not recognize this fact. As a result, these false economic theories lead us to invest in industry, instead of our children, who represent our greatest potential, and our future.
The spectacular failure of conventional economic theories during the Global Financial Crisis has strengthened and created several movements for reform of these theories, ranging from mild to radical and revolutionary. Many of these reforms are taking on board the idea that economic growth is a means to providing for the people. Perhaps we can hope for a better future?
Mahbub-Ul-Haq, “The birth of the human development index.” Readings in human development (2003): 127-137.
Amartya Sen. Development as freedom. Oxford University Press, 1999.
From: p.10 of World Economics Association Newsletter 5(2), April 2015