Why the Free Market Wont Reduce Poverty

The persistence of poverty in the world calls into question the current economic development philosophy or paradigm of the ‘free market’. The current paradigm predicts that the best way to reduce poverty is a free market economy, the reason being that, by freeing the means of production from the restrictions of trade and financial regulations, it will produce increased growth and development for all countries. The increase in national growth will have a trickle down effect for the poor, as increased wealth and productivity will improve the standard of living for all and bring about increases in employment opportunities.

The World Financial and Economic Crisis has questioned the validity of this philosophy. Indeed, when studied in terms of what results are being produced, it is clear that rather than reduce poverty, the free market paradigm actually increases poverty, especially for developing countries who comply unquestioningly (and often without choice if they wish to obtain loans) with the requirements of the IMF for their development needs.

One indicator to measure the success of the Free Market Economy in reducing poverty is employment. It is widely recognized and accepted that productive and decent work for all is central to poverty reduction. Under the Free Market philosophy, however, labour market ‘flexibility’ is the prescribed policy, which does not place great emphasis on the creation of productive and decent work. Labour Market flexibility suggests that, rather than finance the creation and sustaining of decent, productive work, it is better for the economy’s growth for the workforce to be flexible as employment will be determined by what products are best for a country to develop for it to gain the best advantage from the free market (e.g. if Australia can produce vegemite more cheaply and efficiently than New Zealand, while New Zealand can produce woolen jumpers more cheaply and efficiently, then it is better for Australia to specialize in vegemite and New Zealand to specialize in woolen jumpers and for the work force to have the flexibility to adapt to the jobs the market dictates). As such, provisions for a minimum wage and employment protection, not to mention trade unions, are seen as barriers to employment growth, and thus vulnerability to poverty increased for workers.

Added to this, government investment in social policies (e.g. pensions, social security, support programs for the unemployed, etc.) are seen as wasteful uses of resources with poor financial returns. The same is the case for government investment in education and public health.

Also, the free market paradigm has ‘Privatization’ as one of its foundations. Here, State owned enterprises are evaluated solely on bookkeeping ‘bottom lines.’ For the sake of efficiency, employment is rationalized. But State-owned enterprises often have other objectives, such as employment creation or social protection. This cannot be ignored as it affects poverty, especially of the working poor.

The basic fact is the free market philosophy is ill-equipped to attack the causes of poverty, because achieving fundamental social transformation requires cooperation rather than competition, and support for long-term, systemic solutions instead of immediate profitable results.

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About Passionist JPIC Australia

I am a priest with the Passionist Congregation and a part of our Australian Province which includes Australia, New Zealand, Papua New Guinea and Vietnam. I have been ordained since December of 1992. I was born in the Philippines, though am from Spanish decent. I came to Australia in 1972 with my family when I was 11 years old, and we settled in Brisbane. That is where I did the rest of my growing up. On completing high school, I went to Queensland University where I studied for 4 years, completing a B.Sc. with a major in Microbiology. The following year I decided to enter into the Passionist Congregation to study for the priesthood. I trained for 9 years, and have been a priest for 25 years. In my time as a priest I have been Director of the Passionist Family Group Movement in Victoria, Tasmania and Queensland; conducted over 400 Parish Missions all around Australia and New Zealand, but particularly in Victoria and Western Australia; worked in adult faith education, Sacramental preparation for children and parents; Hospital chaplaincy; High school chaplaincy, in-services and retreats. In the year 200 I became engaged in developing young adult retreat teams and training them to carry on our high school retreat programs. I am also chair of our Province’s committee for Justice, Peace and the Integrity of Creation (JPIC). I am also a member of ACRATH (Australian Catholic Religious Against Trafficking in Humans).
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