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.