Prosperity and growth: busting the myths

Since time immemorial, humankind has been searching for prosperity. Yet the very definition of the term is still elusive, as is an agreement on the paths towards it. In 1970 the Club of Rome commissioned an international research team at the Massachusetts Institute of Technology (MIT) to develop a computer simulation of exponential growth with a finite supply of resources. In 1972 their report, included this 1969 quote by U Thant, United Nations third secretary general:

‘The members of the United Nations have perhaps ten years left in which to subordinate their ancient quarrels and launch a global partnership to curb the arms race, to improve the human environment, to defuse the population explosion, and to supply the required momentum to development efforts. If such a partnership is not forged within the next decade, then I very much fear that the problems I have mentioned will have reached such staggering proportions that they will be beyond our capacity to control.’

Fifty years ago, we could already assert a fact that is somehow still contested; that, even with advanced technology, the Earth’s resources cannot support present rates of economic and population growth much longer. In other words, while growth may be, at times, a necessary condition for prosperity, it may just as well be the factor that hinders its very possibility.

Since was published, there has been growing consensus in the international development field that economic growth as we know it – the one that skyrocketed globally, yet unequally, around 200 years ago and is based on fossil fuel-based energy – must stop and fundamentally change. This has been backed by a growing pool of scholars, as well as environmental advocates and even political leaders. Economists who still advocate growth are misguided by a theoretical macroeconomic concept. Growth prosperity. They are not identical. Growth without distribution is just a (small) bunch of rich people getting richer. Prosperity is collective or it cannot be called prosperity at all.

Throughout my career in public service, I had the opportunity to observe the way strategies based on misconceptions about prosperity and development led to forms of public policy that, while well-intentioned, were often counterproductive.

Take the Barrio 31Social and Urban Integration Plan implemented by Buenos Aires city government (GCBA) in Argentina. It’s possible to identify four policy actions which have been informed by misconceptions of prosperity:

1. Land and housing tenure security through individual property rights;
2. Financial inclusion through the formal banking system;
3. Employment through entrepreneurship and precarious private sector jobs; and
4. Environmental sustainability through recycling and other limited strategies.

1. Land and housing tenure

The GCBA has chosen to give barrio residents individual property titles, an initiative based on a fallacy of prosperity. Even when mortgage terms are well below average market conditions, residents still feel they will struggle to pay them, especially in the current context of economic crisis.

There are no restrictions to real estate transactions, setting the stage for what residents have identified as forms of economic eviction. Even if restrictions were applied, exclusion from the formal economic system has pushed residents to engage in norms and pacts that differ from the legal environment of the formal city. What makes us think they will not persist in informal rent/purchase of newly constructed houses? What mechanisms have been set in place to prevent rampant gentrification? What’s to stop displacement of residents to cheaper locations?

A more appropriate way forward might be to explore cooperative forms of secure tenure. Community land trusts or other systems of cooperative stewardship may be more aligned with self-organised, self-built communities’ ways of creating and recreating their environment – something we in Latin America call.

2. Financial inclusion

In this case, the fallacy lies in the belief that financial inclusion through the formal banking system will provide economic development opportunities for residents. Granting individual property rights has been presented as a strategy to make households creditworthy, but banks are still reluctant to take these properties as collateral for productive business loans. The establishment of a local Santander bank branch in Barrio 31 was celebrated by government officials, media and residents, but to a large percentage of the world’s slum/shack/dwellers, the formal banking system remains foreign and unfriendly.

For hundreds of years cooperative and trust-based credit systems have thrived within informal environments. Barrio 31 would have been (maybe still is) an appropriate context to explore and create space for alternative endogenous forms of financing and loans. An interesting precedent could be or , a mutual trust savings system believed to have originated in the pre-Hispanic territory of current Bolivia whereby members make periodic contributions that are then allocated to members in turn either by lottery or according to needs.

3. Employment

This fallacy is about the promise of formal employment and the benefits it brings. Take, for example, the recent opening of a McDonald’s on the edge of Barrio 31, right next to the Santander bank. It has been presented as part of a strategy of integration the and the formal city. It comes with the promise of 80 jobs for local people, a fact that is taken as evidence of its role as a driver of economic development the . This narrative is backed up by the fact that the manager and franchise owner is a life-long Barrio 31resident who used to work in another McDonald’s a couple of kilometres away. To reinforce the point, the company behind McDonald’s (Arcos Dorados) allowed the franchise owner to repay the set-up costs through a higher royalty percentage rather than the initial upfront payment that is usually required.

While this may have given a boost to an individual’s career, there are questions about its impact on the neighbourhood as a whole. How does this opening affect the hundreds of street vendors and local eateries already doing business nearby?

Even if you were to argue that the trade-off is worthwhile, that the creation of 80 jobs offsets the threat to local trade, there are more questions to be asked. What of jobs does this company offer for locals? Where does the real profit go? Who owns the brand? What about equity? Perhaps more importantly, who is the real central character here? Where does power lie? Who decided to sell a plot of highly valued and scarce land to this brand? Certainly not the residents, who have been demanding land for social housing for decades, probably ever since the settlement’s creation in the 1930s.

One of the barrio’s delegadas, told me how, when she noticed her next-door neighbour was struggling economically: ‘I offered to keep an eye on her four kids from 4 to 8am so that she could go sell at rush hour at the neighbouring train station’. Solidarity networks are the basis of life in the . Where is the symbolic space and tangible resource allocation to identify and develop these networks in the city’s comprehensive plan? Perhaps it would be fitting to explore forms of (Social and Solidarity Economy)as a more appropriate socio-economic and environmental alternative.

4. Sustainability

Over 10 years ago, as a very young United Nations Development Programme (UNDP) Argentina employee, I was asked to assist in the Green Office initiative. I wrote emails encouraging staff to ‘Reduce, Reuse, Recycle’, the three Rs, as per UN guidelines. Like a lot of kids from my generation, I had experienced the mid ’90s wave of recycling (embedded in my brain in the form of can-crushing devices). So, years later at UNDP, the ‘recycle’ part of it all was not foreign to me. What caught my attention were the two words carefully placed before it. A little research taught me the placement was not random. I learned that, if we fail to change our patterns of consumption, recycling can only do so much.

Evidence was showing – and the UN acknowledged – that we had to implement a fundamental reduction in our global use of plastic and fossil fuels. My research was also showing that this fundamental change in consumption and production patterns would be no small feat, since it was not convenient for a global economic system based on unlimited growth.

We are facing the same issues 12 years later. In the case of Barrio 31, while there are sustainability initiatives – such as solar panels on new housing, or bicycle stations – environmental focus is mainly placed on the third R through the ATR programme (A Todo Reciclaje). This includes engagement initiatives to inform residents about trash separation, as well as actual treatment of recyclable material by the existing cooperatives. While this is important work, there is a patent absence of more comprehensive policies at the city level aimed at systemic change of production and consumption trends.

Moving forward

To move forward, we need to address four overarching issues. The first is about theory. While there have been massive efforts to tackle poverty and define wellbeing, there has not been enough discussion about wealth and growth. Yet, there seems to be growing momentum to finally include this essential part of the prosperity debate in the public agenda. The push for a Green New Deal in the US and beyond, and the protests sparking across Latin America, are examples of people organising (organización popular) around the basic notion that our current economic system and patterns of production, trade and consumption are fundamentally flawed.

The second challenge lies at the intersection of theory and practice. Once we have developed an appropriate raft of rights and regulations, we have the challenge of getting consensus and backing across the globe. This calls for a fundamental reform of international governance institutions, at least as a first step.

The third issue is eminently practical. What are the mechanisms to effect change on the ground at the local, national and global scale? Ideas like the Tobin tax (a tax penalising short-term currency conversion), universal basic income, even the UN’s Sustainable Development Goals (SDGs), offer clues that might prove useful for an alternative approach.

Finally, we need to be able to measure progress. Global prosperity indicators, while helpful at times, tend to oversimplify complex issues. Take inequality, for instance. The Gini coefficient has been considered insufficient leading to the development of more complex measurements such as the Multidimensional Poverty Index (MPI) or the Palma ratio. We have to accept effective measurement is an ongoing process, and create mechanisms for inclusive and iterative development of the way we keep track of results.