Abstract

What does effective poverty relief entail? How are we to assess the capacity of advanced industrialized societies to solve the problem of poverty? What role, if any, is left for the welfare state? This chapter argues that poverty relief, far from being primarily a matter of post hoc redistribution, primarily consists in a Hayekian-Schumpeterian discovery (or innovation) procedure whereby the problems of the poor are continuously discovered, identified, and eventually solved from the bottom up. This suggests new avenues for reform. I argue, from the point of view of complexity theory, that governments must overcome knowledge and governance problems that limit their competence in the realm of solving the problems of the poor. As a result, any efficient system of poverty relief is unlikely to emerge from imposing an efficient and equitable top-down delivery of given goods and services based on established practices or preferences. The knowledge of what goods and services are required, and what practices should be modified to produce them, is not given to policy makers; it needs to be discovered. And this discovery is best modeled as an entrepreneurial, inquisitive, and experimental process. This process is best understood by applying complexity theory and the Austrian (Hayekian) epistemic paradigm.