On November 1, the anniversary of the formation of the state, the government of Kerala announced that it had eradicated extreme poverty. The precise interventions that resulted in this are not clear, but government sources speak of four dimensions of deprivation having been addressed, namely, food, health, income and housing.Poverty or destitution?This information leads to further questions. What exactly does it mean to say that an individual facing health deprivation has been rendered permanently healthy? If Kerala has an inclusive public health system, as claimed, why were some individuals left out at all? Next, while deprivation of housing can be ended by providing housing and good health can be assured by a public health system, it is not clear how food and income deprivation were dealt with. Finally, the absence of a clear definition in the programme of even quantifiable elements of extreme poverty, notably income, makes it difficult to assess what is being claimed.There has been pushback to the announcement. A group of social scientists who have a long record of studying Kerala’s economy commented publicly that what the government may have ended is “destitution” and not poverty. They were very likely pointing to the distinction between welfare provision through the transfer of goods or cash and ending poverty by enabling individuals to earn a sufficient income. While this distinction is crucial, the ending of destitution is by itself admirable, and deserves emulation by other states of India.State intervention projected as the sole factorThe announcement of the ending of extreme poverty by the government has been leveraged by its departments to project the policies that reduced poverty in general in Kerala. Take the following as an example. A member of the Kerala State Planning Board has written that “Kerala’s approach to poverty reduction differed from the country’s traditional poverty alleviation programmes.” He identified land reforms, universal primary education, and public distribution as the main elements of the approach, and decentralisation as having enabled the implementation of local-level projects.In this account, State intervention is the sole factor responsible for reducing the poverty rate from approximately 60% in 1973 to 11% in 2011-12, an impressive record indeed. However, can it explain the unprecedented growth of per capita income that would have taken place in order to lower the poverty rate as much? It cannot.The ‘Gulf Boom’To comprehend the impressive rise in the standard of living in Kerala we need an explanation of what drove the growth of income in its economy. For this we must resort to macroeconomics as we cannot rely on a story of household-level or ‘micro’ interventions undertaken by the state government. While an educated and healthy population would be fundamental to growth, its initiation and maintenance over time requires aggregate demand to rise at a rate higher than before. For Kerala this had come in the form of what may be termed ‘the Gulf Boom’. Following the historic increase in oil revenues in the countries of the Arabian Peninsula starting 1973, their economies boomed, generating a demand for labour. This growth in the demand for labour was distributed across the board. It triggered unprecedented migration from Kerala. Remittances by these workers served as an infusion of aggregate demand for close to half a century. As a significant part of the migration was of manual labour it lowered poverty. The role of the Gulf Boom in Kerala’s economic journey cannot be overestimated. At its peak, it is estimated to have amounted to approximately 25% of the state’s gross domestic product (GDP). An appraisal of the relative magnitude involved is got when we recognise that neither public nor private-corporate investment in India comes up to this level today.Market provides opportunities, State creates capabilitiesIn the account given here, the market, that is, free contracting between individuals and private income flows, has had a role in raising living standards across much of the population of Kerala. Public action – a term popularised by Amartya Sen to refer to non-market initiatives – that spread literacy and enacted land reform created conditions for poorer sections of the Kerala population to take advantage of the Gulf Boom, and the growth in demand for labour that followed ensured that the capabilities created were converted into income. The migration for work that took place is an instance of “using the market”, again an expression due to Sen.The official narrative tends to ignore the historic role of the market in Kerala’s development. Recognising it brings perspective to what the eradication of extreme poverty actually amounts to. The welfare measures likely undertaken to eradicate extreme poverty or destitution are essential, as a democracy would not be one without social protection, but the measures themselves cannot address income generation. As mentioned, income deprivation was one of the dimensions of poverty identified by the government in its programme for eradicating extreme poverty, the other being food. Welfare provision cannot address income poverty, to which is tied food consumption. A government can of course make cash transfers for food for those who need it. In the United States, a capitalist economy, these are termed “food stamps”. But this would be a case of addressing the symptom and not the determinant of poverty, namely, the shortfall of income. Poverty alleviated through cash transfers cannot be a permanent solution to the problem.Ending poverty requires that the economy continuously generates income, which is shared widely even as it is being generated. For Kerala, the Gulf Boom was an important source of this income growth, and a relatively educated population was able to tap into it. Both the State, by creating capabilities, and the market, by providing an opportunity for employment, mediated the impressive poverty reduction that followed.Income generation, not welfarism, is keyThe lesson from Kerala is that where an external source of demand for labour is not available it would have to be generated domestically. When this is recognised we would be sceptical of “welfarism”, that is, the distribution of public funds in the forms of private goods and services, which now dominates the public policy of almost all political parties in India. By reducing what is left for public goods and, equally, by shifting the focus away from income generation, welfarism is a threat to the long-term prospects for a people.Pulapre Balakrishnan is an honorary visiting Professor at the Centre for Development Studies, Thiruvananthapuram. He has also held the positions of Professor of Economics at Ashoka University, Sonepat, Haryana and Senior Fellow-elect at the Indian Institute of Management, Kozhikode, Kerala. His research has been in the areas of inflation, growth and productivity in India. Balakrishnan is a recipient of the Malcolm Adiseshiah Award for Distinguished Contribution to Development Studies.This article first appeared on Ideas for India and has been republished with permission.