Absolute poverty is the complete lack of the means necessary to meet basic personal needs, such as food, clothing and shelter. The threshold at which absolute poverty is defined is always about the same, independent of the person's permanent location or era.
On the other hand, relative poverty occurs when a person cannot meet a minimum level of living standards, compared to others in the same time and place. Therefore, the threshold at which relative poverty is defined varies from one country to another, or from one society to another. For example, a person who cannot afford housing better than a small tent in an open field would be said to live in relative poverty if almost everyone else in that area lives in modern brick homes, but not if everyone else also lives in small tents in open fields (for example, in a nomadic tribe).
Governments and non-governmental organizations try to reduce poverty.
In 2012 it was estimated that, using a poverty line of $1.25 a day, 1.2 billion people lived in poverty. Given the current economic model, built on GDP, it would take 100 years to bring the world's poorest up to the poverty line of $1.25 a day. UNICEF estimates half the world's children (or 1.1 billion) live in poverty.
The World Bank forecasted in 2015 that 702.1 million people were living in extreme poverty, down from 1.75 billion in 1990. Extreme poverty is observed in all parts of the world, including developed economies. Of the 2015 population, about 347.1 million people (35.2%) lived in Sub-Saharan Africa and 231.3 million (13.5%) lived in South Asia. According to the World Bank, between 1990 and 2015, the percentage of the world's population living in extreme poverty fell from 37.1% to 9.6%, falling below 10% for the first time. The People's Republic of China accounts for over three quarters of global poverty reduction from 1990 to 2005. Though, as noted, China accounted for nearly half of all extreme poverty in 1990. In public opinion around the world people surveyed tend to incorrectly think extreme poverty hasn't decreased.
During the 2013 to 2015 period The World Bank reported that extreme poverty fell from 11% to 10%, however they also noted that the rate of decline had slowed by nearly half from the 25 year average with parts of sub-saharan Africa returning to early 2000 levels. The World Bank attributed this to increasing violence following the Arab Spring, population increases in Sub-Saharan Africa, and general African inflationary pressures and economic malaise were the primary drivers for this slow down.
There is disagreement among experts as to what would be considered a realistic poverty rate with one considering it "an inaccurately measured and arbitrary cut off". Some contend that a higher poverty line is needed, such as a minimum of $7.40 or even $10 to $15 a day.
An data based scientific empirical research, which studied the impact of dynastic politics on the level of poverty of the provinces, found a positive correlation between dynastic politics and poverty i.e. the higher proportion of dynastic politicians in power in a province leads to higher poverty rate. There is significant evidence that these political dynasties use their political dominance over their respective regions to enrich themselves, using methods such as graft or outright bribery of legislators.
Definitions and etymology
Poverty is the scarcity or the lack of a certain (variant) amount of material possessions or money. The word poverty comes from the old (Norman) French word poverté (Modern French: pauvreté), from Latin paupertās from pauper (poor).
There are several definitions of poverty depending on the context of the situation it is placed in, and the views of the person giving the definition.
Income Poverty: a family's income fails to meet a federally established threshold that differs across countries.
United Nations: Fundamentally, poverty is the inability of having choices and opportunities, a violation of human dignity. It means lack of basic capacity to participate effectively in society. It means not having enough to feed and clothe a family, not having a school or clinic to go to, not having the land on which to grow one's food or a job to earn one's living, not having access to credit. It means insecurity, powerlessness and exclusion of individuals, households and communities. It means susceptibility to violence, and it often implies living in marginal or fragile environments, without access to clean water or sanitation.
World Bank: Poverty is pronounced deprivation in well-being, and comprises many dimensions. It includes low incomes and the inability to acquire the basic goods and services necessary for survival with dignity. Poverty also encompasses low levels of health and education, poor access to clean water and sanitation, inadequate physical security, lack of voice, and insufficient capacity and opportunity to better one's life.
In the United Kingdom, the second Cameron ministry came under attack for their redefinition of poverty; poverty is no longer classified by a family's income, but as to whether a family is in work or not. Considering that two-thirds of people who found work were accepting wages that are below the living wage (according to the Joseph Rowntree Foundation) this has been criticised by anti-poverty campaigners as an unrealistic view of poverty in the United Kingdom.
Absolute poverty refers to a set standard which is consistent over time and between countries.
Absolute poverty, extreme poverty, or abject poverty is "a condition characterized by severe deprivation of basic human needs, including food, safe drinking water, sanitation facilities, health, shelter, education and information.
However, as the amount of wealth required for survival is not the same in all places and time periods, particularly in highly developed countries where few people would fall below the World Bank Group's poverty lines, countries often develop their own national poverty lines.
An absolute poverty line was calculated in Australia for the Henderson poverty inquiry in 1973.
For a few years starting 1990, the World Bank anchored absolute poverty line as $1 per day.
The poverty line threshold of $1.90 per day, as set by the World Bank, is controversial.
The share of the world's population living in absolute poverty fell from 43% in 1981 to 14% in 2011. The absolute number of people in poverty fell from 1.95 billion in 1981 to 1.01 billion in 2011. The economist Max Roser estimates that the number of people in poverty is therefore roughly the same as 200 years ago. This is the case since the world population was just little more than 1 billion in 1820 and the majority (84% to 94%) of the world population was living poverty. The proportion of the developing world's population living in extreme economic poverty fell from 28 percent in 1990 to 21 percent in 2001. Most of this improvement has occurred in East and South Asia. In East Asia the World Bank reported that "The poverty headcount rate at the $2-a-day level is estimated to have fallen to about 27 percent [in 2007], down from 29.5 percent in 2006 and 69 percent in 1990." In Sub-Saharan Africa extreme poverty went up from 41 percent in 1981 to 46 percent in 2001, which combined with growing population increased the number of people living in extreme poverty from 231 million to 318 million.
In the early 1990s some of the transition economies of Central and Eastern Europe and Central Asia experienced a sharp drop in income. The collapse of the Soviet Union resulted in large declines in GDP per capita, of about 30 to 35% between 1990 and the through year of 1998 (when it was at its minimum). As a result, poverty rates tripled, excess mortality increased, and life expectancy declined. In subsequent years as per capita incomes recovered the poverty rate dropped from 31.4% of the population to 19.6%. The average post-communist country had returned to 1989 levels of per-capita GDP by 2005, although as of 2015 some are still far behind that. According to an article in Foreign Affairs, there were generally three paths to economic reform taken post Soviet collapse. Those nations that took a "radical" or "gradual" reform rate have GDP per capita similar to other nations in their stage of economic development at generally 150% of their transition year (1991) GDP. Nations that took a "slow" approach (an approach that limited free market reforms generally) had much slower, and lower economic growth, higher Gini coefficients, and poorer health outcomes. Currently, those nations sit at 125% of their transition year GDP per capita. A 2009 study published in The Lancet suggested that radical economic changes and the resulting short term unemployment led to temporary increases in the mortality rate of adult males.
World Bank data shows that the percentage of the population living in households with consumption or income per person below the poverty line has decreased in each region of the world since 1990:
According to Chen and Ravallion, about 1.76 billion people in developing world lived above $1.25 per day and 1.9 billion people lived below $1.25 per day in 1981. The world's population increased over the next 25 years. In 2005, about 4.09 billion people in developing world lived above $1.25 per day and 1.4 billion people lived below $1.25 per day (both 1981 and 2005 data are on inflation adjusted basis). Some scholars caution that these trends are subject to various assumptions and not certain. Additionally, they note that the poverty reduction is not uniform across the world; economically prospering countries such as China, India and Brazil have made more progress in absolute poverty reduction than countries in other regions of the world.
The absolute poverty measure trends noted above are supported by human development indicators, which have also been improving.
Relative poverty views poverty as socially defined and dependent on social context, hence relative poverty is a measure of income inequality. Usually, relative poverty is measured as the percentage of the population with income less than some fixed proportion of median income. There are several other different income inequality metrics, for example, the Gini coefficient or the Theil Index.
Relative poverty is the "most useful measure for ascertaining poverty rates in wealthy developed nations". Relative poverty measure is used by the United Nations Development Program (UNDP), the United Nations Children's Fund (UNICEF), the Organisation for Economic Co-operation and Development (OECD) and Canadian poverty researchers. In the European Union, the "relative poverty measure is the most prominent and most-quoted of the EU social inclusion indicators".
"Relative poverty reflects better the cost of social inclusion and equality of opportunity in a specific time and space."
"Once economic development has progressed beyond a certain minimum level, the rub of the poverty problem – from the point of view of both the poor individual and of the societies in which they live – is not so much the effects of poverty in any absolute form but the effects of the contrast, daily perceived, between the lives of the poor and the lives of those around them.
In 1776 Adam Smith in the Wealth of Nations argued that poverty is the inability to afford, "not only the commodities which are indispensably necessary for the support of life but whatever the custom of the country renders it indecent for creditable people, even of the lowest order, to be without".
In 1964 in a joint committee economic President's report in the United States, Republicans endorsed the concept of relative poverty.
In 1965 Rose Friedman argued for the use of relative poverty claiming that the definition of poverty changes with general living standards. Those labeled as poor in 1995 would have had "a higher standard of living than many labeled not poor" in 1965.
In 1979, British sociologist, Peter Townsend published his famous definition, "individuals... can be said to be in poverty when they lack the resources to obtain the types of diet, participate in the activities and have the living conditions and amenities which are customary, or are at least widely encouraged or approved, in the societies to which they belong (page 31)". This definition and measurement of poverty was profoundly linked to the idea that poverty and societal participation are deeply associated.
Peter Townsend transformed the conception of poverty, viewing it not simply as lack of income but as the configuration of the economic conditions that prevent people from being full members of the society. Poverty reduces the ability of people to participate in society, effectively denying them full citizenship (as suggested by T.H. Marshall). Given that there are no universal principles by which to determine the minimum threshold of participation equating to full membership of society, Townsend argued that the appropriate measure would necessarily be relative to any particular cultural context. He suggested that in each society there should be an empirically determinable 'breakpoint' within the income distribution below which participation of individuals collapses, providing a scientific basis for fixing a poverty line and determining the extent of poverty.
Brian Nolan and Christopher T. Whelan of the Economic and Social Research Institute (ESRI) in Ireland explained that "Poverty has to be seen in terms of the standard of living of the society in question."
Relative poverty measures are used as official poverty rates by the European Union, UNICEF, and the OEDC.
Many wealthy nations have seen an increase in relative poverty rates ever since the Great Recession, in particular among children from impoverished families who often reside in substandard housing and find educational opportunities out of reach.
Secondary poverty refers to those that earn enough income to not be impoverished, but who spend their income on unnecessary pleasures, such as alcoholic beverages, thus placing them below it in practice.
Economic aspects of poverty focus on material needs, typically including the necessities of daily living, such as food, clothing, shelter, or safe drinking water.
Analysis of social aspects of poverty links conditions of scarcity to aspects of the distribution of resources and power in a society and recognizes that poverty may be a function of the diminished "capability" of people to live the kinds of lives they value.
Poverty levels are snapshot pictures in time that omits the transitional dynamics between levels.
Poverty may also be understood as an aspect of unequal social status and inequitable social relationships, experienced as social exclusion, dependency, and diminished capacity to participate, or to develop meaningful connections with other people in society. Such social exclusion can be minimized through strengthened connections with the mainstream, such as through the provision of relational care to those who are experiencing poverty.
The World Bank's "Voices of the Poor," based on research with over 20,000 poor people in 23 countries, identifies a range of factors which poor people identify as part of poverty.
- Abuse by those in power
- Dis-empowering institutions
- Excluded locations
- Gender relationships
- Lack of security
- Limited capabilities
- Physical limitations
- Precarious livelihoods
- Problems in social relationships
- Weak community organizations
David Moore, in his book The World Bank, argues that some analysis of poverty reflect pejorative, sometimes racial, stereotypes of impoverished people as powerless victims and passive recipients of aid programs.
Ultra-poverty, a term apparently coined by Michael Lipton, connotes being amongst poorest of the poor in low-income countries.
Asset poverty is an economic and social condition that is more persistent and prevalent than income poverty. It can be defined as a household's inability to access wealth resources that are enough to provide for basic needs for a period of three months. Basic needs refer to the minimum standards for consumption and acceptable needs.Wealth resources consist of home ownership, other real estate (second home, rented properties, etc.), net value of farm and business assets, stocks, checking and savings accounts, and other savings (money in savings bonds, life insurance policy cash values, etc.).Wealth is measured in three forms: net worth, net worth minus home equity, and liquid assets. Net worth consists of all the aspects mentioned above. Net worth minus home equity is the same except it does not include home ownership in asset calculations. Liquid assets are resources that are readily available such as cash, checking and savings accounts, stocks, and other sources of savings. There are two types of assets: tangible and intangible. Tangible assets most closely resemble liquid assets in that they include stocks, bonds, property, natural resources, and hard assets not in the form of real estate. Intangible assets are simply the access to credit, social capital, cultural capital, political capital, and human capital.
The effects of poverty may also be causes as listed above, thus creating a "poverty cycle" operating across multiple levels, individual, local, national and global.
One third of deaths around the world – some 18 million people a year or 50,000 per day – are due to poverty-related causes.
Almost 90% of maternal deaths during childbirth occur in Asia and sub-Saharan Africa, compared to less than 1% in the developed world. Those who live in poverty have also been shown to have a far greater likelihood of having or incurring a disability within their lifetime. Infectious diseases such as malaria and tuberculosis can perpetuate poverty by diverting health and economic resources from investment and productivity; malaria decreases GDP growth by up to 1.3% in some developing nations and AIDS decreases African growth by 0.3–1.5% annually.
Poverty has been shown to impede cognitive function.
Infectious diseases continue to blight the lives of the poor across the world.
Rises in the costs of living make poor people less able to afford items.
The Associated Press reports that people gather every evening in downtown Caracas in search of food thrown out on sidewalks due to 90% of Venezuela's population living in poverty.
As part of the Sustainable Development Goals the global community has made the elimination of hunger and undernutrition a priority for the coming years. While the Goal 2 of the SDGs aims to reach this goal by 2030 a number of initiatives aim to achieve the goal 5 years earlier, by 2025:
- The partnership Compact2025 , led by IFPRI with the involvement of UN organisations, NGOs and private foundations develops and disseminates evidence-based advice to politicians and other decision-makers aimed at ending hunger and undernutrition in the coming 10 years, by 2025. It bases its claim that hunger can be ended by 2025 on a report by Shenggen Fan and Paul Polman that analyzed the experiences from China, Vietnam, Brazil and Thailand.
- The European Union and the Bill & Melinda Gates Foundation have launched a partnership to combat Undernutrition in June 2015. The program will initiatilly be implemented in Bangladesh, Burundi, Ethiopia, Kenya, Laos and Niger and will help these countries to improve information and analysis about nutrition so they can develop effective national nutrition policies.
- The Food and Agriculture Organization of the UN has created a partnership that will act through the African Union's CAADP framework aiming to end hunger in Africa by 2025. It includes different interventions including support for improved food production, a strengthening of social protection and integration of the right to food into national legislation.
Research has found that there is a high risk of educational underachievement for children who are from low-income housing circumstances.
For children with low resources, the risk factors are similar to others such as juvenile delinquency rates, higher levels of teenage pregnancy, and the economic dependency upon their low-income parent or parents. Families and society who submit low levels of investment in the education and development of less fortunate children end up with less favorable results for the children who see a life of parental employment reduction and low wages.
Poverty often drastically affects children's success in school.
For a child to grow up emotionally healthy, the children under three need "A strong, reliable primary caregiver who provides consistent and unconditional love, guidance, and support.
Harmful spending habits mean that the poor typically spend about 2 percent of their income educating their children but larger percentages of alcohol and tobacco (For example, 6 percent in Indonesia and 8 percent in Mexico).
Poverty has been also considered a real social phenomenon reflecting more the consequences of a lack of income than the lack of income per se (Ferragina et al. 2016). According to Townsend: humans are social animals entangled in a web of relationships, which exert complex and changing pressures, as much in their consumption of goods and services as in any other aspect of their behaviour (Townsend 1979). This idea has received theoretical support from scholars and extensive testimony from people experiencing poverty across the globe (Walker 2014). Participation and consumption have become ever more crucial mechanisms through which people establish and communicate their identity and position in society, increasing the premium attached to resources needed to participate (Giddens 1991). In addition, the concept of social exclusion has been added to the lexicon of poverty related terms, describing the process by which people, especially those on low incomes, can become socially and politically detached from mainstream society and its associated resources and opportunities (Cantillon 1997). Equally western society have become more complex with ethnic diversity, multi-culturalism and life-style choices raising the possibility that a single concept of poverty as conceived in the past might no longer apply (Ferragina et al. 2016).
Poverty increases the risk of homelessness. Slum-dwellers, who make up a third of the world's urban population, live in a poverty no better, if not worse, than rural people, who are the traditional focus of the poverty in the developing world, according to a report by the United Nations.
There are over 100 million street children worldwide. Most of the children living in institutions around the world have a surviving parent or close relative, and they most commonly entered orphanages because of poverty. It is speculated that, flush with money, orphanages are increasing and push for children to join even though demographic data show that even the poorest extended families usually take in children whose parents have died. Experts and child advocates maintain that orphanages are expensive and often harm children's development by separating them from their families and that it would be more effective and cheaper to aid close relatives who want to take in the orphans.
As of 2012, 2.5 billion people lack access to sanitation services and 15% practice open defecation. The most noteworthy example is Bangladesh, which has half the GDP per capita of India but has a lower mortality from diarrhea than India or the world average, with diarrhea deaths declining by 90% since the 1990s. Even while providing latrines is a challenge, people still do not use them even when available. By strategically providing pit latrines to the poorest, charities in Bangladesh sparked a cultural change as those better off perceived it as an issue of status to not use one. The vast majority of the latrines built were then not from charities but by villagers themselves.
Water utility subsidies tend to subsidize water consumption by those connected to the supply grid, which is typically skewed towards the richer and urban segment of the population and those outside informal housing.
Similarly, the poorest fifth receive 0.1% of the world's lighting but pay a fifth of total spending on light, accounting for 25 to 30 percent of their income. Indoor air pollution from burning fuels kills 2 million, with almost half the deaths from pneumonia in children under 5. Fuel from Bamboo burns more cleanly and also matures much faster than wood, thus also reducing deforestation. Additionally, using solar panels is promoted as being cheaper over the products' lifetime even if upfront costs are higher. Thus, payment schemes such as lend-to-own programs are promoted and up to 14% of Kenyan households use solar as their primary energy source.
According to experts, many women become victims of trafficking, the most common form of which is prostitution, as a means of survival and economic desperation. Deterioration of living conditions can often compel children to abandon school to contribute to the family income, putting them at risk of being exploited. For example, in Zimbabwe, a number of girls are turning to sex in return for food to survive because of the increasing poverty. According to studies, as poverty decreases there will be fewer and fewer instances of violence.
In one survey, 67% of children from disadvantaged inner cities said they had witnessed a serious assault, and 33% reported witnessing a homicide. 51% of fifth graders from New Orleans (median income for a household: $27,133) have been found to be victims of violence, compared to 32% in Washington, DC (mean income for a household: $40,127).
Max Weber and some schools of modernization theory suggest that cultural values could affect economic success. However, researchers have gathered evidence that suggest that values are not as deeply ingrained and that changing economic opportunities explain most of the movement into and out of poverty, as opposed to shifts in values. Studies have shown that poverty changes the personalities of children who live in it. The Great Smoky Mountains Study was a ten-year study that was able to demonstrate this. During the study, about one-quarter of the families saw a dramatic and unexpected increase in income. The study showed that among these children, instances of behavioral and emotional disorders decreased, and conscientiousness and agreeableness increased.
One 2012 paper, based on a sampling of 9,646 U.S, adults, claimed that poverty tends to correlate with laziness and other such traits. A 2018 report on poverty in the United States by UN special rapporteur Philip Alston asserts that caricatured narratives about the rich and the poor, that "the rich are industrious, entrepreneurial, patriotic and the drivers of economic success. The poor are wasters, losers and scammers" are largely inaccurate, as "the poor are overwhelmingly those born into poverty, or those thrust there by circumstances largely beyond their control, such as physical or mental disabilities, divorce, family breakdown, illness, old age, unliveable wages or discrimination in the job market."
Cultural factors, such as discrimination of various kinds, can negatively affect productivity such as age discrimination, stereotyping, discrimination against people with physical disability, gender discrimination, racial discrimination, and caste discrimination. Women are the group suffering from the highest rate of poverty after children; 14.5% of women and 22% of children are poor in the United States. In addition, the fact that women are more likely to be caregivers, regardless of income level, to either the generations before or after them, exacerbates the burdens of their poverty. Marking the International Day for the Eradication of Poverty, the United Nations Special Rapporteur on extreme poverty Philip Alston warned in a statement that, “The world’s poor are at disproportionate risk of torture, arrest, early death and domestic violence, but their civil and political rights are being airbrushed out of the picture.”... people in lower socio-economic classes are much more likely to get killed, tortured or experience an invasion of their privacy, and are far less likely to realize their right to vote, or otherwise participate in the political process.”
Causes of poverty
Causes of poverty is a highly ideologically charged subject, as different causes point to different remedies.
Various poverty reduction strategies are broadly categorized based on whether they make more of the basic human needs available or whether they increase the disposable income needed to purchase those needs. Some strategies such as building roads can both bring access to various basic needs, such as fertilizer or healthcare from urban areas, as well as increase incomes, by bringing better access to urban markets. Statistics of 2018 shows population living in extreme conditions has declined by more than 1 billion in the last 25 years. As per the report published by the world bank on September 19, 2018 world poverty falls below 750 million.
Agricultural technologies such as nitrogen fertilizers, pesticides, new seed varieties and new irrigation methods have dramatically reduced food shortages in modern times by boosting yields past previous constraints.
Before the Industrial Revolution, poverty had been mostly accepted as inevitable as economies produced little, making wealth scarce. Geoffrey Parker wrote that "In Antwerp and Lyon, two of the largest cities in western Europe, by 1600 three-quarters of the total population were too poor to pay taxes, and therefore likely to need relief in times of crisis." The initial industrial revolution led to high economic growth and eliminated mass absolute poverty in what is now considered the developed world. Mass production of goods in places such as rapidly industrializing China has made what were once considered luxuries, such as vehicles and computers, inexpensive and thus accessible to many who were otherwise too poor to afford them.
Even with new products, such as better seeds, or greater volumes of them, such as industrial production, the poor still require access to these products.
Nations do not necessarily need wealth to gain health. For example, Sri Lanka had a maternal mortality rate of 2% in the 1930s, higher than any nation today. It reduced it to 0.5–0.6% in the 1950s and to 0.6% today while spending less each year on maternal health because it learned what worked and what did not. Knowledge on the cost effectiveness of healthcare interventions can be elusive and educational measures have been made to disseminate what works, such as the Copenhagen Consensus. Cheap water filters and promoting hand washing are some of the most cost effective health interventions and can cut deaths from diarrhea and pneumonia.
Strategies to provide education cost effectively include deworming children, which costs about 50 cents per child per year and reduces non-attendance from anemia, illness and malnutrition, while being only a twenty-fifth as expensive as increasing school attendance by constructing schools. Schoolgirl absenteeism could be cut in half by simply providing free sanitary towels. Fortification with micronutrients was ranked the most cost effective aid strategy by the Copenhagen Consensus. For example, iodised salt costs 2 to 3 cents per person a year while even moderate iodine deficiency in pregnancy shaves off 10 to 15 IQ points. Paying for school meals is argued to be an efficient strategy in increasing school enrollment, reducing absenteeism and increasing student attention.
Desirable actions such as enrolling children in school or receiving vaccinations can be encouraged by a form of aid known as conditional cash transfers. In Mexico, for example, dropout rates of 16- to 19-year-olds in rural area dropped by 20% and children gained half an inch in height. Initial fears that the program would encourage families to stay at home rather than work to collect benefits have proven to be unfounded. Instead, there is less excuse for neglectful behavior as, for example, children stopped begging on the streets instead of going to school because it could result in suspension from the program.
Government revenue can be diverted away from basic services by corruption. Funds from aid and natural resources are often sent by government individuals for money laundering to overseas banks which insist on bank secrecy, instead of spending on the poor. A Global Witness report asked for more action from Western banks as they have proved capable of stanching the flow of funds linked to terrorism.
Illicit capital flight from the developing world is estimated at ten times the size of aid it receives and twice the debt service it pays, with one estimate that most of Africa would be developed if the taxes owed were paid. About 60 per cent of illicit capital flight from Africa is from transfer mispricing, where a subsidiary in a developing nation sells to another subsidiary or shell company in a tax haven at an artificially low price to pay less tax. An African Union report estimates that about 30% of sub-Saharan Africa's GDP has been moved to tax havens. Solutions include corporate "country-by-country reporting" where corporations disclose activities in each country and thereby prohibit the use of tax havens where no effective economic activity occurs.
Developing countries' debt service to banks and governments from richer countries can constrain government spending on the poor. For example, Zambia spent 40% of its total budget to repay foreign debt, and only 7% for basic state services in 1997. One of the proposed ways to help poor countries has been debt relief. Zambia began offering services, such as free health care even while overwhelming the health care infrastructure, because of savings that resulted from a 2005 round of debt relief.
The World Bank and the International Monetary Fund, as primary holders of developing countries' debt, attach structural adjustment conditionalities in return for loans which are generally geared toward loan repayment with austerity measures such as the elimination of state subsidies and the privatization of state services. For example, the World Bank presses poor nations to eliminate subsidies for fertilizer even while many farmers cannot afford them at market prices. In Malawi, almost five million of its 13 million people used to need emergency food aid but after the government changed policy and subsidies for fertilizer and seed were introduced, farmers produced record-breaking corn harvests in 2006 and 2007 as Malawi became a major food exporter. A major proportion of aid from donor nations is tied, mandating that a receiving nation spend on products and expertise originating only from the donor country. US law requires food aid be spent on buying food at home, instead of where the hungry live, and, as a result, half of what is spent is used on transport.
Distressed securities funds, also known as vulture funds, buy up the debt of poor nations cheaply and then sue countries for the full value of the debt plus interest which can be ten or 100 times what they paid. They may pursue any companies which do business with their target country to force them to pay to the fund instead. Considerable resources are diverted on costly court cases. For example, a court in Jersey ordered the Democratic Republic of the Congo to pay an American speculator $100 million in 2010. Now, the UK, Isle of Man and Jersey have banned such payments.
The loss of basic needs providers emigrating from impoverished countries has a damaging effect. As of 2004, there were more Ethiopia-trained doctors living in Chicago than in Ethiopia. Proposals to mitigate the problem include compulsory government service for graduates of public medical and nursing schools and promoting medical tourism so that health care personal have more incentive to practice in their home countries.
Some argue that overpopulation and lack of access to birth control can lead to population increase to exceed food production and other resources. Better education for both men and women, and more control of their lives, reduces population growth due to family planning. According to United Nations Population Fund (UNFPA), by giving better education to men and women, they can earn money for their lives and can help them to strengthen economic security.
The following are strategies used or proposed to increase personal incomes among the poor.
A guaranteed minimum income ensures that every citizen will be able to purchase a desired level of basic needs. A basic income (or negative income tax) is a system of social security, that periodically provides each citizen, rich or poor, with a sum of money that is sufficient to live on. Studies of large cash-transfer programs in Ethiopia, Kenya, and Malawi show that the programs can be effective in increasing consumption, schooling, and nutrition, whether they are tied to such conditions or not. Proponents argue that a basic income is more economically efficient than a minimum wage and unemployment benefits, as the minimum wage effectively imposes a high marginal tax on employers, causing losses in efficiency. In 1968, Paul Samuelson, John Kenneth Galbraith and another 1,200 economists signed a document calling for the US Congress to introduce a system of income guarantees. Winners of the Nobel Prize in Economics, with often diverse political convictions, who support a basic income include Herbert A. Simon, Friedrich Hayek, Robert Solow, Milton Friedman, Jan Tinbergen, James TobinThe%20failed%20welfare%20revo]] James Meade
Income grants are argued to be vastly more efficient in extending basic needs to the poor than subsidizing supplies whose effectiveness in poverty alleviation is diluted by the non-poor who enjoy the same subsidized prices. With cars and other appliances, the wealthiest 20% of Egypt uses about 93% of the country's fuel subsidies. In some countries, fuel subsidies are a larger part of the budget than health and education. A 2008 study concluded that the money spent on in-kind transfers in India in a year could lift all India's poor out of poverty for that year if transferred directly. The primary obstacle argued against direct cash transfers is the impractically for poor countries of such large and direct transfers. In practice, payments determined by complex iris scanning are used by war-torn Democratic Republic of Congo and Afghanistan, while India is phasing out its fuel subsidies in favor of direct transfers. Additionally, in aid models, the famine relief model increasingly used by aid groups calls for giving cash or cash vouchers to the hungry to pay local farmers instead of buying food from donor countries, often required by law, as it wastes money on transport costs.
Corruption often leads to many civil services being treated by governments as employment agencies to loyal supporters and so it could mean going through 20 procedures, paying $2,696 in fees, and waiting 82 business days to start a business in Bolivia, while in Canada it takes two days, two registration procedures, and $280 to do the same. Such costly barriers favor big firms at the expense of small enterprises, where most jobs are created. Often, businesses have to bribe government officials even for routine activities, which is, in effect, a tax on business. Noted reductions in poverty in recent decades has occurred in China and India mostly as a result of the abandonment of collective farming in China and the ending of the central planning model known as the License Raj in India.
The World Bank concludes that governments and feudal elites extending to the poor the right to the land that they live and use are 'the key to reducing poverty' citing that land rights greatly increase poor people's wealth, in some cases doubling it. Although approaches varied, the World Bank said the key issues were security of tenure and ensuring land transactions costs were low.
Greater access to markets brings more income to the poor.
Microloans, made famous by the Grameen Bank, is where small amounts of money are loaned to farmers or villages, mostly women, who can then obtain physical capital to increase their economic rewards. However, microlending has been criticized for making hyperprofits off the poor even from its founder, Muhammad Yunus, and in India, Arundhati Roy asserts that some 250,000 debt-ridden farmers have been driven to suicide.
Those in poverty place overwhelming importance on having a safe place to save money, much more so than receiving loans. Additionally, a large part of microfinance loans are spent not on investments but on products that would usually be paid by a checking or savings account. Microsavings are designs to make savings products available for the poor, who make small deposits. Mobile banking utilizes the wide availability of mobile phones to address the problem of the heavy regulation and costly maintenance of saving accounts. This usually involves a network of agents of mostly shopkeepers, instead of bank branches, would take deposits in cash and translate these onto a virtual account on customers' phones. Cash transfers can be done between phones and issued back in cash with a small commission, making remittances safer.
Poverty can also be reduced as an improved economic policy is developed by the governing authorities to facilitate a more equitable distribution of the nation's wealth.
José Antonio Ocampo, professor at Columbia University and former finance minister of Colombia, and Magdalena Sepúlveda Carmona, former UN Special Rapporteur on Extreme Poverty and Human Rights, argue that global tax reform is integral to human development and fighting poverty, as corporate tax avoidance has disproportionately impacted those mired in poverty, noting that "the human impact is devastatingly real. When profits are shifted out, the tax revenues from those profits that could be available to fund healthcare, schools, water sanitation and other public goods vanish from the ledger, leaving women and men, boys and girls without pathways to a better future."
Raghuram G. Rajan, former governor of the Reserve Bank of India, former chief economist at the International Monetary Fund and professor of finance at the University of Chicago Booth School of Business has blamed the ever-widening gulf between the rich and the poor especially in the US to be one of the main Fault Lines which caused the financial institutions to pump money into subprime mortgages – on political behest, as a palliative and not a remedy, for poverty – causing the financial crisis of 2007–2009. In Rajan's view the main cause of increasing gap between the high income and low income earners, was lack of equal access to high class education for the latter.
The existence of inequality is in part due to a set of self-reinforcing behaviors that all together constitute one aspect of the cycle of poverty. These behaviors, in addition to unfavorable, external circumstances, also explain the existence of the Matthew effect, which not only exacerbates existing inequality, but is more likely to make it multigenerational. Widespread, multigenerational poverty is an important contributor to civil unrest and political instability.
Business solutions to poverty
The concept of business serving the world's poorest four billion or so people has been popular since CK Prahalad introduced the idea through his book Fortune at the Bottom of the Pyramid: Eradicating Poverty Through Profits in 2004, among many business corporations and business schools. Kash Rangan, John Quelch, and other faculty members at the Global Poverty Project at Harvard Business School "believe that in pursuing its own self-interest in opening and expanding the BoP market, business can make a profit while serving the poorest of consumers and contributing to development." According to Rangan "For business, the bulk of emerging markets worldwide is at the bottom of the pyramid so it makes good business sense – not a sense of do-gooding – to go after it.".
In their 2013 book, "The Business Solution to Poverty," Paul Polak and Mal Warwick directly addressed the criticism leveled against Prahalad's concept. They noted that big business often failed to create products that actually met the needs and desires of the customers who lived at the bottom-of-the-pyramid.
Rather than encouraging multinational businesses to meet the needs of the poor, some organizations such as iDE, the World Resources Institute, and the United Nations Development Programme began to focus on working directly with helping bottom-of-the-pyramid populations become local, small-scale entrepreneurs. Since so much of this population is engaged in agriculture, these NGOs have addressed market gaps that enable small-scale (i.e., plots less than 2 hectares) farmers to increase their production and find markets for their harvests. This is done by increasing the availability of farming equipment (e.g., pumps, tillers, seeders) and better quality seed and fertilizer, as well as expanding access for training in farming best practices (e.g., crop rotation).
Creating entrepreneurs through microfinance can produce unintended outcomes: Some entrepreneurial borrowers become informal intermediaries between microfinance initiatives and poorer micro-entrepreneurs.
Milton Friedman argues that the social responsibility of business is to increase its profits only, thus, it needs to be examined whether business in BoP markets is capable of achieving the dual objective of making a profit while serving the poorest of consumers and contributing to development? Erik Simanis has reported that the model has a fatal flaw. According to Erik "Despite achieving healthy penetration rates of 5% to 10% in four test markets, for instance, Procter & Gamble couldn't generate a competitive return on its Pur water-purification powder after launching the product on a large scale in 2001...DuPont ran into similar problems with a venture piloted from 2006 to 2008 in Andhra Pradesh, India, by its subsidiary Solae, a global manufacturer of soy protein... Because the high costs of doing business among the very poor demand a high contribution per transaction, companies must embrace the reality that high margins and price points aren't just a top-of-the-pyramid phenomenon; they're also a necessity for ensuring sustainable businesses at the bottom of the pyramid." Marc Gunther states that "The bottom-of-the-pyramid (BOP) market leader, arguably, is Unilever... Its signature BOP product is Pureit, a countertop water-purification system sold in India, Africa and Latin America. It's saving lives, but it's not making money for shareholders." This leaves the ideal of eradicating poverty through profits or with a good business sense – not a sense of do-gooding rather questionable.
Others have noted that relying on BoP consumers to choose to purchase items that increase their incomes is naive.
A report published in 2013 by the World Bank, with support from the Climate & Development Knowledge Network, found that climate change was likely to hinder future attempts to reduce poverty. The report presented the likely impacts of present day, 2 °C and 4 °C warming on agricultural production, water resources, coastal ecosystems and cities across Sub-Saharan Africa, South Asia and South East Asia. The impacts of a temperature rise of 2 °C included: regular food shortages in Sub-Saharan Africa; shifting rain patterns in South Asia leaving some parts under water and others without enough water for power generation, irrigation or drinking; degradation and loss of reefs in South East Asia, resulting in reduced fish stocks; and coastal communities and cities more vulnerable to increasingly violent storms. In 2016, a UN report claimed that by 2030, an additional 122 million more people could be driven to extreme poverty because of climate change.
Many think that poverty is the cause of environmental degradation, while there are others who claim that rather the poor are the worst sufferers of environmental degradation caused by reckless exploitation of natural resources by the rich. A Delhi-based environment organisation, the Centre for Science and Environment, points out that if the poor world were to develop and consume in the same manner as the West to achieve the same living standards, "we would need two additional planet Earths to produce resources and absorb wastes.", reports Anup Shah (2003). in his article Poverty and the Environment on Global Issues.
Among some individuals, poverty is considered a necessary or desirable condition, which must be embraced to reach certain spiritual, moral, or intellectual states.
Some Christian communities, such as the Simple Way, the Bruderhof, and the Amish value voluntary poverty; some even take a vow of poverty, similar to that of the traditional Catholic orders, in order to live a more complete life of discipleship.
Benedict XVI distinguished "poverty chosen" (the poverty of spirit proposed by Jesus), and "poverty to be fought*" (unjust and imposed poverty). He considered that the moderation implied in the former favors solidarity, and is a necessary condition so as to fight effectively to eradicate the abuse of the latter.
Charts and tables
- Accumulation by dispossession
- Asset poverty
- Basic income
- Bottom of the pyramid
- Causes of poverty
- Climate change and poverty
- Cycle of poverty
- Environmental racism
- Extreme poverty
- Food Bank
- Human rights
- Hunger in the United Kingdom
- Hunger in the United States
- Income disparity
- International development
- International inequality
- Involuntary unemployment
- Job guarantee
- Juvenilization of poverty
- Les Misérables
- List of countries by percentage of population living in poverty
- Living wage
- Measuring poverty
- Millennium Development Goals
- Poverty threshold
- Poverty trap
- Poverty reduction
- Poverty in the United Kingdom
- Poverty in the United States
- Redistribution of income and wealth
- Relative deprivation
- Social programs
- Social safety net
- United Nations Millennium Declaration
- World Poverty Clock