Understanding poverty
Abstract
"We summarise the main developments in the approach to understanding and tackling poverty. We expose the main weakness in this literature which is the absence of a macro model of income and assets. We outline the idea of a macro framework based on concepts from the dynamic systems literature. We discuss other failings in the research as well as the solution to poverty through trade. "
Poverty causes in the literature
Mainstream economists see the problem of poverty as one of asset endowment and stochastic shocks (ill health, famine) as well as conditions in economies (local, national and international) (Baulch and Hoddinott, 2000).
Political economy sees the external environment as often shaped by systematic factors, particularly unequal power relations. (Wood and Salway, 2000).
Sociologists and anthropologists look at household structures and relations (Francis, 2000). In addition, people’s ability to gain access to assets, and their ability to translate them into income, are shaped by the workings of labour and product markets, by their access to skills, information and social networks, by norms governing resource use within and beyond the household and by gendered power relations, again within and beyond households.
Livelihood approaches broaded the object of enquiry from income and assets to capabilities, assets and activities required for living. Prospective livelihood approaches, typically adopted by development practitioners, attempt to identify potential means for improving livelihoods through interventions and better co-ordination of sectorally-based agencies.
Francis (2006) argues that in Madigobo, a large South African village, has many people who are on the edge of poverty principally because they do not have regular incomes and they actively migrate looking for increasingly casualised work. Seeking security of income is the tendency of their behaviour. Clearly regular incomes need to be created to fit in with the desires of the poor.
Sinks in a dynamic system of income
The flow of money is seen to be the main focus of enquiry. This can be seen at a national level as a dynamic system that has sinks or attractors. These centres of gravity attract money into them, though they often recycle this money outward. An example of an attractor is the state. Many people give tax revenue to the state. Politically powerful individuals and organisations receive money from the state particularly in a clientist state. Chain stores are other examples of sinks which receive money from large numbers of consumers and then send it on to banks. The banking sector is a crucial sink since it recycles the cash held by it in the form of often productive loans for investment, boosting asset prices and also productivity. The problem in many developing countries that leads to poverty is that there are sinks which draw money away from the poor and do not recycle this. So traders will take money from the poor in exchange for goods but not invest this money in new jobs. Fundamentally there is the problem of the amount of value in the economy. This is the amount of income generated by organisations and individuals which is constrained by the finite demand for goods and is also a result of the bargaining process and capabilities of these people as well as the initial endowement of assets. Low levels of investment have classically been seen as the source of the low income of LDCs. This would be the capabilities limitation. But the absense of a high value bargaining process, as for example the relationship of marketing in developed countries, means that markets are underdeveloped. Many things that could potentially be produced are not in developing countries because of the low incomes of individuals and therefore the small market size that is present there.
The problem with the existing analysis of poverty in the literature
The point that is missed by all poverty literature is that money is limited in developing countries. The initial endowement is low, the amount of value able to be produced by the capabilities of the country is low and the amount of value that can be generated by selling goods within the economy, that is the level of demand, is low. There is a frugal approach to poverty in order to privelige the most desperate of cases of poverty, thus missing the fact that the country needs to become rich to solve these problems.
Gore (2003) suggests that trade is the source of the elimination of poverty. But there is an absense of the nexus of organisations and capacity building as well as the development of the value increasing process for products produced in the LDC.
A left wing criticism of the trade solution to poverty is that it focuses on the development of high value adding business which creates a middle class and excludes the poor. While there may be some social mobility, there are a limited number of high value adding jobs. Globalisation that focuses primarily on developing small numbers of elite jobs thus chips away at poverty, since more income is being generated in the economy, but does not tackle the big question of how to raise the incomes of the poor majority.
Bibliography
Baulch, B. and J. Hoddinott (2000) ‘Economic Mobility and Poverty Dynamics in Developing Countries’, Introduction to a Special Issue of the Journal of Development Studies, 36(6): 1-24.
Francis, E. (2000) Making a Living: Changing Livelihoods in Rural Africa, London: Routledge.
Francis, E (2006) Poverty: Causes, Responses and Consequences in Rural South Africa , CPRC working paper, http://www.chronicpoverty.org/resources/working_papers.html
Gore, C. (2003). Globalization, the International Poverty Trap and Chronic Poverty in the Least Developed Countries. Working Paper 30. Manchester: IDPM/Chronic Poverty Research Centre (CPRC).
Wood, G. and S. Salway (2000) ‘Introduction: Securing Livelihoods in Dhaka Slums’, Journal of International Development 12(5): 669-688.
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