The poverty trap

 

Until recently, poverty was understood largely in terms of income—or a lack of one. To be poor meant that one could not afford the cost of providing a proper diet or home. But poverty is about more than a shortfall in income or calorie intake. It is about the denial of opportunities and choices that are widely regarded as essential to lead a long, healthy, creative life and to enjoy a decent standard of living, freedom, dignity, self-esteem and the respect of others.

People don't live in the squalor of the slums, favellas, squatter communities, low-rent districts or beside garbage dumps because they want to. They have no other choice.

Possessing little money, little education, few skills for the marketplace and a multitude of health problems, nearly half of all the people in the world live in poverty, without much opportunity to improve their lives.

Poverty has multiple dimensions, and many of them are inter-related, making for a vicious cycle.:

 

  • Poor health, disease and disability can prevent people from working full time, limiting their income and their ability to work to move out of poverty. Health problems for the breadwinner mean income problems, but an illness in the family can ruin an entire household. Not only is income lost, but expenses go up due to the need for medicines and health care and the need for family members to care for the sick person.

 

  • Those with less formal education tend to be disproportionately represented in the ranks of the poor, perhaps because they are more likely to hold poorly paid jobs or to be unemployed. Poor families often face enormous difficulties in keeping their children in school due to the costs, as well as to the pressure to have as many household members, including children, out working. The next generation, being poorly educated, could in turn end up holding similar poorly paid jobs.

 

  • Women with children constitute the majority of the poor in many countries. Where women can move out of poverty their children appear to face a brighter future, but where their chances are limited, poverty is transmitted inter-generationally. In many cases, girls have higher dropout rates as they are the first to be pulled out of school to help with household work and childcare. Yet, experience has shown that investment in girls’ and women’s education not only makes for greater equity but also tends to translate directly into better nutrition for the family, better health care, declining fertility and potentially greater economic empowerment.

 

  • Poverty has been identified as a major factor in the spread of HIV/AIDS in many parts of Africa. From simply being a cause of individual suffering, HIV/AIDS has become a major economic and social crisis for entire economies, as it affects the economically productive sections of society and makes it harder to eradicate poverty. It is estimated that at the end of 1999, nearly 34 million people worldwide were infected with HIV and by that by 2010 in Africa alone there will be 40 million orphans from the epidemic.

 

  • As United Nations Secretary General Kofi Annan points out in his Millennium Report, "poor countries -- especially those with significant inequality between ethnic and religious communities -- are far more likely to be embroiled in conflicts than rich ones." In fact, twenty of the world’s 38 poorest countries are either in the middle of an armed conflict or have recently emerged from it, according to other UN sources.

 

The roots of poverty

 

Poverty exists in many of the industrialized countries and characterizes whole regions of the developing world. The roots of poverty lie in a tangled web of local situations combined with national and international circumstances. It is the product of economic processes occurring at a variety of levels, as well as a range of particular social and economic conditions that appear to structure the possibilities of the individual. Consider the following:

 

Some countries have to pay more to finance their debt than they can spend on health and education: An obligation to repay debt incurred by past regimes—sometimes due to bad advice from developed countries, sometimes due to corrupt regimes—has severely curtailed the ability of many countries' efforts to break the poverty cycle. Sub-Saharan Africa pays over 14 per cent of export revenue in debt service. South Asia, another very poor region, pays 22 per cent. The Latin American and the Caribbean region must devote almost one-third of its export revenue to debt servicing.

 

  • In recent years, Tanzania’s debt service payments have been nine times its expenditure on primary health care, and four times as much as that spent on primary education.

 

  • The value of Honduras’s debt is 208 per cent of its exports; its debt service accounts for 55 per cent of Government expenditures.

 

In 1999, the IMF and the World Bank adopted the Enhanced Heavily Indebted Poor Countries Initiative, aimed at providing debt relief to 41 heavily indebted poor countries (HIPCs). The plan is expected to relieve up to 70 per cent of the approximately $170 billion debt that these countries owe. But so far, few countries have been able to qualify for relief and debt servicing has not always been sustainable. i.e. even after debt relief, the cost of servicing the debt has been greater than the amount spent on basic health and education, leave alone allowing for increased investment levels necessary for economic growth.

 

Trade-related factors and structural adjustment policies have had unfavorable effects: Many developing countries must rely on exporting unprocessed agricultural commodities to earn income overseas, but the prices of these agricultural products have been relatively unfavorable and have continued to fall. At the same time, world market prices for fuel and for manufactured and processed goods have risen. Furthermore, many developed countries have imposed steep trade restrictions on agricultural products from developing countries, making it harder for them to sell their goods. With depressed earnings, many countries have been unable to break out of the poverty cycle through a focus on exports. At the same time, depressed export prices but a rising import bill made for balance of payment problems, a rise in borrowing and in the current context, higher debt levels. Some estimates of the loss on account of declining prices in the year 1992, find it to be higher than the total aid budget of the OECD for that year ($65 billion compared to $58 billion). The situation was often compounded by structural adjustment policies which encouraged depreciation of the currencies.

 

  • Indonesia, once self sufficient in food, more recently had come to depend on imported food – 20 million tonnes of rice a year. This had disastrous consequences in the late 1990s, when in the wake of the Asian crisis, the currency was severely devalued (500%) and local conditions made for inadequate supplies of domestically produced food. The price of imported rice skyrocketed and according to one estimate, more than 100 million Indonesians joined the ranks of the poor as a consequence.

 

Owning few assets, the poor have little access to capital or credit: In many countries, a majority depend upon agriculture and inadequate access to land is one of the primary causes of rural poverty. Most of the world's poor either own no land or own land not worth owning. The land they live on is generally of poor quality for farming, and often subject to damage from storms and other natural disasters. Or they are subject to century-old land-owning systems that perpetuate an almost feudal-like system of land tenure, such as in the hacienda system in the Philippines. Caught in a trap between marginal incomes and little chance to obtain funds for improvements, there is little opportunity for advancement. Land reforms, public investment in rural infrastructure, technology and marketing services along with increased credit and price stability are necessary to remove the multiple constraints restricting the possibilities of the rural poor.

 

Lack of sufficient employment opportunities: Escaping the poverty of the rural areas, many people head toward the cities – in their own and in foreign countries -- to find a job. But in most countries, there aren't enough decent jobs—the kind that pays a living wage—to go around. Poor people then tend to try to eke out a living at the margins—in what has become known as the informal sector. The pressure on this sector is heightened with labor displacing technical change, declining growth of the economy and formal sectors, and by budget cuts. However, people in the informal sector barely scrape by, and enjoy little or no social protection. Globally, it is estimated that of a workforce of a three billion people, 140 million are unemployed, and between a quarter and a third are underemployed.

 

Inadequate infrastructure and lack of access to basic social services in relation to education, health and reproductive health: Often living in areas that have no sewage or clean water, poor people are much more susceptible to illness and disease. They also often lack the mean to obtain the health care they need. At the same time, people living in poorer areas lack information on health and reproductive health issues, and consequently, are often uninformed on measures they can take to avoid risks.

 

Social exclusion: There are biases and prejudices in every country, and in some cases policies that exclude people of a certain race, religion, or sex from attaining positions of power or from getting good jobs. Often the bias has no basis in the law but is active nevertheless as in the case of gender discrimination or marginalisation of indigenous peoples. In such cases, affirmative action policies may need to be adopted for a period of time to improve the conditions of the excluded and to make for more equitable access to job opportunities.