POVERTY by Ronak Jain

In the second Economics Society gathering, Ronak discussed the issue of persisting poverty in the world in the world today.

Situation today

Today we see a divide between the rich (or at least fairly rich) 6 billion people and the bottom 1 billion who still face challenging living standards, often lacking even basic amenities like food and water.

Understanding the term ‘poverty’

Beginning with the distinction between relative poverty (which exists in all societies in the form of inequality) and extreme poverty (where basic necessities for sustenance are lacked), the talk proceeded on to discuss extreme poverty. Ronak, influenced by the views expressed by Amartya Sen in the book ‘Development as Freedom’ believed in the notion of viewing development in terms of increasing human freedom rather than just an increase in income, GDP or industrialisation. This is the case because rise in income, GDP, industrialisation are all means to enable freedom, which is intrinsically valuable (valuable in itself) whilst a rise in income would only be instrumentally valuable (valuable only because it allows us to buy something we value). Poverty, viewed in this manner, equates to capability deprivation and lack of economic and social freedom and freedom being intrinsically valuable, helps us to understand why it is important to tackle poverty.

Why poverty persists?

Drawing on ideas from ‘Bottom Billion’ by Paul Collier, Ronak discussed some of the reasons why some countries face the challenge of growth. Some of the reasons that were discussed included the following:

  • The conflict trap – Causality runs both ways between wars and growth and this can create a vicious circle, making it harder for an economy to escape from this trap.
  • The natural resource trap – This is where an export which is in huge demand in the global markets and is highly priced, leads to appreciation of the local currency as foreign exchange flows in to purchase the export. This in turn makes other exports uncompetitive, destroying other export markets.
  • Being landlocked and absence of trade – This being, mainly a problem with some of the African economies, drives up transport costs, making it difficult for these economies to engage in global trade through exports.
  • Poor governance – Governments should strive to achieve transparency in its spending and transactions. Public scrutiny should be encouraged through a system of checks and balances.
  • Population growth – The greater the number of people, the less the number of resources each individual receives when resources are extremely scarce or simply not present. Rising population therefore worsens poverty.
  • Lack of technology

Some hope…

The following solutions to poverty were proposed:

  • Marginalisation – We can wait for the time when firms will start to relocate to the bottom billion countries where labour is relatively cheaper. This may start agglomeration of firms which is precisely what is required to kick start growth.
  • Investment – Investment from firms in China and other countries (in the form of relocating production or outsourcing) in the bottom billion countries could help growth of these economies.
  • International charters – these should give advice on contracts for natural resources and promote budget transparency.
  • Trade liberalisation – Developed countries should reduce their trade barriers against these countries. This would make exporting for these countries profitable and pave the way for export led growth.
  • Aid – Use of aid to enable growth would only be ideal if it is accompanied with detailed plans for its use to develop human capacity and infrastructure, both of which would encourage global trade.

Approach

Whatever the approach to tackle extreme poverty may be, it was highlighted that, it is important to remember that every economy, like the human body, is complex and unique. Any attempt to tackle its problems, therefore, should take into account the economy’s intricate structure and characteristics before proposing any solutions. Finally, it is vital to note that there is hardly any ‘panacea’ (a cure for all) for tackling poverty in all countries given their diversity.

Why is it important to tackle poverty?

Having discussed the issue, Ronak then proposed some reasons why poverty needs to be addressed. Some of the reasons were:

  • Humanity/ethics – we have a moral duty to help other humans
  • Egalitarian account/ justice – the belief that everyone should have a certain level of welfare and it is unfair on poor that they face poverty
  • We all benefit – believing that a world where there is no poverty is better for all. One of the reasons for this might be that the bottom billion countries could be producing goods and services at a lower cost than we currently are. This would mean lower prices for us when we import products/services.

References and suggestions for further reading:

 

The talk ended with a clear and succinct presentation of several themes surrounding the issue of poverty and development. Thank you to all who attended.

As there was not enough time left for any discussion, any questions or reviews regarding any of the themes discussed here would be encouraged and welcomed.

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