THEORY OF POVERTY

1. UPA Package 1, Module 1 THEORY OF POVERTY

2. Theory of Poverty • Module Objectives • Improved understanding of poverty’s causes • Enable participants to devise better policies • Provide a theoretical framework for other modules and packages Module Organization Four (4) major lessons and lecture–discussion sessions

3. Introduction • Poverty: an old problem that has received renewed, increased attention • Public policy needs theory to help explain and assess successes and failures in practice • Poverty theories have broadened with concepts of development

4. Concepts of Poverty • Various concepts have been developed to define poverty, including three basic UNDP categories • Income concepts have been and remain central in defining and measuring poverty • Poverty means not having enough income to meet basic needs for food, shelter, clothing, other necessities • Among the important concepts and indices are: poverty line, absolute vs. relative poverty, headcount and poverty incidence

5. Concepts of Poverty • Income Concepts • Poverty line represents the officially determined minimum family income or consumption budget to meet basic needs • Absolute poverty in the poverty of those who fall below the poverty line in a society or community • Relative poverty measures the income “gap” or “economic distance” between the poor and the non-poor • Headcount and poverty incidence represent the number and percentage of the absolutely poor

6. Concepts of Poverty • Basic Needs • The basic needs approach goes directly to the necessities themselves rather than to the income representing them • Income may not adequately reflect basic needs, including public services • The approach makes it possible to improve the well–being of the poor ahead of their money income • Basic needs may vary with circumstances and change with time, particularly in urban areas • Absolute income poverty may disappear, but relative poverty may persist along several dimensions

7. Concepts of Poverty • Capabilities • “higher level” human capabilities for a better life may remain unfulfilled due to various reasons, e.g., illiteracy among the poor • These include capabilities to “lead a long, healthy, creative life and to enjoy a decent standard of living, freedom, dignity, self–respect and the respect of others • Development concepts have thus been re-oriented to encompass “human development” of a wider range as the end rather than just a means • Amartya Sen’s “development as freedom” includes free speech and political participation as well as good health and education

8. Concepts of Poverty • UNDP’s Multi-Dimensional Concepts • UNDP has promoted the human development idea with the three "perspectives" on poverty • The capability perspective reconciles the absolute and relative concepts since relative deprivations can have absolute impacts • Two indices have been devised by the UNDP: • - HDI (human development index) combining life expectancy, education, and GDP per capita • HPI (human poverty index) of deprivations in longevity, knowledge and living standard • The UNDP has assessed some countries as doing better in reducing human poverty than income poverty

9. Theories of Poverty • Poverty is "overdetermined" with many complicated causes, but this has not deterred theorists, present and past • Contemporary Theories: The World Bank • The bank has also adopted a multi-dimensional concept of poverty that include "vulnerability" to disease, economic dislocation, and natural disasters, and "ill treatment by institutions of state and society" as causes or correlates of poverty • It has identified the causes of poverty in "the dimensions highlighted by poor people," i.e.: • Lack of income and assets to meet basic needs • sense of voicelessness and powerlessness, and • vulnerability to adverse shocks and inability to cope with them

10. Theories of Poverty • Contemporary Theories: The World Bank • Economic growth, globalization, and inequalities of various kinds (gender, ethnic, racial) have also figured in recent experience with poverty reduction or persistence • The World Bank points to “assets” rather than income as starting points in understanding poverty – people’s assets, their productivity, and the volatility of their returns: • Human Assets (basic labor, skills, good health, etc.) • Natural (e.g., land) • Physical (e.g., access to infrastructure) • Financial (e.g., savings and access to credit) • Social (e.g., “networks of contacts and reciprocal obligations …political influence over resources”) • The “returns” depends on access to market, institutions of state and society, patterns of discrimination, and public policy and interventions

11. Theories of Poverty • Summing-Up So Far • Starting with income as a key concept, poverty has taken on wider dimensions that “official” theories have incorporated in policy documents • Poverty may be explained in terms of economic, social, and political factors (and actors) that lead to deprivation of the income (and assets), basic needs, and higher–level capabilities of large number of people • Natural, cultural, and technological factors also count, with institutions mediating the more basic influence (say, of geography and environment) on poverty and wealth

12. Theories of Poverty • Earlier Theories • Earlier reflections on wealth and poverty in the west began to throw light on why and how they occurred • First, wealth was viewed as finite and belonged only to a few, while most other people were fated to be poor • Later, it was thought that wealth could be produced instead of merely acquired, and the agricultural, industrial, and capitalist revolutions showed how • However, these revolutions produced a mass of paupers driven from the countryside to the cities • Pauperism was blamed on various proximate causes, while some thinkers eventually decided that it was inseparable from progress • Others ascribed poverty to overpopulation (Malthus), defects in labor organization, and capitalist exploitation (Marx)

13. Theories of Poverty • More Recent Perspectives • Recent synthesis of theories have been conflicting • According to one: dead are the ideas that some are rich because (most) others are poor, and that inequality is needed to hasten economic growth • But others argue that such beliefs survive: “the old saw is still correct: the rich get richer and the poor get children” for various reasons, including history, the poor’s own “rational” decisions, and bad economic policies • An “institutionalist” blames capitalists for creating artificial scarcity through conspicuous consumption, restraints on productivity, social exclusion via private property, and the shifting of costs to workers

14. Theories of Poverty • More Recent Perspectives • Both sides accept that inequality and poverty in the U.S. and elsewhere have grown, but for different reasons, including the spread of capitalism, globalization, technological progress, and capital and wealth accumulation by a few people and countries • Cultural and Other Theories • Cultural theories attribute poverty to certain features of a community’s values, traditions, and ways of life that inhibit aspiration for and achievement of material progress and social mobility • These include those explaining both growth and poverty in terms of Protestant and Confucian ethics, “Asian values,” and a “clash of civilizations”

15. Theories of Poverty • Cultural and Other Theories • Oscar Lewis’ “culture of poverty” depicts the poor as isolated, inward–looking, and burdened by negative beliefs and values • “cultural capital” and “social capital” can be used by the rich to grow richer while keeping others poor • Despite criticisms of such theories, they seem vindicated by recent tendencies toward classic marginalization of the poor • “social exclusion”, cultural discrimination, and geographic • segregation suggest a growing convergence of forces bearing down on the poor as an “underclass”

16. Spatial Dimensions: Urban Poverty • Recap of Theoretical Approaches • Two basic kinds of theoretical approaches may be identified • those emphasizing certain characteristics of the poor as groups and individuals, and • those stressing “structural” or systemic factors beyond the poor’s control • Natural, institutional, and technological factors may be counted among “structural” ones • The two approaches and various factors may be combined in a broad theory, but just which is/are primary is debatable and contingent on particular contexts

17. Spatial Dimensions: Urban Poverty • Urban Context of Poverty • Geographic location, climate, and natural resources are important determinants of economic growth and poverty through their relations with transport costs, “the disease burden”, and technology • Landlocked or hinterland countries and communities located far away from markets could thus be fated by geography to intergenerational poverty • Urbanization redefines poverty, which is rapidly urbanizing especially in developing countries whose cities are least ready for fresh waves of migrants and natural increases • Urbanization has underlined the differences with rural poverty, through common conditions, mixes and links between rural and urban poverty must be kept in view

18. Spatial Dimensions: Urban Poverty Cumulative Deprivations A World Bank Sourcebook on poverty reduction depicts urban poverty as a web of cumulative deprivations, in the diagram at the right

19. Spatial Dimensions: Urban Poverty • Some observers note that urban poverty has been seriously underestimated due to official reliance on income concepts • The urban poor are also mistaken as contributors to environmental hazards are major contributors to urban poverty • There is now wide recognition that poverty is being rapidly urbanized • “pauperization,” says one author, is being repeated in poorer countries due to technology–based farm productivity in the West

20. Spatial Dimensions: Urban Poverty • Concentration and Segregation • The concentration and segregation of the poor in cities are themselves defining processes, hence the periodic rediscovery of poverty • To Massey, the premodern poor were mostly unaware of their condition except those in the cities • Even in cities, preindustrial technologies did not yet permit segregation of the rich from the poor nor of work place from residence • New means of transport and communications allowed the rich to distance themselves physically and socially from the poor, who would themselves concentrate in urban ghettoes • After easing in postwar prosperity, inequality returned and is likely to continue as more poor people live in cities and the rich hide in gated, gilded communities

21. Institutions: Government Policy as Cause • Some authors claim that institutions rather than geography explain the wealth and poverty of nations: the “rules of the game” on property rights, the rule of law, etc., are overriding factors • To the extent that the state matters, government and its policies have often been blamed for creating or perpetuating poverty • Neoclassical economists view almost any state intervention as distortionary and inefficient (see module 3 of this educational package for a more positive view of public policy) • This view of the state role is changing, but meanwhile a litany of “bad” policies and government practices has lengthened

22. Institutions: Government Policy as Cause • “Bad” Economic Policies • One author lists the following as bad economic policies for the poor, especially those in Latin America: • populist spending programs that bring inflation and raise interest rates • Protectionist policies and price controls on food and other products most consumed by the poor • Minimum wage laws and special worker entitlements that deter the creation of more jobs • Special credit, foreign exchange, and regulatory privileges that favor a wealthy few • Underpricing of public services, leading to their wasteful use

23. Institutions: Government Policy as Cause • Critics on the other side score “neoliberal” reforms that usually amount to austerity for social spending and the poor • Also subject to criticism are: • Policies that increase foreign and public debt that is often shifted as a general tax burden; • Policies that remove subsidies from the poor but lavish “incentives” for the non–poor, and impose draconian measures without adequate safety nets for the poor; • Urban development policies that discriminate against in–migrants, uproot informal settlers away from livelihood sources, and encourage urban sprawl and “spatial mismatches”

24. Institutions: Government Policy as Cause • Technology and Technocracy • Technology policies and programs are also figuring prominently as double–edged swords for and against the poor, • These include transportation schemes that favor cars over mass transit modes and thus keep the urban poor pinned down, and • A technocratic culture may mean more competent governance, but it may also mean lack of compassion for the poor

25. Institutions: Government Policy as Cause • Concluding Note • Poverty is a multidimensional social problem with complex causes and consequences. Just which of the causal or explanatory factors predominate has depended in part on historical circumstances • Urban poverty suggests that, among other factors, institutions have a critical role to play in both accounting for and dealing with the problem • But urban poverty also suggests that place as well as time matters still (or even more) in both the problem and the solution, since a sophisticated institution must continue to confront the nuance of space in this rapidly urbanizing, albeit also “shrinking”, world.