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What causes poverty?

14 Mar 2017Economics Essays

Wherever and whenever a flash of the new view of poverty is found, there is found also growing interest in its causes. This interest increases with the persuasion that it is not desirable that there should always be a certain number of men bare and hungered and in prison, even for the sake of giving some other men the privilege of dressing and feeding and visiting them (Gilder 1993). Just after poverty is recognized to be undesirable, from the point of view of both rich and poor, the question emerges whether it is inevitable. Any endeavour to answer this question includes logically an investigation into the reasons for the existence of poverty, but as a matter of experience this attempt seems to be neglected. We are unwilling to admit that anything in the economy of the world to which we seriously object must be helplessly endured. With the formulation of the question we face the problem how poverty may be reduced and obviated. With purpose to do this, however, we are again driven to investigate its causes.

International debt owed by the poorest countries takes the needful cash away from health, education and economic development (Macarov 2003). Often the initial debt money was stolen by corrupt governments, or perhaps spent on useless operations without proper consultation or agreement. And though the original amount has been paid back many times over, the debt keeps increasing because of the high interest rates involved.
Debt is an effectual tool. It assures access to other peoples' raw materials and infrastructure on the cheapest likely terms. Dozens of countries must contend for shrinking export markets and can export only a bounded range of products because of Northern protectionism and their lack of cash to invest in diversification. Market saturation ensues, reducing exporters' income to a bare minimum while the North has big savings. Many developing nations are in debt and poverty partially due to the policies of international organisations such as the International Monetary Fund (IMF) and the World Bank (Macarov 2003).

Their programs have been intensively criticized for a long time for resulting in poverty. In addition, for developing or third world countries, there has been a growing dependency on the richer nations. This is in spite of the IMF and World Bank’s claim that they will lower poverty.

Following an ideology known as neoliberalism, and leaded by these and other organisations known as the “Washington Consensus”, Structural Adjustment Policies (SAPs) have been set to ensure debt repayment and economic debt rescheduling. But the way it has occurred has demanded poor countries to reduce spending on things like health, education and development, while debt repayment and other economics policies have been made the seniority.

The IMF and World Bank-prescribed structural adjustment policies have implied that nations that was lent money hove done so on condition that they cut social expenditure (such as health and education) in order to pay back the loans (Gilder 1993). Many are bounded to opening up their economies and being originally commodity exporters in such a way that poor countries have found themselves in a spiralling race to the bottom as each nation contends against others to present lower standards, reduced wages and cheaper resources to corporations and richer nations. This has enlarged poverty and dependency for most people. It also forms a background to what we today call globalization.

Around the world, disparity is growing, while the world is further globalizing. Even the wealthiest nation has the largest gap between rich and poor corresponded to other developed nations. In many cases, international politics and some interests have led to a deviation of available resources from domestic needs to western markets. Historically, politics and power play by the elite leaders and rulers has enlarged poverty and dependency. These have often disclosed themselves in wars, hot and cold, which have frequently been trade and resource-related. Mercantilist practices, while termed free trade, still occur today. Poverty is consequently not just an economic issue, it is also an issue of political economics.

Many people who are interested about the destiny of the world's poor now attribute their plight to globalization. They argue that globalization has depleted the position of poor countries and exposed poor people to bad competition. This concern is understandable, particularly since the gap between rich and poor has indeed become more vivid in recent decades (Macarov 2003).

Specifying how globalization influences the economic status of countries or individuals is not easy. The effects of globalization may be the result of competition among workers, or foreign investment, or trade, or government borrowing. There is no singular measure of integration into the world economy. Each perspective of integration can have variable effects. Poverty can be measured in various ways-for instance, connected to a country's average, by consumption capacity, or in terms of general well-being. Many people in many places historically have been poor for many reasons. Classifying (increases in) poverty to globalization therefore requires proving that globalization has become a dominating factor in producing a new kind of poverty.

By common consent, globalization has originated rapidly since the 1980s. Yet accordingly to the recent Global Poverty Report, the proportion of the world population living in poverty has increased from 26% in 1988 to 29% in 1998 (Macarov 2003). Moreover, social indicators for many poor countries also show change for the worth over several decades. If globalization causes poverty, then countries that become more economically united via trade and investment should do worse. But some that have become more united into the world economy, such as China, have made progress. Others, for instance in sub-Saharan Africa, that have remained comparatively isolated have experienced diminutions. Such overall differences do not settle the issue, since many other factors may play the role, but they do cast some doubt on the general argument. There is sufficient evidence that the gap between the richest and poorest countries, and between the richest and poorest groups of people in the world, has enlarged (Gilder 1993). But disparity may increase without a growth in poverty rates, for example if globalization increases opportunities for the wealthy faster than for the poor. Since increasing wealth may be due to many causes, exhibiting that the rich get richer because the poor get poorer is trickier than recording and lamenting the fact of inequality as such.

One attribute of arguments connecting globalization and poverty is the generalization from particular instances of impoverishment to grand global developments. When governments assume debt in private capital markets and decreasing world demand for their commodities depresses prices and they look for funds from the IMF to repay loans and they agree to conditions for internal reform and these conditions setting suffering on their people, it is tempting to conclude that therefore "globalization" causes poverty (Gilder 1993).

A knowledge of the causes of poverty is of importance in two ways. It is equally valuable in helping the individual nations that needs assistance and in planning movements for the improvement of social conditions. Every excursion after causes confirms our hasty intuitive conclusion, because the causes themselves are found to be controllable; and every confirmation of the belief that poverty is useless sends us out again to search among causes for our points of attack. Nowadays the purpose of many mass demonstrations is to protest against the current form of globalization, which is seen as unaccountable, corporate-led, and non-democratic and to show the connection with poverty due to the various policies of the IMF and World Bank. It further shows the links between huge odious debt and poverty in the developing countries with the effects of the current forms of globalization that causes poverty amongst a vast majority of people around the world.

Works Cited

  • Macarov, David. What the Market Does to People: Privatization, Globalization, and Poverty. Clarity Press, 2003.
  • Gilder, George. Wealth & Poverty. Institute for Contemporary Studies, 1993.
  • Gilbert, Geoffrey. “Adam Smith on the Nature and Causes of Poverty”. Review Of Social Economy, Vol. 55, 1997.
  • Sawhill, Isabel V. “The Behavioral Aspects of Poverty”. Public Interest. Fall 2003.

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