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Causes of poverty and inequality and possible solutions

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Poverty is the inability to afford the basic human wants. These include food and non-food items. Evidence of poverty can be seen almost everywhere, but most severe poverty exists in developing nations. Severe poverty results into slums, homeless people and poor suburbs. Poverty is a collective condition of poor groups or individuals. The entire country can be poor and in order to prevent stigmatization, we refer to such countries as developing nations. Recent estimates based on two surveys, rural and national showed that poverty is more severe in rural areas. This is caused by inadequate basic social services. Most rural households do not have enough income to pay for essential expenditures.

There are various ways of measuring poverty. The first one classifies Poverty as absolute poverty or relative poverty. Calculation of absolute poverty is based on a set standard, which is constant over time and between countries. For illustration, an absolute measurement can be the number of people eating less food than is necessary to maintain the human body. On the other hand relative poverty is partly socially defined and dependant on the existing social context. For example, we can take the possessions of the poorest one third of a given population and compare it with that of the richest one percent of that population (Panon, 2004). The poverty line as defined by the European Union is a relative measure based on economic distance. It sets the level of income at 50% of the average household earnings.

The U.S. however calculates poverty levels based on absolute poverty measure. The United States poverty line, which was established in 1963, calculates poverty based on the dollar. The 'economic food plan' is multiplied by a factor of three since food costs accounts for approximately a third of the total earnings. However, due to inflation the calculations are updated annually. The two measures relative and absolute are based on an individual's annual earnings and do not consider total wealth. Critics of the measures say that ignoring someone's total wealth amounts to the calculations being erroneous. They argue that total wealth should be included since it is a major component of economic welfare. Other methods of measuring poverty are poverty guideline and poverty thresholds. Poverty guideline is used to establish eligibility of a number of programs while poverty threshold is calculated after a period of one year. Poverty threshold is based on the existing population survey for a given month. For illustration, calculation of 1998 poverty threshold was established by using the 1999 March population survey.

Research shows that economic growth has the overall effect of reducing poverty. Using income data of more than 90 countries, it was proved that whenever there is economic growth there resulted in poverty alleviation. Countries with higher growth rates saw greater decline in poverty levels (Perotti, 1996). Economic growth is accompanied by a rise in employment and higher wages. These results in a significant growth in gross domestic products and government revenue hence lower levels of poverty. Increased government revenue helps the government to spend more on social sectors such as education and health thus leading to poverty alleviation. Generally, an increase in gross domestic product produces a growth in life expectancy, higher primary school enrolment and a reduction in child mortality rates.

Inequality as sociologists argue is an economic problem first and then political and social problem. They say that of all the natures of inequality, the most important one is the economic nature. The economic nature of inequality can be understood best when it is based on the structure of income distribution and its effects on economic development and social stability. Economic inequality has along history. Many people have desired equal distribution of resources. There have been arguments saying that social conflicts and severe confrontation between classes is caused by the economic inequality. They believe that fair distribution of resources will result in reduction in social friction hence sustained economic growth. A theory that has existed for approximately half a century maintains that economic inequality changes as economic growth change (Roberto, 2004). It relates factor movement between areas where there is unfair distribution of wealth, which states that distribution does not have to be even. The theory concludes that if there is fair distribution of resources will result in higher productivity leading to economic growth.

In order to mitigate these problems of poverty, economic growth must be stimulated. This is because the two are tied together. There should be economic liberalization. Economic rights when extended to the poor results in poverty reduction. When the poor have property rights to land, they have the means to reducing poverty; this important strategy is the best a nation can employ (Rodríguez, 2000). Possessing land increases the wealth status of poor people greatly. Liberalization of trade, prices and exchange rates have far-reaching effects in the economy. Privatization of government owned firms also enhances assists in reducing economic decline and restores a nation back to economic self-sustenance. When the poor have land, agricultural activities and opportunities are created. Small or average households in rural areas experience growth as they benefit from employment and income generated from agriculture. Although statistics from household income are unavailable, indicators like improved enrolments in schools and improved health are evidence of economic progress.

Increasing capital, which is one of the factors of production, enhances economic growth. Human capital is important for economic growth since one cannot engage in productive economic activity unless he is healthy. Human capital in terms of education also has direct influence in economic development. Good infrastructure and technology enhance market reforms. Countries that strategize to have economic growth must invest in road network, railways, ports and telephone systems. Experience shows that improving infrastructure and technology is a working formula for economic development. From history, the steam engine initiated the rapid economic growth in Europe. Mobile phone technology has created economic development even in poor and rural sections, bringing with it economic freedom by making financial services available to the poor. Obtaining aid is another useful way of alleviating poverty. Aid as a form of social security provides money in the economy. Basic income grants or grants from international financial institutions are successful anti poverty program. Such programs enable causes rapid economic growth. Most developing nations have huge debts and hardly raise enough money from exports to settle these debts. Such nations should receive debt relief. Debt cancellation should be encouraged to allow the poor nations to advance economically.

In Africa, one of the causes of poverty is politics. A few individuals or families instead of ideologies, institutions and public policies control the political arena. This causes rivalry and power struggle, which more often results in violence. In such apolitical system, there is little or no economic growth (Dohlman & Soderback, 2007). If at all the government puts in place measures to alleviate poverty, the big men in the system are the beneficiary of such measures. There exists a general lack of policy to improve the lives of impoverished majority. In order for there to be any significant economic growth, the government should involve the poor people in formulating and implementing poverty alleviation programs. The government should not assume that it knows what will be beneficial to the poor more than the poor themselves will. Projects should be approved if it will promote the welfare of the poor people rather than some contractors who stand to benefit from the projects (Uphoff, 2000). The citizens of these nations must speak boldly stating what they know will assists them and refuse to entertain the white elephant projects. Other measures that can be taken include funding agricultural activities to increase food production and fighting the rampant corruption.

The Grameen Bank approach is effective in alleviating poverty especially in the rural setting. Regardless of how much someone is poor. He has potential, which remains under utilized. This is what the founder of grameen bank Muhammad yunus realized. He observed if this potential can be utilized, the poor man will not only change his own life but will influence the lives of many more people in a community. Professor Yunus therefore created a microfinance organization that gives small loans to the poor without requiring security. He also established a community development bank, which offers group based credit. Apart from this, the bank has created several developments -oriented enterprises such as energy providing, fabric and telephone companies (Cavaye, 2000). The micro financing is focused on supporting community-based projects. It promotes training needs in order to bring out the potential locked up in individuals. This is a major way of maintaining effective sustainable change process. Apart from building capacity for development within the community, it also creates an enabling environment for people to achieve there potential. Through these programs, it has emerged that occurs when individuals posses skills necessary to address their issues and are confident of their ability to participate. Everyone desires that he be treated with respect, the programs ran by this organization has put this in consideration. Therefore, the Grameen Bank approach has remained effective and has resulted in effective poverty alleviation. These programs have been engaged in many communities in third world nations for more than twenty years and are highly successful.


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