Non-negative Impacts of Poverty and the Inequalities of Growth

Abstract

What would happen if extreme poverty suddenly ended? What if poor nations caught up with rich ones? This paper was written because recent financial crisis has sparked the debate on how to end extreme poverty.

This paper aims to provide evidence on the non-negative impacts of poverty and the inequalities of growth. Furthermore, it argues that while giving to the poor creates awareness on the effects of extreme poverty, may impede sustainable development instead.

Development in a broader sense, means economic growth or increasing the size of a country’s economy over time. Foreign aid often hurts economic growth, rather than promoting it. For example, the inequality of consumerism and easy credit may lead to over-borrowing and excessive consumption, which is detrimental to sustainability.

“The rich get richer and the poor get poorer” often used to describe economic inequality is untrue because the rich do get richer while the poor get richer as well. This is seen as there were 2.2 billion people living in extreme poverty in 1970, and there were 705 million people living in extreme poverty in 2015. The only change is standards.

Poverties Necessity

Currently, the World Bank defines extreme poverty as making less than $1.90 a day which is based on the US dollar exchange rate in 2011. In 2015 estimates conveyed that around 10 percent of the world’s population currently lives in extremes poverty (World Bank, 2019). This poverty measurement is based on the monetary value of a person’s consumption. Consumption, the final purchase of goods and services by individuals, helps determine the growth and success of a country’s economy. Therefore, different countries have different proportions of their population living in extreme poverty. Majority of the extreme poor live in rural areas such as South Asia, Sub-Saharan Africa, the West Indies, East Asia, and the Pacific. Access to good schools, health care, electricity, safe water, and other critical services are often restricted. Since the rural areas have these clusters of extreme poverty, other government policies are put in place to assist in ending extreme poverty.

Foreign aid is the financial or technical help given by one country’s government to another country to assist social and economic development or to respond to a disaster in a receiving country is often given to less developed countries (Borgen, 2018). Foreign aid is given on two principles that it a moral duty and that it yields beneficial results to ending poverty. For example, foreign aid saves millions of lives from poverty by addressing issues related to health, education, and natural disasters. Hence, foreign aid is making a difference in people living in poverty lives by providing the necessities needed to live. However, giving is not necessarily based on the Identifiable Victim, Parochialism, Futility, Diffusion of responsibility, Sense of fairness, and Money (Singer, 2014). Furthermore, the country’s economic development is being impeded by foreign aid. Extreme poverty is only being prolonged as a result because the country will always be poor if never given the chance to grow.

The idea of foreign aid became prevalent in the late 1960s, which was fueled by the unceasing televised images of famine and pestilence in the developing world. For example, the humanitarian crises of children starving to death in Biafra, the land seceded from Nigeria, and the Nigerian government’s blockade leads to sympathy being built up. Economic growth was originally believed to be achieved by putting money into a country’s factories, roads, and other infrastructure. Although a moral argument could be originally made for altruism, foreign aid eventually became a matter of self-interest. For instance, during the Cold War western countries gave to poorer countries in hope that they wouldn’t ally themselves with the Soviet Union and China. It could be argued that foreign aid is important for fostering a conducive diplomatic relationship between the donor and the recipient countries (Borgen, 2018). However, this relationship is often a commensal or a parasitic relationship where one benefits and the other receives no benefit. For example, resource-rich countries are often poor due to outside influences.

The major reason resource-rich locations such as West and East Africa remain poor is due to the influence of Europe and North America. In history America, Britain and France all had an influence on Africa due to colonization. Although not directly harming poor countries, influences like colonization lead to a lack of national growth. Failure of leadership is a major effect of outside influence. The significance is that for leadership to be effective, direct leadership is needed to ensure fairness. Direct leadership allows a country to focus on themselves which can eliminate social problems. Social problems such as racism, sexism or marginalization diminish citizens trust in their government. For example, most humanitarian crisis wouldn’t have happened if the countries government leadership was more effective. Similarly, foreign aid diminishes government leadership and citizen trust. For instance, foreign aid over time is likely to increases government corruption in beneficiary nations.

Overall, giving foreign aid is in complete contrast of donor’s humanitarian effort of improving other countries wellbeing. Foreign aid diminishes citizens trust making money towards public policies counterproductive. Countries primarily don’t give foreign aid on goodwill, but for strategic reasons. Furthermore, foreign aid can lead to corruption, that has a negative impact on economic growth. The argument could be made that despite the risk of giving foreign aid, its necessary for the moral goal of ending extreme poverty. However, the primary goal of ending extreme poverty is to promote growth. Growth must be sustainable and inclusive; to create more jobs; for better healthcare, education, nutrition, and sanitation; and to develop effective safety net programs to ensure that the most vulnerable can persevere in the face of shocks (World Bank, 2019). Foreign aid is counterproductive for this goal, so the question arises what is? The answer is minimal to nothing must be done directly as seen in trends in economics, and history.

A countries wealth depends on trade, in goods or services. Finding that niche where they have an advantage, and then producing it leads to a boosted economy. The significance is trading depends on infrastructure, and infrastructure, in turn, depends on investment. This is where foreign aid was originally placed. Economists assumed that if aid was placed on infrastructure the recipients would use fiscal policy to increase the levels of their education, healthcare, and general wellbeing; thus, eliminating the need for aid entirely in the long run. Similarly, the idea of countries opening their own markets to import goods would lead to a boosted economy was untrue. Therefore, it’s important to look at the methods past rich countries used to boost their economy. Extreme poverty was common globally including today’s rich countries as a majority of their population lived in extreme deprivation only a few generations ago. The countries that improved their living standard at a fast pace were those that industrialized first. They then diversified their trades within cities, which created synergies. The governments then supported growing businesses with monopoly rights, and tariffs to prevent cheaper imports from sinking the market (Williams, 2008). Since various countries have successfully ended their extreme poverty crisis using this model, the model should hold true for poor countries today.

However, it’s a simple fact that rich countries don’t want poor countries economy to catch up. For example, the International Monetary Fund (IMF), an organization created to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world (IMF, 1945), encourages false growth. The IMF encourages countries to develop their economies by providing raw materials and focusing on one tradeable commodity rather than diversify. Furthermore, they restrict countries from using tariffs, subsidies, or other forms of market protection used to develop their manufacturing industry. The significance is that the IMF governs and accountable for over 189 countries globally (IMF,1945). Thus, 189 countries will remain in poverty. In fact, all rich countries have restricted or banned the methods they used to get rich themselves. Since for poor countries to receive support from rich countries, rich countries made conditions in favor of themselves. Although not in favor of ending extreme poverty, this methods prevents multiple problems from arising or from becoming more prevalent.

History has demonstrated problems arise when countries become rich. For example, in the American Revolution, when colonist developed its manufacturing industries, tension arose from America and Britain. Tension rose from a conflict of interest that originates from having power or money. The concept was known even then. For instance, an English merchant Matthew Decker in 1744 advised colonist to grow raw materials and tempted them with promises of free trade. The British government developed laws to raise the tax revenue, such as the Stamp Act of 1765, the Townshend Tariffs of 1767 and the Tea Act of 1773, to restrict America. This is like what is occurring now, but the British ultimately failed in restricting America development. It could be argued that if the British failed then poor countries can succeed in developing their economy as well. However, modernly even the United States preaches this false route of development. America’s rise during the revolutionary war led to over 20,000 death and another global competitor that fought for resources. Similarly, if other countries economy developed these problems will arise. Currently, most countries are undeveloped so if they rose these problems will be raised exponentially. This is not something rich countries want to see with climate change and overpopulation being global issues.

Humanitarians and altruism’s promote human welfare and social reforms. Government humanitarianism should relieve human suffering based on gender, sexual orientation, religious or national divisions. Therefore, the goal should be to save lives, relieve suffering, and maintain human dignity. If every country developed, then issue concerning climate change and overpopulation will become more prevalent. For example, Americans make up for roughly 5% of the world’s population but consume roughly 20% of the world’s energy, eat 15% of the world’s meat and create 40% of the garbage on Earth (McDonald, 2015). Therefore, if every country lived like America 4.1 earths would be needed to support the population that comes with development. Government humanitarians must consider this when facing a countries development. However, extreme poverty is not necessary because people do deserve basic rights. All people should have necessities such as food, water, clothing, shelter, equipment, and medical supplies which should relieve them from desperate situations. Although It’s unrealistic to believe that rich countries will change their behaviors concerning a countries development, there are still ways to end extreme poverty.

Two centuries ago out of the estimated 1.1 billion people living, only a small portion could be considered not to be living in extreme poverty. Back then people didn’t have access to necessities like food, housing, clothing, and energy; Hence, they could be considered to live in extreme poverty. Furthermore, two centuries ago even the wealthiest man could die due to something the poorest man would be unlikely to die from today. Advancements in technology are the cause of these different levels of prosperity and poverty. For example, without Elias Howes, the person who invented the first industrial Sewing Machine in 1846, countries wouldn’t have been able to boost their economy as fast. Other scientists dramatically shifted how the effects of poverty are perceived and handled. Alexander Fleming, the person who discovered penicillin in 1928, invention changed how bacterial diseases are handled. Since there is a surplus of antibiotics, it can be widely dispensed to people; thus, easing the effect of extreme poverty.

The trend continues throughout history, of something new being discovered, then being used to end prominent problems. Poverty may not technically end, but the standards could be changed by eliminating poverty effects. Potential inventions can change standards: If a water filter is created, then people will not die of thirst; if food production increases, then the surplus can go to poor countries; if new medical treatments form, then diseases will become less prevalent. Malaria, neither a virus nor a bacterium, is still present in Africa because there is no permanent method to cure Malaria’s parasitic infection currently. If a new medical innovation is formed precisely for Malaria, then Malaria has the possibility of being eliminated from Africa. Examples such as this make income or consumption levels irrelevant because the available goods and services should be enough to support poor countries. Thus, rich countries don’t have to fear poor countries development because there are enough resources. Goals like ending extreme poverty now become feasible for rich countries because advancements benefit everyone.

The World Bank has made a goal of ending extreme poverty by 2030 (World Bank, 2019). Although the goal is unrealistic to end extreme poverty by 2030, extreme poverty has dramatically decreased. For example, the goal to cut the 1990 poverty rate in half by 2015 was achieved ahead of schedule by five years. Given global growth forecasts, poverty reduction isn’t fast enough to reach the target of ending extreme poverty by 2030 (World Bank, 2019). However, the Worlds Bank definition of extreme poverty is skewed. The World Bank estimates are formed from three factors: household surveys providing evidence about household consumption per head; domestic price indexes and purchasing power parity rates, and International Poverty Line based on available national lines in the poorest countries. The problem with this is that different countries have different relative and absolute poverty lines due to regional inequality. Thus, poor citizens from rich countries would not be considered when making the poverty line. Nonetheless, the World Bank’s estimate still gives a good idea of how many people are living in extreme poverty.

Regional inequality gives countries different absolute and relative poverty lines. The fixed standard of living is how absolute poverty is measured. That is the income threshold needed to sustain themselves in that country. For instance, in America, around $12,000 is needed for a person to sustain themselves according to the federal government poverty lines. $1.90 a day is extremely poor in America since a person would barely be able to sustain themselves. Access to health care, electricity, safe water, and other services become impossible for someone living on $1.90 a day in America; thus, qualifying them to be considered extremely poor. The World Bank International Poverty Line does not take this into consideration when measuring absolute poverty globally. Although not as important as absolute poverty, relative poverty measures the living standards of a society. Hence, people are considered poor if they have less income and opportunities than other individuals living in the same society falling into a poverty trap.

Poverty traps are mechanisms that keep people in poverty. Usually created by an economic system that requires a more efficient economy to produce capital. Basically, stating that once someone is in poverty, then they will always be in poverty. Therefore, if someone is socially in relative poverty, then they will eventually be in absolute poverty. For example, if someone in America pretends to be rich to fit in, the purchases they made will push them toward the route of absolute poverty. Factors that contribute to falling into a poverty trap includes limited access to credit and capital markets, extreme environmental degradation, corrupt governance, lack of public health care. For countries it’s possible to get out a poverty trap with enough capital, but for individuals, it is usually set. Commonly, Insufficient nutrition leads to a poverty trap because without nutrients energy cannot be gained to work. Although it’s possible to fall into a poverty trap, with enough smarts extreme poverty can eventually end.

Could poverty ever actually end? Extreme poverty, maybe with economic growth without outside influences, and advancements in science; Poverty in general, no because for someone to be rich someone must be poor. The idea of duality, an instance of opposition or contrast between two concepts or two aspects of something, makes ending poverty impractical.  Therefore, for poverty to end inequality between countries, and between people must end. This is unlikely since 80-90% of the world’s countries follow a capitalist economic system. Capitalism ideology is based on private ownership to achieve a profit for themselves. Overall, people are selfish, so they primarily look out for themselves while restricting others. However, improving relative poverty by new innovations could improve poverty’s global standards. Hence, only good news should follow with time.

Bibliography

World Bank, World Development Indicators. (2019). Understanding Poverty. Retrieved from http://www.worldbank.org/en/topic/poverty/

Borgen, C. (2018, January 09). The Importance of Foreign Aid. Retrieved from https://borgenproject.org/why-foreign-aid-is-important/

Singer, P. (2014). Why Don’t We Give More? In The life you can save: Acting now to end world poverty (pp. 45-62). Melbourne: Text Publ.

Williams, J. (2008, August 18). How rich countries got rich, and why poor countries stay poor. Retrieved from https://earthbound.report/2008/08/18/how-rich-countries-got-rich-and-why-poor-countries-stay-poor/

IMF. (1945). International Monetary Fund. Retrieved from https://www.imf.org/external/index.htm

McDonald, C. (2015, June 16). How many Earths do we need? Retrieved from https://www.bbc.com/news/magazine-33133712