World poverty: the misconceptions of the winner of the Nobel Prize in Economics

Poverty is not an individual problem of lack of resources that can be solved through education. The problem is the way in which resources are distributed. Español.

Vicenç Navarro
1 December 2015

Angus Deaton, winner of the Nobel Memorial Prize in Economic Sciences 2015

The bestowal of the so-called Nobel Prize in Economics (misnamed because it is not awarded by the Nobel Foundation, but by a Swedish bank) upon Scottish professor at Princeton University, Angus Deaton, for his work on global poverty, has been considered (correctly) to be an indicator of the concern that a large number of international organizations are currently expressing about growing poverty in the world, and their relief, on the basis of Deaton’s optimistic opinion, that not only can this be reversed, but also eliminated even within the current capitalist order of the existing economic system in most of the countries where poverty is concentrated.

According to the new Nobel Prize in Economics winner, a transfer of funds - relatively moderate - from rich to poor countries, along with a number of changes in the latter, such as an increase in educational campaigns, would be enough to stop millions from being poor. Deaton actually considers increased schooling to be the greatest engine of progress over the centuries, and the major single cause for the reduction of poverty and the improvement of the welfare of the population. Increased longevity, which Deaton attributes to the growth of the educated population, is, according to him, the key factor allowing the poor to acquire human capital and thus escape poverty and move up the social ladder.

This vision and understanding of poverty is widely accepted in international institutions (including the IMF and the World Bank, as well as a substantial number of NGOs, government institutions and conservative and liberal political parties, and also parties that belong to the social-liberal tradition, such as many European social democratic parties). Increased education spending is considered by them all a precondition for the elimination of poverty.

What is the problem with the definition of poverty?

This vision of poverty, however, has several problems. One of them comes from measuring poverty in terms of the resources available to each individual person. For a long time, the level of resources that was considered the threshold of poverty was a little over one dollar per day. It has now risen to $ 1.9 per day. It should be noted, by the way, that what is said to be one dollar per day is not actually one dollar per day. For most countries with a low level of wealth, one dollar per day is considered more than enough for a person to live on, without in fact being poor. However, when the World Bank says one dollar per day, this does not mean that the person in question actually possesses one US dollar, but that he or she has the equivalent amount - in the currency of the country where the poor person lives - that he or she needs to buy products which in the US can be purchased with one dollar. If a US dollar can buy you a loaf of bread in the US, the one dollar per day in India means the amount of rupees needed to buy a loaf of bread in India. This amount has been increasing, from $ 1.25 per day (the daily income of 1,200 million people, one third of which are children) to almost $ 2.

Is global poverty decreasing?

On the basis of this criterion, it is assumed that the number of poor is diminishing because each year there are fewer people in this category. But it is often ignored that this is basically due to high economic growth in India and China, which together account for slightly more than a third of the world population. It is often forgotten, however, that in other parts of the world, such as Africa, there are now more people living in extreme poverty than 30 years ago (not only in absolute numbers, but also proportionally).

But the main problem with this concept of poverty is the way poverty is defined - i.e., as a mere lack of resources. According to this definition, the problem of poverty is the poor person’s lack of resources. It seems reasonable enough, but it harbors a huge mistake: it focuses solely on the resources available to that person, regardless of the existing resources in the community that he or she belongs to and which he or she benefits from.

The subsistence value of one dollar per day is very different, for example,  in a society where a public health service exists, from the value in a society where people have to pay to access healthcare. The context in which the person lives is especially important in order to know what resources are available to him or her, for public resources should be added to private ones (one dollar per day).

Neither Angus Deaton nor the World Bank take into account the public resources which can determine that an individual with the same private resources may or may not in fact be poor, depending on the availability of other (public) resources in the society where he or she lives. Their definition of poverty gives excessive importance to private resources and focuses solely on the amount of resources that the individual can buy with the money he or she has. This privatizing and mercantile vision is a biased perspective that hinders the understanding of poverty.

Poverty is a relational concept

To this should be added another error which also stems from the focus on the individual without analyzing its relationship with other individuals in the same community. Two people having the same amount of monetary resources but living in two different countries can be classified as poor in one society but not in the other. Being defined as poor, or not, depends on the amount of money that the individual has in relation to other individuals in that community. In other words, poverty is a relational concept. Actually, if everyone in the world was poor, there would be no poverty in the world because, there not being other people with different levels of resources, the person would not feel, nor be, poor. Poverty, therefore, depends on the context where the person that has been defined as poor lives. Let us consider the data.

A poor person living in a poor neighborhood of the Bronx, in New York, has more physical and monetary resources available to him or her (television, dollars, car, mobile, greater living space, public welfare-type transfers, etc.) than a middle-class person in Ghana. If the world were one single society, the poor person from the Bronx, New York, would belong to the global middle class, and the middle-class person from Ghana would belong to the category of the world's poor. And yet (and this is of great importance), if we use the same indicator as Deaton’s (life expectancy to define progress), we come up against a paradoxical situation where the poor person in global terms (the middle-class person from Ghana) lives 15 more years on average than the middle-class person (the poor person from the Bronx). It is indeed paradoxical that the person who has more resources available to him or her (the one from the Bronx) and who is less poor in global terms, has fewer years to live than the other person (the middle-class one from Ghana) who has fewer resources available to him or her. And this is where Deaton’s and most of the antipoverty establishment’s theories, which state that poverty is an individual problem of lack of resources that can be solved through education, fail miserably.

Poverty is not an absolute, but a relative concept

Poverty is not an absolute, but a relative concept. Whether you are poor or not, and whether you are defined as such or not, depends on where you are located within the social structure of any given country. You cannot consider the individual person out of his or her economic, political and social context where he or she lives. This leads us on to the root of the problem, which is not a lack of resources, but the way in which they are distributed. The distribution of resources nationally and globally is the fundamental issue that conventional wisdom on poverty, as conveyed by the World Bank and Deaton, does not address.

A poor person from the Bronx is at the bottom of society, a profoundly unequal and highly polarized society where little collective support is to be found (the US welfare state is highly deficient, as shown by the fact that 48% of terminally ill patients feel anxiety at not knowing how they – or their families - will pay for their medical bills). Moreover, this poor person from the Bronx feels enormously frustrated, because the social and economic gap between him or herself and the average American citizen is huge – which means that he or she feels overwhelmed and has thus very little chances of getting out of the bottom of the well, which in turn generates a lot of frustration and pathologies that are responsible for his shorter life expectancy. The middle-class person from Ghana, however, is not below but above his or her society’s average, and therefore does not feel this kind of frustration and alienation from the rest of society for there is no difficult gap for him or her to bridge, which is something the poor person from the Bronx does experience.

This is where the emphasis on transferring income to the poor in order to solve poverty is just not enough. Experts in social policy are fully aware that much of the anti-poverty measures which are based on the transfer of public funds for welfare purposes have a limited effect. All the evidence shows that such public transfers to the poor, even when necessary to alleviate their predicament, are ineffective in the sense that they do not solve poverty in any given country. Something similar happens with the emphasis on education as a means to escape poverty. These are necessary but insufficient measures. What is required to eliminate poverty is highly redistributive public policies aiming at reducing the social and economic, financial, political, communication and social gaps which are causing poverty. The evidence is overwhelming in this regard. The greater the inequality in any given country, the greater its poverty. What is required to eliminate poverty is the redistribution of resources aimed at reducing inequalities - which is precisely a taboo subject to international organizations.

From what has been said so far, the conclusion should be that to transfer money from rich to poor countries does not help reduce poverty, unless these resources are devoted to redistributive measures, which is something that seldom occurs. In fact, if the rich countries wanted to help eliminate poverty in poor countries, they could easily do so by helping to redistribute the enormous concentration of wealth that exists in these countries. They do not do so because they are very often the biggest allies of the power structures that control and benefit from the concentration of wealth in these countries.

The reader will also understand why the arguments put forward here do not have the same visibility that Deaton’s or the World Bank’s, for they emphasize redistribution, and thus threaten the richest groups in a country that has great influence on, if not control of, the major means of information and persuasion. It is as simple as that.



This article was published previously by La línea de fuego.

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