Absolute & Relative Poverty Research Paper Starter

Absolute & Relative Poverty

On a global scale, poverty is measured two ways: in absolute and relative terms. The focus of absolute poverty is the individual; the World Bank defines absolute poverty as having access to no more than $1.25 a day of purchasing parity power. Relative poverty measures the individual against a larger group; how much of a gap is there between those at the very bottom of the economic ladder and the rest of the cohort? Central to understanding the issue of poverty is a consideration of the solutions. The World Bank is the institution with the most responsibility for addressing global issues of poverty. Their economic philosophy has long been dominated by neoliberal thinkers who advocate for good government, based on Western style democracy, open markets and structural adjustments to the economy. As globalization has come to dominate the world economy, its effects on poverty are the subject of heated debate.

Keywords Inequality; Millennium Development Goals; Neoliberal economics; Poverty; Poverty threshold; Relative poverty; Structural Adjustment Programs; World Bank; Absolute poverty



Poverty seems like a fairly simple, commonly understood concept, but in reality, it is not. When trying to understand the problems faced by those attempting to change the dynamics of poverty, there are three interrelated terms to consider: absolute poverty, relative poverty, and the poverty threshold. Absolute poverty is measured in individual terms; the primary focus is on those who cannot afford to meet the most basic needs of human existence. Relative poverty measures how people on the lowest rungs of the income ladder compare to the remainder of the population. The poverty threshold is a measurement of how much income is required in a given locale to meet the basics of a minimal standard of living. Adding to the complexity is the fact that not everyone agrees on which measure should be used when addressing the problems of poverty.

Two very different world views on the nature and cause of poverty are in conflict. Proponents of the absolute poverty model understand that "humans are individual beings by nature, that human individuality gives rise to organizing economic affairs on the principle of competition, which rests on the social value of individual freedom, and that holding that premise lead[s] them instinctively to embrace [the absolute] standard" (Unwin, 2007, p. 938). Those who emphasize the need to eliminate relative poverty instead see that "humans are social beings by nature, that human sociality gives rise to organizing economic affairs on the principles of cooperation which rests on the social value of teamwork or solidarity" (p. 938). Unwin suggests that people are both: individuals and social creatures. Thus, it is impossible to tackle poverty from just one or the other perspective.

Ravallion (2003) posits that the choice of focus between absolute or relative poverty as the unit of measurement is critical in forming a perception about the merits of globalization. Those who support a globalized economy tend to stress a reduction in absolute poverty while opponents look more to trends in relative poverty. If the poverty threshold is measured in proportion to mean income, it becomes a measure of inequality, and thus can show rising poverty levels even as the standard of living increases. Ravallion's position is that individual welfare can't be measured only by one's relative position and not at all one's income (2003). One additional factor that can help to form the perception of observers can be garnered by watching the reaction of once isolated people who now must deal with global forces to survive. Friedman argues that globalization can create a reactionary response from villagers, "rooted in the 'ancient forces of culture, geography, tradition and community' that fear the loss of identity" (in Merrett, 2001, p. 69).

Origins of the World Bank

The twin economic disasters of the Great Depression of the 1930's followed by World War II (1939 - 1945) led the economic powers of the day to meet at Bretton Woods, NH to create an institution that might help to stabilize the world's economy, and play a role in mitigating poverty. Out of that meeting emerged the World Bank in December of 1945. The philosophical underpinnings of the World Bank have often flowed from Washington, D.C.: "A core assumption is… that good governance, in the form of 'Western'-style liberal democracy, is essential if countries are to become economically successful" (Unwin, 2007, p. 933).

Understanding neoliberal economics is critical to grasping the philosophy that has driven development for decades, and though in retreat during the 1990's, still holds sway in the World Bank. If the goal is good government, the critical function of the newly improved government is to get out of the way of the markets, allowing them to “get the price right.” This is the central tenet of the "Washington Consensus" which grew out of the founding ideals of the World Bank (Oniz & Senses, 2005, p. 264). Inherent in a policy of a reduced role for the state is "the privatization of public enterprises and services, and government spending cuts to social services such as health care, education, social security and public housing" (Hale, 2007, pg. 149). These are referred to as Structural Adjustment Policies (SAPs); neoliberal economists see them as a necessary precursor to growth.

Further Insights

Eliminating Absolute Poverty

Jeffrey Sachs' work The End of Poverty focuses on how absolute poverty can be eliminated. Unwin strongly disagrees with his central premise, arguing that focusing on absolute poverty leads development programs to miss the more essential work on relative poverty. The U.N. Millennium Development Goals (MDG), agreed to in 2006 by leading members of the body, set targets for 2015 for dramatic declines in poverty "through interventions in education, health, gender inequality, environmental sustainability, and the creation of a new global partnership in which the private sector will have a particularly prominent role" (Unwin, 2007, p. 930). At the core is a belief that economic growth is the only path out of poverty; this is an understanding, according to Unwin, based in the need to eliminate absolute poverty, rather than reducing relative poverty.

Neoliberal Policies

Unwin's concern with economic growth is that most proponents are wedded to a neoliberal economic outlook, with an emphasis on the need for "macro-economic discipline, a market economy and an openness to the world" (2007, p. 930). Neoliberalism emerged in the 1970's, emphasizing the "primacy of individualism, market liberalism, outward-orientation, and state contraction" (Oniz & Senses, 2005, p. 263). Sachs played a significant role in the development of the goals set by the UN Millennium Project, serving as the head of the project. His message resonates with the economic elite of wealthy nations, for he argues that we can eliminate poverty without causing ourselves any great economic distress; indeed, we can do it while barely noticing the process unwind (Unwin, 2007).

Hale suggests that we must also be cognizant of another driver of the divide between the rich and poor; neoliberal SAPs have had a far more severe impact on women. The World Bank stipulates that "'targeting women can be an effective strategy for reducing poverty. Where gender differences are wide, targeting, for example, the availability of stipends so girls can attend school, may be needed to capture social gains and increase internal efficiency'" (Hale, 2007, p. 150). Tsikata and Kerrargue insist that the World Bank does "not accept that the economic policy framework is, in many instances, reinforcing existing inequalities" (cited in Hale, 2007, p. 149) that disadvantage women.

Petras and Veltmeyer (2007) use Latin America as a test case for neoliberal economic policies. These policies have dominated much of Latin America for the last two decades; two very distinct societies have resulted. In many Latin American cities, 15 - 20% of the population has a high end, developed-world lifestyle, complete with servants, private schools and clubs, gated communities and many opportunities for travel. Petras and Veltmeyer argue that this group is the sole beneficiary of the neoliberal agenda. The rest of the population faces cuts in social spending and food subsidies, often pushing rural farmers off of their land and into dangerous living conditions in the cities. Frequently, services that protect public health, such as water and sewer treatment also face cuts, or in many cases, privatization (2007).

Although Oniz & Senses (2005) tend to oppose the neoliberal prescription, they concede that it can work to alleviate poverty, pointing to South Korea and Taiwan as key examples. Within a non-protectionist, low statism model, both countries achieved employment expansion and poverty reduction. Post-Apartheid South Africa provides different view: a 2000 Poverty and Inequality Report found that two distinct countries co-exist within one. In the black South Africa, the Human Development Index (HDI) is comparable to Swaziland, while white South Africa's fits in-between Israel and Italy. Clearly, the poverty threshold will be complicated to generate in a country with such divergent standards of living (Adato, Carter & May, 2006). Further, it is obvious that the issue of alleviating poverty must still be addressed in South Africa, along with every other country in Africa.

Sachs lists eight critical causal agents of poverty; while his focus is Africa, their application is more universal. Poverty itself is the first; without income for investment, the economy stagnates. Physical geography can be a trap; because of the geography, some countries need to make extra infrastructure investments, but lack the resources to do this. Governments do not always provide the preconditions for investment, the most essential being peace and security. Cultural barriers interfere with economic development; a critical issue here is women's rights. Trade barriers can restrict development. Innovation is often missing, especially in inland areas. Finally, very poor countries are apt to...

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