Provide an economic explanation of why poverty exists. When you travel to Latin America, you encounter countries that have a vast amount of natural resources, and very large labor forces. However,...
Provide an economic explanation of why poverty exists.
When you travel to Latin America, you encounter countries that have a vast amount of natural resources, and very large labor forces. However, despite an abundance of these resources, you also see a lot of poverty.
One reason why poverty exists in a country like Mexico, which has natural resources and is a fairly rich nation, is a high degree of inequality. When the rich make money, they keep it to themselves, and they do not use it to generate high-paying jobs for low-skilled workers. The so-called "trickle down" theories of economic development that are promulgated by the International Monetary Fund, the World Bank, and other institutions to promote economic growth by creating free markets, do not work, because the new jobs provided do not employ that many people. In addition, these jobs are often for more educated people; the cycle of poverty present in countries in Latin America means that most people do not have access to education, healthcare, and other services they need to be trained for these jobs. In addition, people at the top of corporations try to take as much money as possible, leaving very little for low-wage workers.
These trends are only intensified in a global market, as entrepreneurs try to find markets in which they can pay their workers as little as possible, and they can invest anywhere in the world. To break the cycle of poverty in Latin America, local entrepreneurs need capital to start businesses, and they also need technical help to set up these businesses and work around the corrupt and inefficient state system. They also require health care, access to education, and other services to break the cycle of poverty.
Speaking simply from an economic point of view, poverty exists in such countries because their resources are not used as efficiently as they should be. People are not as educated as they should be and therefore lack human capital. Infrastructure is less extensive than it should be and so resources cannot be moved around as well. In addition, many countries have political systems that do not allow the "invisible hand" of the free market to allocate resources efficiently. All of these problems lead to poverty even in countries that are relatively resource-rich.
Moving beyond the realm of pure economics, we find the real question. That is the question of why these countries do not use their resources efficiently. Some theories, like dependency theory, blame the West and colonialism. Other theories look to culture or to political traditions. This question of ultimate causes has less to do with economics but may be more important.