WORLD POVERTY

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Some terms:GDP: gross domestic product: all the goods and

services produced on record in a country in a year

GNP: Gross national product: all the goods and services produced in a country plus all foreign earnings in a given year

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GNI per Capita• Gross national income per person on average

Total GNI Total Population

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Economic Growth

• Growth in GDP per capita over time, usually several years

• Calculated two ways:– As average annual growth rate of real GDP– As average annual growth in GDP minus

average annual population growth, over some time period

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Average Annual Economic Growth Rates

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Problems in Measuring Well-Being

• Use of GNI and GDP data ignores issue of composition of GDP– Items of production of which GDP consists

• Distribution of GNI– Distribution of income between different

income groups• Income is never distributed equally; therefore, high

value of GNI per capita really tells us nothing about standard of living of most of country’s residents, because it tells us nothing about distribution of this income

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Income Distribution• Two ways to measure:

– Share of country’s total income that goes to each fifth of population

• Lorenz curve– Share of total income that goes to poorest 20 percent of

population

• Measures to improve equality:– Elimination of price distortions to ensure that certain groups

receive more adequate incomes• Raising of agricultural prices would lead to higher incomes for low-

income farmers, for example– Higher taxes on wealth and income of high-income people

• Government might use this revenue to improve basic services to poor

– Redistribution of assets (property that is owned, such as land)• Greater equality in ownership of income-earning assets is often

fundamental to ensuring greater equality of incomes

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Income Distribution in Selected Countries

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High income countries

• 40 countries (Western Europe, USA, Canada, Japan, Australia, New Zealand)

• Per capita annual income: USD 9,360 and above

• 15 percent of world population (870 million people)

• More than half the world’s total income

Middle Income Countries

About 90 countries fall in this category.One third of humanity lives in middle income countries.

Latin America, the Middle East, East Asia, West AfricaPer capita annual income between USD 760 and 9,360.

Half of the population lives in cities. They have moderate levels of industrialization.

Several distinct groups within this category:*Newly Industrializing Countries (NICs): Brazil, Argentina,

Mexico, South Korea, Taiwan.*Oil-producing nations of the Middle East*former Soviet bloc countries

Low income countries

• Half of humanity lives in low income countries

About 60 countries, mostly in central and eastern Africa and South Asia

• Per capita annual income less than USD 760

• 25 percent of the population lives in cities

• Little industrialization, mostly agricultural

The world according to incomes

THE EXTENT OF POVERTY GLOBALLY

Poverty exists in all countries of the world; but it is most severe in low and middle income countries

Poverty rates are highest in countries that have weak economies, weak industrialization, and high rates of population growth

• Relative poverty: a level of poverty in which a person lacks resources that other members of her society has access to.

• Absolute poverty: less than 1 $ per capita income per day

This is a life-threatening level of poverty, a situation in which a person faces the prospect of hunger and disease on a daily basis

• Amartya Sen’s definition of poverty: it should be seen as a “deprivation of basic capabilities rather than merely a lowness of incomes”

The Human Development Index (HDI) makes more sense according to this definition

HDI measures a combination of life expectancy, per capita income, and education (number of years of schooling and adult literacy)

Some facts on absolute poverty

20 percent of world population (1.3 billion) is in absolute poverty. They are seriously malnourished.

Among these, 800 million are at risk of their lives.Sub-Saharan Africa is hardest hit by absolute

poverty.

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Poverty Statistics

• Some 2,600 million people live on less than $2 per day

• In the poorest countries of the world: – 43% of children under age five are stunted– Over 12 percent die before reaching age five– Average life expectancy is 59– 50 percent of women and girls over age 15

cannot read and write

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HOW CAN POVERTY BE EXPLAINED?

1) Technology: most poor nations are still agricultural; they don’t have much industry

But does this explain poverty?2) Population growth: the poorest nations have the highest

population growth ratesBut what’s the correlation between poverty and high birth rates?3) Cultural patternsSome poor nations are more “traditional”. But what does this mean?

4) Gender inequality:

6) Global power relationships: historically, wealth flowed from poor to rich nations

Colonialism: political domination and economic exploitation of some countries by others

Neo-colonialism: economic exploitation of some nations by multinational corporations and wealthy countries, but without political domination

Three theories on global inequality and “development”

• Modernization theory (W.W. Rostow)

• Dependency theory (A.G. Frank)

• World systems approach (I. Wallerstein)

Modernization theory

It is a theory of social and economic development which explains global inequality between countries in terms of different levels of technological development

Traditional societies are “backward,” “underdeveloped,” and poorer.

Societies which embrace modernity and change are wealthier and more developed

Modernization theory

Western Europe, and then North America “modernized” and “developed” thanks to the Industrial Revolution.

If traditional societies industrialize and embrace modernize, they will also become developed.

So, the path to modernization is open to all who want it.

Rostow’s stage theory of modernization

W.W. Rostow’s book : The Stages of Economic Growth. A Non-Communist Manifesto (1960)

All societies will eventually pass through the following stages

1) Tradition2) Preconditions for take-off3) Take-off4) Drive to technological maturity5) High mass consumption

Rostow’s modernization theory

• Each country reaches the “take-off” for industrialization when a market economy emerges. Britain reached that stage in 1800. Non-western nations will reach that stage when their productive investments grow. How? Through foreign aid and technology transfer.

• By the 1950s, the US reached the stage of “high mass consumption.”

Modernization

Role of rich nations in the “modernization” of the poor

-- foreign aid

-- industrial technology transfer

-- transfer of food production technology the Green Revolution

Criticism of Modernization Theory

1) Modernization theory is the ideological justification of Western-led capitalism

2) Modernization theory does not take into account the colonial exploitation of the non-Western world by Europe

3) Wealthier nations are often the cause of poverty, rather than being a solution for it

Cont’d

4) The wealth gap between the rich and the poor countries is not diminishing; in fact, it has increased since the 1950s

5) Industrialization does not guarantee an increase in living standards

6) Modernization theory looks for internal causes of poverty; doesn’t consider any external factors

7) It holds the life style of Western countries as a yardstick to judge the development of other nations. Hence, it is ethnocentric.

Dependency theory

A model of economic and social development that explains global inequality in terms of the historical exploitation of poor societies by Western nations.

Andre Gunder Frank: The Development of Underdevelopment (1975)

He argued that colonial and post-colonial exploitation by Western Europe and the USA caused the underdevelopment of non-Western societies, rather than their development

Why?

Dependency theory

• Rich and poor nations are linked economically. “Modernization” of countries cannot be considered in isolation from each other.

• During colonial period, European countries extracted raw materials, mineral and food from their colonies. this enabled them to industrialize

• Exploitation of their resources left colonized societies poor. They were dependent on imports of industrial goods from Europe. Most of the peasantry worked on farms or mines from which products were exported to Europe

Did the end of colonization – “decolonization” – bring an end to exploitation of the newly independent states?

No.

Political liberation has not translated into economic autonomy.

World systems perspective

This perspective builds on the “dependency” approach. But it has a “world systemic” angle.

Immanuel Wallerstein (1974): The Modern World Economy

Wallerstein argues that capitalism is a “world economy.”

The unit of analysis for studying the world economy is the “world” rather than individual nation-states (contra modernization theory)

The capitalist world economy emerged in the 16th century in western Europe in the wake of the “discovery” of the Americas

World systems perspective

The capitalist world economy consists of a “core,” a “periphery,” and a “semiperiphery.”

Historically, the core was western Europe, which became industrialized by “extracting surplus” (funneling raw materials and precious metals) from the “periphery.”

The semiperiphery stood in-between the core and the periphery in terms of incomes and levels of industrialization.

In this world economy, the core exploited, or extracted surplus from the periphery in terms of cheap labor, natural resources, raw materials and as markets for European manufactures.

Example: In the 19th century, the Ottoman Empire was an exporter of dried fruits and nuts to Europe and was dependent on imports of manufactures (“English cloth,” for example). It was heavily indebted to European countries.

World systems perspective

What is the situation today? In the postwar period, many countries in the

periphery have become relatively industrialized For example, Turkey is a relatively industrialized

nation today, the majority of whose exports are manufactures (industrial goods)

Does this mean that the core no longer extracts surplus from the periphery?

Or, does it mean that peripheral countries have entered the core?

The answer to both questions is no.

1) Surplus extraction from the periphery to the core is still ongoing.

2) Only a few countries have entered the semiperiphery or the core (e.g. South Korea) in the postwar period.

Wallerstein calls this situation, “development by invitation.”

“Commodity chains”

1) Peripheral countries are usually specialized in low-profit and labor-intensive links in international commodity chains. Core countries are usually specialized in high profit links of commodity chains.

A commodity chain: a chain of activities from the manufacturing to the distribution of a final product.

Example: the apparel (ready-to-wear clothing) commodity chain includes, cotton growing, textile mills, stitching of garments, design, marketing, distribution, retailing

Apparel commodity chain

Multinational companies are concentrated in the high profit end of the apparel commodity chains such as design, brand names, high technology and marketing

Companies in countries such as Turkey and Mexico are concentrated in labor-intensive activities such as the stitching of garments

Example: when Levi’s manufactures jeans in Turkey and sells them in Europe, it retains a higher proportion of the profits because of its world-popular brand name.

What about Mavi jeans?

2) The South Korean “miracle”S. Korea was a special case for two reasons:a) having geo-political importance for the U.S.

and therefore a “favored” economic relationship with it

b) having an authoritarian state which prioritized industrialization at the expense of workers’ rights and democracy until the early 1990s

according to the world systems perspective, the capitalist world economy is still a system with structural inequalities between richer and poorer countries

What is the role of multinational corporations and global financial institutions in perpetuating global inequality?

Examples: the World Trade Organization and the IMF?WTO (established in 1995) ensures that international trade

takes place in a “liberal” environment. But by doing so, it prevents poorer countries from protecting their agricultural and manufacturing sectors.

IMF (established in 1945) extends “stabilization” loans to countries, but in turn, it requires them to cut down on social spending (education, healthcare, public sector jobs) and open up (liberalize) their economies.

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Economic Development andStandards of Living

• Economic development– Multifaceted process that involves improvements in

standards of living, reductions in poverty, and growth in GDP per capita

• Many economists use measures that directly indicate actual well-being of people of less-developed countries rather than rely on income or output data alone– Best indicators of living standards:

• Average life expectancies– Age to which baby born in particular year can be expected to

live• Infant mortality rates

– Number of babies who die within first year of life per 1,000 live births

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Life Expectancy and Infant Mortality Rate Statistics

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Newly Industrializing Countries (NICs)

• Singapore, South Korea, Taiwan, and other countries achieving rapid growth through industrialization

– Characteristics of success:• Well-educated labor force• Fairly homogeneous, entrepreneurial culture• International conditions conducive to success at

the time of early development

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Capital-Intensive Technology vs.Labor-Intensive Technology

• Capital-intensive technology utilizes large amounts of capital

• Labor-intensive technology utilizes large amounts of labor– Can utilize large numbers of people who

would otherwise be unemployed

• Key to development often lies in agricultural sector

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Agricultural Development• Development of agricultural sector in most less-

developed countries is now recognized as extremely important:1. Most of world’s poor live in agricultural sector;

hence, efforts to benefit this sector will most directly benefit needy as well

2. Agricultural sector typically offers greatest potential for development

3. Techniques also tend to be far more labor-intensive in agriculture than in modern industry, thereby offering employment for larger numbers of people

4. Agricultural sector most directly addresses most vital need of all people, that of food security

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Access to Inputs, Extension, and Markets

• For agricultural development to occur and food security to be achieved, both government of developing country and international community must fulfill important roles:– Land must be redistributed in a manner that allows more

appropriate income distribution and maximum incentives for agricultural production

– Farmers must have access to necessary seeds, fertilizer, irrigation, animals, structures, and vehicles

– Financing must be arranged for masses of poor farmers

– Farmers will require extension services if they are to use increasingly complex but more productive farming techniques and inputs

– Farmers will also require reliable transport and market facilities

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Human and Natural Resource Development

• Investment in human capital– Spending designed to improve productivity of

people

• Human investment programs have not only an immediate benefit, namely, improved standard of living of beneficiary, but also long-term payoff in development of more productive labor force and better-educated citizenry

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Human and Natural Resource Development (cont.)

– Education holds most promise• Numerous studies have linked education (primarily of

women) to widespread benefits:– Reduced infant mortality rates– Improved child nutrition– Later age at marriage– Lower birthrates– Greater likelihood that children will be educated

– Development economists are also recognizing need for safe and convenient water supply

– Steps are also being taken to stop deforestation (clearing of forested areas in unmanaged fashion) and desertification (encroachment of desert on previously fertile land)

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Women’s Role in Development• Government and international policies alike have

neglected women in developing countries– Third World women have lower standards of living

than male counterparts

– Women typically have literacy rates far below those of men

– High maternal mortality rates• Number of deaths of women for pregnancy-related reasons

per 100,000 live births

– Women least likely to receive agricultural extension services, agricultural credit, and access to agricultural inputs, even though primarily responsible for producing most subsistence food crops

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Population Growth

• Many people believe that high population growth is a problem in many low income countries because more people means more sharing of already limited resources

– If we consider population to be a problem only relative to resources, then we must realize that less than one-fifth of world’s population in high-income countries consumes over three-quarters of world’s goods and services

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Urbanization

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Underemployment

• One cause of urban poverty is high level of unemployment and underemployment

– People work limited hours or with low productivity

– Much underemployment occurs in urban informal employment sector• Employment sector consisting primarily of service

occupations in an unofficial setting

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