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Challenges in Reducing Poverty

Challenges in Reducing Poverty

We all keep whining about world poverty, but, if everyone hates it so much, why is it still prevalent in the global economy and why isn't everyone doing something to eradicate it? Well, poverty reduction is not as simple as formulating a 5 year plan to see drastic improvements! Things don't work like that because there are so many factors at play.
Urvashi Pokharna
"You can't get rid of poverty by giving people money." ~ P.J. O'Rourke, in the book A Parliament of Whores

Poverty seems to be on a rise in almost every economy. Last year, about 2.6 million additional Americans fell prey to this social and economic evil. Poverty has prevailed in the society since a very long time, perhaps, the beginning of the first legislated civilization. While earlier, an entire community could face the problem of poverty due to lack of resources to sustain living, the modern-day society has an evolved structure that creates a division of class amongst those that are wealthy and those who aren't, often called "the haves and the have-nots". A major discrepancy in dealing with poverty is that every economy has a different definition of what's poverty and the poverty line. This difference is vast especially between developed, developing and under-developed countries. However, all countries are plagued by poverty at a varying magnitude. The common notion is that a better growth rate is an answer to poverty reduction hence, countries strive for a positive economic growth. Such an evaluation is often flawed and fails to deliver desired results. It is much easier to design a plan to end poverty than to achieve the goal in reality. This may sound confusing because growth is an important factor to determine the level of poverty in an economy but not the sole criterion.

Focusing more on economic growth as a means to end poverty can often make the government resort to pumping more capital into the economy through desperate measures such as rapid industrialization in the absence of innovation to increase output, providing non-discretionary welfare payments, concentrating on agro-based industries instead of the manufacturing sector, creating dependency on imports instead of striving for self-sufficiency, and trading in a free market. Nevertheless, these survival methods are only short-sighted and often end up by further aggravating the problem.

Why Can't We Reduce Poverty

Until poverty became a global occurrence, it was thought of as a problem only for the third world countries as even their developing counterparts have shown commendable recovery in the past three decades. Eliminating the causes of poverty should have brought an end to this economic malaise but, reducing poverty has proved to be a Herculean task with its own trials.

$$ Inefficient Growth
The lack of a sustainable growth pattern with an upward and fast-increasing trend has also contributed to the inability to reduce poverty significantly and consistently. Growth and poverty are co-related. If poverty does not decrease, any significant economic growth becomes a distant dream. Whereas, if poverty shows a downward trend, economic growth will show a similar magnitude in rise. However, the growth rate of the country may increase irrespective of the same trend in poverty due to jobless recovery. Poverty is also associated with slow growth in income disproportionate with the rising population.

$$ Not a National Priority
May sound harsh, but it is true. Poverty Reduction may not always be the top most priority of governments. There are already so many economic and political issues that the subject of poverty reduction seems to be pushed behind. The current state of economic affairs under President Obama's administration is an appropriate example. Irrespective of the promises made, it could not overcome the challenges in reducing poverty. The government has always been divided, multitasking between providing health care and education, stabilizing financial markets, creating jobs, developing infrastructure and of course, bringing down poverty. Unsurprisingly, most economies struggle with the problem of tied down funds. As of September 2011, the U.S. Census Bureau released data stating that the poverty in the U.S. prevails at a rate of 15.1%. However, according to the research report Supplemental Poverty Measure that takes a broader approach to determine the poverty rate, the actual figure stands at 16%.

$$ Costs Attached
For an economy to successfully get rid of poverty, it must bear the cost of providing shelter, food, clothing and job opportunities to the segment of population that is below the poverty line. Also, the cost of provision of education and medical facilities rises. To make up for the funds required for these objectives, the burden is shifted to tax-payers by increasing the cost of education, food, and reducing disposable income, collectively causing economic distress in the long term.

$$ More People, More Unemployment
It is not an entirely controllable factor because unemployment is dependent on a variety of factors that determine its rate from year to year. When a portion of the population is unemployed, it implies that it may not necessarily have a dependable source of sustenance. In simpler words, there is no financial source to sustain a proper living au courant. Many people are, hence, homeless and hungry. Apart from recession, an economy's unemployment rate also rises when it fails to accommodate the increasing population of workforce as more citizens turn 18 each year.

$$ High Food Price Index
Food shortage has given rise to the problem of a high food price index. Food prices have significantly increased over the past few decades which has compelled consumers to shell out a lot more money for the same food that they consumed over 30 years ago. This may be attributed to the rising standard and cost of living. However, someone who is already struggling to make ends meet is further burdened by the increasing cost to satiate his appetite. Governments try to manage such a situation by releasing food stamps, making food available at cheap rates, and other subsidies to such households. This, however, takes away a major share of funds. Unfortunately, farmers have to cope with reduced earnings and it may drive them out of employment, further increasing poverty.

$$ Lack of New Businesses
If more people become consumers instead of producers, there will be a lack of supply to fulfill demand as well as lack of job opportunities to increase employment. It is impossible for the government to generate enough jobs annually to meet the employment requirements. To solve this problem, there is a need for more entrepreneurial start-ups that also employ the illiterate, uneducated or less-educated. If the difference between the number of ventures that are established is not significantly higher than the number of ventures that wind up each year, there will be a lack of sufficient job positions in the economy.

$$ Reduction in Government Spending
Cuts in government expenditure mean that there are fewer funds available for public welfare. Political instability arisen from such unfavorable economic events further discourages investors. Investments are the lifeline for short-term flow of capital. This prompts the government to obtain help through external borrowings. Unsurprisingly, the result is that the anti-poverty plan takes us back to square one.

$$ Corruption
Apart from the above factors posing as a challenge against poverty reduction, there is another crucial aspect that prevents economies from fully eradicating poverty - corruption. In fact, this is a taboo subject that often doesn't get the attention it deserves in the anti-poverty war. Greed and exploitation lead to unequal income distribution and poor countries are the worst affected by it adding insult to injury. Due to corruption, funds allotted by the government trickle down to the masses to mere tokens of what they were (overlooked in the Keynesian theory) which is why the funds employed for poverty reduction are inept and crippled irrespective of their proportions. This creates an unhealthy environment for businesses to thrive and corrodes the faith of the people in their own legal system. Seems like the national custodians of law are living in the Keynesian era.

Economic Growth and Poverty: A Delusional Relationship

Although several economists have theorized the relationship between economic growth and poverty as being proportionate to each other, it is not completely real. I have two words for you - jobless recovery. An economy can record growth even while its poverty rates continue to rise. Even a high rate of employment does not necessarily promise reduction in poverty because the income may not be sufficient to fulfill the basic needs of an individual/family. If the inequality of income prevails in the economy and fails to have a uniform distribution in at least the next few quarters to increase average disposable income, any poverty reduction strategy will prove to be futile. Yet, many people look at impressive economic growth rates and still wonder why poverty hasn't declined satisfactorily.

Current account and fiscal deficits create instability in the capital market which affects interest rates and exchange rates of various currencies. Thereby, unpredictability of the value of currency or excessive appreciation/depreciation in short intervals discourages continuous investment and hampers foreign exchange earnings in the economy necessary to reduce income equality. Even though a floating exchange rate system can provide some cushion against a currency crisis, it must be managed well by the government in order to avoid erratic fluctuations. A steady growth to strengthen the value of the domestic currency must be in place to successfully employ poverty reduction strategies. Most economies continually experiment with new poverty reduction strategies as though it were a math problem in high school that required a trial and error approach. A smarter way would have been to follow the footsteps of developed countries rather than following the given set of norms, laid down by international financial institutions, that are plain pointless.

"Economic growth without social progress lets the great majority of people remain in poverty, while a privileged few reap the benefits of rising abundance."
~ John F. Kennedy

Did you know? As many as 1.4 billion people live in poverty with less than $1 per day to survive, the standard global measure of poverty line established by the World Bank. However, there are many countries around the world that have a national poverty line way below this mark. Interestingly, some Asian countries like Malaysia and Thailand have been successful in eliminating poverty within a span of 20 years! Vietnam and China seem to follow suit. Brazil has reduced poverty by 15% in 6 years while continuously reducing its economic inequality. These countries prove that there may be challenges in reducing poverty, but, it is not impossible. Countries that are still struggling to achieve this goal are often marred by poor management and inefficient skills of its people. The problem with poverty is that it takes away the fundamental economic freedom from a person to make choices. To truly alleviate poverty, we need economic liberalization and free education for all to improve the quality of economic and human resources.