<5.2 POVERTY>

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A country with more than half the population living in absolute poverty.

A developed country that has both absolute & relative poverty.

A developed country where no one is living in absolute or relative poverty.

A developed country with no absolute poverty but relative poeverty.

• Low incomes are an obvious cause of poverty, since by definition poverty is due to incomes that fall below some predefined level. 

• Therefore, in discussing the causes of poverty, we are in effect asking, what are the factors that lead to low incomes?

• LIST OF COUNTRIES BY GDP PER CAPITA (NOM)

• LIST OF COUNTRIES BY GDP PER CAPITA (PPP)

• An unemployed individual receives no income, but may receive some unemployment benefits; however; these are generally low relative to income received for work, and in most countries are only provided for limited periods. 

• If unemployment is long term (such as with structural unemployment), then an individual or family is more likely to become poor. The risk of falling into poverty is far greater in single-parent households where the parent is unemployed, or if both heads of a household are unemployed over long periods.

• LIST OF COUNTRIES BY UNEMPLOYMENT RATE

• HUMAN CAPITAL relates to EDUCATION + HEALTH LEVELS

• LOW LEVELS OF EDUCATION/SKILLS & HEALTH => LOW LEVEL OF PRODUCTIVITY => LOW INCOMES.

• LIST OF COUNTRIES BY AVERAGE YEARS OF SCHOOLING

• LACK OF OWNERSHIP OF VALUABLE FACTORS OF PRODUCTION: Whereas some people may inherit financial capital (stocks and bonds) or other forms of property (such as agricultural land or a home), which gives them both an income advantage and something to fall back on in case of unemployment, many others have no resources to rely on other than their labour, which for the reasons noted above may not provide them with an adequate income. 

• People on low incomes often DO NOT OWN A HOME and are forced to PAY RENT, which may take up a substantial portion of their income. 

• Low incomes may mean POOR HOUSING affecting HEALTH and further lowering one’s income potential, and may even lead to homelessness.

• Some social groups (racial and ethnic groups, women) may face discrimination in the job market, with the result that they may receive lower wages than others for the same work, or may find greater difficulty finding work than the worker who does not face discrimination.

• DISCRIMINATION BY COUNTRY

• People on low incomes must often rely heavily on social services (health care, education, housing) provided or subsidised by the government, as their incomes are insufficient to purchase these in the market. If social services are limited or are reduced by the government, people on low incomes may be forced into poverty by having to purchase these in the market.

These policies are used to redistribute income and wealth by using a combination of TAXATION and GOVERNMENT SPENDING policies. E.g.

• PROGRESSIVE TAX SYSTEM to reduce the wide gap between the rich and poor members of the country. Higher-income groups pay a higher percentage of their incomes in tax, with the tax proceeds being used by the government to support the lower-income groups or those without any income. 

WILL THIS WORK?

• TRANSFER PAYMENTS give the unemployed and disadvantaged financial assistance to meet their basic needs. Examples of transfer payments are unemployment benefit, state pension funds for the elderly and child benefit (to reduce child poverty). This helps to provide a social safety net to ensure that every citizen has access to basic necessities.

WILL THIS WORK?

• GOVERNMENT PROVISION of basic services such as health care services, education and housing. This helps to improve access to such basic services for everyone and narrows the gap between the rich and the poor.

WILL THIS WORK?

These policies are used to control the money supply by manipulating interest rates and exchange rates, aimed at stimulating output so that jobs can be created to alleviate poverty.

• LOW-INTEREST RATES can encourage borrowing and investment to increase spending in the economy. In the long nm, this can help to create more jobs and alleviate the problems of poverty.

WILL THIS WORK?

• LOW EXCHANGE RATES can encourage export sales as the price for foreign buyers is lower. As higher export earnings help to boost GDP, this can also help to create more jobs and wealth in the economy over time.

WILL THIS WORK?

These policies are used to BOOST THE LONG RUN PRODUCTIVE CAPACITy of an economy, which will increase incomes, employment and allow the government to redistribute more tax revenues to alleviate poverty.

• POLICIES TO REDUCE UNEMPLOYMENT because unemployment is a major cause of poverty and inequality. Examples include government incentives to attract foreign direct investment and government-funded job creation and retraining schemes.

• POLICIES TO INCREASE THE QUANTITY & QUALITY OF EDUCATION in the economy. Over time, this will help to improve the human capital and productive capacity of the country, creating jobs.

• SUSTAINED ECONOMIC GROWTH, which helps to create more income and wealth for the country. This can then be redistributed to the deprived and underprivileged members of society.

• LABOUR MARKET REFORMS to improve the efficiency and productivity of the workforce. The introduction of a national minimum wage, or imposing a higher minimum wage rate, can improve the standards of living for low·income households.

FOREIGN AID can be a stimulus for reducing poverty, inequalities and unemployment in the economy. Successful foreign aid programs help to increase the country's productive capacity, thus shifting out its production possibility curve. There are various forms of foreign aid that can be used to tackle the problems of poverty:

• BILATERAL FOREIGN AID - This is official financial assistance from one government to another, usually due to political and economic interests. It provides immediate access to aid.

• MULTILATERAL FOREIGN AID - This is official financial assistance from more than one source, such as foreign governments, international organisations such as the World Bank, and non-governmental organisations such as Oxfam and Unicef.

• DEVELOPMENT AID - This is official financial assistance from governments and agencies such as the World Bank to fund the economic development of a country, thus helping to alleviate poverty in the long run.

• HUMANITARIAN AID - This is philanthropic (charitable) financial assistance for saving lives and maintaining human dignity. It is often used in response to major crises such as natural disasters and outbreaks of infectious diseases. Examples include medical aid, food aid, and emergency relief assistance.

• You are now the leader in a developing country and you are responding to the oposition partiies policy proposition  rising poverty levels. 

  • • • You need to 1) WRITE A SPEECH for your explaining why the suggested 5 POLICIES by the opposition will likely not help poverty

      • 2) VIDEO YOURSELF MAKING THE SPEECH in person, or create a PPT video with your voiceover using loom) PRIZE FOR THE BEST VIDEO(ES). 

2-MARK

• Define ‘absolute poverty’.

• Identify the difference between absolute poverty and relative poverty.

4-MARK

• Explain two ways a government could redistribute income from the rich to the poor.

• Explain two reasons why a government may want to reduce poverty. 

6-MARK

• Analyse how a rise in tax rates may influence poverty.

• Analyse how a reduction in the rate of interest could reduce poverty.

• Analyse two policy measures to alleviate poverty.

• Analyse how a cut in the rate of interest could reduce poverty.

8-MARK

• Discuss whether fiscal policy measures will reduce poverty.

• Discuss whether increased spending on education will always reduce absolute poverty.

• Discuss whether increasing government spending will reduce poverty.

• Discuss whether providing loans to the poor we would use poverty. 

Q. Discuss whether fiscal policy measures will reduce poverty. (8)

• Why it might?

• Why it might not?

Q. Analyse how lower interest rates will reduce poverty. (6)