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4. Poverty Around The World

Poverty Around The World

Author and Page information
 by Anup Shah
 This Page Last Updated Saturday, November 12, 2011
On this page:
1. Introduction
2. World Bank’s Poverty Estimates Revised
3. Inequality
1. Inequality in Industrialized Nations
2. Inequality in the US
3. Inequality, globalization and a new global elite
4. Inequality in Cities Around the World
5. Inequality in Rural Areas
6. Inequality Between Genders
 7. Inequality and Health
8. Inequality fueled by many factors
9. Inequality increases social tensions
10. Fragile Democracies, Inequality turn good people to evil
4. The Wealthy and the Poor
5. The World Bank and Poverty
6. Poverty in Industrialized Countries
7. Corruption

Introduction
What does it mean to be poor? How is poverty measured? Third World countries are often
described as developing while the First World, industrialized nations are often developed. What
does it mean to describe a nation as developing? A lack of material wealth does not necessarily
mean that one is deprived. A strong economy in a developed nation doesn’t mean much when a
significant percentage (even a majority) of the population is struggling to survive.

Successful development can imply many things, such as (though not limited to):

 An improvement in living standards and access to all basic needs such that a person has
enough food, water, shelter, clothing, health, education, etc;
 A stable political, social and economic environment, with associated political, social and
economic freedoms, such as (though not limited to) equitable ownership of land and
property;
 The ability to make free and informed choices that are not coerced;
 Be able to participate in a democratic environment with the ability to have a say in one’s
own future;
 To have the full potential for what the United Nations calls Human Development:

Human development is about much more than the rise or fall of national incomes. It is
about creating an environment in which people can develop their full potential and lead
productive, creative lives in accord with their needs and interests. People are the real
wealth of nations. Development is thus about expanding the choices people have to lead
lives that they value. And it is thus about much more than economic growth, which is
only a means—if a very important one—of enlarging people’s choices.

What is Human Development?, Human Development Reports, United Nations

Development Program

At household, community, societal, national and international levels, various aspects of the
above need to be provided, as well as commitment to various democratic institutions that do not
become corrupted by special interests and agendas.

Yet, for a variety of reasons, these full rights are not available in many segments of various
societies from the richest to the poorest. When political agendas deprive these possibilities in
some nations, how can a nation develop? Is this progress?

Politics have led to dire conditions in many poorer nations. In many cases, international political
interests have led to a diversion of available resources from domestic needs to western markets.
(See the structural adjustment section to find out more about this.) This has resulted in a lack of
basic access to food, water, health, education and other important social services. This is a major
obstacle to equitable development.

Back to top

World Bank’s Poverty Estimates Revised

In August 2008, the World Bank presented a major overhaul to their estimates of global poverty,
incorporating what they described as better and new data.

The World Bank’s long-held estimate of the number of people living on the equivalent of $1 a
day has now been changed to $1.25 a day.

The World Bank also adds that the previous $1 a day estimate for the international poverty line
would have been $1.45 a day at 2005 prices if only inflation was accounted for.

The revised estimates include a lot more recalculations and the $1 a day measure used in some of
the charts below are therefore not to be confused with the old $1 a day measure, and where
available, a $1.45 measure is also provided as well as a more current $1 a day measure. (Because
some developing countries also have poverty lines at $2 and $2.50 a day, those are also shown,
where available.)

At a poverty line of $1.25 a day, the revised estimates find

 1.4 billion people live at this poverty line or below

 This is more than the previous estimate of 984 million with the older measure of a $1 a
day in 2004
 In 1981, the estimated number of poor was also revised upward, from 1.5 billion to 1.9
billion

The World Bank notes that the incidence of poverty in the world is higher than past estimates
have suggested. The main reason is that [previous data] had implicitly underestimated the cost of
living in most developing countries.

The data also does not reflect the recent global food crisis and rising cost of energy, which is
feared will bring another 100 million into poverty.

Accounting for the increased population between 1981 and 2005, the poverty rate has, however,
fallen by about 25%.

While this at least sounds encouraging, it masks regional variations, and perhaps most glaringly
the impact of China:

 China’s poverty rate fell from 85% to 15.9%, or by over 600 million people
 China accounts for nearly all the world’s reduction in poverty
 Excluding China, poverty fell only by around 10%
 As a result, the World Bank feels that while China is on target to reach the Millennium
Development Goals to reduce poverty and tackle various other issues, most other countries are
not.

Here are the World Bank’s new estimates of poverty at different poverty levels:

 Different poverty levels

 Data in other graph formats
 Raw data
Different poverty levels
Poverty lines shown here include $1 a day, $1.25 a day, $1.45 a day, $2 a day (typical for many
developing countries), $2.50 a day (which includes a poverty level for some additional
countries), and $10 a day, which a World Bank report referred to if looking at poverty from the
level of a wealthy country, such as the US.
But even with some poverty reduction, inequality is quite high in many regions around the
world:

Back to top
Inequality
Inequality is not just bad for social justice, it is also bad for economic efficiency

Growth with equity is good for the poor, Oxfam, June 2000

While poverty alleviation is important, so too is tackling inequality. Inequality is often discussed
in the context of relative poverty, as opposed to absolute poverty.

That is, even in the wealthiest countries, the poor may not be in absolute poverty (the most basic
of provisions may be obtainable for many) or their level of poverty may be a lot higher than
those in developing countries, but in terms of their standing in society, their relative poverty can
also have serious consequences such as deteriorating social cohesion, increasing crime and
violence, and poorer health.

Some of these things are hard to measure, such as social cohesion and the level of trust and
comfort people will have in interacting with one another in the society. Nonetheless, over the
years, numerous studies have shown that sometimes the poor in wealthy countries can be
unhappier or finding it harder to cope than poor people in poorer countries.

In the context of tackling poverty then, the Overseas Development Institute (ODI) for example
sees poverty reduction as a twin function of

1. The rate of growth, and

2. Changes in income distribution.

The ODI also adds that as well as increased growth, additional key factors to reducing
poverty will be:

 The reduction in inequality

 The reduction in income differences

A few places around the world do see increasing rates of growth in a positive sense. But
globally, there is also a negative change in income distribution. The reality unfortunately is that
the gap between the rich and poor is quite wide in most places. For example:

 About 0.13% of the world’s population controlled 25% of the world’s assets in 2004.
 The wealthiest 20% of the world’s population consumes 76.6% of the world’s goods
while 80% of humanity gets the remainder.

(See poverty facts and stats on this site for more examples.)

Inequality in Industrialized Nations

Professors Richard Wilkinson and Kate Pickett, from the Equality Trust, produced an
informative lecture video titled Inequality: The enemy between us? based on their recently
released book, The Spirit Level; Why More Equal Societies Almost Always Do Better (Penguin,
March 2009).
In the lecture, compelling evidence is presented by the two professors that once nations are
industrialized, more equal societies almost always do better in terms of health, well-being
and social cohesion and that large income inequalities within societies destroys the social fabric
and quality of life for everyone:

Inequality: The enemy between us?, Equality Trust, 2009

As they studied the data for industrialized nations, they noticed a clear tendency for countries
which do badly (or well) on one outcome to do badly (or well) on others.

They looked at a wide range of health and social problems and found that,

 Outcomes are substantially worse in more unequal societies

 The problems tend to move together, implying that they share an underlying cause
 Whether their findings are tested internationally among the rich countries, or among the
50 states of the USA, there is almost always the same tendency for outcomes to be much
worse in more unequal societies.

As they note in a presentation of their findings:

 Health is related to income differences within rich societies, not between them
 Health and social problems are worse in more unequal countries
 Health and social problems are not related to average income in rich countries
 Child well-being is better in more equal rich countries
 Child well-being is unrelated to average incomes in rich countries
 Levels of trust are higher in more equal rich countries
 The prevalence of mental illness is higher in more unequal rich countries
 Drug use is more common in more unequal countries
 Life expectancy is longer in more equal rich countries
 Infant mortality rates are higher in more unequal countries
 More adults are obese in more unequal rich countries
 Educational scores are higher in more equal rich countries
 Teenage birth rates are higher in more unequal rich countries
 Homicide rates are higher in more unequal rich countries
 Children experience more conflict in more unequal societies
 Rates of imprisonment are higher in more unequal societies
 Social mobility is higher in more equal rich countries
 More equal societies are more innovative
 More equal countries rank better on recycling

An interesting point they make is that economic growth alone — which is supposed to raise the
income of all — is not necessarily a good determinant of life-expectancy and well-being:
individuals in some developing countries can attain a level of life-expectancy comparable to
industrialized nations even when their income may be far lower:
 Income per
head and life-expectancy: rich & poor countries,The Spirit Level Slides, The Equality Trust,
2009 (previous link has larger image)

In other words, economic growth is important when developing, but after that equality may be
more important.

The following graphs (reproduced with kind permission) are just examples of the problems they
looked at, but the trends are always the same: the more unequal the society, the worse the
problem generally:
 Violence is
more common in more unequal societies,Evidence: Violence, The Equality Trust, 2009.

From the source for the above graph, the Equality Trust notes that, The link between inequality
and homicide rates has been shown in as many as 40 studies, and the differences are large: there
are five-fold differences in murder rates between different countries related to inequality. The
most important reason why violence is more common in more unequal societies is that it is often
triggered by people feeling looked down, disrespected and loss of face.

The next example compares social mobility (the ability for someone to move up the social
ladder, escape poverty etc) with inequality:
 Social
mobility is higher in more equal rich countries,Evidence: Social Mobility, The Equality Trust,
2009.

It may be surprising to see the US at the low end of social mobility when it is touted as the land
of dreams and possibilities for anyone, no matter who they are. The UK is also surprisingly at the
low end.

Interestingly, the US and UK are the biggest proponents of neoliberal economic ideology, which
has often played down concerns about inequality and instead focused more on raising the lot for
everyone (as the interview with Tony Blair noted further below reveals). Yet, the Equality
Trust finds that,

It looks as if the American Dream is far more likely to remain a dream for Americans than it is
for people living in Scandinavian countries. Greater inequalities of outcome seem to make it
easier for rich parents to pass on their advantages. While income differences have widened in
Britain and the USA, social mobility has slowed. Bigger income differences may make it harder
to achieve equality of opportunity because they increase social class differentiation and perhaps
prejudice.

Evidence: Social Mobility, The Equality Trust, accessed December 7, 2009

The implications of all these findings are important in many ways. For example, it is often said
that to develop and industrialize, developing nations’ carbon emissions must increase, as
industrialization implies a more energy-intensive economy. However, what is less discussed is
whether that means carbon emissions of poorer countries must be similar to today’s
industrialized nations.

Many of today’s industrialized nations are often seen as over consuming with respect to the
planet’s health (climate change being something largely a result of greenhouse emissions from
wealthier nations, for example).
As the next graph shows, a number of developing nations have achieved average life
expectancies that are close to industrialized nations, but with far less carbon emissions in the
process:

High life
expectancy can be achieved with low CO2 emissions,The Spirit Level Slides, The Equality Trust,
2009 (previous link has larger image)

Addressing inequality implies tackling many, many social, political, economic and
environmental issues, for they are all inter-related in many ways.

(Interestingly, the data they used for the study came from the early 2000s, so are not distorted by
the global financial crisis that started around 2008.)

Further below there is more about poverty in industrialized nations, but first, some more on
inequality.

Inequality in the US
The US for a long time has had the largest gap and inequality between rich and poor compared to
all the other industrialized nations. For example in 2003, the top 1% received more money than
the bottom 40% with the gap widest in 70 years. Furthermore, in the last 20 years while the share
of income going to the top 1% has increased, it has decreased for the poorest 40%.

Inter Press Service also summarizes an updated report by the US Census Bureau that 1 in 7
people in the US are in poverty. In 2009, 43.6 million people — 14.6 percent of the population
— were living in poverty in the U.S., up from 13.2 percent of the population in 2008. The United
States currently has the highest number of people in poverty it has ever had since the government
began counting in 1959, although the percentage of people this represents is lower than it was
then (due to the increased population size since then).

IPS also notes factors such as the global financial crisis, stagnant wages and more contribute to
this deepening poverty. But the article also adds that the poverty estimate may be understated
because of assumptions made in calculations years ago and changes in costs of living since then
as well as regional differences.

Percentage change in US income since

1979, adjusted for inflation, Trends in the Distribution of Household Income Between 1979 and
2007 , US CBO, October 2011, p.3 Figure 2

The US Congressional Budget Office released updated figures for US household income
between 1979 and 2007 which showed that the top 1% were driving the main increases in
income. Their income had grown some 275% over that period, some 7 times more than the
remaining 99%.

This is likely to add fuel to the so-called Occupy protest movement in the US and around the
world, where in the US in particular, we are the 99% (or its variations) are popular slogans in the
protests against the current economic conditions and those who largely caused it or are
benefiting from it.

Factors included more market income in the top percentages, a larger increase in wage rates for
those at the top, increases in corporate pay, the expansion of technology disproportionately
benefiting those at the top, increasing pay for those working in the financial and legal
professions, the expansion of financial services, etc.

The report notes similar findings to that in earlier years, mentioned further above that the top 1%
received more than the bottom 40%:
As a result of that uneven income growth, the share of total after-tax income received by the 1
percent of the population in households with the highest income more than doubled between
1979 and 2007, whereas the share received by low- and middle-income households declined….
The share of income received by the top 1 percent grew from about 8 percent in 1979 to over 17
percent in 2007.… In 2007, those shares were 53 percent and 47 percent, respectively. In 1979,
the top 1 percent received about the same share of income as the lowest income quintile; by
2007, the top percentile received more than the lowest two income quintiles combined.

Trends in the Distribution of Household Income Between 1979 and 2007 , US Congressional

Budget Office, October 2011, p.3

Source: Supplemental data for 1979 - 2005, US Congressional Budget Office, December 2008

Nobel prize winner for economics, Paul Krugman, comments on earlier CBO data that even
within the top 1% the big gains have gone to the top 0.1%. The 99%/Occupy protest
movement is aiming too low he remarks!

Krugman also notes that lack of education is not a driving factor for inequality in the US as some
have argued. Instead, inequality in America is mainly a story about a small elite pulling away
from everyone else, including ordinary college grads.

In a short follow-up, Krugman adds that the change in income sharein that period shows that just
about all of the redistribution has taken place from the bottom 80 to the top 1. And stressing his
point about education, It’s a tiny minority, not a broad class of well-educated Americans, who
have been winning here.

Noting that around the world there is a new global working wealthy dominating the new global
elite, an earlier New York Times article notes for the US that the gap [in the US] between the
super rich and everybody else is now greater than at any time since before the Depression of the
1930s. Furthermore, The richest one-hundredth of 1 percent of American families — about
15,000 — accounted for less than 1 percent of national income in 1974. By 2007, the figure was
6 percent, according to Tyler Cowen, an economist at George Mason University outside
Washington. That difference translates into hundreds of billions of dollars.

Countries like Russia have been seen as having an oligarchical structure. But for a while many
have talked of countries like the US also showing similar patterns. And so a long-time concern is
that a lot of this increased concentration in wealth is not just from successful business practices,
but collusion, corruption and undue influences:

One concern some economists express about the emergence of a global plutocracy is that it may
be driven, not only by seemingly benign forces like the technology revolution and global trade,
but also by malign ones, particularly the elite’s ability to shape government and other public
policy activities in its own self-interest.

The rise of government-connected plutocrats is not just a phenomenon in places like Russia,
India and China. The generous government bailouts of United States financial institutions
prompted Simon Johnson, a professor of economics at the Massachusetts Institute of
Technology, to compare American bankers with emerging-market oligarchs. In an article in The
Atlantic magazine, which he later expanded into a book, Mr. Johnson wrote that American
financiers had pulled off a quiet coup.

Chrystia Freeland, Working Wealthy Predominate the New Global Elite, New York Times,
January 25, 2011
Inequality, globalization and a new global elite
Globalization has, as noted above, benefited a new working elite globally, not just in the US.
They have largely pulled away from their compatriots, even in more egalitarian countries, such
as Germany and various Scandinavian countries, while those already with large inequality in
emerging developing countries are getting more unequal too.

An analysis of over 43,000 transnational corporations (TNCs) has identified a relatively small
group of companies, mainly banks, with disproportionate power over the global economy. Of
those companies,

 There was a core of 1318 companies with interlocking ownership

 The 1318 companies represents around 60 per cent of global revenues by collectively
owning through their shares the majority of the world’s large blue chip and
manufacturing firms — the “real” economy
 An even tighter 147 (about 1%) of these were described as super entities that controlled
40 per cent of the total wealth in the network.

The problem with such super concentration is that a small minority can influence the world
system disproportionately — what is good for them is not necessarily good for everyone else, for
example. In addition, given the enormous position in the world system, a problem in just a
handful of them can, and have, had a terrible effect on the rest of the economy as the
current financial crisis has shown.

Adam Smith, who was amongst the first to argue for free markets, had also warned against the
impacts and undue influences of such concentration, but it would seem the modern TNCs have,
in his name, achieved the same position.
Inequality in Cities Around the World
Inequality is usually associated with poorer, developing nations. But for many years, studies
have shown that many wealthier nations also suffer from inequality, sometimes at levels similar
to those of some developing countries.

For example, the UN Habitat’s State of the World’s Cities 2008/2009 report has found that
disparities within cities and between cities and regions within the same country are growing as
some areas benefit more than others from public services, infrastructure and other investments.

In addition, and almost counter to conventional wisdom, the report finds that in cities that have
high levels of inequality increases the chance of more disparities increases, not reduces, with
economic growth. This is because high levels of urban inequality have a dampening effect on
economic growth and contribute to a less favorable environment for investment.

The report also added that in such cities, the lack of social mobility tends to reduce people’s
participation in the formal sector of the economy and their integration in society. This
exacerbates insecurity and social unrest which, in turn, diverts public and private resources from
social services and productive investments to expenditures for safety and security.

In another UN Habitat report, the issue of equality was noted:

As a municipal official, one has to decide whether to spend taxpayers’ money on road
infrastructure, which in developing cities mostly serves higher income citizens with cars, or to
spend it on public utilities and amenities, thus providing for a majority of the population,
particularly benefiting the poor. This is why the major issues for today’s cities have to do with
equality and politics, rather than engineering alone.

Enrique Peñalosa, former mayor of Bogotá, Colombia, Urban World: Bridging the urban divide,
Why cities must build equality, UN Habitat, December 2009-January 2010, p. 8

Factoring in democratic principles also makes things harder: Government has many roles but a
fundamental one, in democracy, is to build equality. For legitimacy to exist in society, citizens
must perceive that inclusion and equality are fundamental objectives of public authorities. (p.9)

Yet different priorities and interests easily result. For example, the report adds that in many
developing cities, wealthier citizens live in private spaces and may even avoid visiting or
walking around in city centers. As a result, they do not care much about city’s parks or public
schools but may be more interested in better roads, for example.

There is therefore a dilemma that the public sector faces compared to the private sector: for the
private sector, deciding where to invest usually boils down to where the best returns will be. By
contrast, in the public sector every project is ‘good’, a police station, a road, a school or a park
all provide a benefit which is difficult to measure.

In parallel with growing cities are growing informal settlements or slums. Numerous factors
create this rise, from poverty in the countryside, changes towards neoliberal economic ideology,
corruption, globalization factors and so on. The problem is so immense that, according to UN
Habitat, approximately 1 billion people live in slums in the cities of the world — approximately
1 in every 6 people on the planet.
While there have been some successes in reducing the number of people living in such areas in
recent years by about a tenth (mostly in China and India), numerous problems persist.

World Habitat Day — Stop forced evictions in Africa, Amnesty International, October 2009

Without the ability to make their voices heard, people in informal settlements often find that in
addition to less services, the threat of forced eviction is commonplace as private developers often
want prime land for development. Amnesty International provides numerous examples of this
from around the world. A short video summarizes a number of other videos they have compiled
on this.

Some settlements don’t have official recognition. As a result, residents have been denied a range
of essential services provided by the government to other residents … [such as] water, sanitation,
electricity, garbage collection, health, education, access roads and transport (from Amnesty
International’s report: Kenya: the unseen majority; Nairobi’s two million slum-dwellers , June
2009, p.7).

Kibera, Nairobi, Sub-Saharan Africa’s largest slum, from Share The World’s Resources work
on Megaslumming.

Kenya’s Kibera slum, Sub-Sharan Africa’s largest informal settlement, is an example of a

massive settlement without official recognition which has been around for decades. The video
clip shows that despite the hardships there is still a sense of vibrant humanity. Share The World’s
Resources, an organization that produced the video, released the book Megaslumming which
described this further, highlighting that despite the grinding reality of poverty, human nature can
still prevail and people work together to help each other and are enterprising despite all the
circumstances.

Image: Deep Sea slum in Kenya.(© Amnesty

International)

In developing countries, where some 1 in 3 people living in cities are living in slum areas, the
urgency to address this has never been more.

With increasing migration to cities (almost half of humanity lives in urban areas), there is
increasing pressures on providing sufficient resources in a sustainable way.

Furthermore, as cities grow in this way, addressing greenhouse emissions from urban areas can
go a long way to helping combat climate change.
Some of the other findings the 2008/2009 UN Habitat reported included that

 Some 3 million people per week were added to cities of developing world.
 Some American cities are as unequal as African and Latin American cities. For example,
New York was found to be the 9th most unequal in the world while Atlanta, New
Orleans, Washington, and Miami had similar inequality levels to those of Nairobi, Kenya
Abidjan and Ivory Coast.
 Race is one of the most important factors determining levels of inequality in the US and
Canada. For example, The life expectancy of African-Americans in the US is about the
same as that of people living in China and some states of India, despite the fact that the
US is far richer than the other two countries.
 India was becoming more unequal as a direct result of economic liberalization and
globalization.
 The most unequal cities were in South Africa and Namibia and Latin America.
 Beijing was now the most egalitarian city in the world, just ahead of cities such as Jakarta
in Indonesia and Dire Dawa in Ethiopia.
 Europe was found to be generally more egalitarian than other continents. Denmark,
Finland, the Netherlands and Slovenia were classed as the most equal countries while
Greece, the UK and Spain were among the most unequal.

Conventional thinking on development issues is often characterized by many assumptions,

clichés and rationalizations about the residents of slums. Challenging some of these core myths
about slums can help focus on the structural causes of urban poverty that result in the rapid
growth of informal settlements, as Adam Parsons from Share the World’s Resources
organization notes.

Although the above focuses on cities, more generally, rural areas exhibit more poverty than
urban areas which is briefly looked at next. In addition, the section further below on poverty in
industrialized areas also suggests that inequality is unfortunately widespread.

Inequality in Rural Areas

Poverty and inequality in rural areas is also high, particularly in the developing world.

The International Fund for Agricultural Development (IFAD), an international financial

institution and a specialized UN agency, released a major report on the state of rural poverty in
the developing world in December 2010.

Reuters summary of IFAD report, December 2010

The Rural Poverty Report 2011 contains updated estimates by IFAD of the number of rural poor
people living in the developing world, poverty rates in rural areas, and the percentage of poor
people residing in rural areas.

The report also includes new information on how many people move in and out of poverty over
time. It points to what it describes as emerging opportunities for rural growth and
development and suggests how to help rural women and men move out of poverty and become
part of the solution for the global food security challenges of the next several decades.

The report adds that despite an historic shift towards urbanization, poverty remains largely a
rural problem, and a majority of the world’s poor will live in rural areas for many decades to
come. In addition, of the 1.4 billion people living in extreme poverty [less than US$1.25/day] in
2005, approximately 1 billion — around 70 per cent — lived in rural areas.(p.47)

Changes over time are not the same in all regions, however.

Rural share of
total poverty (Rural people as percentage of those living on less than US$1.25/day), Rural
Poverty Report 2011, p.47

As the IFAD chart shows,

 As a total average, yo% of those in extreme poverty live in rural areas

 East Asia has reduced the rural share of total poverty to just over 50 per cent
 Latin America and the Caribbean, and the Middle East and North Africa, the most
urbanized regions, a majority of the poor now live in urban areas
 In South Asia, South East Asia and sub-Saharan Africa, by contrast, over three-quarters
of the poor live in rural areas, and the proportion is barely declining, despite urbanization

But rural areas are not with poor only. In recent years, many have been lifted out of poverty:
 Incidence of
extreme rural poverty (Percentage of rural people living on less than US$1.25/day), Rural
Poverty Report 2011, p.48

As the IFAD chart shows, as a total average across developing nations, just under 35% of the
total rural population of developing countries is classified as extremely poor, down from around
54% in 1988. The various regions have fared differently, however. For example,

 Rural poverty has declined more slowly in South Asia, where the incidence is still more
than 45 per cent for extreme poverty and over 80 per cent for US$2/day poverty
 Likewise, sub-Saharan Africa’s rural poverty decline is also slow, where more than 60%
of the rural population lives on less than US$1.25 a day, and almost 90% lives on less
than US$2/day.

Even within these regions, the IFAD reports that some countries and sub-regions fared better
than others.

IFAD also noted that the number of those living on less than $2 a day is also down, from around
80% of all rural populations to around 60% (but mostly due to massive rural poverty reduction in
East Asia (mostly China) where today the incidence of rural poverty is around 15% for the
US$1.25/day line and 35% for the US$2/day line. (p.48)

Despite successes in areas like Latin America when using the internationally comparable
$1.25/day poverty line, the report also warns that the numbers there that can be classified in
poverty would be higher if using their own national poverty lines. In other words, inequality is
high even while absolute poverty is slowly being reduced.

In addition, in terms of raw numbers of people, South Asia and sub-Saharan Africa are where
most rural poor live:
 Rural people
living in extreme poverty (Millions of rural people living on less than US$1.25/day), Rural
Poverty Report 2011, p.49

Although the graphs seem to show progress, the report warns of complacency as further efforts
to reduce rural poverty will be complicated by

 Increasingly volatile food prices as seen in 2008

 The uncertainties and effects of climate change, and
 A range of natural resource constraints

Inequality Between Genders

IFAD also notes that women tend to do more work (for less pay) and are the primary care givers
in virtually all rural societies, yet barely feature in recognition or policy.

IFAD also adds that The general implication of these findings is that achieving gender equality
requires challenging social institutions, and that doing so is crucial to address interlocking
deprivations which result in poverty – not only for women, but poverty more broadly. …
women’s access to better paid, more secure jobs is not only beneficial to them and their families,
but also to the growth of the wider economy. (p.63)

For more information, see this site’s section on women’s rights which goes into the above
further.

Inequality and Health

A Canadian study in 1998 suggested that the wealthiest nations do not have the healthiest people;
instead, it is countries with the smallest economic gap between the rich and poor.

For many years, poverty has also been described as the number one health problem for many
poor nations as they do not have the resources to meet the growing needs. Yet, it is not beyond
humanity:
At the end of August, 2008, the World Health Organization’s Commission on the Social
Determinants of Health presented a 3-year investigation into the social detriments to health in a
report titled the Closing the gap in a generation: Health equity through action on the social
determinants of health.

The report noted that health inequalities were to be found all around the world, not just the
poorest countries:

The poorest of the poor, around the world, have the worst health. Those at the bottom of the
distribution of global and national wealth, those marginalized and excluded within countries, and
countries themselves disadvantaged by historical exploitation and persistent inequity in global
institutions of power and policy-making present an urgent moral and practical focus for action.
But focusing on those with the least, on the ‘gap’ between the poorest and the rest, is only a
partial response.

… In rich countries, low socioeconomic position means poor education, lack of amenities,
unemployment and job insecurity, poor working conditions, and unsafe neighbourhoods, with
their consequent impact on family life. These all apply to the socially disadvantaged in low-
income countries in addition to the considerable burden of material deprivation and vulnerability
to natural disasters. So these dimensions of social disadvantage – that the health of the worst off
in high-income countries is, in a few dramatic cases, worse than average health in some lower-
income countries … – are important for health.

Closing the gap in a generation: Health equity through action on the social determinants of
health , Commission on Social Determinants of Health, World Health Organization, August 28,
2008, p.31Sir Michael Marmot explains why social, political and economic policies affect
health.Source: WHO. Higher quality video

Sir Michael Marmot, chair of the Commission, noted in an interview that most health problems
are due to social, political and economic factors.

The key determinants of health of individuals and populations are the circumstances in which
people are born, grow, live, work and age, he says. And those circumstances are affected by the
social and economic environment. They are the cause premature of disease and suffering; that’s
unnecessary. And that’s why we say a toxic combination of poor social policies, bad politics and
unfair economics are causing health and disease on a grand scale. Marmot expands on this
further in the video clip.

Even within a country such as the UK, then, the report finds that the average life-span can differ
by some 28 years, depending on whether you are in the poorer or wealthier strata of society.

This is discussed in more detail on this web site on this page: Global Health Overview.

Inequality fueled by many factors

Various things can create inequality. Most common generalizations will be things like greed,
power, money. But even in societies where governments are well-intentioned, policy choices and
individual actions (or inactions) can all contribute to inequality.

In wealthier nations, the political left usually argue for addressing inequality as a matter of moral
obligation or social justice, to help avoid worsening social cohesion and a weakening society.
The political right in the wealthier nations generally argue that in most cases, western nations
have overcome the important challenge of inequality of opportunity, and so more emphasis and
responsibility should be placed on the individual to help themselves get out of their predicament.

Both views have their merits; being lazy or trying to live off the system is as abhorrent as
inequalities structured into the system by those with wealth, power and influence.

In poorer countries, those same dynamics may be present too, sometimes in much more
extremes, but there are also additional factors that have a larger impact than they would on most
wealthier countries, which is sometimes overlooked by political commentators in wealthy
countries when talking about inequality in poorer countries.

For example, in some poorer countries, a combination of successive military governments (often
supported or aided by the West) and/or corrupt leadership, as well as international economic
policy have combined to create debt traps and wealth siphoning, affecting the poorer citizens the
most (because the costs such as the debt gets socialized).

Nigeria is one often-mentioned example, as Jubilee 2000 highlights where Western backed
dictatorships have siphoned off much of the nation’s wealth in the past leaving the country under
immense debt for later generations to suffer under. Indonesia is another example as part of this
Noam Chomsky interview by The Nation magazine reveals. Latin America on the whole is
another.

Latin America has the highest disparity rate in the world between the rich and the poor: Internal,
regional and external geopolitics, various international economic factors and more, have all
contributed to problems. For example, the foreign policy of the US in that region has often
been criticized for failing to help tackle the various issues and only being involved to enhance
US national interests and even interfering, affecting the course and direction of the nations in the
region through overt and covert destabilization. This, combined with factors such as corruption,
foreign debt, concentrated wealth and so on, has contributed to poverty there.

Much of the above was written around early 1999. Unfortunately, well into 2003, the World
Bank reported that the Latin American rich-poor gap is widening. There has been progress in
closing the gender gap in income, and girls and young women had overtaken their male
counterparts in education. However, inequality is very high. For example:

 Income inequality in the region had worsened with the richest one tenth of the population
earning 48% of its total income, while the poorest tenth earns only 1.6%
 Race has also been a factor where Indigenous and Afro-descended people are at
considerable disadvantage with respect to whites, with the latter earning the highest
wages in the region.

Into 2010, Inter Press Service (IPS) reports that 10 of the 15 most unequal countries in the world
are in Latin America: Bolivia, followed by Haiti, Brazil, Ecuador, and Chile, which is tied in
fifth place with Colombia, Guatemala, Honduras, Panama and Paraguay.

The UK and US are often two of the more dynamic nations, economically and opportunities to
make a very successful life is well within the realms of possibility. Yet, these two tend to have
the worst levels of inequality amongst industrialized nations. Such levels of inequality implies
that it is overly simplistic to blame it all on each individual or solely on government policy
and white-collar corruption.
While ideological debates will always continue on the causes of inequality, both the political left
and right agree that social cohesion (social justice or family values, etc) is suffering, risking the
very fabric of society if it gets out of control.

Inequality increases social tensions

Andrew Simms, policy directory for the New Economics Foundation in U.K. (which spear-
headed the Jubilee 2000 campaign to highlight the injustices of third world debt) makes an
interesting suggestion in the British paper, The Guardian (August 6, 2003).

He suggests that as well as a minimum wage, for the sake of social cohesion there should
perhaps be a maximum wage, too.

Amongst various things, Simms notes that tackling inequality from the other end is important
because the economic case for high executive pay in terms of company performance doesn’t
hold up, and because highly unequal societies have a habit of falling apart.

In addition:

Crime and unhappiness stalk unequal societies. In the UK the bottom 50% of the population now
owns only 1% of the wealth: in 1976 they owned 12%. Our economic system’s incentive
structure, instead of trickle-down, is causing a flood-up of resources from the poor to the rich.
Inequality leads to instability, the last thing the country or world needs right now.

Even the former hardline conservative head of the International Monetary Fund, Michel
Camdessus, has come to the conclusion that the widening gaps between rich and poor within
nations is morally outrageous, economically wasteful and potentially socially explosive.

Above subsistence levels, what undermines our sense of well-being most is not our absolute
income levels, but how big the gaps are between us and our peers. Allowing the super-rich to
live apart from society is as damaging in its own way as the exclusion of the poorest.

Andrew Simms, Now for a maximum wage, The Guardian, August 6, 2003

It seems, however, that neoliberal economic ideology may lead many to think inequality is not
important. This partial transcript of an interview with Britain’s then-Prime Minister, Tony Blair,
by the BBC prior to the June 2001 elections, reveals an example of that where Blair appeared to
evade the question of the importance of reducing inequality, and kept suggesting that he wants to
improve the lot of the poor, regardless of the levels of inequality between rich and poor.

Britain’s BBC aired a documentary on March 17, 2004, titled IF. It looked into a scenario of
what would happen in a few years if the growing inequality in the United Kingdom continued to
widen. While the predictions of what would happen are always tough to make, the documentary
noted some important issues that are already present, and that also parallel many parts of the
world today.

In summary, the documentary noted the increasing alienation and exclusion of people in society
where inequality was high, but if government tried to do something about it, they would face a
powerful obstacle: the rich. The remainder of this subsection provides more details:
Gated communities, while providing an opportunity to develop otherwise derelict areas, also
represents a sign of growing inequality, whereby those who can afford to do so live in areas
where security is paid for and managed to ensure undesirables are kept out.

While individuals are making understandable decisions regarding their security, there is the
additional effect of cutting off from the rest of society, leading to consequences such as:

 Resentment, fragmentation, and exclusion;

 A divided society (described as an apartheid of society);
 Further inequality of
o Wealth;
o Opportunities;
o Space.

Side Note»

These are times when the welfare state is failing people because it gives people a false sense of
security and uses an element of coercion (payment of taxes to pay for the services). Yet, at the
same time, the documentary noted, what is making this situation more complicated is that the
super rich are taking advantage of globalization and all the loop holes it provides, such as off-
shore tax havens. As a result, there is less the state is able to do, leading to further frustrations.

In the U.K., it was noted that inequality has been increasing to levels not seen since around the
Second World War.

At the same time, in U.K. (as elsewhere) private security services are increasing, providing a
quasi-policing role. This is in response to the increase in crime, an effect of inequality. But this
has important implications. For example:

 Such services are good at protecting everything that is a commodity and has a price. This
typically implies possessions of individuals.
 The wealthy, the documentary also noted, can afford more private security than the poor.
When a fear of crime exists then it is understandable that people will want security
services that can protect their property. Furthermore, one would not expect an individual
concerned with their own well-being to appear to sacrifice that for the sake of society.
The concerns for their immediate family, children naturally take precedence.
 Regrettably though, a downward spiral potentially emerges that seems hard to get out of,
because of the increasing fragmentation and exclusion that this results it.

However, policing is meant to be more than protecting things of material value; the police are
supposed to have social and human concerns for society as well, something a private security
firm neither is mandated to have, nor is usually created for. Due to the different roles, the costs,
structures and accountability are also different.

If crime is perceived to be increasing and the police are not seen as trusted, people can, and do
take actions into their own hands. Wealthier people of course can afford to take more measures.

In theory then, one of the many things that makes up a functioning, stable and democratic society
is an uncorrupted judicial system and law enforcement.

Addressing the root causes of inequality would therefore seem to be where the challenge lies.
The political costs of inequality are recognized and accepted as being too high. The economic
costs of fighting effects are also high. Citing some research, the BBC also noted that for each
dollar spent on poverty causes, seven dollars was saved on consequences.

Unfortunately, governments are in a difficult situation, because they can try to address
inequality, but they will anger the rich.

Fragile Democracies, Inequality turn good people to evil

In May 2002, the BBC aired another documentary related to inequality, called The Experiment,
where they showed in detail how inequality can turn good people to evil.

 The experiment involved a system of guards and prisoners.

 The prisoners eventually revolted against the initial inequality.
 However, some of the former prisoners themselves instituted what was becoming an
almost fascist regime before the experiment was eventually stopped.
 The documentary concluded that on a more general sense,
o Our democracies are more fragile than we realize;
o In addition, any power vacuums, which inequality can create and exacerbate,
can seriously threaten to undermine democracy.

Inequality is also characterized by a concentration of wealth, which means a concentration of

political power. Historically, one of the main reasons for continued poverty has been in order to
maintain this power.

Back to top

The Wealthy and the Poor

In the developing world, there is a pattern of inequality caused by the powerful subjugating the
poor and keeping them dependent. Outside influence is often a large factor and access to trade
and resources is the usual cause. It is often asked why the people of these countries do not stand
up for themselves. In most cases when they do, they face incredible and often violent oppression
from their ruling elites and from outsiders who see their national interests threatened.

Consider the following from the United Nations:

Everyone has the right to work, to just and favourable conditions of work and to protection for
himself and his family [and] an existence worthy of human dignity … Everyone has the right to a
standard of living adequate for the health and well being of himself and his family, including
food, clothing, housing and medical care.

Universal Declaration of Human Rights, 1948

And contrast that with the following around the same time, from a key superpower that helped
create the United Nations. It is from George Kennan, head of the US State Department planning
staff until 1950, and his comments on US relations with Far East:

we have about 50% of the world’s wealth, but only 6.3% of its population.…In this situation, we
cannot fail to be the object of envy and resentment. Our real task in the coming period is to
devise a pattern of relationships which will permit us to maintain this position of disparity.…To
do so, we will have to dispense with all sentimentality and day-dreaming; and our attention will
have to be concentrated everywhere on our immediate national objectives.…We should cease to
talk about vague and… unreal objectives such as human rights, the raising of the living
standards, and democratization. The day is not far off when we are going to have to deal in
straight power concepts. The less we are then hampered by idealistic slogans, the better.

… We should recognize that our influence in the Far Eastern area in the coming period is going
to be primarily military and economic. We should make a careful study to see what parts of the
Pacific and Far Eastern world are absolutely vital to our security, and we should concentrate our
policy on seeing to it that those areas remain in hands which we can control or rely on.

George Kennan, U.S. State Department Policy Planning, Study #23, February 24, 1948. (See
alsoForeign Relations of the United States 1948, Vol. 1, No. 2, 1976 for the full text where this
was first published; The text to the part on realism of US relations in the Far East; David
McGowan,Derailing Democracy, (Common Courage Press, 2000), p.169; Noam Chomsky,What
Uncle Sam Really Wants, (Odian Press, 1993), Chapter 2.

While it is recognized that strong institutions, a functioning and non-corrupt democracy, an

impartial media, equitable distribution of land and a well structured judicial system (and other
such factors), etc. all help in realizing a successful nation and society, a lack of any of these
things can lead to a marginalization of a sector of people. Often, it can be a very large sector.

For example, those likely to lose out in such an equalizing effect are the rich, elite power
holders.

As a result of their ability to own and/or influence one of these above-mentioned things, they
affect the lives of millions. This is a pattern seen throughout history. Take for example the
medieval days of Europe where the wealthy of the time controlled land via a feudal ruling
system and hence impoverished the common people intentionally.

 The rulers (Kings etc), would proclaim their Divine Right to rule over their subjects.
 They had an army of Lords and Bishops to advise on policies that benefited these groups
(religion was used—and still is—to control and influence people, while Lords and
Knights were an extension to the ruling family that would carry out the wishes.)
 They would heavily tax the people of their land.
 Not allowing the peasants to own the land upon which they lived meant that they would
be stuck in poverty and dependency.
 When the elite could no longer tax the poor, they started to tax the wealthy nobility.
o It was only at that point did the revolutions such as the French Revolution take
hold (because now the nobility had their wealth affected and were able to
influence the peasants to fight for their cause.)
o While this helped bring more rights, once the people won, there were concessions
made that allowed the elite to retain their power, but to share it a bit more.

Trading superiority was maintained by raiding and plundering areas deemed as a threat.
Summarizing from the works of the Institute for Economic Democracy:

 The old European city states, which were centers of wealth, would control their
countryside as the source of their resources and production, and hence, the source of their
wealth. If the countryside became more efficient and produced better, or threatened to
trade with other neighboring cities, this would be seen as a threat to the wealth, power
 and influence of the city. These peripheries would therefore be raided and their means of
production would be destroyed.
 The cities would fight over each other for similar reasons.
 For continual support, those rulers would proclaim various reasons to their people, of
maintaining security and so on (not unlike what we hear today about national security).
Even some laws were established that basically allow these practices.
 A strong military was therefore necessary (just as it is today) to ensure those trade
advantages were unfairly maintained.
 Those European city states evolved into nation states and imperial powers, and the
countryside expanded to include today’s third world, which was much of the rest of the
world. The effects of colonialism and imperialism are still felt today.

The discovery of the Americas, expansion of trade routes etc brought much wealth to
these centers of empire which helped fuel the industrial revolution, which required even more
resources and wealth to be appropriated, to continue this growth. Mass luxury consumption in
Europe expanded as well as a result of the increased production from the industrial revolution.

Eric Toussaint: globalization’s roots lie in colonialismSee link for transcript

But this had a further negative impact on the colonized nations, the country side, or the resource-
providers. For example, to keep profits up and costs down, they used slavery where they could,
sometimes transferring people across continents, introducing others when indigenous
populations had either been wiped out, decimated, or proved too resistant in some way.

Europeans also carved out artificial borders to reflect their territorial acquisitions, sometimes
bringing different groups of people into the same borders that had never been forced to live
together in such short times. (Some poorer countries today still suffer the effects of this.)

Side Note»

As with the previous wars throughout Europe’s rise, World War I and II were also battles
amongst the various European empires who struggled over each other to control more of the
world’s resources and who would decide the rules of unequal trade.

Except for religious conflicts and the petty wars of feudal lords, wars are primarily fought over
resources and trade. President Woodrow Wilson recognized that this was the cause of World
War I: Is there any man, is there any woman, let me say any child here that does not know that
the seed of war in the modern world is industrial and commercial rivalry?

J.W. Smith, Economic Democracy: The Political Struggle for the Twenty-First Century, (M.E.
Sharpe, 2000, 1st Edition), p.58

Plundering the countryside to maintain dominance and control of the wealth-producing process
has been an age-old process.

These mercantilist processes continue today. Those policies of plunder by raid have continued,
but include a more sophisticated plunder by trade:

The powerful and cunning had learned to plunder by trade centuries ago and societies ever since
have been caught in the trap of those unequal trades. Once unequal trades were in place,
restructuring to equal trade would mean the severing of arteries of commerce which provide the
higher standard of living for the dominant society and collapse of those living standards would
almost certainly trigger open revolt. The world is trapped in that pattern of unequal trades yet
today.

J. W. Smith, Economic Democracy: The Political Struggle for the Twenty-First Century, (1st
Books, 2002, 2nd Edition), Chapter 2

The geopolitical events of the post World War II era have been crucial for their impacts on
poverty and most other issues. J.W. Smith summarizes this:

Virtually the entire colonial world was breaking free, its resources would be turned to the care of
its own people, and those resources could no longer be siphoned to the old imperial-centers-of-
capital for a fraction of their value.

… If India and the rest of the world’s former colonies continued to take the rhetoric of
democracy seriously and form the nonaligned bloc as they were planning, over 80 percent of the
world’s population would be independent or on the other side of the ideological battle. And, if
Japan, Germany, Italy, and France could not be held (it was far from sure they could be), that
would leave only the United States, Britain, Canada, and Australia, about 10 percent of the
world’s population, still under the old belief system, and even there the ideological hold would
be tenuous at best. After all, if there were no countryside under the firm control of an imperial
center, the entire neo-liberal/neo-mercantilist belief system will have disappeared.

What Western nations were observing, of course, was the same potential loss of the resources
and markets of their countryside as the cities of Europe had experienced centuries
earlier. National security and security interests, which citizens were coached (propagandized) to
believe meant fear of a military attack, really meant maintaining access to the weak,
impoverished world’s valuable resources. The domestic prosperity worried about was only their
own and the constantly expanding trade were unequal trades maintaining the prosperity of the
developed world and the impoverishment of the undeveloped world as the imperial-centers-of-
capital siphoned the natural wealth of their countrysideto themselves.

… Those crucial natural resources are in the Third World and developed world capital could
never compete if those people had their own industrial capital and processed their own resources
into consumer products. With their own industrial capital, and assuming political and economic
freedom as opposed to world neo-liberal/neo-mercantilist law dictated by military power, they
could demand full value for their natural resources while simultaneously underselling the current
developed world on manufactured product markets. The managers-of-state had to avert that
crisis. The world’s break for freedom must be contained.

J.W. Smith, The World Breaking Free Frightened the Security Councils of Every Western Nation,
Economic Democracy; The Political Struggle for the 21st Century (1st Books, Second Edition,
2002), Chapter 7

While European nations are now more cooperative amongst themselves (in comparison to the
horrors of World War II) and the U.S. had long taken the lead in the international arena, for the
rest of the world, international trade arrangements and various economic policies still lead to the
same result. Prosperity for a few has increased, as has poverty for the majority.

Today’s corporate globalization, is an example where the wealthier companies and nations are
able to determine the rules, shape the international institutions and influence the communication
mechanisms that disseminate information to people.
In this backdrop, how do developing nations contend with poverty?

 During the Post World War II period, during the Cold War, poorer country governments
often found that if they tried to improve the situation for their people, they could have
been perceived as a threat or worse still going communist. They may have faced external
pressure, external meddling in internal affairs or even military intervention by the
powerful nations.
 The powerful nations would of course claim this was necessary for something like world
stability, national interest, or to save the other country from themselves, but it would
often be to do with protecting their national interests, such as a secure and constant
supply of cheap resources or some other reason related ultimately to maintaining
influence and power.
 Dictators and other corrupt rulers have often been placed/supported in power by the
wealthier nations to help fulfill those national interests in a similar way the old rulers of
Europe used the Lords and Knights to control the peripheries and direct resources to the
centers of capital. (Although, now, increasingly, democracies are supported, but ones
where the economic choices are so limited, that the democracy provides a similar
environment that a dictatorship did, for foreign investors, but without the overt violence
and oppression.)
 This means that it is hard to break out from poverty, or to reduce dependency from the
US/IMF/World Bank etc.

Structural Adjustment (SAP), as described in a previous section on this web site, is an example
of that dependency. Neoliberal economic ideology has been almost blindly prescribed to poor
countries to open up their economies.

Joseph Stiglitz explains the effects of liberalization & subsidized agriculture on poor farmers(see
link for transcript)

The idea is that opening markets for foreign investment will also help improve exports and
contribute to economic growth. Cutting back on social spending (e.g. health and education)
which are seen as inefficient will also help pay back loans and debts.

But what ends up happening is the poorer nations lose their space to develop their own policies
and local businesses end up competing with well-established multinationals, sometimes
themselves subsidized (hinting a more mercantilist economic policy for the rich, even though
free market capitalism is the claim and the prescription for others).

Hence, many back the economic neoliberal policies without realizing the background to it. It is
another example that while international trade and globalization is what probably most would
like to see, the reality of it is that it is not matching the rhetoric that is broadcast.

J.W. Smith has researched this in depth and the following offers a relevant summary:

The Third World remains poor because the powerful strive to dominate every choke-point of
commerce. One key choke-point is political control through the co-respective support of local
elites. Where loyalty is lacking, money will be spent to purchase it. If a government cannot be
bought or otherwise controlled, corrupt groups will be financed and armed to overthrow that
government and, in extreme cases, another country will be financed to attack and defeat it.…
The pattern has been well established repeatedly throughout history and throughout the world, as
noted by the well-known philosopher Bertrand Russell,
An enormous proportion of the income of nations and individuals, nowadays, is blood money:
payment exacted by the threat of death. Therefore the most prudent nation is the nation which is
in the best position to levy blackmail.…Modern nations are highwaymen, saying to each
other your money or your life, and generally taking both.
J.W. Smith, The World’s Wasted Wealth 2, (Institute for Economic Democracy, 1994), p. 134.

(To find out more about the political dimensions of the economy of the world and to see the
detailed links between history (how it is both told and repeated), politics that are always at play
and the effects on the economy the world over, visit the Institute for Economic Democracy web
site. It provides much more in-depth research into these backgrounds and in far more detail than
what I have summarized above.)

With this in mind, why would so many people not oppose such things? There are many reasons,
including:

 Most people don’t know—this is not an accident. It is in the interest of power-holders to

ensure as little is questioned by outsiders as possible. Whether it be via an aristocracy or
by simple distortion of information, educational systems, or whatever, different nations
have had various means to handle this.

The smart way to keep people passive and obedient is to strictly limit the spectrum of
acceptable opinion, but allow very lively debate within that spectrum—even encourage
the more critical and dissident views. That gives people the sense that there’s free
thinking going on, while all the time the presuppositions of the system are being
reinforced by the limits put on the range of the debate.

Noam Chomsky, The Common Good, Odonian Press, 1998

 Those that have opposed such things in the past may have been persecuted in some way.
In some societies those who try to say something may just face ridicule due to the
embedded belief systems which are being questioned, while in other societies, people
may even face violent oppositions.
 Some dare not entertain the thought that the work they may be doing could be at the
expense and exploitation of someone else. The following summarizes this aspect quite
well:

[W]e should be familiar with the sincerity with which people will protect the economic
territory that provides them their livelihood and wealth. Besides the necessity of a job or
other source of income for survival, people need to feel that they are good and useful to
society. Few even admit, even to themselves, that their hard work may not be fully
productive. This emotional shield requires most people to say with equal sincerity that
those on welfare are lazy, ignorant, and nonfunctional.

Those above the poverty level vigorously insist that they are honest and productive and
fulfill a social need. It is important to their emotional well-being that they believe this.
They dare not acknowledge that their segment of the economy may have 30 to 70 percent
more workers than necessary or that the displaced should have a relatively equal share of
jobs and income. This would expose their redundancy and, under current social rules,
undermine their moral claim to their share. Such an admission could lead to the loss of
their economic niche in society. They would then have to find another territory within the
economy or drop into poverty themselves.
 J.W. Smith, The World’s Wasted Wealth 2, (Institute for Economic Democracy, 1994), p.
90.

J.W. Smith, quoted above, also points out (and details in his work) how we have moved
from plunder by raid to plunder by trade in recent centuries. The complexities of some of today’s
economics and trading systems also make it harder to address root causes of poverty:

Although in [the] early years the power brokers knew they were destroying others' tools of
production (industrial capital) in the ongoing battle for economic territory, trade has now become
so complex that few of today’s powerful are aware of the waste and destruction created by the
continuation of this neo-mercantilist struggle for markets. Instead, they feel that it is they who
are responsible for the world’s improving standards of living and that they are defending not
only their rights but everybody’s rights.

This illusion is possible because in the battle to monopolize society’s productive tools and the
wealth they produce, industrial capital has become so productive that—even as capital,
resources, and labor are indiscriminately consumed—living standards in the over-capitalized
nations have continued to improve. And societies are so accustomed to long struggles for
improved living standards that to think it could be done much faster seems irrational.

J.W. Smith, The World’s Wasted Wealth 2, (Institute for Economic Democracy, 1994), p. 158.

And when considering how today’s global economic model promotes the liberalization of capital
more and more, the effects of rapid flows of capital and other impacts of over-liberalization is
borne largely by the poorer members of society:

A French humorist once wrote, When it’s money you’re after, look for it where it is most
abundant, among the poor. Governments now do this more than ever because the poor are
rooted, stationary, slow; whereas the big money is nomadic and travels at the speed of bytes.
Stationary money (of local businesses, professionals, wage and salary earners) will be taxed to
the limit for the simple reason that it can be got at.

Susan George, The Lugano Report, (Pluto Press, 1999), p. 186

Back to top

The World Bank and Poverty

The World Bank is a major international institution involved in poverty and development. It has
the capacity to lend a lot of money and expertise to developing countries and advise on
development matters.

The World Bank produces an annual report, called the World Development Report. The Bank
regards this as its flagship report. Most mainstream economists use this report in some way or
form, and it is one of the few reports on development that the US mainstream media reports on
(because it usually shows the US, and its policies that it prescribes to the rest of the world, in a
favorable light.)

The way the 2000 report was released highlighted another problem with the World Bank, and
how it doesn’t like to accept criticism on the current forms of globalization and neoliberalism.
For the 2000 report, Ravi Kanbur, a professor from Cornell University had been asked to lead up
the report team.

Kanbur won respect from NGO circles as he tried to be inclusive and take in a wide range of
views, something the Bank has been criticized for not doing (which is a problem in itself!).
However, as the report was to be published, he resigned because he was unreasonably pressured
by the Bank to tone down sections on globalization, which, amongst other things called for
developing nations to accept market neoliberalism cautiously.

The World Bank was apparently influenced itself by the US Treasury on this—this is not new
though; critics have long pointed out that the Bank is very much influenced by the US, thus
affecting the chance of real progress being made on poverty issues around the world.

The following quotes collected from the Bretton Woods Project, reveal some interesting insights:

The Washington Consensus has emerged from the Asia Crisis with its faith in free markets only
slightly shaken. Poverty eradication is now the menu, but the main dish is still growth and
market liberalisation, with social safety nets added as a side dish, and social capital scattered
over it as a relish. The overall implication of the resignation is fairly clear. The US does not want
the World Bank to stray too far from its agenda of economic growth and market liberalisation.
Ravi Kanbur’s draft has raised a few too many doubts about this agenda, and strayed too much
towards politics.

The Nation, Bangkok, 5 July, 2000

To keep the Bank afloat Wolfensohn has to steer between two major constituencies. The first are
the critics, the second is the US Treasury. You don’t need to be a World Bank economist to do
the cost benefit analysis. To save the Bank, and his own reputation, it is essential that the Bank’s
policies and public pronouncements do not err too far from its main shareholder and political
protector, the US Treasury.

Focus on Trade, Issue Number 51, Focus on the Global South, June 2000

The World Bank has often come under criticism for its development projects not actually helping
the societies that they claimed they will. One such example is the numerous dam projects that
have seen lives devastated, where millions have been displaced and people have not seen the
benefits promised, while at the same time, the environment has degraded and crucial arable land
has been flooded. This is discussed further on this site’s hunger and poverty causes section.

Another example is the devastating Structural Adjustment Policies pressured upon poor countries
by the First World, The World Bank and the IMF. These have had devastating consequences for
much of the third world, though benefiting the First World.

Another example involves a recent Chad-Cameroon oil pipeline project, which started
construction in 2000. The World Bank had also stressed commitments to ensure policies were
observed that would protect society and the environment, while helping millions of poor in Chad
out of extreme poverty (Chad is the fifth poorest country in the world) and also providing land-
locked Cameroon with much needed revenue.

The World Bank’s actual monetary investment amount was just four percent of the cost.
However their participation and stated commitment to poverty-combating development gave
political backing that allowed multinational oil companies (who were the main investors) to raise
sufficient capital on the international capital markets, which they would not have been able to
otherwise do.

The World Bank had therefore highlighted this project as a prototype for the extractive industry,
designed to carry oil wealth not to a few but to the mass of the poor.

AfricaFiles is an organization about African issues from the perspective of human rights,
economic justice, and African perspective and alternative analysis. Given the World Bank’s
claims and presenting this project as a flagship of sorts, AfricaFiles issued a report looking to see
how the World Bank’s claims held up.

They concluded that

1. Oil corporations cannot be transformed into development agencies even with the best
intentions and monitoring mechanisms referring to the sidelining of time-intensive parts
of the project such as capacity building and taking social and environmental issues into
consideration.
2. As a result, global levers of development outcomes like the World Bank cannot exercise
sufficient clout on oil multinationals' penchant for profits
3. The World Bank is incapable of respecting its own weakening safeguard policies, which
are premised on controlling damage rather than avoiding harm. This is particularly
significant as Africa banks on the increasing trend in Foreign Direct Investments (FDIs).
4. The embryonic neo-liberal governance structures in Africa are incapable of forcing FDIs,
which are principally attracted by ground mineral resources, to respect ecological and
social principles. This cannot be over-stressed, especially as the World Bank prepares to
engage in what it calls high risk/high reward projects in developing countries.
5. The flawed contention of the World Bank is you cannot eat omelettes without breaking
some eggs. As this paper has demonstrated, the eggs most often broken are those of the
poor who are left with no alternative livelihood. The paper has also noted the high level
of corruption, implying that those who would eat the omelette so to speak, would be the
wealthy elite and multinationals.
6. Public Private Partnership [PPP], the buzz paradigm of sustainable development, is
fundamentally incapable of addressing the unequal power relation between fattening
multinationals, weakening states and the World Bank, in this era of globalisation.

AfricaFiles also, interestingly, suggested the World Bank use its precious resources to support
more renewable energy sources development rather than oil, which has had so much political,
economic and environmental problems associated with it. This was also a recommendation from
a report commissioned by the World Bank itself, which has not been followed.

In mid-2004, the committee set up to oversee transparency in the oil revenues in Chad has
protested about the lack of resources from both the government and the oil company involved,
and that people in Chad were becoming disillusioned at the project.

In September 2005, the human rights organization, Amnesty International criticized the project
investment agreements for undermining human rights, noting that, The investment agreements
governing the project risk seriously undermining the ability and willingness of Chad and
Cameroon to protect their citizens’ human rights, making the oil companies de facto
unaccountable in the pipeline zone. Nearby fisherman and farmers have also been denied access
to water and land, and that there is a prevailing climate of fear and intimidation around the
pipeline, some of whose critics have already been arrested and intimidated.
In mid-January, 2006, the BBC reports that the World Bank shut down the Chad oil
account which was to keep 10% of the oil revenue for future generations of people in Chad. The
Chad government argued it needed to fight against poverty now and had a right to that revenue
and signed a law allowing access to that account early. Earlier, the World Bank had suspended
some loans, too. Some will raise concern of possible intention for corrupt practices by the Chad
government, while others will see the World Bank’s influence at play here, preventing another
African country to determine its own policies and be accountable to its own people.

The World Bank also provides the main source of poverty figures, such as those presented
further above. The $1 dollar a day poverty line (now upgraded to $1.25 dollars a day using newer
data and updated techniques) has also fallen under criticism in the past.

For example, during the long period the $1 dollar a day measure was used the World Bank
was criticized for almost arbitrarily coming up with a definition of a poverty line to mean one
dollar per day.

In addition, as also stated in the previous link, in the United States for example, the poverty
threshold for a family of four has been estimated to be around eleven dollars per day. The $1 a
day (now $1.25) definition then misses out much of humanity. Indeed, as the chart earlier
showed, the number of people living on under $10 dollars a day is estimated to be just under
80% of humanity (95% of developing countries).

To be fair, the World Bank did explain why they did not use a $10 dollar a day poverty line.
They felt that Learning that (possibly) 95% or more of the [developing country] population is
poor by such a standard is unlikely to have much relevance, given that US standards of living are
not within the foreseeable reach of most people in a typical developing country.

It does seem sadly true that this level is sadly not attainable in the near future for so many
people. However, it serves as a useful figure to remind us how divided the world may indeed be
(although, as also mentioned earlier, numbers alone do not capture all the issues; as also
mentioned earlier, a number of studies show that some of the poorest in rich countries can be
regarded as worse off than some in developing countries, depending on what you measure such
as well-being, health, social cohesion, etc.) This can be seen more vividly in that chart also
shown earlier:
Another critique of the $1 a day figure came from Columbia University, called How not to count
the poor .

The report describes 3 main errors as being:

1. An ill-defined poverty line;

2. A misleading and inaccurate measure of purchasing power equivalence; and
3. Incorrect extrapolation of limited data giving the false impression of precision while
masking the high probably error of the estimates.

These errors, they feared, would lead to a large understatement of the extent of global income
poverty and to an incorrect inference that it has declined. (Emphasis added). At the same time, it
allowed the World Bank to insist that the world is indeed on the right track in terms of poverty
reduction strategy, attributing this success to the design and implementation of good or better
policies.

Since that report, the World Bank has indeed revised the poverty line as explained earlier and
they noted more people were in poverty than previously realized. The links provided earlier from
the World Bank do provide a better explanation of why their poverty lines were chosen as they
were. And while the data this time significantly includes China and India for the first times, they
also acknowledge various challenges with collecting the data. However, while they have also
given their reason for not using a $10 a day poverty line (because most poor people are unlikely
to reach that level in the foreseeable future), we must still wonder if poverty, and its effects, are
worse than the figures reveal.

As an aside, Morgan Spurlock, the Oscar nominee for his documentary Super Size Me where he
went 30 days on a diet of burgers to see what the effects would be, produced another
documentary where he tried to live on the minimum wage of $5.15 per hour for 30 days. At
times he was earning $50 to $70 a day and yet the tremendous hardships he faced was incredible
(including a ludicrous $40 for a bandage in a hospital, and some $500 for just being seen to).

Back to top

Poverty in Industrialized Countries

As mentioned earlier, poverty in industrialized nations is also an important issue. While many
poor in wealthy countries may not be in absolute poverty as the many poor people in developing
countries, the relative poverty and high inequality in many wealthy nations creates significant
issues.

The gap between rich and poor has grown in more than three-quarters of rich countries since the
mid-1980s, according to a study of income inequality and poverty by the Organization for
Economic and Cooperative Development (OECD) released in October 2008.

In addition, the study finds that the economic growth of recent decades has benefited the rich
more than the poor.

However, amongst those 30 countries, results are mixed. The study finds, for example, that the
past five years saw growing poverty and inequality in two-thirds of OECD countries. Canada,
Germany, Norway and the United States are the most affected. The remaining third—particularly
Greece, Mexico and the United Kingdom—have seen a shrinking gap between rich and poor
since 2000.

As summarized by an OECD briefing , the income of the richest 10% of people is, on average
across OECD countries, nearly nine times that of the poorest 10%.

The average hides large variations. For example the top 3 countries with the highest income gaps
are:

1. Mexico, where the richest have incomes of more than 25 times those of the poorest
2. Turkey, where the ratio is 17 to 1
3. USA, where the ratio is 16 to 1.

Portugal and Poland also have large gaps, making it the top 5, but their gaps are not as large as
those first three. (For many years, the US was regarded as having the largest gap between rich
and poor of any industrialized nations, but the group of industrialized nations has slightly grown
since to include Mexico and Turkey—also the two poorest OECD countries—amongst others.)

In Nordic countries, however, such as Denmark, Sweden and Finland, the gap is much smaller.
The incomes of the richest 10% average around five times those of the poorest 10%.
 from Are we
growing unequal?, OECD Briefing, October 2008, p.2

Although the elderly are more likely to be poor, the risk of them falling into poverty has reduced
over the last two decades such that people aged 66-75 are now no more likely to be poor as the
population as a whole.

Worryingly, however, children and young adults have poverty rates that are now around 25%
higher than the population average, while they were below or close to that average 20 years ago.
 from Are we growing
unequal?, OECD Briefing, October 2008, p.4

The OECD report noted for example UK’s shrinking gap between rich and poor. Back in 2000,
the UK was the worst place in Europe to be growing up if you were poor, as more children were
likely to be born in to poverty there, compared to elsewhere in the EU.

Despite a period of boom, in April 2000, the UK National Office of Statistics found
that disparities between rich and poor continued to grow in UK.

In April 2008, the BBC noted that after 30 years of unprecedented economic growth, the British
are richer and healthier — but no happier than in 1973.

As well as growing inequality and other issues, the BBC noted that the UK figures follow trends
from around the world that show that happiness and satisfaction do not correlate with average
income once countries reach middle-incomelevels. In addition, one in six UK adults reported that
they suffered from a variety of mental health problems in the latest survey, of which the largest
category was mild anxiety and depression.
As Britain’s wealth generally increased, improvements in health were also accompanied by
unhealthy luxury consumption including excessive alcohol consumption and excessive unhealthy
eating creating a rise in alcohol related deaths and in obesity.

Andrew Simms, policy director of the New Economics Foundation in an article mentioned
further above about inequality notes that

Crime and unhappiness stalk unequal societies. In the UK the bottom 50% of the population now
owns only 1% of the wealth: in 1976 they owned 12%. Our economic system’s incentive
structure, instead of trickle-down, is causing a flood-up of resources from the poor to the rich.
Inequality leads to instability, the last thing the country or world needs right now.

Even the former hardline conservative head of the International Monetary Fund, Michel
Camdessus, has come to the conclusion that the widening gaps between rich and poor within
nations is morally outrageous, economically wasteful and potentially socially explosive.

Andrew Simms, Now for a maximum wage, The Guardian, August 6, 2003

However, although there has been some improvement, there is a long way to go. A UNICEF
report in February 2007 found that UK is failing its children as it comes bottom of all
industrialized nations in terms of child well being. UK child poverty has doubled since 1979, for
example.

As another example, it may be surprising for some readers to learn that the United States,
although the wealthiest nation on Earth, has often had one of the widest gaps between rich and
poor of any industrialized nation.

United For a Fair Economy reported that for 1998 almost 70% of the wealth was in the hand of
the top 10%. In another report, they mentioned that the gap had widened in recent decades. In
1989, the United States had 66 billionaires and 31.5 million people living below the official
poverty line. A decade later, the United States has 268 billionaires and 34.5 million people living
below the poverty line-about $13,000 for a three-person family.

In the United States, wealth is highly concentrated in a relatively few hands. As of 2007, the top
1% of households (the upper class) owned 34.6% of all privately held wealth, and the next 19%
(the managerial, professional, and small business stratum) had 50.5%, which means that just
20% of the people owned a remarkable 85%, leaving only 15% of the wealth for the bottom 80%
(wage and salary workers). In terms of financial wealth (total net worth minus the value of one’s
home), the top 1% of households had an even greater share: 42.7%.

Prof. G. William Domhoff, Wealth, Income, and Power, Who Rules America, University of
California, Santa Cruz, last updated July 2010

Inter Press Service also summarizes an updated report by the US Census Bureau that 1 in 7
people in the US are in poverty. In 2009, 43.6 million people — 14.6 percent of the population -
were living in poverty in the U.S., up from 13.2 percent of the population in 2008. The United
States currently has the highest number of people in poverty it has ever had since the government
began counting in 1959, although the percentage of people this represents is lower than it was
then (due to the increased population size since then).

IPS also notes factors such as the global financial crisis, stagnant wages and more contribute to
this deepening poverty. But the article also adds that the poverty estimate may be understated
because of assumptions made in calculations years ago and changes in costs of living since then
as well as regional differences.

As with Britain, even during the booming economy in the late 1990s and early 2000, there was
an increasing gap between the rich and poor. Into 2002, fighting poverty did not appear to have
been a major election campaign issue (nor was it in previous election campaigns).

Then chairman of the Federal Reserve, Allan Greenspan, revealed concerns in mid-2005 that
the increasing and widening income gap might eventually threaten the stability of democratic
capitalism itself in the US.

While health and education are key to any economy or nation to grow and be strong, both of
these suffer issues of access, equality and pressure to cut back (including elsewhere around the
world as discussed in the structural adjustment part of this site). For example,

 As a summary of a report titled Economic Apartheid in America mentions, that the

United States is the only industrialised nation that views health care as a privilege, not a
basic human right.. (Unfortunately the report itself not available on the Internet, but is
produced by United for a Fair Economy where you can see many extracts and similar
reports.)
 In addition, as good education is linked to a strong economy, Business Week reports
(February 14, 2002) on a study that analyses OECD data from 1994 to 1998, and
summarizes that the literacy of American adults ranks 10th out of 17 industrialized
countries. In addition, the issue of inequality was highlighted: More troubling, the U.S.
has the largest gap between highly and poorly educated adults, with immigrants and
minorities making up the largest chunk of those at the bottom. While Business
Week concentrates on the U.S. they also point out that Despite the mediocre U.S. ranking,
it still beat out most of its major trading partners except Germany, including France,
Britain, and Italy. (Japan didn’t participate [in the study].)

The above-mentioned UNICEF report on child health found that as well as the UK being ranked
bottom of all rich countries, the US ranked second to last. The report suggests that absolute
wealth isn’t necessarily a guarantor of poverty alleviation or a measure for indicators such as
child well-being, and factors such as inequality are also important.

And it isn’t in just these two industrialized nations that these problems persist. A Guardian news
report, for example, shows that certain types of poverty in various European cities can be
regarded as worse than in some other parts of the world which one would not normally think
would compare with Europe, such as India.

Back to top

Corruption
This section has now moved into its own page, called Corruption.

Back to top

Where next?
 Related articles

1. Poverty Facts and Stats

2. Structural Adjustment—a Major Cause of Poverty
3. Poverty Around The World
4. Today, around 21,000 children died around the world
5. Corruption
6. Tax Avoidance and Tax Havens; Undermining Democracy
7. Foreign Aid for Development Assistance
8. Causes of Hunger are related to Poverty
9. United Nations World Summit 2005
10. IMF & World Bank Protests, Washington D.C.

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  by Anup Shah
 Created: Monday, July 20, 1998
 Last Updated: Saturday, November 12, 2011

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