The vicious cycle of the poverty

The Vicious Cycle of Poverty
Investment in education is one way to break out

Alfredo Ascanio (askain)
Published 2007-01-06 15:25 (KST)

According to data from the World Bank, during 2005 emigrants from Latin America and the Caribbean remitted a total of US$48.3 billion back to their families, and this is the only data we have to judge the numbers of people who have exiled themselves from their homelands in search of a better material standard of life.

How can the vicious cycle of poverty-breeding-poverty be broken?

A simplistic answer would be that poverty could be reduced to the extent that the poor are able to participate in an economy that is growing overall and if the benefits of per-capita GDP growth can be equitably distributed.

When the rate of poverty is sufficiently high, however, the impoverished become less able to invest in their own training and development, their productivity falls, and economic growth suffers. Thus, a negative feedback loop can occur between growth and poverty, if there is no incomes policy in place to guarantee the poor an adequate growth dividend. A living wage could make the difference between positive and negative feedback effects.

In Sept. 2000, the Millennium Declaration of the eight development goals to be achieved by 2015 was adopted during the United Nations' Millennium Summit (more information is available here:

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The goals break down into quantifiable targets, including the eradication of extreme poverty and hunger, combating HIV/AIDS, malaria, and other diseases, achieving universal primary education, ensuring environmental sustainability and the promotion of gender equality and the empowerment of women. These objectives and goals were drawn up in response to the world's main development challenges and are referred to as the Millennium Development Goals (MDGs).

Human poverty and economic poverty are two sides of the same coin. Many programs aimed at fighting poverty in general are oriented mainly toward economic poverty and ignore its social and human aspects. We must approach poverty in a more integral way and include aspects like health, education, housing, and all-round well being.

It is also true that the war against corruption is key to the war against poverty, involving the problem of institutional quality (responsibility and ethics). Quality institutions can count on the confidence of the people when redistributive policies are implemented.

In all developing nations the following factors must be obtained for there to be inroads possible against poverty: macroeconomic stability, investment opportunities and interventions by the state to maximize educational opportunities for the population and for infrastructural improvements; and, at the same time, in order to improve the productivity of human capital with material incentives, to provide subsidies and redistributive tax policies to level the playing field on behalf of otherwise-overlooked working families.

Each recipient nation needs its own unique set of remedies for the struggle against its own unique cycle of poverty.

The very poorest, with but few resources to redistribute, must turn their efforts in the direction of economic growth, a process demanding focused national and foreign direct investment, an increase in educational levels and the opening-up of the economy to new, foreign technologies and world trade.

Measures like investment in education help foster economic growth and the redistribution of wealth. Chile's experience shows that if steady growth can be maintained for at least a decade then poverty can be drastically cut back, and it is realistic to hope that its example can be replicated in other countries.

Although rural areas generally have higher poverty rates, it is not true that the majority of the poor live in the countryside. In Latin America generally most of the poor live in giant urban mega-slums.

The richest countries, however, those with more resources at their disposal, have greater latitude to act through redistributive channels, and for the sufficiently rich, there can be high levels of inequality while avoiding the vicious cycle of poverty. This may be so because of their superior level of education and training, a more suitable infrastructure, and financial systems that can benefit small, startup enterprises.

In summary then, the main factor obstructing growth and development in Latin America is the vicious cycle of poverty.

Further Reading:

A Rising Tide Lifts All Boats

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