Poverty,

Inequality
and
Development
 Outline:

– Evolution of poverty
– Definitions and Measures of Poverty
– Philosophical Underpinnings
– Characteristics of the Poor
– Factors Affecting Poverty
– Responses to Poverty in RP
Economic Development: How the notion evolved over time

– Economic history of the modern world started with the

Industrial Revolution (17th Century)

• Factory-based industrial production came into being

• Markets expanded :
- Division of labour promoted large-scale production.
- Larger surplus led to greater capital formation,
investment, production capacity and growth of income

• The economy transformed gradually

- From a primarily agricultural to an industrial economy
Economic Development: How the notion evolved over
time (Contd…)

– Arthur Lewis’ model of Economic Development –

- Mobilize surplus generated by agriculture.

- Use this surplus to set up industry.

- Shift surplus labour from agriculture to newly set up industry.

- This will set in a process of industrialization and income

growth.
Economic Development: How the notion evolved over
time (Contd…)

• Experiences of Developed nations broadly matched

this story.

• However, country experiences of exactly how

agricultural surplus got mobilized and led to
industrialization differed.
-Britain, United States of America, Japan and Soviet Russia
had model experiences.
Economic Development: How the notion evolved over
time (Contd…)

– The Capital Growth Paradigm of Economic Development :

• A higher Saving Rate

• A higher Investment Rate

• A higher Income Growth Rate

• A higher Consumption level for

the Nation as a whole
Economic Development: How the notion evolved over
time (Contd…)

• The Trickle Down question :

-Does a higher overall income growth rate mean a
higher income level for all?

– Experience of countries during the 1960s :

(1) Most developing countries of Asia, Africa & Latin America

experienced income growth along with rising income
inequality
(2) In most of these countries incidence of absolute poverty
increased.
Economic Development: How the notion evolved over
time (Contd…)

• Simon Kuznets’ hypothesis :

– With rising per capita income, income inequality rises first

and then starts declining after a threshold income level has
been crossed.

• Many country experiences corroborated this hypothesis.

• Policy implication of Kuznets’ hypothesis:

-Intervention needed to improve income distribution & alleviate
poverty of the population.
Economic Development: How the notion evolved over
time (Contd…)

• Poverty took up the centre stage of development discussions in late 1970s.

• Concept of Absolute Poverty in terms of Food

Security & Nutritional Inadequacy evolved

• Along with per capita income & income inequality

measure, incidence of poverty became a major
development indicator of the developing countries of
the World.
Economic Development: How the notion evolved over
time (Contd…)
– In mid 1980s, Professor Amartya Sen enunciated a
comprehensive notion of Human welfare in terms of his now
famous Entitlement, Capabilities & Functioning concepts.
• In brief :
-Welfare / Well being derives from consumption (of goods &
services)
-Access to consumption requires Entitlement (in terms of
purchasing power for procuring goods & services for
consumption)
-Capabilities (defined in terms of health, access to
education, Knowledge & information) helps converting
consumption into welfare.
-Lack of entitlement / capabilities is defined to be violation
of proper Functioning
Economic Development: How the notion evolved over
time (Contd…)
– In late 1980s, Professor Mahbub Ul Haq, under the
auspices of UNDP concretized & implemented Human
Development as a measurable concept.

• As a core concept, Human Development encompasses

three basic dimensions :
– Income
– Health
– Literacy
• The index of Human Development, which is an aggregation
of the component indices, is a macro measure of
development or lack of it for a given community of people.
Economic Development: How the notion evolved over
time (Contd…)

– Many other dimensions such as Gender discrimination,

Environment & Ecology, Human Rights, Governance etc.
are also thought to be ingredients of Human Development
and are brought into the ambit of its discussion and
measurement.

• Human Development, which has income growth &

inequality as just one of many dimensions, is clearly a much
broader & comprehensive concept of economic
development.
 The higher
the bar,
the greater
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are needed to see this picture. the
proportion
of people
in poverty
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Where is poverty to be found?

What percent is poor in each nation?
If poverty refers to hunger,
how well do nations provide food for their people?
What do we understand by
these numbers?

–Cultural definitions
–Historical experiences
–Economic processes
–Visual understanding?
 Definitions of Poverty

– Definition in MW dictionary: “state of one who lacks a

usual or socially acceptable amount of money or
material possessions”
– Sen’s: “outcomes of a person’s greater or lesser
command over output i.e. entitlements
– command over goods limited by budget ( p + t ) x = wk
+s-z
 Aspects of Poverty

– Absolute or relative poverty: notion of basic

necessities vs. income distribution
– Temporary or chronic (structural): transient poor
vs. permanent poor (inter-generational)
– Household or individual (allocation within
households- bias against old and young)
– Self-perception (SWS surveys)
 Dimensions of Poverty (MBN Approach)
DIMENSIONS INDICATORS

SURVIVAL

Health 1. Proportion of children, 0-5 years old, who died

Nutrition 2. Prevalence of malnutrition – children aged 0-5 years underweight

3. Prop’n of HH whose members eat less than 3 meals a day

Basic Health and Nutrition 4. Prop’n of HH without access to safe water

Amenities 5. Prop’n of HH without sanitary toilet facilities

SECURITY

Shelter 6. Prop’n of households who are not squatting

7. Prop’n of households without sanitary toilet facilities

Peace and Order 8. Proportion of households with members victimized by crime

ENABLING

Income 9. Prop’n of HH with income less than the poverty threshold

10. Prop’n of HH with income less than the food threshold

Employment 11. Unemployment rate

Education 12. Elementary participation rate

13. Secondary participation rate
 Measurements

– Poverty incidence (poverty line)

– Subsistence incidence (subsistence threshold)
– Poverty Gap Index - explains depth of poverty;
mean distance below the poverty line as a
proportion of same line
– Foster-Greene Thorbecke - explains severity; mean
of the squared proportionate poverty gaps
 Weaknesses of the Poverty Lines
based on Income

– does not allow for cost of living differentials within

countries
– does not distinguish between chronic and
transient poor
– it values only goods and services delivered through
the market
– it does not consider intra-household allocation
– it does not consider transfers or subsidies
 Growth, Inequality and Poverty

– Kuznet’s inverted U hypothesis: early stages of

development, inequality increases and goes down
with more growth (not empirically verified)
– there is persistence in inequality (path
dependence)
– strong relationship between growth and initial
distribution of assets (less unequal more growth)
– growth and inequality must be tackled together in
policy formulation
 Historical Model

What has been our thinking about other

countries?
Mercantilism: State interest and colonization
Liberalism: “Stationary economies”
Advent of development economics in 1940s/50s
 Historical Model

– W.W Rostow: Stages of Growth, R. Nurkse: Balanced

Growth, etc.
Suggests that there are underdeveloped/traditional and
developed societies in a spectrum
Traditional societies included slave systems of early
Greece and Rome; peasant societies in India, Egypt,
China
Confluence of development and time
 Historical Model

– Dependency and World Systems theorists

(60s/70s):
Development and colonization causes
underdevelopment
Modern models of growth create system of
dependence and debt that worsen poverty
 Philosophical Underpinnings
of Redistributive Policies

– Utilitarianism: additional income of the poor

provides greater utility than the rich and thus goal
is to maximize utility by redistributing income
– Liberalism: Maximin criterion - raise the welfare of
the worse off person in society
– Libertarianism: equalize access to opportunities
rather than equality in incomes
 Philosophical Underpinnings
of Redistributive Policies

1980s/90s:
– Neo-liberal policies - increase growth
through market policies to trickle down
– Kuznets curve? (growth  inequality)
– State provision of goods and services 
– Juxtaposition of images of rich and poor
– Sense of entitlement  but actual
conditions worsened in some places
 Cultural Model

– Pre-modern Cultural contingency

– Cultural differences; civilizational differences;
– Policies based on understanding of a unified
nature - how much do anthropologists inform
understanding of poverty?
 Cultural Model

–Other regions in the world - multiplicities

of indigenous peoples
–How have cultures contended with
colonization and modernity
 Marshall Sahlins

"Hunters and gatherers have by force of circumstances

an objectively low standard of living. but taken as their
objective, and given their adequate means of
production, all the people's material wants usually can
easily be satisfied (a common understanding of
'affluence'). ... The world's most primitive people have
few possessions, but they are not poor. Poverty is not a
certain small amount of goods, nor is it just a relation
between means and ends; above all it is a relation
between people. Poverty is a social status. As such it is
an invention of (modern) civilization."
 Cultural Model

NATURE HITS BACK?

We see the environment as what we “use” but our
daily habits, interactions, architecture changes the
environment.
Environmental degradation goes hand in hand with
the homogenization and unification of cultures
and the desire to consume in a single manner.
How Poverty links up with Human Development

– Originally, Poverty used to be viewed as uni-dimensional relating

to inadequacy of income / consumption.
• Typically, a conventional Absolute Poverty measure would count
the number of persons in a given community having income /
consumption below a threshold level.
• Now Poverty is recognized to be multidimensional. Nutrition,
Health, Housing, Clothing, access to Education, Knowledge &
Information are regarded as the various relevant dimensions.
• One may define Poverty in respect of each dimension separately
and a comprehensive overall measure of poverty may be defined.
• To the extent, components of Human Development constitute
poverty dimensions, Poverty & Human Development become
closely related notions.
 Other Important Facets

– Participatory assessments - voices of the poor by

the WB
– Risk and volatility of income - exposure to shocks
and lack of means to cope with such events
– Lack of political power and social exclusion in
general
– Poverty is multi-faceted - integrated approaches
needed to fight poverty
– Poverty, Underdevelopment and Conflict
– Poverty and Disaster
 Characteristics of the Poor

– they come from large households (6+)

– they are mostly in the rural areas involved in
agriculture and in other types of income earning
activities
– they lack ownership of productive assets
– in urban setting, the poor reside in the informal
sector involved in construction, transport and
other services
– they have low levels of human capital; HH head is
male, less than 50 and has little or no schooling
– they have low levels of nutrition
– they have no access to credit
 Philippine Poverty Data

– NSCB data
 Ten Lowest/Highest HDI, 2003

– Sulu: 52.8 – Benguet: 70.1

– Maguindanao – Laguna
– Tawi-tawi – Batanes
– Basilan – Rizal
– Masbate – Cavite
– Zamboanga del Norte – Nueva Vizcaya
– Sarangani – Pampanga
– Western Samar – Bataan
– Eastern Samar – Bulacan
– Lanao del sur – Ilocos Norte
– RP : 69.8 – NCR: 70.0
 Spatial and Sectoral Dimensions

– Urban vs. Rural (13-21% vs. 41-47%)

– Regional: NCR vs. others (see desktop)
– Sectoral (agriculture)
– Factors affecting poverty across provinces
(Balisacan) - local dynasty (-), political party (+),
landlocked (-), Typhoon (-), irrigation (unclear),
agrarian reform (-)
 Poverty Incidence by Sector
Sector % Pop’n Incidence Cont’n to Pvrty
Agri, Fsh, Fstry 35.8 44.8 65.6
Mining 0.4 39.3 0.6
Manufacturing 7.5 13.5 4.2
Utilities 0.4 3.7 0.1
Construction 6.9 23.2 6.6
Trade 11.5 12.1 5.7
Transport 9.7 14.2 5.6
Finance 0.6 1.1 0.0
Services 13.1 9.0 4.9

Unemplyed hhh 14.1 11.6 6.7

Source:NSCB
 Causes of poverty

– Failure of growth and lack of employment

opportunities
– Inequality of incomes and assets
– High population growth rates
– Declining productivity (labor and total factor)
– inadequate provision of social services
– Geographical attributes (disaster prone)
– wrong targeting
– no participation from the poor
– weak governance and corruption; political conflicts
 Current Responses to Poverty

– Asset Reform (agrarian reform, access to credit, 4PS,

CCT)
– Human Development Services: education, health,
nutrition, shelter, water and electricity
– Livelihood and Employment Opportunities - job
creation, microfinance, agricultural development
– Social protection and security from violence
– Participation of the poor in governance and
institution building
– Disaster mitigation
– Peace initiatives
 Kalahi-CIDSS
Program Area Services
Asset Reform - Housing and land distribution
- Capital and infrastructure provision
Human Development - Early childhood education, day care
Services - Access to basic education
- President Gloria Macapagal-Arroyo college scholarships
- Water and sanitation, waste management services
- Health care services
- Kuryente sa Barangay program
- Anti-flooding program
Employment and - Emergency employment
livelihood services - Employment assistance/ facilitation
- Microfinance and credit
- Livelihood and Skills training
Participation in - Barangay consultation
Governance - Involvement of sectors
- Capacity-building of LGUs
Social Protection and - Aid to Individuals in Crisis Situations
Security from - Targeted Rice Distribution program
Violence - Cash/ Food for work
- Free legal aid to poor
- Health insurance program
- Provision of social security to informal sector workers
- Programs against unjust demolition of urban poor homes;
informal workers against displacement
- Protection against undue displacement of farmers/fisher folk
Millennium Development Goal 1
ERADICATE EXTREME
POVERTY & HUNGER

Target 1:
– Halve, between 1990 and 2015, the proportion of
people whose income is less than $1 a day
* Conflict leaves many displaced and impoverished
 Millennium Development Goal 1
ERADICATE EXTREME POVERTY &
HUNGER
Target 2:
– Achieve full and productive employment and
decent work for all, including women and
young people
* Low-paying jobs leave one in five developing
country workers mired in poverty
* Half the world’s workforce toil in unstable,
insecure jobs
Millennium Development Goal 1
ERADICATE EXTREME
POVERTY & HUNGER

Target 3:
– Halve, between 1990 and 2015,
the proportion of people who
suffer from hunger
* Rising food prices threaten
limited gains in alleviating child
malnutrition
 Millenium Development Goals: RP Progress

Baseline Current Target

Millennium Development Goals (1990) (2001 ) 2015
Eradicate extreme poverty and hunger
Proportion of population below national 20.4 a 16.8 f 10.2
poverty line (in %)
Prevalence of malnutrition among 0-5
year-old children (% underweight)
Based on international reference standards 34.5 30.6 17.25
Based on Philippine reference standards 9.8 9.2 c 4.9
Provide basic amenities
Proportion of families with access to safe 73.7 a 78.5 86.8
drinking water
Achieve universal primary education
Elementary participation rate 99.10 97.0 100
Promote gender equality and empower
women
Ratio of girls to 100 boys
Elementary education 95.5 95.7 e 100
Secondary education 106.4 106.0 100
Elementary participation rate
Male 95.3 b 96.8 d 100
Female 93.4 b 97.1 d 100
Reduce child mortality
Under-5 mortality rate (per 1.000 children) 80 48 c 26.7
Infant mortality rate (per 1,000 live births) 57 35 c 19
Improve maternal health
Maternal mortality rate 209 172 c 52.2
 CONTEMPORARY
ISSUES

– Economic crises such as rising prices, reduced

credit, global recession
– Climate change and environmental
degradation
 Assignment:

– Name one local and another one international

hero who has fought poverty.
– Share his or her story in class by telling us his or
her biographical sketch and recent activities in
addressing poverty.