Impacts of Poverty to Society - Research Paper Example

? Running head: economic policy recommendation 28th November Introduction One of the notable social issues that are affecting the economic development of any country is poverty. In their efforts to mitigate the economic obstacles such as unemployment and low demand of products and poor quality of education, developing countries are faced with high level of poverty. Poverty, a state that is defined as lack of certain amount of vital materials or money, is categorized into absolute and relative poverty. Absolute poverty entails the lack of basic human needs that includes clothing, health care, shelter, sanitation, food and education. Relative poverty on the other hand, refers to the economic inequality that is experienced in a particular society. In the early times, poverty was a common social problem not only for the developing countries but also for the currently developed nations. The increased poverty level was not only due to insufficient and inadequate methods but also it was largely caused by the low demand of the products thus causing low production in the factories. Absolute and relative poverty are measured in different ways. According to the World Bank, $1.25 per day is the threshold for measuring absolute poverty. However, the threshold has been controversial based on the various thresholds used by some countries. For example, in 2010, the US maintained its threshold at $15.15 per day while China placed its threshold for absolute poverty at $ 0.55 per day (Banerjee and Esther, 2011). During the same year, India maintained that its threshold was standing at US$ 1.0 per day. On its part, relative poverty is depicted by the level of income inequality. It is measured by the percentage of individuals with income that is less than the median income. This paper seeks to discuss the impact of poverty and give policy recommendation on how this social problem can be solved using an economic policy. Impacts of poverty to society Poverty affects a society in different ways. One of the key effects is hunger. Due to lack of adequate funds to purchase food produce as well as lack of sufficient factors of production that includes land, labor, entrepreneurship and capital as a result of poverty, members of the society experience reduced food. The problem of hunger especially in some African countries results to illnesses that are caused by lack of vital nutrients for body growth. Another impact of poverty is unemployment. Despite the increase in population, poor countries have not adequate financial resources to initiate investment that acts as major sources of employment. As a result, high percentage of the members of the society remains jobless thus leading to low households income and low purchasing power (Babb, 2009). Similarly, due to low income that the poor families are get either monthly or annually, they do not see the need for education. They in most cases use their low income to purchase cheap food products. As a result of lack of adequate education, and vital skills, the poor members of the society are not eligible to be employed thus raising the level of unemployment in a country. Poverty causes discrimination within a society. For example, due to their strong financial position, high income earners segregates their poor counterparts both in schools, hospitals and even in making decisions that affects the entire society. On their part, the poor individuals experiences low self esteem and inferior aspects that deteriorates their condition (Kerbo, 2006). Based on the increased cases of illnesses among the poor countries, the governments incur high costs in the form of low productivity and high financial expenditure on health care. Ultimately, such governments have to seek for grants from other countries or by increasing domestic taxes thus exerting more pressure on their economy. An economic policy solution to the poverty problem Based on the negative implications of poverty to the society and to a country as a whole, it is fundamental for governments to come up with monetary and fiscal policies to address the problem. Increasing the local and foreign domestic investments is one of the major ways of solving the problem of poverty. It is worth to note that one of the hindrances of local investment is high interest rates that make borrowing expensive. This implies that for the local investor to easily access loans that is used to construct factories, banks should be willing to lower their domestic lending rates though at an appropriate rate to avoid inflation. In this way, local individuals who are willing to invest in their home countries will easily access funds. Such funds will be used to construct industries that will act as major sources of employment for the local residents. As a result of the increased employment opportunities, household incomes will increase thus making it possible to divert some of the income to consumption as well as to cater for education of the children. Despite reduction of the interest rates to encourage investment, poor members of the society may still be faced with a problem of getting loan from local financial institutions. This is due to lack of adequate collateral to secure the loans. Thus the government should emulate the culture of providing subsides to the local and international investors (Philippou, 2010). These subsidies include reduction in corporate tax, training of investors and subsidized fuel prices. Another way of expanding investment is by ensuring economic freedoms. This entails reduction of the period taken to register local and foreign companies by making the registration procedure simple and curbing corruption. In this way, foreign investors will be encouraged thus resulting to more job opportunities. Key countries that have experienced a significant reduction in poverty level due to expansive foreign domestic investment and economic freedom is China and India. Expanding investment as a policy solution and the impact on the stakeholders As indicated earlier, for any country to address poverty level among the residents, the government must provide conducive atmosphere for investment. Increase in investment causes an increase in the production of goods and services due to the expansive industries in the economy. In order for the factories to increase their production and make sustainable profits, they must employ local communities either in the areas requiring skilled man power or in the supporting departments. As a result of the increased level of employment, the disposable household’s income increases leading to a higher purchasing power and high demand for goods and services produced in the economy. One of the major benefits of the increased level of consumption and demand is that the government is able to collect more revenue in the form value added tax and corporate taxes that it uses to expand its public expenditure. By increasing public expenditure while at the same time taking into consideration the monetary policies such as discount rates and interests rates among others, the government will create more jobs that will significantly reduce poverty among the citizens. To the investors, increased investment will result to high sales and profits that will make them to go global if they were locally established. In this way, they will attain a competitive position that will improve their image in the world market. On the part of the government, the revenue will increase as noted earlier (Osberg and Xu, 2000). In this way, it will be possible to establish more public schools, hospitals, research centers and roads in rural areas thus ensuring that the living standards of the rural dwellers are improved. Being the major stakeholders and the target of expanding investment, the poor people will be exposed to more job opportunities that will ensure that they have adequate income to cater for their health care, consumption, education and clothing among other necessities. Impact of expanded investment on the market and its role in addressing poverty As an economic policy, increasing the investments will lead to a higher productivity of goods in the economy. Based on the stiff competition that is experienced in the local and global markets, every firm is looking for unexploited markets where it is able to maximize its profits and sales. This implies that more firms will be established in countries that have opened their economy to address poverty through creating an investor friendly environment. As a result of increase in firms, competition in the market will increase thus leading to production of quality products that meet the needs of the consumers. It is vital to note that competition within any industry is healthy. This is based on the fact that it avoids exploitation of the consumers and brings about innovation. The major role of the government is to ensure that even though it is focused at increasing the number of goods produced in the economy, it should regulate industries to avoid the emergence of a monopoly economic model. In this way, the prices of goods will be regulated while at the same time the investors will be controlled to avoid production of substandard goods at the expense of the consumers. Increase in the job opportunities as a result of the growth in industries will result to increased purchasing power of the local consumers as indicated earlier. Thus the demand for basic commodities will be high and based on the increase in the population as the result of good and affordable health care, the national consumption level will hike thus leading to high economic growth. Poverty as a social problem will thus be decreased to a minimum level as the increase in the investment will ensure that the government has adequate revenue that will be diverted to public goods including schools that will ensure quality education to low income class members. Conclusion Based on the above discussion, it is clear that poverty has adverse effects on the economic growth of a country and the productivity of the citizens. Being a social problem faced especially by countries with poor industrialization policies, poverty causes hunger, illnesses, poor education, discrimination among other effects. Thus every effort whether a macro or micro-based policy should be adopted to address poverty. As indicated in the paper, expanding of investment is a key economic policy that a government that is focused at eradicating poverty should not overlook. Costs of not eradicating poverty are increased health care expenditure, and increase in crimes among others. Through providing adequate investment opportunities by reducing the rates of interest, offering of subsidies and economic freedoms investors will be highly attracted thus creating more jobs and a growth in the gross domestic product of a country. Additionally, competition in the market will be encouraged resulting to more products and innovation. References Babb, S. (2009). Behind the Development Banks: Washington Politics, World Poverty, and the Wealth of Nations. New York: University of Chicago Press. Banerjee, A and Esther, D. (2011). Poor Economics: A Radical Rethinking of the Way to Fight Global Poverty. New York: McGraw-Hill. Kerbo, H. (2006). Social Stratification and Inequality: Class Conflict in Historical, Comparative, and Global Perspective. New York: McGraw-Hill. Osberg, L and Xu, K. (2000). International Comparisons of Poverty Intensity: index decomposition and bootstrap inference. The Journal of Human Resources 2000. 35:51–81. Philippou, L. (2010). Public Space, Enlarged Mentality and Being-In-Poverty, Philosophical Inquiry, Vol. 32, No. 1–2 pp. 103–115. Read More