How to Define Poverty - Literature review Example

Introduction 2 Defining Poverty 3 Interrelationship between Poverty and Development 6 The Neoliberal Development and Poverty Alleviation Policy 7 Analysis of the Mexican Financial Crisis 9 Relation of SAP to Political Crisis 13 Conclusion 14 Bibliography 16 Introduction Poverty is the supposed antithesis of development. Within the parameters of developed societies/nations, there will naturally be those who are relatively poor but there will rarely be those who suffer from chronic or absolute poverty. Conversely, within the confines of underdeveloped societies, both chronic and absolute poverty are the rule, not the exception. The aforementioned has been asserted by several development scholars, with the crux of their argument being that widespread chronic and absolute poverty in any given society is a symptom of underdevelopment and an obstacle to development, with the inference being that poverty alleviation and development policies are coterminous (Sawhill, 1988; Korzeniewics and Smith, 2000; Moller et al., 2003; Ellis and Freeman, 2004; Cornwall and Brock, 2005). Consequently, and as Keen (1992) contends, given that development theory embraces poverty alleviation strategies, one may assume that development policies and programmes are inherently focused upon poverty reduction/elimination. While the above assertion is valid and development policies, as does development theory, embrace poverty alleviation strategies, the fact remains that they are, more often than not, characterized by failure. The failure of development policies to successfully eradicate, or reduce poverty, is an immediate outcome of inaccurate definitions of poverty, a vague understanding of its causal factors, and a tendency to adopt prescribed development policies, as opposed to ones which have been specifically designed to address the type, cause and consequence of poverty in a specific society/nation. Through an analysis of the meaning of poverty, it variant causes and consequences, and the extent to which type and cause need inform poverty alleviation and development strategies if they are to successfully accomplish the objectives of development and poverty alleviation, the stated hypothesis will be investigated. Defining Poverty Poverty is popularly understood as economic deprivation, inhibiting access to necessary resources such as food, medication, shelter or clothing. Until recently, the World Bank interpreted poverty in a similar manner, defining it as the "deprivation of income" (Mosley and Booth, 2003, p. 5). Realizing, however, that this definition was erroneous insofar as it imposed unjustifiable limitations on the theoretical conceptualizations of the referenced phenomenon, leading to the evolution of limited and delimiting development and poverty eradication policies, the World Bank undertook the revision of the mentioned definition. Rather than define poverty in economic terms alone, the World Bank adopted a more expansive definition of poverty as the "pronounced deprivation of well-being" (Mosley and Booth, 2003, p. 5). This definition does overcome some f the conceptual constraints imposed upon the phenomenon by the earlier definition but, as Sen (1976; 1984; 1985; 1999) has repeatedly argued, poverty is a fluid concept, most accurately defined in terms of its causal factors. Certainly, it is deprivation but it is countless forms of deprivation, be it social, economic, political or geographic. It is not incorrect to define it as "deprivation," but it is hardly correct to leave it at that. In other words, and as Sen (1984; 1985) maintains, poverty is the absence of choice, be it on the political, economic or social levels. While the above articulated definition may be accurate, it raises the question of choice pertaining to what In order to answer this question and, consequently, forward a more precise definition of poverty as would inform later discussions on the interrelationship between poverty alleviation and development policies. While accepting the definition of poverty as the absence of choice, Sachs (2002) contends that poverty may be more precisely defined as knowledge deficit, or poverty of knowledge. In support of his chosen definition, Sachs (2002) points towards the fact that underdeveloped nations, compared to the developed ones, suffer from a marked lack of knowledge. Such knowledge is essential given that "biophysical constraints," (n.p.) often beyond the locus of control of many governments, imposes conditions of poverty upon the people and the country. Such biophysical constraints include environments unfriendly to agriculture, environmental factors that render a population vulnerable to disease that reach epidemic levels, and national geophysical conditions that inhibit the construction of a transport network as would facilitate movement of goods and services to and from isolated areas (Sachs, 2002). As explained by Sachs, such "biophysical constraints" render a people vulnerable to poverty and, often, function to determine poverty and underdevelopment. However, these conditions are not an insurmountable determinant of poverty since the application of scientific knowledge can overcome them at the best, or minimize their function as poverty causal factors at worst. The fact, however, is that the majority of underdeveloped countries have not invested sufficiently in scientific knowledge and have not sought such knowledge as would facilitate the transcendence of these "biophysical constraints" (Sachs, 2002, n.p.). Consequently, within the parameters of this definition, one can conclude that an integral component of poverty is poverty of scientific knowledge, as opposed to poverty of knowledge. This needs to be highlighted as later discussion will examine how poverty alleviation strategies may confront this particular aspect of poverty in the hopes of constructing an agenda for sustainable development. While the correlation between poverty and development is implicitly stated in the above two definitions, the mentioned relationship is explicitly affirmed in other definitions. Seiber (1982), a development scholar, perceives of poverty as a direct outcome, and condition of, underdevelopment. Concurring, Todaro (1997, p. 151) defines poverty as the inability "to command sufficient resources to satisfy basic needs," leading to the evolution of societies divided between the have and have-nots and characterized by persistent inequality, whether between the socio-economic classes, ethnic groups or genders. In other words, poverty is the absence of equality and independence. Quite simply stated, poverty functions s the foundations for dependence, whether on the level of individuals or of nations. The poorer nations of the world are dependant upon the financial assistance of the developed, richer nations and the poorer citizens are dependant upon charity and welfare (Seiber, 1982; Todaro, 1997). The implication here is that poverty is not only material deprivation but the denial of basic human rights, inclusive of which is the right to independence and freedom. The above discussion has sought to emphasize the fact that poverty is a complex and complicated multi-dimensional phenomenon, comprised of many constituent elements. Any definition of poverty, as would aid in the formulation of development policies which embrace effective poverty alleviation strategies, must reflect this understanding of poverty. In light of aforementioned imperative and in reflection of the discussed definitions that one may define poverty as the absence of equality, choice and opportunity. Poverty is the absence of specific social, economic, political and educational conditions, culminating in a people, or a nation's inability to satisfy basic physical needs and furnish/access basic services such as education and health care. Having defined poverty, the question hat one need turn to is the relevance of poverty to the larger issue of underdevelopment. This question can only be answered through a discussion on the interrelationship between poverty and development. Interrelationship between Poverty and Development Poverty and development are correlated, as numerous development scholars have maintained. As Cornwall and Brock (2005) explain, development policy is primarily geared towards the resolution of poverty and quite explicitly identifies the stated condition as a consequence and cause of poverty. Development theory attests to this relationship and has, without exception, identified the eradication of poverty as synonymous with development. Development policy, as Cornwall and Brock (2005) contend, has further emphasized an inextricable link between development and poverty reduction. Poverty eradication/reduction and development are interlinked as an immediate consequence of the human factor therein. As Fischer (2003) explains, national development indicators are inherently focused on the measurement of human development and poverty measurements are immediately derived from the human development index (HDI). In other words, human development functions as the measurement for both national poverty and national development, with the implication being that the attainment of national development is inherently dependant upon improving national HDI levels and eradicating poverty. Accordingly, and as Sen (2000) asserts, the articulation of effective development policies can only proceed following an accurate measurement of human development levels within a society, concomitant with an identification of the extent, type and causes of poverty. While the majority of countries recognize the exigencies of the aforementioned assertion, there remains an overwhelming tendency to implement development and poverty eradication strategies and policies which are neither informed by an understanding of the extent and cause of poverty in a specific country, nor by the associate consequences and, therefore, challenges to development. Through the analysis of neoliberalism as a development strategy and, more specifically, as imposed upon Mexico by the IMF, the aforementioned claim shall be investigated. The Neoliberal Development and Poverty Alleviation Policy Poverty alleviation and national development strategies may be defined as a set of economic policies which aim to improve the economic status of individuals and of countries. Ideally, these strategies are specifically designed to address the root causes and alleviate the effects of poverty in certain communities, nations or both. Currently, and as Todaro (1997) explains, both development policies and poverty alleviation strategies draw from a set of pre-established economic policies, and are rarely designed to address the specific causes and consequences of underdevelopment and poverty within communities. While, as one may assume, these policies are based on solid economic reasoning, an analysis of the neoliberal development and poverty alleviation policy imposed upon Mexico by the IMF, shall illustrate that insofar as policy is not informed by the causes of poverty and underdevelopment in a particular nation and do not seek to address their unique consequences, the outcome can very well be an exacerbation of poverty and underdevelopment. The World Bank and the IMF are, theoretically speaking, expected to play a positive role in the development of lesser developed economies. According to Collier and Gunning (1999), the World Bank and the IMF promote economic development and stability through the application of structural adjustment policies (SAP), best defined as a set of economic reform policies that aim towards the reduction of state control over the economy, the development of a liberal open market economy, and the promotion of economic growth and development through trade and foreign direct investment. Unfortunately, insofar as IMF-designed SAP are concerned, their inability to function as effective and efficient development and poverty alleviation strategies has been repeatedly affirmed. However, there appears to be a flaw in the IMF structural adjustment policies or in their implementation. This conclusion has been reached by numerous economists who assert that the consequence of applying IMF structural adjustment/developmental and poverty eradication policies often has been economic and financial crisis. Through a detailed examination of the effect of this particular development policy on the Mexican economy, earlier assertions pertaining to the imperatives of designing development and poverty eradication strategies which immediately address a nation, or society's, identified underdevelopment and poverty causal factors. Analysis of the Mexican Financial Crisis The Mexican financial crisis broke out in December 1994 with the sudden and drastic devaluation of the peso. In reaction to this event, Hellman (1997, p. 3) insists that "neoliberal strategies and structural adjustment programs have devastated whole sectors of Mexican people," and instead of motivating development, led to economic collapse. However, to judge whether or not the crisis was a consequence of the SAPs which outlined neoliberalism as the chosen development policy, it is essential to trace the roots of the crisis. how or why this is so should be examined. By the early 1980's Mexico was identified as "the world's first and foremost debtor nation" (Hellman, 1997, p. 5). The country had foreign and domestic loans totaling 80 billion dollars and the country was on the brink of complete economic collapse (Hellman). Confronted with an economic crisis of this magnitude, the government turned to the IMF for a four billion dollar loan. The IMF agreed on the condition that Mexico implements a set of neoliberal structural adjustment policies, designed to instigate economic development and gradually resolve the problem of poverty in the country (Hellman, 1997). The IMF neoliberal development strategy primarily focused on the implementation of a set of austerity programmes. As Hellman (1997, p. 6) explains, austerity programs entailed removing subsidies from a wide variety of goods and services culminating in a situation whereby "workers suffered a drastic cut in real wages as consumer prices moved upward." The immediate impact of the IMF's development and poverty eradication policies was the greater impoverishment of the country's poor (Hellman, 1997). Development analysts have maintained that the Mexican crisis was instigated by the uniformed selection of neoliberal development and poverty reduction strategies. Gil-Diaz (1998) concedes that neoliberalism may be defined as a theoretically valid economic proposition but maintains that within the context of a society characterized by widespread poverty and the persistent absence of political, economic and social choice, neoliberal development policies need to be gradually implemented. Granted that austerity programmes can function to reduce government expenditure and, as such, gradually relieve society of the economic debt burden it is carrying and which, in practical terms, constrains the state's capacity to expand the parameters of available choice through the provision of quality education and attractive employment opportunities, they must be selectively implemented. The implication here is that, insofar as essential goods and services are concerned, and especially in the context of societies wherein a significant percentage of the population is poor, the subsidy regime should remain in place (Hellman, 1997; Vasquez, 1997; Gil-Diaz, 1998). If subsidies are tampered with, even if the selected development policies dictate the imperatives of doing so and provide the requisite theoretical justifications for removal, the consequence is likely to be an exacerbation of poverty, culminating in economic collapse, as opposed to development. On the basis of the above stated facts, some development scholars have argued that the Mexican crash was an immediate consequence of the pursuit of development of poverty reduction through neoliberalism. Others, however, maintained that neoliberal development policies are not, per se, responsible. Focusing on the fact that this period marks the transition of the Mexican economy from a statist to a neoliberal one, the former camp argues that mismanagement of the transition, concomitant with the rapid introduction of neoliberal and austerity policies were at the heart of the crisis (Springer and Molina, 1995). The structure of the privatization programme validates the above stated interpretive perspective. As Gruben and McComb (1997) explain, within the span of fourteen months, the Mexican government sold all of its eighteen banks. While the banks were sold at over three times their market value, the sale has been identified as primary cause of the failure of the selected development policy. Quite simply stated, in light of the fact that these eighteen banks combined to control the Mexican commercial capital market and were in a position to set interests rates, the Mexican government effectively resigned control of the domestic economy, including both fiscal and monetary policy, to a handful of investors. The consequence, as Gruben and McComb (1997) explicate was that "the new owners managed to mark loan rates up significantly above their cost of funds," in addition to granting a large amount of loans without sufficient credit. The result was that "in the short run banks actually lent so much that they passed the point where marginal cost equaled marginal revenue, to a point where marginal cost exceeded marginal revenue" (Gruben and McComb, 1997, n.p.). Needless to say, this situation was impossible to maintain for any length of time without the sector actually collapsing. This is precisely what happened when customers began to default on loan payments (Gruben and McComb, 1997), marking the first causal factor in the Mexican financial crisis. The above exemplifies the fact that the Mexican economic collapse was the outcome of economic mismanagement, concomitant with the uniformed selection of neoliberalism as a development and poverty reduction approach. According to Giron and Corea (1999), the Mexican crisis was largely due to the translation of liberalization, as a development policy, into complete deregulation and the dismantling of the subsidy regime. The cumulative effect of the stated was the exacerbation of poverty, defined as the intensification of social, political and economic deprivation, ultimately lending to widespread political unrest and economic collapse. The primary reason for the articulated outcomes, as shall be further explored in the succeeding section, was that the selected development policy was not predicated on an analysis of the type, causes and consequences of poverty in Mexico, not on a detailed understanding of the obstacles to development confronting the nation. Relation of SAP to Political Crisis As the above analysis of the causes of the Mexican financial crisis has tried to demonstrated, structural adjustment policies, or neoliberalism, were hardly the proper choice for development and poverty reduction. It is not that economic liberalization and austerity programs were a direct cause of economic collapse but the implementation methodology was. Asserting this, Hellman (1997) makes two arguments. The first is that the reforms were implemented too quickly, ignoring the fact that the circumstances of poverty and underdevelopment necessitated a much more gradual transition from statism to neoliberalism. The second is that the liberalization development programs were uniformed. Accordingly, they targeted all economic sectors and all socio-economic classes without exercising the requisite prejudice as would protect the society's more vulnerable members. Insofar as the selected development policy only served to exacerbate existent conditions of deprivation, it instigated political, no just economic, crisis. The IMF imposed austerity programs, ironically inspired by the determination to conserve societal resources by reducing state expenditure and, thereby, improving living standards, were a source of political protest and unrest. As stated by Rounds (2002, p. 4), "during the first week of economic stabilization in Mexico, protests sponsored by the Independent Proletarian Movement, the National Coordinating Board of Independent Social Organizations, and the Democratic Revolutionary Party turned out thousands of opponents to austerity in Mexico City." In the following weeks, protest movements grew to include housewives and business men and "business leaders" (Rounds, 2002, pp. 4-5). The protestors, primarily from the ranks of the country's deprived and poor, expressed such unrelenting opposition to the operative development and poverty reduction policies that one government, after the other, simply collapsed. The IMF-designed development and poverty reduction policy pushed Mexico to the precipitous edge of politico-economic and social crisis. The fact that they failed to function as an engine for development and poverty reduction and, indeed, had the opposite effect, takes one back to the points outlined at the outset of the research. Conclusion As stated at the very beginning of the research, the interrelationship between poverty and development is undeniable, thereby emphasizing the imperatives of resolving underdevelopment through poverty eradication strategies. The implication here is that development policies should proceed from a coherent and cohesive understanding of the componential elements, and causal factors, of poverty within any given society and emanate from within the confines of a design parameter dictated by the identified poverty type, causes and characteristics. Within the context of the stated, it is evident that a development policy which might be both workable and successful within one country, may not be so vis--vis another. This is because the policy in question may be more attuned to the conditions prevalent in one country but not to those which dominate in another. It is precisely due to this that the IMF-designed and imposed neoliberal development and poverty reduction strategy in Mexico proved a resounding failure. The aforementioned failure does not detract from the validity or worth of neoliberalism as a development and poverty eradication strategy but it highlights the unsuitability of the strategy to the particular context of application discussed. As far as the Mexican case is concerned, neoliberalism as a development policy, and austerity as a poverty eradication strategy, had markedly adverse consequences on both national development and on the phenomenon of poverty. The conclusion that one may reach at this point, therefore, is that in concession to the coterminous relationship between poverty and development, it is imperative to articulate development policies which are immediately informed by a nation's unique type, cause and consequences of poverty. Bibliography Booth, A. and Mosley, P. (2003) Introduction and context.' In The New Poverty Strategies: What Have They Achieved What Have We Learned Eds. Ann Booth and Paul Mosley. Palgrave Macmillan, London. Collier, P. and Gunning, J.W. 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