Poverty Reduction Projects - Example

Poverty reduction projects 2008 “If projects are to make any impact on poverty reduction it is essential to estimate both their direct and indirect effects on income and welfare.” Poverty alleviation dominates the global agenda in the 21st century, as is featured in the Millenium Development Goals of the United Nation. Poverty and income inequality has become crucial problems in both the developed as well as backward economies of the world. In most cases, poverty reduction projects aim to raise income and welfare of the targeted groups directly. However, it has been found that such projects are insufficient unless both absolute and relative poverty is targeted. It is therefore important to estimate the direct and indirect effects of poverty reduction programs. In absolute terms, poverty – or deprivation - may be calculated on the basis of biological needs of human beings to survive. Relative poverty or deprivation, on the other hand, takes into account the sociological and cultural needs as well. Even in countries, like the developing economies in transition towards industrialization, absolute poverty may be diminishing while relative poverty is on the rise as a result of greater disparities in income. The World Bank defined absolute poverty as those with income less than $1 a day in 1993 while the European Union defined relative poverty as persons, families and groups of persons whose resources (material, cultural, social) are so limited as to exclude them from the minimum acceptable way of life in the member state in which they live” (UNESCAP). Globalisation has bifurcated societies between the rich and the poor more in the developing countries thereby increasing relative deprivation of groups of people in these countries. The owners of capital, information and knowledge tend to be in a better position to garner the gains of globalisation while the poor who have no access to capital, information or political power are increasingly marginalized. Globalisation has forced economies to restructure their economies with greater emphasise on productivity and cost efficiency. As a result of “right-sizing of companies” have reduced employment in the formal sector, particularly of the semi-skilled and manual labour. More urban poor are now forced to be employed in the informal sectors where there is no job security and wages are low. Further, the greater pressure on governments to reduce budget deficits have meant that public spending on health, education, housing and other social services (UNESCAP). The basic causes of poverty are the lack of access to income, information and power. Low and unstable incomes make the poor vulnerable to the vagaries of nature as well as exploitation of moneylenders and employers. Insufficient information over job possibilities and education prevent them from developing skills that could give them better and more stable incomes. Finally, poverty leaves them out of the formal markets hence have very little economic powers. Lack of institutional credit is a perpetual problem for the urban poor, a large section of which are self-employed. Millions of people in Asia, Latin America and Africa live in deprivation and severe malnourishment. Among the countries that are seriously affected by hunger, India has not experienced famines over the last 50 years largely because public action geared up to deal with situations of crop failures and poverty. On the other hand, China, which has had a better record in life expectancy and nourishment than India, had millions dead in the famine of 1958-61 because of lack of public action. Sub-Saharan African countries like Ethiopia, Somalia and Sudan have experienced both endemic malnourishment – for economic factors – and famines – largely because of strife and civil riots (Sen, 1990). In most of these countries, it is not that there is insufficient food production. In fact, many of these countries are food exporters. Yet, a large number of people die of hunger or live unhealthy lives because of lack of access to food. This is relative deprivation at its worst. There are a number of social and cultural problems associated with relative deprivation that is pointed out in the industrialized countries. Even in the United Kingdom, where absolute poverty has been on the decline over the recent past, relative deprivation has increased because of growing inequalities. The New Right Thinkers, like Charles Murray (1989) have argued that this is because of the existence of a new class of urban people – the ‘New Rabble’ or the ‘underclass’ – who are poor because they prefer to be dependent on welfare benefits. To Murray, many of the social ills of urban Britain, like drug abuse, family instability, crime, school dropout, are all related to the dependence on welfare schemes, which act as a deterrent towards work and hence perpetuation of relative deprivation. On the other hand, the structuralist view is that most of the British urban poor are prevented from working either because there is not enough employment opportunities or because the labor market is distorted such that the poor are restricted to work as casual labor (Cox, 2003). According to conventional logic, social welfare policies are meant to compensate for income inequalities that leave sections of children and older people out of the workforce, minority communities and other disadvantaged people below the poverty threshold. The Current Population Survey of 2004 showed that while the median income in the United States was the same as in the previous year and unemployment rates were relatively low, income inequality had grown, resulting in more children, older people, women and ethnic communities like blacks and Hispanics below the poverty threshold and without health insurance. Nearly 10 percent of American families were below the poverty threshold and segregated workers like those in construction were typically more in poverty than other workers (Lalasz, 2004). While welfare reforms in the 1990s and increased job creation since 2000 has resulted in more people joining the workforce but this has not improved the standard of living for them. Despite the fact that more women, older people and minority communities are now working hence not really in welfare, they continue to live in poverty. While the poor fall deeper in poverty, the rich has grown not only through increased income inequalities produced by the forces of the economy but also through government policies. Tax policies have, in fact, boosted greater inequalities in disposable income. According to Citizens for Tax Justice (2004), combined federal, state and local taxes in 2004 were only marginally higher for the wealthy Americans than that for the average Americans. While the tax cuts for the wealthiest were 12 percent, it was only 3 percent for the poorest 20 percent of the population while for the rest of the population, it was about 7 to 8 percent. Further, personal tax on income is nearly two and a half times than that on investment. Thus, in a sense, the Bush administration has provided welfare for the rich rather than the poor. Not only do the rich get a kind of welfare from the government, private industry is also granted welfare. Moore and Stansel (1995) claim that US industries are given special benefits through tax breaks, trade policies and subsidies that are paid from the taxpayers’ money. Major government departments like the defense, agriculture, transportation etc. have provided huge amounts of subsidies for businesses that have eroded the disposable income of the common man while not giving them any benefit. Instead, these subsidies have given more power to the businesses and increased income inequalities. Although there is a significant number of Americans who are categorized by the Census as poor, the conditions that they live in are no way the same as those living in poverty in other parts of the world or even as that they lived in a few years ago. Thus, the 35 million poor in 2002 (35 million in 2005) have experienced lower absolute poverty compared to previous years as also lower relative poverty with respect to other countries, particularly the developing countries. Rector and Johnson point out to the fact that even the Americans defined as “poor” by the Census Bureau have access to assets like own homes (46percent), air conditioning (76 percent as compared to 36 percent of the entire population 30 years ago), cars (three-quarter have own cars while 30 percent have more than one car), color television (97 percent), VCR/DVD (78 percent), microwave ovens (73 percent) and stereo (more than half) and automatic dishwashers (one-third). The average poor in America have more living space than those in European cities. Most American poor live in houses that are relatively spacious and in good conditions. About 54 percent of the poor live in single-family homes, unattached dwellings or units like townhouses. Few poor Americans live in crowded conditions, which means that there is little or negligible negative health impact of sanitation provisions. Only 1percent of American poor have to share bathrooms, which is considered as the usual indicator of most severe poverty. The American poor are not in the least under-nourished, as the poor in Asia and Africa are. The consumption of proteins, vitamins and minerals are same for the poor children as the middle class ones. In fact, the article pointed out to the fact that the poor children of America have more protein intake than the rich as the former consume more meat, indicating that the problem is super-nourishment of the poor Americans rather than under-nourishment as would logically be expected. Thinness and stuntedness is practically non-existent among the American poor. Some families do experience hunger but it is more a temporary phenomenon than real. There is a wide disparity among poor households in America though. While over half of the poor in America own cell phones in addition to landline phones, the rest of the poor families do not own any phone at all. On an average, children of poor families have to work 16 hours a week, which is not the case with middle class or rich children. Much of the reason for child poverty is because of the absence of fathers. As many as two-third of the poor children are raised in single-parent households and 1.3 million children are born out of wedlock every year. According to the authors, the major reason for poverty in these households is the existence of welfare schemes that encourage idleness and discourage marriage. Although the authors find the conditions of the American poor not as severe as is made out to be, they also note that the poor find it difficult to pay bills regularly and there are some within the group who are genuinely poor. It is true that many of the poor have access to assets that they would not have had earlier and many of the parameters of poverty are not as severe as in other countries, it should also be noted that there is a huge disparity between the rich and the poor in America. Both in terms of income and assets, the rich have access to amenities that are far beyond the reach of the poor. This relative poverty gives rise to psychological problems and tendency towards criminal behavior. Structural changes rather than welfare doles are needed to correct this skewness. Economic growth may also increase poverty incidence. For example, in Bangladesh, one of the poorest countries in Asia, economic growth has been reasonably high over the last decade or so but poverty and income inequality remains crucial problems. According to the Millennium Development Goals, the government has set a target to reduce poverty by 50 percent by 2015. This implies that poverty would need to be reduced at an annual rate of 4.9 percent for extreme poverty and 3.3 percent for moderate poverty over 2000-15. The levels achieved in during 1999-2000 were 3.2 percent and 1.5 percent for extreme and moderate poverty respectively (ADB, 2004). With higher economic growth since the 1990s, the incidence of poverty has been reduced in Bangladesh to some extent. The national headcount index of poverty decreased from 58.8 percent in 1991-92 to 49.8 percent in 2002 (ADB, 2004). However, the higher growth rate increased income inequality in Bangladesh, thereby proving as hindrance to poverty reduction in the long term. Over 1999 to 2004, the share of the income of the poorest 10 percent of the population in Bangladesh declined from 1.7 percent to 1.5 percent. On the other hand, the share of the richest 10 percent of the population increased from 33.9 percent to 36.5 percent over the same period (Bhattacharya, 2006). Thus, the income differential between the richest 10 percent and the lowest 10 percent increased from 20 times in 1999 to 24.5 times in 2004. The Gini coefficient, while being high in the overall economy, has increased even faster in the urban areas, implying that income inequality in urban areas is all the more higher (ADB, 2004). In a labor-abundant country like Bangladesh, intuitively it would seem that a pro-labor growth strategy would result in poverty alleviation in the country. However, the recent trends of economic growth indicate that it is more in industry and services, which are less labor-intensive, that economic growth has been concentrated, thereby increasing the income inequality. Since the 1990s, the share of agriculture in total employment declined only marginally while the share of manufacturing declined drastically, from 17 percent to 10 percent (ADB, 2004). The incidence of poverty in agricultural as well as non-agricultural casual employment households in urban areas is high, at 75 percent and 65 percent respectively. Incidence of poverty in households in which the head is self-employment is also high, at 40 percent in rural and 35 percent in urban areas (ADB, 2004). Thus, the main hindrance to poverty alleviation is stable and remunerative jobs, whether for casual labor or self-employed. Poverty has indirect effects on the living standards of people. The most significant effect of poverty on urban communities is perhaps on health. Malnutrition, overcrowding, lack of hygienic sanitation and living near industrial premises have severe effects on the health of the urban poor. They, particularly the children, are prone to work-related diseases and environmental hazards. Not only does lack of income and inhibit their access to proper medication, the subsistence income and casual nature of jobs do not allow them to take leave from work even when they are ill (World Bank). The second important impact of poverty is on human settlements. Slum housing in grossly unhygienic conditions is a crisis in most developing countries. Typically in the poor countries in Asia, the poor live in overcrowded slums that do not have access to basic infrastructure like clean piped water and electricity connection (UNESCAP). Most of the settlements are illegal constructions and the dwellers face the constant threat of eviction. The squatters and slums come up precisely because the poor have no access to housing credit or asset. Besides, the informal housing markets in urban areas are exploitative and prone to disasters. Most of the legal housing facilities available to the urban poor are located in the marginal lands, like lowlands, river banks, along the sides of railway tracks, etc. making the habitants susceptible to natural disasters. Lack of education is the next crucial element of urban poverty. In most Asian countries, poor children are forced to join the workforce at a tender age because of financial family problems. As a result, they do not develop any job skill and remain as casual labour through their lives. Thus, in all countries, whether industrialized or backward, relative deprivation exists. In the poor and developing countries, there is absolute as well as relative deprivation since a large number of poor people live at or below subsistence. On the other hand, in rich countries, income inequalities mean that there is relative deprivation of a section of people. It must also be remembered that there is relative deprivation between countries. The people who are relatively deprived in the advanced countries are usually far better off than those who are the beneficiaries in the poor countries. For example, even the families who are concerned relatively poor in the United States often own one or more cars. On the other hand, even the middle class family in a relatively poor country like Bangladesh in Asia cannot own a personal car and is dependent on public vehicles. Hence, it is first necessary to estimate the nature and incidence of poverty for programs to eradicate poverty to be successful. Work Cited Asian Development Bank, Economic Growth and Poverty Reduction in Bangladesh, April 2004, http://www.adb.org/Documents/Studies/Eco_Pov_Ban/Eco_Pov_ban.pdf Bhattacharya, Debapriya, State of the Bangladesh Economy in FY2006: Early Signals and Immediate Outlook, paper 55, Center for Policy Dialogue, January 2006, http://www.cpd-bangladesh.org/publications/op/OP55.pdf Cox, Melissa, A, Welfare Dependence and Dynamics in Britain, Presented at “Women Working to Make a Difference”, IWPR’s Seventh International Policy Research Conference, June 2003, retrieved from http://www.iwpr.org/pdf/Cox_Melissa.pdf Citizens for Tax Justice, Overall Tax Rates have Flattened Sharply Under Bush, 2004, http://www.ctj.org/ Lalasz, Robert, Poverty Up, Number of Insured Down in the United States, 2004 http://www.prb.org/Template.cfm?Section=PRB&template=/ContentManagement/ContentDisplay.cfm&ContentID=11621 Moore, Stephen and Dean Stensel, Ending Corporate Welfare as we Know It, Cato Policy Analysis, No 25, May 1995, : http://www.cato.org/pubs/pas/pa225.html Murray, C. 1989. The Emerging British Underclass, Institute for Economic Affairs, London. Rector, Robert, E and Kirk A Johnson, Understanding Poverty in America, January 5, 2004, http://www.heritage.org/Research/Welfare/bg1713.cfm Sen, Amartya, Public Action To Remedy Hunger, August 2, 1990, retrieved from http://www.thp.org/reports/sen/sen890.htm United Nations Economic and Social Council for Asia Pacific (UNESCAP), Urban Poverty Alleviation, http://www.unescap.org/huset/hangzhou/urban_poverty.htm World Bank, Urban Poverty: What are the Policy Issues? Social Protection and Social Services, http://www.worldbank.org/html/fpd/urban/poverty/social.html Read More