Poverty and its impact on decision-making in developing countries

Income inequality

Income inequality

• Globally, 40% of the poorest own less than 5% of the world's wealth.

• Richest 10% own a third of the world's wealth. (2000 half the world's wealth).

Positive trends

• The number of people below the poverty line ($ 1.9 per day) is declining

• 1800 - 85% of the world's population

• 1990 -1.8 billion

• 2018 -736 million (less than 10%)

• Poverty reduction in China (700 million in the last 30 years)

Impact of COVID 19 in poverty

Its difficult to predict the degree of impact of it but it was a major impact on the fight against poverty.

• The end of the positive trend - global poverty has risen for the first time since 1990

• Most affected poor people and developing countries (India, sub-Saharan Africa)

There was social change and a opportunity to change attitudes towards poverty

• Modernization of social programs in the developing world - COVAX plan

Kuznets curve

The Kuznets curve shoes the dependence between economic growth and social inequality. It has the shape of an inverted U.

• economy develops: market forces first increase and then decrease economic inequality

• From a certain level of average income, the inequality gradually decreases.

• capital in the hands of the rich support economic growth

• Education becomes more accessible

• critics of the theory - in practice the incomes of the rich grow faster than the incomes of the poor 🡪 inequalities deepen

Measuring poverty

The first analytical interest in measuring poverty can be seen in England, in the first half of the 19th century.

poverty indicators:

• Absolute poverty line is currently set at $ 1.9 per day

• Relative poverty: the line is 60% (50%) of media income in a given country - varies from country to country.

Income inequality in the Czech Republic

Czech Republic is one of the most egalitarian countries in the world and one of the smallest income inequalities in the EU.

• The richest tenth of population have about 4-5 times higher incomes than the poorest ten percent.

• the lowest income poverty, which affects about 10 percent of people.

• high taxation of labor, progressive taxation, the legacy of communism – egalitarianism.

Gini coefficient

Its the measure of statistical dispersion intended to represent the income inequality, the wealth inequality or the consumption inequality within a nation or a social group.

• Czech Republic 0,25

• Sweden 0,30

• Germany 0,32

• Russia 0,38

• China 0,39

• USA 0,41

• Chile 0,44

• Brazil 0,53

• South Africa 0,63

Impacts of poverty

It may cause social tensions, higher incidence of socially pathological phenomena:

• family breakdown

• crime

• xenophobic sentiment

• political instability

• extremism

Its usually caused by:

• economic inefficiency

• unavailability of health care, access to education

• greater resistance to political change

The problem of poverty is the problem of the rich

Democracy and the poor

The poor are a large part of the population and thus of the electorate.

Democratic regimes depend on re-election and they must take into account the problems of the poor

• Left-wing populist regimes

• In an autocracy, there may not be poor "clients" of the government

PINK TIDE IN LATIN AMERICA

This movement is the consequence of very high inequality and its a strong call for redistribution of funds. It has caused:

• Retreat of left-wing governments in recent years

• Turn to the left only in the last 20 years

Taxes as a source of income

With high inequality, progressive taxation would be appropriate.

• Many developing countries do not have progressive taxation or only have it on paper.

• the rich often know how to avoid taxes

• the poor pay a larger proportion of their income than the rich

Redistribution of resources

Land reform the redistribution of economic growth through various social programs

Investment in human capital

• Expanding educational opportunities

• Supported as a major strategy by the World Bank

• It assumes that there will be adequate employment for the more educated population

Direct Transfers

• A powerful tool, but it must be used "smartly„

• It must be focused in such a way that resources reach those who need them - the really poor

• must support own activity of the group affected

• must not make people dependent on social benefits or this transfers

Conditional Cash Transfers

Social programs to fight poverty typical of Latin America.

• Programs involving relatively wide groups of people

• The transfer of money is conditioned by some behavior - typically sending children to school, to the doctor…

Bolsa Familia

Social program that support poor families in Brazil. Since 2003 and is associated with President Ignacio Lula da Silva.

• Children must go to school, be vaccinated

• transfer - to bank accounts - in order to eliminate poverty

Poverty in Brazil has been halved in 10 years (in 2013), and hunger has been eradicated.

In 2013, there were 55 million inhabitants, 12 million families, 27 % of the country´s population.

The effectiveness of CCTs

• usually viewed more positively than direct transfers.

• Bangladesh and Pakistan, CCT help to overcome gender gaps

India and transfers

• system of supply of goods,

• more than 70% of goods were stolen

• India has recently launched an extensive CCT program.

Urban Giantism

• the largest city is many times higher than the second city

• Bangkok 20x, Buenos Aires 10x, Kampala 15x

• Strong political, economic centralism

10 most expensive cities in the world

• 1. Luanda (Angola)

• 2. Tokyo (Japan)

• 3. Ndjamena (Tchad)

• 4. Moscow (Russia)

• 5. Geneva (Switzerland)

• 6. Ósaka (Japan)

• 7. Zurich (Switzerland)

• 8. Singapur

• 9. Hongkong

• 10. Sao Paulo (Brazil)

• 47. Prague

Slums

• it is not possible to stop the migration of people from villages to cities

• Up to half of the population of Third World cities live in slums

• Latin America 30%, South Asia 57% a sub-Saharan Africa 72%

• big safety problem, a health problem, but also a problem for the environment.

Pacification of Slums

• A set of policies aimed at calming the situation in the slums

• infrastructure construction (sewerage, drinking water)

• strengthening government influence

• crime reduction – for example in Rio de Janeiru Policia Pacificadora

pop culture

• Music – rap, reggaeton, cumbia

• Movies

• Latin America:

• City of gods (Cidade de Deus)

• Tropa de Elite

• Apache (La vida de Carlos Tévez)

• India:

• Slumdog Millionaire

• White tiger

• Pad Man

Informal sector of economy

• unofficial sources of income - street sales, small services, prostitution

• up to 50% of the population of large cities

• people without financial or intellectual capital

• Is it a transit to the formal sector???

Benefits of the informal sector

• generates profit

• does not require a large initial investment

• work to an unclassified workforce

• people can participate in community service - waste recycling.

Disadvantages

• instability of income

• lack of social security

• state loses tax revenues

Jobs in the public sector

• clientelist networks

• inefficiency and financial demands

• In Sierra Leone in the 1990s, up to 40 percent of government officials were "ghosts"

How to fight poverty

Social policy:

• prevention: preventing social isolation

• Mitigation: helping people on the margins

• Social policies should effectively combine both

Economic globalization is widening the gap between rich and poor around the world

• Globalization is causing deep asymmetries at different levels of the world economy

• World dominance of market trade since the 16th century - overseas discoveries - globalization as a major feature of capitalism

• From the beginning, capitalism has been linked to the world economy, not to nation states

• The production for sale on the market where the goal is maximum profit

• Classical economists: production for the market is the natural state of man, man as a competitive creature

Critique of globalization

• Marxist and neo-Marxist theories

• Immanuel Wallerstein's "theory of the world system"

• tradition of Marxism, structuralism, theory of dependency

Marxist critique of capitalism

• Karel Marx – attention to the internal contradictions of the capitalist system

• Discrepancies between production relationships - the production process divides people into classes (owners and controllers of means of production x wage workers)

• The capitalist invests money, others produce goods (workers must sell their labor power)

• The defining feature of capitalism - wage labor

• Labor power is a commodity (x feudalism)

• capitalism is illegitimate and is doomed to extinction, political revolution will give rise to a classless society

Immanuel Wallerstein's "theory of the world system"

• Immanuel M. Wallerstein

(1930-2019)

• American sociologist, political scientist,

Economist

The theory is based on the analysis of

historical, geographical development. Describes relations between states, regions

• Wallerstein, I. M. (1991): Geopolitics and Geoculture. Cambridge University Press, Cambridge.

• Wallerstein, I. M. (2004): World-systems analysis: An introduction. Duke

• University Press, Durham

CORE

The capitalist economy must have its core, periphery and semi-periphery, it must have its rich countries and its poor countries, it must have its capitalists, the working class and the unemployed.

• strong central governments controlling

• stronger and more complex state institutions

• sufficiently large tax base,

• highly industrialised

• tend to specialise in the information, finance, and service industries

• new technologies and new industries.

• significant means of influence over non-core states

• relatively independent of outside control

Semi-peripheral states

• midway between the core and periphery. it accepts the influences of the core,

• retains its identity

• develop independently

• new core civilization can only arise within the semi-periphery.

Peripheral states

• the least economically diversified

• relatively weak governments

• relatively weak institutions

• often targets for investments from multinational (or transnational) corporations from core states

• small middle class

• populations with high percentages of poor and uneducated people

• very high social inequality

• Influenced by core states

Characters of the world system according to Wallerstein

• upward and downward changes

• Asian tigers

• BRICS countries have the potential to become core

• world is moving towards a multipolar order

• Global differentiation has predominantly economic causes, emphasizing the injustice and exploitation of the periphery by the core

• Global problems are predominantly social in nature (social inequalities, poverty)

• The capitalist world is coming to an end

• Unsustainable asymmetry of wealth and power

The importance of theory

• Interdisciplinary

• Taking into account external factors

• Understanding the world capitalist economy as an internally interconnected complex with an unequal structure

• Breaking the Euro centrist perspective