Income Distribution and Poverty
The most important aim of modern economic efforts worldwide is the reduction of global poverty . Economic studies have shown that a combination of both economic growth and income distribution will help reduce poverty. However, scholars are still debating the real definition of the concept of development. The discourse has led to an examination of the philosophical implications of true development, and its overall effect on the living standard of the people involved. In all of these cases, the dimension of per capita income, income distribution and poverty remain the central dimension to gauging whether true economic development is achieved. It can be intuitively summarized that the higher the per capita income, the higher the standard of living. However, the average per capita income does not indicate if wealth is shared throughout the population. Cases wherein there are high per capita income on the average translates to poverty simply because income distribution is unequal. Over the years, these three dimensions have been integrated to determine a broader picture of economic development. One example is the United Nation’s Development Program (UNDP) Human Development Indicator. This indicator logs in an index of per capita income, life expectancy, literacy rates and other indicators to come up with an encompassing measure of development. According to the UNDP, this measure provides a more accurate picture of development, rather than using any of the three dimensions mentioned earlier (average per capita income, income distribution and poverty rates).
There are a lot of scholarly articles written on the subject of economic development. In many cases, the differences between the scholarly research conducted for the study of economic development is predicated on the study of how poverty can be addressed through income generation and consumption behavior methodologies. These scholarly works however, removes any aspect of personal or societal wellbeing and focuses exclusively on generating income or managing expenditures. To the impoverished sectors however, wellbeing is a more important aspect of economic development compared to any measurement of income. Having said that, academicians and scholars all agree that poverty is a non-singular concept. In fact, poverty is a concept that has multiple facets and intertwined dimensions. These scholars and academics, in their researches about poverty alleviation all believe that income is a means by which the requirements or needs of impoverished communities are satisfied . However, poverty can only be truly measured if indicators related to economic output and poverty reduction are examined. These output indicators include measures such as the mortality rate of infant births, the percentage of the population that is able to read and write, the percentage of children that have enrolled in schools, the number of hospital beds versus the number of patients, among others. These output indicators are more reliable compared to a general indicator such as income. While it is true that output indicators have a social dimension that can be considered as distributional in nature, these output indicators may also not be sufficient in understanding how a person’s wellness is affected. Thus, it can be said that output indicators may also be inadequate in measuring poverty reduction.
On the other hand, consumption or income poverty measures look at poverty simply as a statistical representation of the status of households based on the amount of resources consumed against the amount of resources gained. Poverty is measured using large-scale representative surveys often conducted by official government agencies. Measuring “poverty” as a statistical element is simple and can be interpreted in a similarly simple fashion. Poverty as a statistical element is linked to the concept of Gross Domestic Product (GDP) and as such, is regarded as a monetary unit. In this approach, poverty is defined as the inability of the national economy to produce output from a percentage of the working population. The singular interpretation of poverty in this statistical sense makes its interpretation prone to error. The linkage between the data gathered to measure the amount of poverty within the national economy is limited and highly subjective. This approach thus results in slow and erroneous measurement and reporting.
Indicators that do not use monetary values are taken similarly as a statistical representation. Government agencies measure non-monetary indicators such as health and education levels as a correlated indicator of the level of poverty. The intuitive thought is that when the levels of education and health are high, the incidence of overall poverty is low. The benefit of this approach is that it measures the wellbeing of the population and is an indicator that is more understandable compared to using consumption and income generation as an indicator of poverty levels. However, non-monetary indicators are not perfect. For instance, health status is not an instantaneous measurement and is in fact, a result of long-term factors and polices. Educational levels are the same. Education is based on endowments, child motivation, long-term education policy and implementation measures, and other important aspects that make linkage of poverty alleviation and non-monetary measures difficult to ascertain.
In recent years, there had been moves to provide qualitative approaches to studying poverty levels. In these studies, the approach has been purely participatory in nature. These studies deal with social conditions, political conditions, livelihood programs, people’s experiences and perceptions and other social constructs that are evaluated by non-government organizations. While these studies provide deep and rich contextual findings, these studies do not present a generally representative condition of a given population because of the limited scope of the studies.
Lastly, a comparative approach that provides a combination of these different methodologies had been used for some time to correlate data and come to a comprehensive conclusion of poverty levels, causes and mitigation measures. This approach has resulted in the expansion of policies that have become more relevant and effective in alleviating poverty. This approach focuses on the consumption and income approaches but the combination of non-monetary and experiential aspects of poverty have resulted in policies that provide reform that target resource generation and personal wellbeing improvement. This approach has resulted in policies that seek to alleviate poverty through sensible income distribution. The process of analysis and policy formulation as resulted in the reduction of poverty through the reduction of income inequalities and prioritizes the distributional nature of poverty reduction measures (i.e. focusing poverty reduction policies in areas that need them most, rather than applying them over the entire population.
Global Poverty and Income Distribution
The incidence of global poverty is still extensive but statistical studies have shown that the number has decreased significantly despite the Asian and US financial crises. The income gap has also increased between the rich and the poor countries and this could be a result of continued resource use efficiency in rich countries in comparison to how the same resources are used in developing countries. In rich countries, resources including physical, human and financial are accumulated and applied more effectively. Modern technologies are employed at a higher usage rate. On top of these, social infrastructures have been built-up to support improving levels of productivity in developed countries.
Because of the success of income generation and resource use in developed countries, evidence shows that poverty reduction is also more effective in these nations. Evidence also points out that the effectiveness of poverty reduction results from effective income distribution. While there is no clear and constant relationship that explains economic growth with changes in income distribution, there is statistical variation in many countries that suggest that the economic growth strategies that favor the distribution of resources to decrease the gap between the capacities to generate income within a particular country produces the most significant economic growth. In developed countries, poverty is reduced quickly because income is distributed fairly thus resulting to more economic improvements.
Studies also indicate that government policies that result in unequal income distribution had led to slower poverty alleviation rates. However, policies that have are geared towards less distributional approaches are often designed to address short-term needs. Thus there seems to be a conflict between the immediate poverty reduction measures that governments implement versus the long-term poverty alleviation policies that the same governments try to institutionalize. In simple terms, governments that have tried to address the immediate concern of the poor end up creating less long-term effects. An example of this is the provision of cash subsidies for power generation in poor communities. The communities need the power for its day-to-day existence but the presence of subsidies create a natural deterrent for private sector participation that in the long run would create greater economic impact. Similarly, the provision of short-term educational courses that seek to address present employment opportunities in the services sectors create capability in the short-term but fails to address long-term employability for students. The short-term poverty alleviation measures contradict long-term potential thus creating a detrimental economic effect.
More developed countries have solved this by reducing the risks associated with the implementation of short-term poverty alleviating solutions with its long-term risks. Schemes that reduce long-term risks are implemented in developed countries to address short-term poverty mitigation requirements. An example of this is continuing education. In developed countries, government policies encourage continuing education for undereducated members of the working population. Carpenters are given accreditation to take specialization courses that would enable them to improve their skills and become specialized workers thus creating greater value and longer-term employability. In a similar way, the policy of livelihood and skills training encourages members of the working communities to gain livelihood skills and entrepreneurial skills that enable them to access opportunities for economic growth on their own. These short-term policies create a long-term environment where people can improve themselves to create economic opportunities for their betterment.
Managing risks through these representative policies highlight the fact that poverty will cease to exist if per capita incomes increase. Per capita income increase will be driven by personal productivity improvements, which is a result of effective, thoughtful and implemental government policies. Ultimately, governments should take the full and final responsibility of ensuring that social infrastructure is enhanced and that human capital is created and enriched. Economic growth is a confluence of all these factors happening at the right place and at the right time.
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