4.2 Poverty, inequality, and human development in a global context
5 min read•august 15, 2024
Poverty, inequality, and human development are crucial aspects of globalization and international political economy. These issues shape the lives of billions and influence global economic policies. Understanding the metrics and strategies used to address them is key to grasping the complexities of international development.
This section dives into how we measure and tackle poverty and inequality worldwide. It explores absolute vs. , income disparities, and human development indicators. We'll look at successful poverty reduction programs and debates surrounding aid effectiveness in promoting global development.
Absolute vs Relative Poverty
Defining Poverty Thresholds
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- uses fixed income threshold below which individuals cannot meet basic needs
- sets extreme poverty line at $1.90 per day
- Measures inability to afford essentials like food, water, shelter
- Relative poverty defined in relation to overall income distribution in a society
- Typically measured as percentage of median income (50% or 60%)
- Captures inequality and social exclusion within a specific context
- Poverty lines vary between countries and regions
- Reflect differences in cost of living and societal standards
- Higher thresholds used in developed countries (US poverty line ~$35/day)
Multidimensional Approaches to Poverty
- Multidimensional poverty measures go beyond just income
- Include factors like access to education, healthcare, clean water
- Captures non-monetary aspects of deprivation
- refers to long-term, persistent deprivation
- Often transmitted across generations
- Contrasts with transient poverty caused by temporary setbacks
- Global context encompasses both developed and developing nations
- Absolute poverty more prevalent in low-income countries
- Relative poverty remains an issue even in wealthy nations
Implications for Policy and Development
- Distinction between absolute and relative poverty impacts policy approaches
- Absolute measures guide global development goals (SDGs)
- Relative measures inform domestic social policies
- International development goals focus on eradicating extreme poverty
- World Bank target: Reduce population living on less than $1.90/day to 3% by 2030
- National poverty reduction strategies often use relative measures
- Address social inclusion and inequality within countries
- May set higher poverty lines than global absolute standards
Income and Wealth Inequality
Measuring Economic Disparities
- Income inequality measured by indicators like and
- Gini coefficient ranges from 0 (perfect equality) to 1 (perfect inequality)
- Palma ratio compares income share of top 10% to bottom 40%
- Wealth inequality considers asset ownership and distribution
- Often more pronounced than income inequality
- Includes financial assets, property, and other forms of capital
- "Great Divergence" explains historical widening of economic gaps
- Describes growing inequality between industrialized and developing nations
- Began with Industrial Revolution, accelerated in 20th century
Causes of Rising Inequality
- Globalization contributes to both reductions and increases in inequality
- Reduced global inequality between countries
- Increased within-country inequality in many nations
- Mechanisms driving inequality include:
- Outsourcing of low-skilled jobs to developing countries
- Skill-biased technological change favoring highly educated workers
- Financialization of the economy benefiting capital owners
- Structural factors contributing to inequality:
- Disparities in education and healthcare access
- Unequal labor market opportunities and wage stagnation
- Regressive tax systems and weakened social safety nets
Consequences and Policy Debates
- High inequality leads to various negative outcomes:
- Social unrest and political polarization
- Reduced economic mobility and opportunity
- Potential negative impacts on democratic institutions
- "" describes how inequality hinders development
- Countries struggle to progress from middle to high-income status
- Inequality limits domestic market growth and human capital development
- Policy debates surrounding inequality include:
- (wealth taxes, higher marginal income tax rates)
- Strengthening social safety nets (universal healthcare, education)
- Inclusive growth strategies (job creation, skills training)
Human Development and the HDI
Conceptualizing Human Development
- Human development focuses on expanding individual freedoms and capabilities
- Concept developed by Amartya Sen and others
- Goes beyond economic growth to consider quality of life
- Key dimensions of human development include:
- Long and healthy life
- Access to knowledge and education
- Decent standard of living
- Relationship between economic growth and human development is complex
- Some countries achieve high human development despite lower GDP (Cuba)
- Others have high GDP but lag in human development indicators (oil-rich states)
The Human Development Index (HDI)
- HDI combines indicators of life expectancy, education, and per capita income
- Life expectancy at birth measures health dimension
- Mean years of schooling and expected years of schooling for education
- Gross National Income (GNI) per capita for standard of living
- HDI scores range from 0 to 1, with higher scores indicating greater development
- Countries classified as low, medium, high, or very high human development
- Norway consistently ranks at top, Niger often at bottom
- Trends in HDI scores reveal global progress in human development
- Significant variations across regions and countries
- Sub-Saharan Africa and South Asia show largest improvements in recent decades
Critiques and Alternative Measures
- Critics argue for inclusion of additional dimensions in HDI:
- Environmental sustainability (carbon footprint, biodiversity)
- Gender equality (gender wage gap, political representation)
- Political freedoms (civil liberties, press freedom)
- (IHDI) accounts for distribution
- Adjusts HDI score based on inequality in each dimension
- Countries with high inequality see larger drops in IHDI compared to HDI
- (MPI) complements HDI
- Captures acute deprivations in health, education, and living standards
- Identifies overlapping deprivations at household level
Poverty Reduction and Human Development Strategies
Social Protection and Cash Transfer Programs
- Conditional cash transfer programs show success in alleviating poverty
- Brazil's Bolsa Família improved education and health outcomes
- Mexico's Prospera reduced poverty and increased school enrollment
- (UBI) experiments assess impact on poverty
- Trials conducted in Finland, Kenya, and India
- Preliminary results show potential benefits for well-being and labor market participation
- reduce vulnerability to poverty
- Pensions prevent old-age poverty
- Unemployment benefits provide temporary support during job loss
- Health insurance protects against medical poverty traps
Economic Empowerment and Financial Inclusion
- initiatives provide financial services to low-income individuals
- Grameen Bank in Bangladesh pioneered microcredit model
- Effectiveness in poverty reduction remains debated
- Pro-poor growth strategies focus on inclusive economic development
- Aim to increase income of the poor at higher rate than average
- Policies include rural development, labor-intensive industrialization
- Financial inclusion efforts expand access to banking and credit
- Mobile banking reaches unbanked populations (M-Pesa in Kenya)
- Savings groups provide informal financial services in rural areas
Global Development Goals and Aid Effectiveness
- Millennium Development Goals (MDGs) set targets for 2000-2015
- Achieved significant progress in reducing extreme poverty
- Criticized for narrow focus and lack of environmental considerations
- Sustainable Development Goals (SDGs) represent current global commitments
- 17 goals addressing poverty, inequality, and sustainability
- More comprehensive than MDGs, but implementation challenges remain
- Effectiveness of foreign aid in promoting development is controversial
- Debates center on aid dependency and conditionality
- Emphasis shifting towards local capacity building and ownership
- New approaches to development cooperation emerging
- South-South cooperation between developing countries
- Public-private partnerships leveraging business resources for development
Key Terms to Review (26)
Absolute poverty: Absolute poverty refers to a condition where an individual lacks the minimum resources necessary to maintain basic living standards, such as food, clean water, shelter, and healthcare. This state is often measured against a global standard, typically defined as living on less than $1.90 per day, emphasizing the stark disparities in wealth and resources across different countries and regions.
Anti-globalization movement: The anti-globalization movement is a social and political response to globalization, advocating against the perceived negative effects of global economic integration. This movement encompasses a range of concerns including environmental degradation, social injustice, and the erosion of local cultures and economies, aiming to promote alternatives that prioritize sustainability, equity, and local autonomy.
Capitalism: Capitalism is an economic system where private individuals or businesses own and control the means of production and distribution of goods and services. In this system, investments, production, and pricing are determined by competition in a free market, which leads to varying levels of wealth among individuals and groups. This framework creates dynamics that often result in poverty and inequality, affecting human development on a global scale.
Chronic poverty: Chronic poverty refers to a persistent state of poverty that lasts for an extended period, often characterized by a lack of basic necessities and limited access to resources that can help individuals escape this cycle. This condition is frequently intergenerational, meaning it can affect families across generations, leading to prolonged suffering and inequality. Chronic poverty is deeply intertwined with issues of inequality and human development, highlighting the challenges faced by those who remain trapped in this cycle despite broader economic growth and social progress.
Dependency Theory: Dependency theory is a concept in international political economy that suggests the economic development of countries is shaped by their relationships with more developed countries, leading to a state of dependence. This theory highlights how resources flow from poorer nations to richer ones, creating a cycle of underdevelopment and reinforcing global inequalities.
Fair trade movement: The fair trade movement is a social and economic initiative aimed at promoting equitable trading practices, ensuring fair wages, and improving working conditions for producers in developing countries. It seeks to address issues of poverty and inequality by establishing direct trade relationships that empower marginalized communities, ultimately contributing to human development and sustainable livelihoods.
Gini Coefficient: The Gini coefficient is a statistical measure that represents income inequality within a population, ranging from 0 to 1. A Gini coefficient of 0 indicates perfect equality, where everyone has the same income, while a coefficient of 1 signifies perfect inequality, where one individual has all the income and everyone else has none. This measure is crucial in understanding the levels of poverty and inequality across different countries and how they relate to human development indicators.
Globalization of production: The globalization of production refers to the process of organizing production and manufacturing across different countries and regions, leveraging comparative advantages to enhance efficiency and reduce costs. This approach allows companies to source materials, labor, and expertise from various parts of the world, often leading to lower prices for consumers and increased profit margins for businesses. However, it also raises important issues related to poverty, inequality, and human development as it can create disparities between nations and impact local labor markets.
Human Development Index: The Human Development Index (HDI) is a composite statistic used to measure a country's social and economic development, focusing on three key dimensions: health, education, and standard of living. By assessing life expectancy, education levels, and per capita income, the HDI provides a more holistic view of human development than purely economic measures. This index connects closely to efforts in promoting sustainable development and addressing poverty and inequality across the globe.
Inequality-Adjusted Human Development Index: The Inequality-Adjusted Human Development Index (IHDI) is a measure that takes into account the distribution of human development within a country, adjusting the standard Human Development Index (HDI) for inequality in health, education, and income. It highlights how inequality impacts overall human development, revealing disparities that the traditional HDI might overlook. By factoring in these inequalities, the IHDI provides a more accurate representation of well-being across different segments of the population, emphasizing the importance of equitable growth and development in assessing national progress.
International Monetary Fund: The International Monetary Fund (IMF) is an international organization established in 1944 to promote global monetary cooperation, secure financial stability, facilitate international trade, and reduce poverty around the world. The IMF provides financial assistance, policy advice, and technical assistance to its member countries, especially during economic crises, connecting its mission to the broader goals of human development and economic stability.
Microfinance: Microfinance refers to a financial service that provides small loans, savings, and other financial products to low-income individuals or groups who lack access to traditional banking services. This approach aims to empower marginalized communities by enabling them to start small businesses, improve their livelihoods, and ultimately alleviate poverty. Microfinance plays a crucial role in addressing issues of poverty and inequality while promoting human development by facilitating economic participation.
Middle-income trap: The middle-income trap refers to a situation where a country's economic growth slows down after reaching middle-income status, preventing it from transitioning into a high-income economy. Countries stuck in this trap often experience stagnant growth, increased inequality, and social issues as they struggle to innovate and enhance productivity, hindering their progress on the global stage.
Modernization theory: Modernization theory is a framework used to understand how societies transition from traditional to modern economic structures, emphasizing the role of technological advancement, economic growth, and social change. This theory suggests that as societies develop, they inevitably adopt modern practices that lead to increased wealth and improved living standards, connecting it to the dynamics of global poverty and inequality, foreign aid, and development assistance.
Multidimensional Poverty Index: The Multidimensional Poverty Index (MPI) is a measure that captures the multiple deprivations faced by individuals in various dimensions of poverty, such as health, education, and living standards. It goes beyond income-based measures by assessing the overlapping disadvantages that affect people's lives, providing a more comprehensive view of poverty and its implications for human development and inequality on a global scale.
Neoliberalism: Neoliberalism is an economic and political ideology that emphasizes the importance of free markets, deregulation, privatization, and limited government intervention in the economy. It advocates for the belief that open markets and competition lead to greater efficiency and economic growth, which can ultimately benefit society as a whole.
Palma Ratio: The Palma Ratio is a measure of income inequality that compares the share of total income received by the top 10% of earners to that received by the bottom 40%. This ratio highlights disparities in wealth distribution and provides insight into economic inequality, making it a crucial metric for understanding poverty and human development on a global scale.
Postcolonial theory: Postcolonial theory is an analytical framework that examines the cultural, political, and economic legacies of colonialism and imperialism, focusing on how these legacies shape contemporary societies and global relations. It emphasizes the perspectives of previously colonized peoples, critiquing Western narratives and exploring issues of identity, power dynamics, and cultural resistance.
Progressive taxation: Progressive taxation is a tax system in which the tax rate increases as the taxable amount increases, meaning that higher income earners pay a larger percentage of their income in taxes compared to lower income earners. This approach is designed to reduce income inequality and provide revenue for social programs, thereby addressing issues related to poverty and human development.
Relative poverty: Relative poverty refers to a situation where an individual or group is unable to meet the standard of living deemed acceptable in their society, often compared to others within that same context. This concept emphasizes not just the lack of basic necessities, but also the disparities in wealth and resources that can lead to social exclusion and limited access to opportunities, making it a crucial factor in understanding poverty, inequality, and human development on a global scale.
Social protection policies: Social protection policies are government measures designed to reduce poverty and vulnerability by promoting efficient labor markets, diminishing people's exposure to risks, and enhancing their capacity to manage economic and social shocks. These policies are critical in addressing issues of poverty, inequality, and human development as they provide safety nets for the disadvantaged and support sustainable economic growth.
Structuralism: Structuralism is a theoretical framework that emphasizes the underlying structures that shape human behavior, social relationships, and institutions. It seeks to understand how economic, social, and political systems create patterns of inequality and development, influencing the global economy and human interactions.
Transitional poverty: Transitional poverty refers to a temporary state of poverty experienced by individuals or families due to specific life events such as job loss, illness, or natural disasters. This type of poverty is often short-lived, and affected individuals may quickly recover and return to a more stable economic situation. It highlights the distinction between chronic poverty, which persists over long periods, and temporary hardships that can be alleviated with support and resources.
Transnationalism: Transnationalism refers to the process through which individuals and groups create and maintain social, economic, and political connections that extend beyond national borders. This phenomenon highlights the complexities of globalization, showing how people navigate multiple identities and affiliations that span different countries.
Universal Basic Income: Universal Basic Income (UBI) is a social policy proposal that involves providing all citizens with a regular, unconditional sum of money, regardless of their income, employment status, or wealth. This approach aims to alleviate poverty and reduce income inequality, while also addressing the challenges posed by automation and technological advancements in the job market.
World Bank: The World Bank is an international financial institution that provides loans and grants to the governments of poorer countries for the purpose of pursuing capital projects. It aims to reduce poverty, promote sustainable economic development, and improve living standards through financial and technical assistance.