There are those who would have us believe that poverty is a trap. Something in need of a beneficent government to aid people in escaping from. This provides lots of lovely jobsthatcan’tbefiredfrom for the Tarquins and Jocastas of this world and isn’t that a truly lovely thing.
The thing is they’re right:
Poverty matters and it lasts. It reduces wellbeing today and limits life chances tomorrow. That’s why it’s a disgrace that in the UK the incomes of the poorest families actually fell in the pre-crisis years, leaving them no higher in 2018-19 than in 2001-02. That’s not what progress looks like, but is what big benefit cuts produce.
For developing countries, the big question is why poverty lasts. That’s true between countries, where economic theory tells us incomes should converge but economic reality shows huge, lasting gaps. More than 700 million people lived in extreme poverty in 2015.
But there are also debates about why poverty lasts for individuals in poorer countries when opportunities exist to earn more. Now innovative research on poverty in Bangladesh debunks the idea that individual choice or failure is the explanation. Instead, it is a poverty trap.
The research is here. If you give a landless peasant a cow then they’re richer than when they were a landless peasant without a cow. So far so blindingly obvious. But the finding is actually that if you give them less than an amount then they lose it, more than the amount then they carry on building assets, income and wealth. This is fairly obvious if we give someone two thirds of a cow but it’s also true if we give them goats or chickens to that value. There needs to be a chunk of wealth transferred before it becomes self-sustaining.
Et voila, poverty is something that needs a definite leg up to get out of, it’s not something that can be done incrementally. It’s a trap and Jocasta has a rewarding career ahead of her.
Except, while this is true in this specific circumstance, it’s obviously not true more generally. For over 90% of humanity has escaped this level of poverty being talked about here – Bangladeshi landless peasants are on that $1.90 a day World Bank level which is absolute poverty and which 90% of us have escaped – and we didn’t all get given a cow by a beneficent government.
So, what’s going on here?
“Bangladesh has an inspiring story of reducing poverty and advancing development. Since 2000, the country has reduced poverty by half,” the report reads. “Between 2010 and 2016, about 8 million Bangladeshi exited poverty.”
As it happens that did coincide with the cow giving program but believe me, they didn’t hand out 8 million cows.
The report, Bangladesh Poverty Assessment, launched today, shows that robust economic growth continued driving poverty reduction, but at a slower rate. Since 2010, while the pace of economic growth increased, the rate of poverty reduction declined.
Based on the international poverty line of $1.90 per person per day, poverty declined from 44.2 percent in 1991 to 13.8 percent in 2016/17. In parallel, life expectancy, literacy rates and per capita food production have increased significantly. Progress was underpinned by 6 percent plus growth over the decade and reaching to 7.3 percent in 2016/2017, according to official estimates. Rapid growth enabled Bangladesh to reach the lower middle-income country status in 2015.
This isn’t being done by giving cows to peasants. It’s not even being done by making landless peasants slightly richer landless but cow owning peasants. It’s being done by people stopping being peasants. At which point we bring you Paul Krugman:
And yet, wherever the new export industries have grown, there has been measurable improvement in the lives of ordinary people. Partly this is because a growing industry must offer a somewhat higher wage than workers could get elsewhere in order to get them to move. More importantly, however, the growth of manufacturing–and of the penumbra of other jobs that the new export sector creates–has a ripple effect throughout the economy. The pressure on the land becomes less intense, so rural wages rise; the pool of unemployed urban dwellers always anxious for work shrinks, so factories start to compete with each other for workers, and urban wages also begin to rise.
Or the righteously lesser known Worstall immediately after he’d come back from having a look:
They’re having an industrial revolution, something that’s not pretty nor nice up close but it is happening. And like most other places that have had one they’re starting in textiles. Here it’s making up the garments, not the weaving or spinning. But that industry employs 4 million and produces 82% of exports.
It’s the old thing. The options are staring at the south end of a north moving water buffalo or the factory. And the water buffalo option produces an income (including domestic production of rice etc) of perhaps 2,000, maybe 3,000 takka a month. 20 to 30 quid. Rickshaw drivers get about the same. One thing I noted was that they’re direct drive, no gears on them. Asked around and gears are considered too expensive…..that’s a certain level of poverty, no? A short rickshaw ride is 10 takka. Got to do a lot of 10 p rides to make a living….
Minimum wage in the factories is 5,000 takka. Time and a half for overtime etc (not included in that number and min wage goes to the new entrants, no training etc). As ever in these sorts of industries the “names” pay better, offer free school for the kiddies, health care etc. The penumbra of subcontractors don’t. A typical career path is off the paddy into the subcontractor factory, a year or two later, with some experience and training under the belt, into one of the main contractors.
Yes, these are shitty wages and neither you nor I would want to try to live like that (note they’re at market exchange rates, not PPP, they understate the standard of living quite a bit, at UK prices think more like £150 a month). But the change wanted, the change desired, is happening.
That is, that poverty on the farm is a trap is true but it’s entirely unimportant. Because what reduces poverty is not making peasants slightly richer but corralling great gobs of them into the factories where they become the proletariat. You know, in this sense Marx was right. Or perhaps Joan Robinson – the only thing worse than being exploited by a capitalist is not being exploited by a capitalist.
There’s no damn point in making peasants richer. We want them to stop being peasants. Which isn’t a trap which needs a beneficent government to escape, rather something that governments should get out of the way of – beneficently perhaps.
The great economic question in all of history is how do we move on from us all standing around in muddy fields. “So, Rasel, you know how this rice stuff works?” “Fucked if I know Faruqe.” “Mohan, Mohammad, know how we stop the buffalo eating the stuff? “Not a scoobie, sorry.” The answer being that all go off and work in factories.