Since when do public authorities care about poverty (1/3)

In the last 15 years, several international institutions have identified the reduction of poverty as one of their main objectives. The United Nations made it one of its height Millennium Development Goals and the European Commission identified it as one of its five headline targets for its EU 2020 strategy. This indicates a widespread agreement on the idea that poverty is a social plague against which governments and agencies must take action. As a recent paper by Martin Ravallion explains, this has not always been the case in the past. [1] His paper investigates the reversal that occurred over the last 3 centuries in the political and economical thinking about poverty. The evolution concerned not only the necessity for public action against it but also the understanding of the factors causing poverty, the possibility that public action reduces its incidence and finally the type of actions that are likely to effectively reach that objective.

The story told by Ravallion starts in the early 18th century. In that time, Mercantilism was the dominant doctrine among European elites. This doctrine perceived poverty as a social good, essential for the economical development of a country. Furthermore, bad behaviors of poor people were believed to be the cause of their own fate. Therefore, even if transient actions could be undertaken by the state to protect poor people in case of adverse events, it was judged not only undesirable but also impossible to sustainably reduce the incidence of poverty. In the last three centuries, Ravallion identifies two major steps that challenged those views, that he dubs “the First and Second Poverty Enlightenment”. The First started in the late 18th century when new ideas emerged in Europe about equality. Actors of the French Revolution but also intellectuals outside France like Adam Smith, Jeremy Bentham or Immanuel Kant made the case for an equal consideration of the interests of all citizens, aristocrats or not, rich or poor. In the 19th century, the political changes responding to these views benefited to the bourgeoisie, but did not bring substantial amelioration of the lot of the poor. The Second Enlightenment, beginning in the middle of the 20th century, conducted to the emergence of a radical new way of evaluating social institutions. Economists and philosophers understood that the assumption of holding poor people responsible for their situation was just incorrect. Rather, institutional arrangements play a big role in causing poverty and therefore ought to be judged based on their performance in reducing it.

This series of three posts aims at covering important steps of the story told by Ravallion. The period dominated by Mercantilism is summarized below, while the changes occurring during the two “Poverty Enlightenments” are investigated in the second and third posts.

Mercantilism – Prior to the late 18th century.

Prior to the late 18th century, Mercantilism dominated political and economic thinking. According to that doctrine, the objective of governments was to maximize the total wealth of their country. The key indicator for measuring progress was the balance of trade and sound policy consisted in promoting national commercial interests. Poverty was seen as a social good, because of the instrumental role it was supposed to play in economic development. The reasoning made was that poverty motivates the laborious class to work hard, even for low wages, which benefits the industry. In 1771, Arthur Young expressed this idea in a colorful way: “Everyone but an idiot knows that the lower class must be kept poor or they will never be industrious”. In economical terms, the supply for unskilled labor was believed to have a negative slope: the higher the wage perceived by workers, the fewer hours they would decide to work. Defending this view, Joseph Townsend wrote in 1786: “The poor know little of the motives which stimulate the higher ranks to action – pride, honor and ambition. In general, it is only hunger which can spur and goad them onto labor”. If governments pushed for economic development, they did not count the poor as one of its intended beneficiaries. One should not conclude from this that poverty was seen as intrinsically desirable, but it was considered to be a necessary ingredient of a healthy economy.

Theologies encouraged charitable donations, which they saw as virtuous. Nevertheless, the means collected through this channel, significantly below 1% of national income in most countries, were far from sufficient to cover the enormous unmet needs. Bourguignon and Morrisson have estimated that in 1820, 84% of the world population lived into “extreme poverty”, defined by a poverty line corresponding to 1$ a day at 1985 purchasing power parity.[2] Could governments not take action to sustainably reduce the extent of poverty? In those times, such actions – judged undesirable because of their perverse incentive effects – were thought as doomed to fail. Indeed, the dominant view was that poor people were responsible for their fate, largely because of their moral weaknesses. They were perceived to be lazy, have too many children and make wrong spending decisions, like for example spend a large fraction of their income on alcohol consumption.

On that basis, the only scope for anti-poverty policy was to offer transient protection against the accidents of life. The Poor Laws established in England during the 17th century were a prominent example of such policies. This system provided public insurance (money transfers) against income poverty coming from specific sources, such as old age, disability, widowhood, illness or unemployment. It was financed through local taxation on property.  These laws allowed a real gain in the degree of social protection and some have even argued that they helped break the direct relation that existed between bad harvests and mortality.[3] Solar has argued that the seemingly successful protection can partly explain the social stability in England during the 17th to 19th century, despite the political events that occurred in France.[4] This set of policies was therefore very useful from a mercantilism point of view, as they helped assure a docile and sustained working class at relatively low costs.

Before the end of the 18th century, poverty was hence perceived as a necessity for the promotion of national wealth. Poor people were largely held responsible for their disgrace and therefore no efforts of society was thought to be able of sustainably improving their fate. The only relief poor people could expect from society were scarce charitable donations or periodic support in particularly bad circumstances. This contrasts markedly with contemporary thinking about poverty. The paper of Ravallion summarizes the major steps that caused this evolution. The two other post of this series aims at covering these steps.

[1] Martin Ravallion, “The Idea of anti-Poverty Policy”, 2013.

[2] François Bougruignon and Christian Morrisson, “Inequality among World Citizens: 1820 – 1992”, 1992.

[3] Richard Smith, “Social Security as a Development Insitution? The Relative Efficacy of Poor Relief Provision under the English Old Poor Law”, 2011.

[4] Peter Solar, “Poor Relief and English Economic Development before the Industrial Revolution”, 1995.

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