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

2nd Poverty Enlightenment – Mid 20th century onwards

There exists nowadays a widespread agreement on the idea that poverty is a social plague against which governments and international institutions 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. This post is the third of a series of three aiming at covering the story told by Ravallion. The first post explained that prior to the late 18th century, mercantilist thinking perceived poverty as a necessary ingredient of a prosperous society. The elite believed that, without the threat of hunger, the labor class would not be industrious. Furthermore, poor individual were held responsible for their misfortune, because of their supposed moral weaknesses. The first poverty Enlightenment which took place between the late 18th century and the middle of the 20th century changed those views. Poverty became perceived as a social bad that should be reduced, if the cost of public intervention was not too high. Nevertheless, in spite of this change in perception, the poor’s lot did not significantly improved until the middle of the 20th century.

As for the first revolution in thinking about poverty in the late 18th century, the Second Enlightenment occurred during a time of great political instability, in the middle of the 20th century. Unlike the first, the evolution of the incidence of poverty was not on the rise but on a marked decline. According to Bourguignon and Morrisson, if still more than half of the world population lived in extreme poverty in 1950, this figure dropped to approximately 20% by 1990.[2] This last figure is in line with estimates conducted by Ravallion and Chen.[3] In parallel, a shift took place in economic and philosophic thinking about poverty, that became a central indicator in the evaluation of social institutions. Ravallion notes that the frequency of the word “poverty” in the writings took off around 1960 to reach record figures in 300 years.[1] This illustrates that never before has this topic been more studied and discussed.

During the 1960-1970 period, utilitarianism was deeply questioned as a proper basis for evaluating public action against poverty. Indeed, this doctrine can justify actions increasing poverty, if the gains of wealthy individuals are judged sufficient. Amartya Sen noted that poverty is fundamentally a lack of freedom to live the life one chooses; and this freedom should be given absolute priority over whatever gains made by people already enjoying such freedom. This was in line with the two principles defended in the groundbreaking book John Rawls published in 1971: “A Theory of Justice”. First, each person should have equal right to the largest set of liberties that would be compatible with giving these liberties to all. Second, if social institutions caused inequalities, those should be in favor of the least advantaged individuals. This means that public action should focus on the worst-off individuals, that Rawls identified as being the ones with the lowest command on “primary goods”. A couple of years later, Sen put forwards the idea that individuals do not achieve the same liberties with an equal amount of “primary goods”. For example, handicapped persons might need more resources to be able to move from one place to another than fully able-bodied individuals. As a result, identifying the worst-off must be done by looking at “primary functionings”, what people are able to be and to do, rather than “primary goods”.[4]

Those theories imply that poverty can be seen as the main indicator of the economic performance of social institutions. Poverty should be thought in term of lack of liberty, and being equal before the Law does not guarantee equal liberties. Indeed, without the minimal material means necessary to achieve our personal objectives, legal rights are not worth much. Equal rights are therefore a necessary but not a sufficient condition for ensuring basic liberties. In a world of affluence, the presence of extreme poverty became perceived as morally unacceptable. In contradiction with what was accepted by mercantilism and utilitarianism, the lack of resources of some can never be accepted as a mean to improve the prosperity of others.

Policy makers’ perception of the poor radically changed. From being perceived as morally weak, they became seen as “trapped” into poverty. This expression refers to the so-called “poverty traps”, which consists in self-reinforcing mechanisms causing poverty to persist. In other words, there are reasons for which, once you are poor, it becomes very hard for you to get back on your feet. Cheap housing outside cities are one among many example of this. Poor people can often not afford other dwellings. Being away from the city, those areas are away from economic life and employment opportunities, which increases the difficulty for their residents, who often do not possess a car, to find a job. Another example of such mechanism is the difficulty for poor people to seize economic opportunities, as they can hardly obtain financial credits. If they nevertheless find entities accepting to lend them money, they will usually face higher interest rates. The existence of those traps shows that even hard-working individuals can stay poor, meaning that the moral weakness of poor people is a mistaken belief. These poverty traps have another important implication; they challenge the long lasting belief of the existence of a trade-off between equality and national prosperity. The more poor people break out of the trap or “promote” from poverty, the more people participate actively to the economy, thereby increasing national production. In this sense, poverty is a social bad that constrains the development of an economy, certainly not a necessary or acceptable ingredient of it. Therefore, any efficient action against poverty is composed of two different kinds of policies. First, social policies ensuring protection and second, promotion policies aimed at sustainably reduce the extent of poverty by helping people break out of poverty traps.

Nowadays, the set of different social policies used in the world has become quite large. Examples of protection measures are in-kind or in-cash transfers aimed at reducing the unmet material needs of the poor. At the opposite, free schooling for children of poor families or microfinance schemes are measures designed to break poverty traps. Hybrid measures such as conditional cash transfers aim at both protection and promotion. An example of such measure is to transfer cash to parents of poor families who send their children to school. Even if an ever-growing body of theoretical knowledge and empirical evidences has taught policy makers many things about the respective merits of these different measures, there exists no universal recipe for poverty reduction. First, not all those policies are applicable everywhere. It is for example difficult for developing countries to put in place transfer targeting poor people. The targeting of the poor requires administrative capacities that they seldom have. Second, the impact of a particular policy depends crucially of the conditions prevailing in the country where they are implemented. This is for example the case of growth promoting measures. It has been empirically observed that growth in developing countries tends to be distribution neutral.[5] Therefore, the more unequal a country is, the less the poor will benefit from growth. Finally, those measures can sometimes have perverse effects, which need to be put in balance with their benefits. For example, better targeting can increase the cost-effectiveness of a particular policy, but it can also generate new poverty traps. This is typically the case of the so-called “welfare traps”: if accepting a low-paid job does not significantly increase the income of a previously unemployed person, because she looses all the support she received, she has few incentives getting back to autonomy. All those considerations emphasize the importance to base anti-poverty policy decisions on sound economic theory backed up by conclusive empirical evidences. Knowledge is the key to efficient poverty reduction.

If there are disagreements on the proper policies to adopt in order to best reduce the incidence and depth of poverty, there is nevertheless a broad consensus that public action must be taken against it. Not only because it is the best way to promote the economic performance of one’s country but, above all, because this performance is to be judged by its success against poverty. As the paper of Ravallion shows, this perception is in marked contrast with the doctrines prevailing in the past. The progress made by most countries against poverty should nevertheless not be taken for granted, as the persistence of anti-poverty policy depends crucially on public support. It is therefore primordial to continuously communicate the knowledge that has been gathered regarding the positive net benefits brought by those measures.

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

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

[3] Martin Ravallion, Shaohua Chen, Global Poverty Rates, 2010.

[4] Amartya Sen, “Commodities and Capabilities”, 1985.

[5] Francisco Ferreira and Martin Ravallion, “Poverty and Inequality, the Global Context”, 2009.

 

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