Poverty is a condition that exists when people lack adequate income and wealth to sustain basic standard of living.

Absolute Poverty exists when household income is below a necessary level to maintain basic living standards (food, shelter, housing), while Relative poverty exists when an individual possess far fewer resources than others in the same society.

Causes of Poverty

  • Illness: This is influenced by malnutrition and lack of basic healthcare which in-turn reduces life expectancy in an economy. The lower the life expectancy, the greater the poverty experienced in the economy.
  • High Population growth: this measures the annual percentage change in the population of a country. Poorer countries tend to have high population due to lots of factors which are: cultural norms, lack of contraceptives, poor sex education etc
  • Low Foreign Direct Investment: lack of capital resources also limits the ability of a country to create income and wealth. Poor countries with low capital resources will not have little multinationals to invest in them because of high risks and low financial returns
  • Unemployment: Labour productivity are always low in economically disadvantaged countries which makes it impossible for them to get good jobs and improve their skills.
  • Poor infrastructure: Infrastructure such as roads, airports, internet or ICT facilities are important for economic growth. If an economy lacks these basic infrastructure they will be unable to provide jobs which will improve poverty in the country or economy.
  • Corruption & Instability: Great opportunity cost arise as a result of political, social or economic instability in the country. Dishonest government officials would siphon money that could have been used to develop the economy.

Policies to alleviate poverty & redistribute income

  1. Improving Education: by improving access to education for everyone, it narrows the gap between the poor and the rich. Improved education would increase the quality & quantity of education, thereby improving human capital & productivity in the country, thereby causing economic growth and reducing poverty.
  2. Fiscal Policy: An attempt to reduce taxes, would encourage consumer spending, this would ensure that more goods are created and employment opportunities would abound and alleviate the problem of poverty.
  3. Monetary Policy:An attempt to reduce interest rates would encourage borrowing and investment expenditure which would create more jobs, there giving them an increase in disposable income and alleviating the problem of poverty.
  4. Welfare benefits: When government provides more welfare benefits, it enables helps ensure that resources are redistributed and every citizen would be able to access basic needs for survival. Welfare benefits could be in the form of pension funds for the aged, unemployment benefits etc.
  5. Progressive taxation: The government can increase the taxes of the elite, to reduce the disparity between the rich and the poor. High income earners would be charged based on their income or properties and the government would used such revenue to provide or support those with low income or without income.

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