vicious circle of poverty

poverty is a great curse. It is the biggest hurdle in the way of economic development. Ranger Nurkse
in ''Problems of Capital Formation in Underdeveloped Countries'' describes 'vicious circle of poverty
as the basic cause of under-development of poor countries. According to him, a country is poor
because it is poor. Being poor, a country has little ability or incentive to save. The low of saving leads
to low level of investment and to deficiency of capital. The low of investment leads to low level of
productivity. When the productivity per worker is low, the real income will obviously be low and so
there poverty and vicious circle is complete.

On the side of demand when people have low real income the demand for goods is bound to be
small. In the small size of market, there is no incentive of invest in real or human capital. When the
rate of investment is low, the productivity of the factors of production is bound to be low. Low
productivity leads to low per capital income which is rapidly absorbed by the rising population
growth. The country, therefore, remained poor.

The vicious circle of underdevelopment

Lower per capita incomes make it extremely difficult for poor nations to save and invest, a condition
that perpetuates low productivity and low incomes. Furthermore, rapid population growth may
quickly absorb increases in per capita real income and thereby may negate the possibility of
breaking out of the underdevelopment circle.

How to break this vicious circle of poverty?

Remaining poor is certainly no crime. The accepting of poverty and allowing it to continue is certainly
a crime. Briefly, the vicious circle of poverty can be broken in developing countries including Pakistan
by adopting following measures.

(1) Increase in savings. The vicious of circle of poverty can be broken by making serious efforts in
increasing the volume of real savings both at the level of in development the govt. The govt. can also
mobilize foreign savings for capital formation country.

(2) Higher per capital growth rate. The per capital growth rate should be higher than the rate of
growth of population. This objective be achieved by increasing the level of employment in the
country and reducing the rate of population growth. If the rate of increase in real per capital income
is the same as the rate of growth of population, the real income per person will remain unchanged.

(3) Efficient use of natural resources. The less developed countries (LDC) are not making the
efficient use of the natural resources available to them. At present the multi national companies
(MNCs) of the advanced countries are exploiting these resources more for their own economic
benefits. The economic advantages of the natural resources must pass on to the benefits of the poor
masses of the LDCs.

(4) Employment of human resources. Many of the less developing countries including Pakistan
are faced with serious unemployment problem. The quality of labour force is also poor. The low level
of literacy, malnutrition, absence of proper medical care etc are all barriers to economic development
Effective measures have to be taken for sufficient investment in human capital to break the poverty
barrier of the LDCs.

(5) Increasing the stock of capital goods. The LDCs can come out of the vicious circle pf poverty
if the wealthy class is motivated to make their savings available for investment in productive
activates rather than using their wealth on the purchase of urban real estates, precious metals etc.
(6) Technological advance. The people in less developed countries (LDCs) can break the poverty
barrier by adopting and applying advance technologies which are appropriate to the resources
available to them.

(7) Role of the advanced nations. The advanced nations san help the less developed countries in
breaking the poverty barrier by:

(i) expanding volume of trade with them.

(ii) increasing the flow of private and public capital in basic infrastructure.

(iii) provision of direct aid in basic social sectors such as education, health etc.

(iv) provision of soft loans for development.

(v) writing off loans.

(8) Role for the government. The government in the less developed country is in the key position to
deal effectively with social institutional obstacles to growth and breaking out the vicious circle of
poverty. It can greatly root out political corruption and bribery. It can provide incentives to save and
invest. It can increase agricultural production by introducing effective land reforms in the country.
Vicious Circle of Poverty A'' Country is poor become it is poor:
Another major cause of economic backwardness is the vicious circle of poverty. Due to
backwardness there is not optimum use of resources and due to this reason goods are not produced
on the principle of specialisation and division of labour and hence production remains low. Low level
of production is due to imperfect markets. Therefore, the level of income of the people is low and
hence, level of savings is low. Low level of savings is responsible for low level of investment as a
result capital formation rate remains low and problem of shortage of capital arises in these countries
and therefore, shortage of capital is the major cause of their underdevelopment.