c




  
  

 

 


   

180 MILLION DEATHS HAVE BEEN CAUSED BY WARS ...............

2.5 BILLION PEOPLE µLIVE¶ DAILY TO FIGHT FOR THEIR LIVES........

Ô
 

 

     
  Ô 
{
  

 
 
 
 

 
   
 


 

   

  
-ADAM SMITH

Poverty : What is poverty ? Does this term really find it¶s meaning in definitions
given by the World Bank or other institutions µworking towards¶ this cause. Is this
an absolute situation or a relative phenomenon? What is the cause of poverty and if
it¶s a relative situation how are we contributing to this condition. If it¶s an absolute
situation can it be taken care of,or will it always be there?

We discuss all these points in this report and also track some of the causes of
poverty over the ages.

Poverty can be understood from the descriptions of the social institutions working
in this regard but it can be felt only through empathy with those who live under the
conditions imposed by poverty.

In his talisman mahatma Gandhi tries to express his social thought regarding
poverty and tries to invoke a sense of social responsibility amongst us.

"I will give you a talisman. Whenever you are in doubt, or when the self becomes
too much with you, apply the following test. Recall the face of the poorest and the
weakest man [woman] whom you may have seen, and ask yourself, if the step you
contemplate is going to be of any use to him [her]. Will he [she] gain anything by
it? Will it restore him [her] to a control over his [her] own life and destiny? In
other words, will it lead to swaraj [freedom] for the hungry and spiritually starving
millions?
Then you will find your doubts and yourself melt away."

He thus feels that whether poverty be a relative or absolute situation we have a part
to play in the lives of those who experience it. We are the one¶s responsible for
each other¶s life whether it be on a small scale or a large scale.
Poverty feels like being trapped in a room with insufficient air . It feels like being
strangled .

Imagine yourself being strangled throughout your life. How does it feel now?

INDEX

 1. DEFINITION
 2. CONCEPT + LIMITATIONS
 X. POVERTY ON A GLOBAL SCALE : FACTORS CONTRIBUTING TO
IT
 o. TIMELINE + HISTORY
 5. POVERTY ALLEVIATION
 †. MILLENIUM DEVELOPMENT PROGRAM
 . BPL
 8. SURVEY
 6 




Don¶t ask me what poverty is because you have met it outside my house. Look at
the house and count the number of holes. Look at my utensils and the clothes
that
I am wearing. Look at everything and write what you see. What you see is
poverty6


The concept of poverty is translated into policy through a more precise set of
definitions and measures. While, as argued in the Introduction, it is important not
to confuse definitions and measures, some of the issues raised straddle the two and
loop back into conceptualizations. Definitions are the subject of this first chapter;
measures are dealt with in the second. After a general discussion of different
approaches to defining poverty, chapter 1 looks at the traditional opposition
between µabsolute¶ and µrelative¶ definitions and at alternative formulations that
attempt to reconcile the two.

 !"#$%%&'#

How we define poverty is critical to political, policy and academic debates about
the concept. It is bound up with explanations and has implications for solutions.
Value judgements are involved. Definition thus has to be understood as a political
as well as a social scientific act and as such has often been the source of
controversy. There is no single µcorrect¶ definition. However, as we shall see, most
researchers now accept
that any definition has to be understood, at least in part, in relation to particular
social, cultural and historical contexts. This has implications for studies that
attempt to compare poverty in very different kinds of society.

()*
Definitions vary according to their narrowness or breadth, that is in terms of:
whether they are confined to the material core; the nature of that material core; and
whether they embrace also relational/symbolic factors associated with poverty, as
identified in the Introduction. Nolan and Whelan are among those who argue for a
definition towards the narrower end of the scale on the grounds that too broad a
definition
runs the danger of losing sight of the distinctive µcore notion of poverty¶.
Following Townsend, they define poverty in terms of the %+%,%###% %#
% " %# (which is broader than more µabsolute¶ definitions confined to
subsistence needs), but emphasize that what is distinctive is the µinability to
participate owing to lack of resources¶. This confines their definition µto those
areas of life where consumption or participation are determined primarily by
command over financial resources¶.

By implication they exclude non-material elements found in broad ($%%#%"

$-,./, 0$#% %#%%( %"%10%&2/'%,#%$!3
(%&%#2/),""""2(/"3" #%+%,%##'%, 2Similarly, they exclude
some of the non-material aspects emphasized by people in poverty themselves,
such as lack of voice, respect and self-esteem, isolation and humiliation. Given
that, as argued in the Introduction, the function of a definition is to differentiate the
condition defined (poverty) from other conditions (non-poverty), it makes sense to
pitch the  of poverty towards the narrower end of the spectrum. Aspects
such as µlack of participation in decision-making¶, µsusceptibility to violence¶ and
µhumiliation¶ are not unique to thecondition of poverty; they are also associated
with other conditions such as being Black in a White-dominated society.However,
in order not to lose sight of the condition¶s wider meanings and of the
interpenetration of the material and the relational/symbolic, it is important that
definitions of poverty are not divorced from wider  
  such as that
developed in subsequent chapters.



 ,%'%&"#(("*
Another source of variation in definitions of poverty, reflected in the literature on
measurement, lies in whether they are rooted in conceptualizations that are
concerned with, on the one hand, a person¶s material resources, especially income,
and, on the other, with actual outcomes in terms of living standards and activities.
As Stein Ringen puts it, µin the first case, poverty is defined indirectly through the
determinants of way of life, in the second case, directly by way of life¶. In practice,
these two approaches are often treated as complementary (as in Nolan and
Whelan¶s definition above and Townsend¶s below). Indeed, Ringen¶s own
definition is not unusual in combining the two: µ ,) "#(( $ ,%'%&
%& (%'#% % ) $ ,%$ + 3" $ %"3$$% %# "3 " # '%(
"3 !(%'#%2. Put simply, someone is µ³poor´ when they have both a low
standard of living and a low income¶.

A. B. Atkinson makes a related, but more fundamental, distinction between a

concern with standard of living and a concern with a citizen¶s µto a minimum
level of resources¶. The former is more common in the literature and as the basis
for empirical research. The latter might be said to be implicit in measures of
poverty based on the numbers falling below a certain point in the income scale or
the level of income provided by a country¶s social assistance scheme. While
the/%&!# #  %%3 ,', $ "3 "2 has not been widely adopted as an
explicit definition of poverty, it does have a value as one element in a broader
conceptualization of poverty. It means that people µare entitled, as citizens, to a
minimum income, the disposal of which is a matter for them¶ and which µmay be
regarded as a pre-requisite for participation in a particular society, as a guarantee
of ³positive freedom´. Poverty is increasingly being conceptualized as a(%, $
!3( %#%4"!%%&!#".

The conceptualization of poverty in this way is also helpful from the perspective of
understanding and combating women¶s poverty. Following Atkinson, Stephen
Jenkins sug-gests that a feminist concept of poverty can be described in terms of an
µindividual %&!# #  %%3 (& $ ##%,  %  %(( 2.
Although the feminist definition propounded by Millar and Glendinning is not
couched in the language of rights, it focuses on the individual¶s capacity to be self-
supporting on the grounds that µpeople who are financially dependent upon others
must be considered vulnerable to poverty¶. The notion of vulnerability is helpful to
understanding the situation of women without an independent income who
nevertheless enjoy a comfortable standard of living.

  +%,%#%"*
The work of # offers an alternative perspective on the role of low
income in the definition of poverty. It has been hugely influential within the
international development context, contributing to a paradigm shift in the meaning
of development away from economic growth and GDP to a focus on µ'#"
(%, $ !% " ( #3%#%" $ ,%'%&  #,+, ,%$256. The
human poverty and development indices published in the annual UNDP Human
Development Report reflect Sen¶s approach. Although its initial impact on thinking
and research about poverty in the North was less marked, increasingly Sen¶s ideas
are percolating through. His approach offers insights that are helpful to
poverty¶s broader conceptualization in the North. It also, as we shall see below,
throws light on the absolute±relative question.
What is at issue is µa life that is worthy of the dignity of the human being¶. In
effect, capability theorists focus on the positive ± of the kind of life we want
people to be able to achieve in order to µflourish¶ rather than the negative ± of the
lack of material resources that can prevent them from achieving it. In doing so,
they usefully integrate poverty into the wider concerns of the population as a whole
and into a wider social scientific literature, rather than ghettoizing it in a separate
box. In the context of the South this is reflected in ideas of µhuman development¶
and µwell-being¶.



/
2


Absolute poverty measures set a poverty line at a certain income amount or
consumption amount per year, based on the estimated value of a µbasket of goods¶
(food, shelter, water, etc.) necessary for proper living. For example, if $5 a day is
determined to be the income poverty line in a country, then anyone with an income
of less than $1860 would be considered impoverished. If instead a poverty line
based on consumption was used, anyone consuming goods with a monetary value
of less than $1860 would be in poverty.

The most commonly used definition of global poverty is the absolute poverty line
set by the World Bank. Poverty is set at an income of $2 a day or less, and extreme
poverty is set at $1 a day or less. This line was first created in 1990 when the
World Bank published its World Development Report and found that most
developing countries set their poverty lines at $1 a day. The $2 mark was created
for developing nations with slightly better income levels than their $1 a day
counterparts. More developed countries are permitted to set their poverty lines
elsewhere (it would be silly to assume a statistically significant group of people in
the U.S. made less than $1 a day, though there are obviously many impoverished
people living there). For highly industrialized countries, such as Britain, Japan, and
the U.S., the absolute poverty line is usually set higher (for example, the line has
been set at $14.40 in the past). The 2005 poverty line for single individuals in the
United States is set at $26.19 a day.

As of 2001, 1.1 billion people, or 21% of the 2001 world population, had incomes
less than the World Bank¶s µ$1 a day¶ line for extreme poverty. 2.7 billion people
had incomes less than the World Bank¶s µ$2 a day¶ line for poverty. While this is a
decline from past years (in 1981, there were 1.5 billion people in extreme poverty),
it still means that almost one-half of the world¶s population lives in poverty,
mainly in sub-Saharan African andSouth Asia.


/ 


2

Relative poverty measures are the simplest ways to determine the extent of poverty
in individual countries. Using this method, the entire population is ranked in order
of income per capita. The bottom 10% (or whatever percentage the government
chooses to use) is then considered µpoor¶ or µimpoverished.¶ This can be fine for
country-wide measurements, but it has some major drawbacks in global use. If,
say, a 10% relative poverty measurement was applied in a global setting, it would
appear that both anindustrialized country, such as the U.S., and a sub-Saharan
Africancountry had the same 10% poverty rate, even though the conditions of the
poor in sub-Saharan Africa are much worse than conditions in the U.S. For this
reason, absolute poverty measures are more often used to define poverty on a
global scale.

lWHAT THE µPOOR¶ THINK OF POVERTY?´

The evidence suggests that poverty is a multidimensional social

phenomenon.Definitions ofpoverty and its causes vary by gender, age, culture, and
other social and economic contexts. Forexample, in both rural and urban !,
men associate poverty with a lack of material assets,whereas for women, poverty is
defined as food insecurity. Generational differences emerged aswell. Younger men
in Ghana consider the ability to generate an income as the most importantasset,
whereas older men cite as most important the status connected to a traditional
agricultural lifestyle (Ghana).

Perceived causes of poverty are affected by one¶s status and location. In

7(&"  forexample, farmers linked poverty to drought; the poor in the city to
rising prices and feweremployment opportunities; the rich to ³deterioration in
domestic and international terms of trade,neglect of Malagasay traditions and
norms, lack of motivation among certain classes and groupsof people, price
liberalization and devaluation, lack of education and absence of governance
(Madagascar).
Poverty never results from the lack one thing but from many interlocking factors
that cluster inpoor people¶s experiences and definitions of poverty. In !%,%%",
in the Mindanao region,women said ³we boil bananas for our children if food is
not available. In some cases, when theDepartment of Agriculture distributes corn
seeds, we cook these seeds instead of planting them.Ironically, they borrow money
to acquire these seeds. The cycle of poverty continues as they areunable to pay for
these loans´ (Philippines).

In 3#,, a Cackchiquel Indian who works as a hired agricultural laborer

said, ³During thelast eight years we have faced a greater state of poverty than
before in that we can¶t buy much toeat and we suffer when it rains because there¶s
no work and everything is very expensive. . . .Here in the community we don¶t
have much hope to live better with what we earn. There aremany needs, but the
principle one is food, which is not sufficient, and we don¶t have a place tolive or
the means to pay rent´ (Guatemala 1994a).

In Vietnam, the poverty as defined by poor people is as follows:

,#%',),,1$$!3"!,("

 Possess solid and stable houses that are usually renovated every15 years
 Have transportation, either a motorbike or a bicycle or both
 Àwn a television
 Can send their children to school
 Never lack money even after the harvest has been eaten or sold
 Are able to save money
 Have a gardenwith useful plants and trees

'& 3"!,("

 Have a stable house that usually does not need renovating for ten years
 Àwn a TV and/or a radio
 Have enough food all year round
 Can send their children to school
 Have wells or easy access to water

 3"!,("

 ©ive in unstable houses, often made with mud

 Have no TV or radio
  Aren¶t able to save money
 Some have children who can¶t go to school, or have to leave school prematurely
 Usually have enough food until the next harvest, although sometime slack food for one to
two months per year
 Are unable to utilize surrounding natural resources to their benefit

 3"!,("

 ©ive in very unstable houses that often need to be rebuilt every two to three years
 Have no wells or easy access to fresh water

Poor people give and rich and nuanced descriptions of poverty. In fact some of
their categorieswill sound familiar to poverty analysts. In Swaziland, groups
distinguished between the³temporarily poor´ and the ³new poor.´ The temporarily
poor were defined as ³those who couldfeed themselves before the drought but are
now hungry²previously prosperous cotton farmerswho are now struggling like
us,´ and the new poor as, ³previously rich people who have losttheir cattle through
cattle rustling, widows whose husbands had left them cattle but who nowhave
nothing to sell to educate their children´ (Swaziland 1997).

’   
           

     Brazil 1995

’
     ’ 
  
  

’
   
! ’
  ’   
 ’
’    
²A 10-year-old child, Gabon 1997

"         ²Ukraine 1996

’
      
’       

 


#    
   
  
 ²A poor man, Niger 1996

c
  

   # 
    
 

 
    ²Ghana 1995a

! 
 

   
 
       

²Cackchiquel Indian, Guatemala 1994b
  
.
7 7


 #3,%""3"

Any study of poverty has to begin with what Sen (1981) calls an exercise of
³identification,´ a method that distinguishes the poor from the nonpoor in a
population that includes the poor. The most widely used method of identification is
to define a norm or set of norms and classify anyone who does not meet the norm
or norms as poor. Both the poverty norm and the population will be distinguished
by time and spatial dimensions. Given a norm for identifying whether each
member of a specified population at a specified time and place is poor, there is the
further issue of deriving a poverty measure that aggregates the member-specific
poverty status over the specified population, over space and over time.

AmartyaSen sees the measurement of poverty as ³an exercise of description

assessing the predicament of people in terms of the prevailing standards of
necessities. It is primarily a factual rather than an ethical exercise, and the facts
relate to what is regarded as deprivation.´ By basing measurement on social norms,
that is, ³prevailing standards of necessities,´ this view would seem to eschew
welfarism; that is, the idea that an individual¶s welfare, as judged by that
individual, should be the basis from which any assessment of the state of affairs in
a population, (e.g. the extent of poverty in that population) is to be made.

However, in his subsequent discussion of the income based method of

identification, Sen argues that ³if the poverty level income can be derived from
behavior norms of society, a person with a higher income who is choosing to fast
on a bed of nails can, with some legitimacy, be declared to be nonpoor.´ If indeed
such a person can be presumed to fast because he prefers it to consuming the
bundle constituting the prevailing standards of necessities, then classifying him as
nonpoor is welfarist.

Whether or not one takes a welfarist view, one could reasonably argue that th
identification exercise should preferably encompass an individual¶s lifetime: an

individual who meets the prevailing poverty norm by borrowing in the presen
should nevertheless be deemed poor if servicing the debt will push him into
poverty in the future. A welfarist approach involves deep ethical and philosophica
problems regarding what constitutes individual welfare, and whether a minimum
degree of comparability of the chosen welfare measure across individuals can b
postulated so that a meaningful aggregation over individual members of population
is possible. Senhimself among others, has written extensively on these matters.
However, these are essentially theoretical issues. There is not much an empirical
study can contribute in this regard. However, an empirical study can explore the
implications of alternative poverty norms, whether or not they have any welfarist
connotations.

7"3#%""3"

In the poverty literature, it is customary to define a threshold level of per person

real income or consumption as the poverty line, with anyone having real income or
consumption below the poverty line deemed as poor. This does not necessarily
imply that dimensions of poverty other than income or consumption are not as
important or more important, particularly deprivations in health, education, and

democratic rights. However, there are difficult measurement issues associated with
all of these dimensions.

The best and most easily understood starting point for deriving a consumption-
based poverty line is a ³poverty consumption´ bundle of goods and services for a
representative (in size and age-gender composition) household. It is common to
assume that part of the bundle would be provided free or at subsidized prices by
Valuing the private component of the bundle at appropriate prices yields the
poverty line. This valuation of the private component is in effect what an expert
group did for India¶s Planning Commission in 1962, in defining poverty lines for
rural and urban households in India. There is unavoidable arbitrariness in
determining which goods and services (and in what amounts) are to be included in
a poverty bundle. Nevertheless, given a poverty bundle for a representative
household, appropriate adjustments for differences of any other household in its
size and age-gender composition could be made to arrive at a household-specific
poverty line. A household would be deemed to be poor if it does not have the
resources, measured in terms of either income or total consumption expenditure, to
buy the private component of its poverty bundle at the prices it faces. In such a
definition, a household that can afford to but does not buy its poverty bundle is not
deemed poor.

Clearly, if an annual survey collects data on the resources that each household
commands and the prices it faces, it is a straightforward matter to estimate the
number of the poor. As long as the constituents and the nonprivate component of
the poverty bundle remain the same over time and space and surveys in different
regions and time periods continue to collect household-specific data on resources
and prices, estimating the poor in each region and time period continues to be
relatively uncomplicated.

The price data collected in different household expenditure surveys differ in their
coverage, completeness, and representativeness. In some, only total expenditure
data are collected. In others, total expenditures on and quantities purchased of each
com- modity are collected so that unit values could be computed. In still others,
prices paid are also collected along with quantities purchased. But we know of no
survey that collects data on prices actually paid by household in each of their
transactions involving purchasing included in their consumption. The Indian
National Sample Survey (NSS) does collect price data (although it is not
transaction specific).

Clearly, it is impractical to update poverty lines through revaluation of a given

poverty bundle at prices that are specific to each household, region, and period of
time. As such, a common practice is to use some price index to adjust some
poverty line (not necessarily one derived from valuing a poverty bundle) at base
year (or base region) prices to arrive at a poverty line for a different year (or
region). The fact that poor (rural) households face different prices compared with
non poor (urban) households could be taken into account in such an approach by
using poor-specific rural and urban prices indexes to update poverty lines (or
alternatively to deflate consumption expenditures). For example, in India, because
a large proportion of rural poor are believed to be landless agricultural laborers, the
consumer price index for agricultural laborers has been used for updating the rural
poverty line in official estimates of poverty. A simple average of the consumer
price index for industrial workers and that for urban non manual workers is used to
update the poverty line. However, commodity weights used in constructing these
indexes are outdated, and the price quotations used are not representative of the
relevant transactions. Using commodity weights and unit values

based on the household surveys, Deaton and Tarozzi recomputed the poverty
estimates. They find that, in contrast to the diverging trends in the official
estimates, ³between 1987±1988 and 1993±1994, there was no great difference in
the rate of decline of urban and rural poverty.´ Clearly, the choice of price index
matters. But whatever index is used, as Deaton points out, the basic, standard
textbook index number problem remains and cannot be wished away.

There is no need for any exchange rate in such a calculation because such an
internationally accepted bundle does not exist, it does not make sense to simply
convert $1/day to local currency values using purchasing power parity (PPP)
exchange rates with commodities weighted by their shares in the consumption of
the poor. The reason is that doing so makes poverty lines move around with
changes in PPP exchange rates arising from world market price changes that have
no relevance to the poor. For example,

the poverty line for one country would be shifted by a change in the world price of
a commodity that is not consumed by the poor in that country but consumed

by the poor in some other country, because such a price change affects the PPP
exchange rate. In any case, global poverty counts are based on neither a common
global poverty bundle nor conversions to local currency values using PPP
exchange rates with commodity weights more relevant to the poor.

An international poverty line for base year 1985 was chosen ($1/day at 1985 PPP
dollars) as being representative of poverty lines in use in low-income countries. In
making this choice, poverty lines in local currency (consumption expenditures per
person per day) in use in 1985 were presumably converted to US dollar terms
using the then-available PPP exchange rate for each currency. Because these were
apparently found to cluster around one dollar, $1/day in constant 1985 PPP dollars
was seen as representative of the poverty lines then in use.

#%""3"

Most poverty estimates are based on household survey data. Àn the other hand,
some of the data that are used in the analysis of determinants of poverty at the
national or regional level (rather than at the level of a household) are from national
accounts statistics or other sources. In particular, growth estimates are almost
always based on real GDP data from national accounts. Very often, the mutual
consistency of diverse data sources cannot be assured. Also, data from different
sources could differ in their biases and measurement errors.
 X 


Ô!"(#!"% !*

No new light has been thrown on the reason why poor countriesare poor and rich
countries are rich.



'# has existed for a very long time, and to different extents it remains
worldwide still now in this 21st century. In primitive societies it was most often the
case that everybody was equally poor, but more modern societies have generally
tended to involve poverty being confined to an often substantial minority only -
though this can often harm those concerned even more than universal poverty does.
The most important event in human economic history before the industrial
revolution was the Neolithic transition from a nomadic hunter-gatherer lifestyle to
sedentary agriculture, beginning §10,000 years ago. The transition made possible
the human population explosion, the rise of non-food-producing specialists, and
the acceleration of technological progress that led eventually to the industrial
revolution. But the transition occurred at different times in different regions of the
world, with big consequences for the present-day economic conditions of
populations indigenous to each region. In this article, we show that differences in
biogeographic initial conditions and in geography largely account for the different
timings of the Neolithic transition and, thereby, ultimately help account for the
100-fold differences among the prosperity of nations today. The effects of
biogeography and geography on the wealth of nations are partly mediated by the
quality of present-day institutions but also are partly independent of institutional
quality.

The prosperity of nations varies enormously. If one ranks countries by their per
capita incomes, those in the top 10% are on average §30 times richer than those in
the bottom 10%. The richest country is >100 times more prosperous than the
poorest .How can this large variation in the wealth of nations be explained?

Traditionally, economists emphasize the accumulation of human and physical

capital and successful adoption of state-of-the-art technologies as the main
explanations of variation in economic productivity. Recently, however, economists
have begun to regard those explanations as proximate ones and to appreciate the
role of deeper institutional explanations of those proximate factors. Capital
accumulation and technology adoption are now commonly viewed as proximate
variables molded by the political institutions essential for the smooth functioning
of markets, such as honest and efficient government based on the rule of law and
promoting impartial enforcement of contracts, protection of private property from
theft and government takeover, and related practices safeguarding the fruits of
entrepreneurship, innovation, investment, and hard work . Empirical studies have
established strong connections between such ³good institutions´ and national
economic performance.

Here, we demonstrate the importance of still deeper, more nearly ultimate sources
of contemporary prosperity: biogeographic initial conditions 12,000 years ago, just
before the origins of agriculture.
The enormous size of the Eurasian continent, the large Mediterranean zone of
western Eurasia, and the East-West orientation of the continent's major axis
compared with that of other continents meant that Eurasia was prehistorically
endowed with more numerous and more valuable wild plant and animal species
suited for domestication and with natural corridors facilitating rapid dispersal of
those species as well as of technologies, ideas, and people. Because of those
geographic and biogeographic advantages, the original transition from the hunting-
gathering lifestyle that had prevailed throughout the previous 5 million years of
human history to agriculture and animal husbandry occurred earlier in Eurasia than
anywhere else. The capacity of agriculture to yield far more food, feed far more
people, and generate storable food surpluses permitted the development of
specialized classes who were freed of the necessity of raising their own food and
were crucial for the development of technology and of complex political
institutions and, hence, for economic growth.

The following conclusions have been drawn up on the basis of various studies

>i) &! is a key determinant of the biogeographic usefulness to

humans of various regions in prehistory.
>ii) The richer the +%&&!% ()# in broad regions of the world,
the earlier was the transition to settled agriculture and, thus, the earlier
was the onset of accelerated technological development and economic
growth. 
>iii) Although ,%#% ,1%"#%#3#%, (%#%" are the most powerful
proximate source of the wealth of nations, geography and initial
biogeography remain significant explanatory variables even after
institutions are taken into account


Ô!#!" 3#%""*
In reference to the above points we explain the answer to this puzzle. The answer
to this all-important question is two-fold. First, they are poor because they are
subject to one or more of the factors described below, many of them in a dynamic
where one factor leads to, or compounds, another. Second, they are poor simply
because they are poor;poverty in these extremes is tremendously self-perpetuating
± it is a vicious cycle, or trap. The state has no money because its citizens cannot
get above subsistence living to start businesses, earn incomes, save, invest, and pay
taxes. Because the state has no money, it cannot provide its citizens with basic
health care, education, housing, and security, which further limits their ability to
rise above subsistence living to start businesses, earn incomes, save, invest, and
pay taxes. The cycle then repeats, for generations and generations. Most of the
countries in which the poorest billion
citizens live are classified either as
failing states or failed states, and they
constantly move back and forth along
the negative end of this spectrum.

It is interesting to note there are some

well-respected experts who argue that
these countries should never have
been countries in the first place. They contend that some nations are just too
disadvantaged geographically, incorporating within their borders combustible
ethnic configurations and scarce resources, circumstances that even the most adept
leadership could not negotiate successfully. That many of them are ex-colonies of
the West helps to explain the illogical combination of elements that composes
these nations. In hindsight, they argue that the better alternative would have been
for larger, more economically viable countries formed along more sensible
boundaries, where resource scarcity and economic risk could be balanced and
would not exacerbate ethnic tensions to the degree that has occurred in Africa and
elsewhere. Instead, among ©DCs, multiple factors have coalesced to form perfect
storms of extreme and debilitating poverty.

! #%"#% "$"#',(3#%"5"6

The very factors that cause these countries to be poor are the same as those that
have kept their economies from growing (through industrialization, modernization,
and export-diversification) and, tragically, the exact same facts that impact their
ability to make good use of development assistance in order to achieve that
growth. This is important to remember when examining the effectiveness of tools
designed to foster growth among the poorest billion. It is extraordinarily difficult
to say with any certainty what is a cause of poverty, what is a result, and what is a
perpetuating, accelerating or complicating factor. All are interconnected.

6 &!
Geography is frequently a prominent theme of any issue or region examined in the
World Savvy Monitor, and there is some truth to the adage that geography is
destiny. ©DCs are often severely compromised by their location in a multitude of
ways. Many are located in harsh climates characterized by poor quality soil and
inconsistent rainfall (which causes droughts and floods), and susceptibility to
tropical diseases and pests. This means agricultural
potential is limited. Without expansive irrigation, food
production is inadequate and people and livestock
suffer from malnutrition and famine. ©ack of clean
water sickens and kills; communities are destroyed by
natural disasters; young and old fall prey to diseases
such as malaria; keeping critical economic assets such
as goats and cows alive is a challenge. Subsistence
living is extraordinarily difficult, and savings and
investment are nearly impossible.

Beyond climate, geography can take its toll in the form of isolation. Many ©DCs,
especially in Africa, are landlocked without access to navigable rivers that lead to
the ocean. They depend on neighboring countries, through which goods and ideas
must move, to reach the world outside the continent. As Paul Collier points out,
many ©DCs are not only landlocked (some even double-landlocked, having to go
through more than one country to reach a seaport), but are also ³landlocked in bad
neighborhoods.´ He explains that Switzerland is a landlocked country, but that it
does not suffer to the extent of, say, Uganda. Switzerland¶s neighbors include
Austria, Germany, Italy, and France ± high functioning states with whom the Swiss
can trade regionally and through whom the Swiss can move their goods to the rest
of the world. By contrast, Uganda is surrounded by Kenya, Rwanda, Sudan, the
Democratic Republic of Congo, Tanzania, and Somalia ± impoverished neighbors
in significant crisis themselves, and often hostile to Uganda¶s success or even
existence.
Where a country is located determines not only its level of isolation, but can also
determine its level of strategic value to wealthier nations. Pakistan and
Afghanistan¶s serious geographic disadvantages (especially harsh mountainous
regions creating isolation) are mitigated by the geo-strategic advantages conferred
by their location in key corridors and in proximity to neighbors important to the
West. This strategic importance is hardly a panacea, as the situations in these
Central Asian nations demonstrate, but it does forces developed nations to take
them into consideration, at least to a certain degree. The Central African Republic
or Burundi cannot say the same.
Finally, geography determines what natural resources a country has that may be
traded as commodities on world markets ± oil, diamonds, copper, rubber, coltan, to
name a few. However, as highlighted in the Sudan issue of the World Savvy
Monitor, the existence of natural resources in an otherwise impoverished country
often brings more negative than positive effects. Some of the most resource-rich
countries in the world are among its poorest, as economies built on the extraction
of commodities are generally not engines of growth. Resource wealth acts as what
economists call external rents, and creates significant wealth for the country while
eliminating the need for the government to tax and thus be responsive to its
people. Resource wealth creates conditions conducive to corruption and
embezzlement. In addition, the extraction of these resources is often harmful to the
environment and generates opportunities for exploitation by domestic elites as well
as those from the developed world. Economies based on natural resource
extraction are extremely vulnerable to volatility in world commodities prices, and
high commodity prices can artificially inflate the value of a country¶s currency.
Export diversification in these countries, which generally leads to more sustainable
and equitable growth, is discouraged. In addition to these factors, resource wealth
substantially increases the risk of conflict, both with neighbors and within a
country itself. Nigeria is a perfect case in point. Despite being one of the world¶s
largest oil producers, it is among the world¶s poorest nations, with the residents of
its oil-rich delta among the world¶s most desperate people and its citizens subject
to internal conflict and violence. Sudan and the Democratic Republic of Congo are
other resource-rich ©DCs in which people live in extreme poverty and are
subjected to near perpetual civil war.
 &!
The demography of the poorest billion only exacerbates their geographical
challenges. First and foremost, many ©DCs have extraordinarily high population
growth rates. Women with little access to education and/or employment tend to
have higher fertility rates. Families in societies where children are needed to work
on subsistence farms tend to have more
children, especially in places where infant and
child mortality is high. ©ike many other
factors, population growth is both a symptom
and a cause of poverty. Communities quickly
outgrow their arable land as their population
density increases. Parcels of land become
smaller with each successive generation, as
agricultural productivity becomes diminished
by overuse and environmental degradation. Competition for resources becomes
fierce and often erupts into conflict, as in Darfur.

Another demographic feature of ©DCs is uneven population distribution. Rural

communities, where many citizens reside, tend to be isolated from each other,
making transportation, communication, and commerce difficult. Urban
populations are disproportionately dense as people migrate to cities in search of
often non-existent jobs. Resource distribution is problematic in both cases, as
illustrated by both the slums and remote villages in much of the developing world.
Urbanization, often cited as a positive force for modernization (by producing
synergies and agglomerations of talent, capital, and skills), has been beneficial for
some but usually not for the poorest citizens. Richard Florida has written a
seminal article to rebut Thomas Friedman¶s claim that the world is flat, an analogy
used by Friedman to describe how globalization is affected by the increased
accessibility brought about by technological innovation. Florida instead envisions
the world as being ³spiky.´ In his view, the modern global economy has peaks,
hills, and valleys. The peaks are the cities where innovation and capital combine,
the hills are cities where production and capital combine, and the valleys, including
rural areas and cities in ©DCs are insignificant. As Florida concludes, ³in terms of
sheer economic horsepower and cutting edge innovation, surprisingly few regions
matter in today¶s global economy.´
Adding to the challenges of urbanization is the prediction from the UN that cities
in Africa and Asia are expected to double in size between now and 2030, a result
of a massive rural to urban migration. Young people are expected to spur this
growth, settling in developing cities, and many in growing slums and shantytowns.
Àne billion people currently live in slums, 90% of them in the developing world.
Most experts agree that these cities are ill-equipped to handle the influx, and
consequently urban poverty in ©DCs is expected to become more concentrated and
debilitating.
These cities are expected to reflect a larger demographic trend that often plagues
©DCs: youth bulges. Developing countries tend to have a disproportionate number
of citizens under the age of 30. This creates a large pool of potentially restless and
unemployed youth who live in a society without sufficient employment
opportunities and often with many radical groups, militias, and militaries to which
young boys in particular are often drawn. In fact, expert HenrikUrdal has
calculated that when the youth population of a country (as a percentage of the adult
population) reaches 35%, the risk of armed conflict goes up by 150%.

A different demographic crisis for many

©DCs has been brought on by the high
incidence of HIV/AIDS. AIDS tends to
disproportionately afflict the working age
cohort of the population, who are also
those that are most sexually active and
those that are most likely to have
children. This results in entire villages
that have few young healthy workers to grow the economy and many AIDS
orphans. Youth deficits and bulges are highly destabilizing for countries trying to
grow their economies, increasing the pressure on already compromised health care
delivery, child care, employment, and public safety.
Finally, demography is a factor when there are large numbers of different ethnic
groups within a country. Diversity itself is not the liability; it is the competition
for limited resources that often ensues among ethnic groups that is the problem.
As has been mentioned, many ©DCs are former colonies whose boundaries were
often drawn without regard for the ethnic, tribal, religious, and cultural identities of
their indigenous residents. When affinity groups were divided by boundaries,
destabilizing interstate conflict and secessionist movements become the issue
(examples include the Kurds in Turkey and Iraq, and the Pashtuns in Pakistan and
Afghanistan). When too many different affinity groups were combined, civil war
and conflict has often ensued. Paul Collier has made the point that when small
countries (note that most ©DCs are small countries) contain highly heterogeneous
populations, they tend to splinter into factions, and the political process often
reflects this in the form of fragmented, contentious, and debilitating patronage and
cronyism (as in Kenya and Rwanda). Àn the other hand, generalizations about
ethnic diversity are hard to make ± heterogeneity seems to have largely worked
with regard to economic development in the United States, while homogeneity
without democracy has largely worked for China.

X
##%, ,#%"
A country¶s past and present relations with its regional neighbors and other
countries around the world significantly impact its prospects for development.
Most ©DCs are in Africa, and their history of interactions with the West is
characterized by slavery, colonialism, support for Cold War dictatorships,
opportunistic resource extraction, and the Global War on Terror. Many believe
that ©DCs are often used as a means to an end for larger Western interests, and that
this results in the adoption of policies and agendas that are detrimental to ©DCs¶
economic, political, and social development. In fact, most believe that these
legacies have had a net negative effect for countries in which the poorest citizens
reside. However, a great deal of debate exists about the extent to which these
Western legacies are responsible for the circumstances of the world¶s poor, which,
in turn, drives much of the debate about the extent to which the West is responsible
for fixing these problem today. White guilt is a term often discussed in this
context, but most experts agree that there is more than enough blame to go around,
and that a portion of ©DC liabilities have been homegrown.
An example of these indigenous liabilities is the significant amount of regional
conflict that exists among ©DCs in Africa and, to a lesser extent, in Central Asia.
Many argue that the legacy of Western interference on the African continent has
often been an underlying factor in many regional conflicts among ©DCs, and
several interstate wars have essentially been proxy wars between developed
countries. Western machinations alone, however, cannot sufficiently account for
the lack of regional cooperation and peace. In Africa in particular, the presence of
so few ports for so many countries means that regional commercial success is
dependent on harmonious trade and diplomatic relations among the ©DCs in the
interior and those on the coasts. Despite this, many contend that these countries
are sabotaging their regional development with onerous customs duties, poor
infrastructure, and outright hostility among countries and among rebel groups
crossing borders. Many believe that Africa¶s development would be greatly
enhanced by some version of regional integration such as one modeled on the
European Union, comprising trade and security benefits for all member nations. It
is widely acknowledged that because the EU is made up of developed nations its
replication would require significant adaptation. As of yet, the African Union has
not had much success in replicating this model or garnering similar benefits for its
members, and other, smaller regional organizations, such as the Economic
Community of West African States (ECÀWAS), have likewise enjoyed limited
success.

o
#,$,% #(%'%,Ô
Àf all the factors contributing to world poverty, internal conflict has been
enormously damaging to the development prospects of the poorest billion, the
damage results from the conflicts themselves, as well as the many ways in which
conflict exacerbates other factors. Again, most experts
agree that war is both a cause and a symptom of extreme
poverty.

Most internal conflicts among ©DCs are classified as

resource conflicts ± conflicts that arise over the control
of natural resources. They can also be the result of
ethnic and historical grievances, many of which are
colonial legacies, such as the Hutu-Tutsi conflict in
Rwanda. Colonial powers often employed a divide and rule strategy, turning
different indigenous ethnic groups against each other to prevent them from uniting
against external rulers. These rivalries and hatreds outlasted the colonial era, and
decades after independence, many ©DCs are still reeling from the fragmentation of
their societies.
The World Bank has estimated that ©DCs are 15 times more likely to experience
internal conflict than developed countries. According to an analysis by Paul
Collier, of the 58 countries that are home to the poorest billion, a full 73% have
experienced a civil war; the occurrence of one civil war is seen to double the risk
for a subsequent civil war. For a disadvantaged country that is trying to grow its
economy, war is particularly devastating: from the physical destruction of homes,
farms, schools, and businesses, to the loss of life and the complete disruption of an
already fragile society. Energies of multiple generations are diverted away from
growth and to survival and reconstruction. Foreign investors are deterred by war
and the perpetual risk of its resumption. Regional factions in neighboring
countries often take advantage of vulnerable resources and populations.
Simultaneously, refugees destabilize the region. Brookings Institution scholar
Susan Rice has vividly described this phenomenon as a ³doom spiral.´


$"#3 #3
Even if not affected by war, poor infrastructure in ©DCs figures prominently in
their impoverishment. Infrastructure is analogous to the systems that make up the
human body ± bones, blood, organs, and connective tissues. A society¶s !(
%$"#3 #3 is made up of roads, ports, railroads, aviation, bridges, power grids,
water systems, telecommunications, schools, and hospitals ± everything that makes
interaction among and between people and the markets possible. $#
%$"#3 #3 is comprised of civil society, social welfare, public safety, and
judicial systems ± the teachers in the schools, the political parties that drive the
electoral process, the judges that decide cases, the police on the streets, and the
doctors in the clinics ± everything that contributes to general rule of law and
provision of a decent standard of living and sense of community. Hard and soft
infrastructure are intertwined and are key to ensuring access to the goods necessary
for human life, whether they be domestically produced or the product of foreign
aid. If food, medicine, and critical goods lack networks and transports for
distribution, they lose their value.
When it is said that ©DCs lack infrastructure, it means they lack the very elements
that make society function smoothly, and ultimately, their people lack the ability to
join together to generate pressure for reform. In countries with poor infrastructure,
people are often compelled to go outside the formal sector to meet their needs.
Alongside extreme poverty, black market economies frequently develop and
corruption often flourishes on both a macro and micro level. Growth becomes
nearly impossible because human and financial capital do not have adequate
outlets. Again, this is indicative of the cyclical nature of poverty in which causes
and symptoms become confounded.

† ' 
Governance and infrastructure are undoubtedly interrelated, and analyzing this
relationship invariably leads to questions of leadership. ©DCs generally suffer
from both substandard infrastructure and poor governance; this has a serious
detrimental effect on the economic growth that is necessary fro development. As
discussed in the Democracy edition of the World Savvy Monitor, poor governance
can stem from the state being either too weak or too strong. States and leaders
(autocrats or democrats) that are weak
have difficulty controlling ethnic, social,
and economic tensions as well as
promoting pro-growth, anti-poverty
policies.

They are in constant jeopardy of being

overthrown by war or coup, and are
generally perceived as illegitimate by
their people and a bad risk by the international community. Àverly strong leaders
pose a different set of problems, but are similarly perceived by their citizens and
outsiders: as illegitimate and as an unacceptable risk, respectively. The key
difference is that strong leaders can often keep order by violent and extreme
means. However, this does not mean strong leaders are necessarily more effective
at promoting economic growth. Strongman Robert Mugabe of Zimbabwe is seen
as a despot exerting enormous control over his rapidly declining country. It is not
necessarily important whether the country is an electoral democracy or not ±
poorly governed states are characterized by predation, corruption, cronyism,
questionable protection of property rights, violations of human rights, and
enormous popular resentment. Democracy only helps if it is used to further
positive outcomes for a country¶s citizens.

With poor governance, both the public and private sectors fail to thrive, as public
funds go missing, services are compromised, individuals do not feel secure in
starting businesses, and outside investors stay away. Reformers are ineffective,
silenced, and/or do not receive the necessary
external support to challenge the status quo.
Àthers are thought to pose as reformers in order
to gain control in the future. In this vein, Robert
Rotberg has written that often both the leadership
and the opposition in extremely poor nations
generally lack a commitment to public service, or
³reverence and responsibility for the public
domain.´
In surveying the work of development experts, the overall consensus is that bad
governance is an enormous contributor to poverty and economic stagnation. As
Robert Calderisi has said, ³The simplest way to explain Africa¶s problems is that it
has never known good governance.´ Yet, Paul Collier, while acknowledging that
bad governments can destroy economies with ³alarming speed,´ believes that there
is a limit to what good governance can do to stimulate growth among the most
disadvantaged nations. He writes that good leaders and policies ³cannot defy
gravity´ or ³generate opportunities where none exist.´ However, all experts do
agree that the quality of governance is extremely important in determining how aid
and other forms of development assistance are used.

 3(%#,7%&#%
Impoverished countries have negative resource flows, meaning that assets tend to
flee the country rather than be drawn to it. Human migration often takes the form
of a ³brain drain,´ in which those who are most likely to reform the country and
grow the economy relocate to countries where they will enjoy a higher standard of
living. This has been described by many experts as a double whammy ± not only
does the ©DC lose valuable human capital, but it also loses return on its investment
in educating and training these future migrants. Developed countries exacerbate
this trend, recruiting talented individuals with attractive jobs and work visas (for
doctors, engineers, nurses), while denying entry to aspiring migrants with lesser
skills. The ©DCs are left without the very people who could contribute to its
growth and mentor others to do the same.

Capital flight is another problem. Wealth, when it

exists in ©DCs, is often held offshore. The reasons for
this are complicated, and involve culpability both
among the resident elite of ©DCs and the international
banking institutions that facilitate these capital flows.
As James Henry points out in his book, # $ 
$ % #     &  ' 
 
(  , elites in ©DCs often accumulated vast
fortunes simultaneous with their countries taking on
enormous amounts of debt in the form of loans from the IMF and World Bank. In
addition to the embezzlement and corruption that often followed these loans, loan
stipulations often required economic policy reforms, such as the privatization of
state assets. These privatization schemes were often exploited by resident elites to
further consolidate their wealth. Moreover, the loans were often accompanied by
money for special ³development projects,´ many of which were wasteful and
manipulated by these elites for their own economic gain.
These wealthy few not only benefited disproportionately from loans intended for
development, but also often took advantage of tax havens provided by offshore
banking to move this wealth out of the country and into developed nations¶ private
banks. In his book, Henry relates the results of research conducted by the Sag
Harbor Group showing that ³at least half of the funds borrowed by the largest
debtor countries flowed right out the back door, usually the same year or even the
same month that the loans arrived. For the developing world, this amounted to a
huge Marshall Plan in reverse.´ Henry estimates that by the late 1990s, the market
value of private wealth held offshore by a small group of resident elites in ©DCs
neared $1.5 trillion.
Not only was this wealth earning investment income that flowed in part to banks in
the developed world, but it was also being carried as a liability for ©DCs ± these
were loans that, theoretically, needed to be serviced and repaid to the developed
nations that initially loaned them. All this was occurring as extreme poverty
devastated the majority of the population in these ©DCs. The legacy of this
³global bleed-out,´ as Henry describes it, accounts for a significant portion of the
dire economic conditions in which ©DCs find themselves today. Furthermore, this
capital flight continues to occur today, both legally and illegally. Àften, resident
elites seek better returns on legitimately gained wealth by placing it in the markets
of more economically prosperous and stable countries. In other instances,
corruption and embezzlement continue to account for capital outflows. Many
experts believe that the developed world remains somewhat complicit with its lack
of banking regulations regarding offshore accounts.
Another way that wealthy countries are held responsible for this capital flight is in
the lack of enforcement of anti-bribery statutes in regard to awarding contracts in
©DCs. Payouts to resident elites in ©DCs by multinational corporations and
government contractors sometimes never even make it into the ©DC, instead
flowing directly into offshore accounts in the developed world. For example, as
recently as several years ago, Pulitzer Prize winning Nigerian journalist Dele
Àlojede reported, ³Congressional investigators found that ExxonMobil secretly
deposited more than $700 million in the personal accounts of the president of
Equatorial Guinea. These deposits, which could not adequately be explained as
anything other than corruption, never led to any ExxonMobil executives being
tried for contravening US law.´

M #3 #3,
83,%#Ô%#!%#!3#
©DCs generally exhibit high levels of domestic, economic, and political
inequality. A recent report by the Political Science Association notes that
inequality, per se, is not always debilitating. At low levels, it can be associated
with growth as it increases incentives for productivity, and investment by elites can
produce an expansion that could theoretically be the rising tide that lifts all boats.
However, at high levels such as those seen in most poor countries, the report notes
that extreme inequality actually reduces ³incentives for those at the bottom of the
social hierarchy, eroding social solidarity, magnifying social tensions, making
property rights more insecure, and impeding the efficient operation of labor,
capital, and property markets.´
Huge gaps between the rich and poor in developing countries are also seen as huge
impediments to macroeconomic growth because these countries lack a crucial
middle class. Economists and political scientists have long recognized the value of
the middle class as an engine of growth and stability. Peter Marber¶s seminal
article ³Globalization and its Contents´ summarizes numerous World Bank studies
that show that a strong middle class ³is associated with increased national income
and growth, improved health, better infrastructure, sounder economic policies, less
instability and civil war, and more social modernization and democracy,´ as well
as with ³gender equality, greater voter participation, income equality, greater
concern for the environment, and more transparency in the business and political
arenas.´ These things are precisely what most ©DCs lack. Again, it is a cycle or
trap ± ©DCs tend to have greater income inequality and thus a smaller middle
class; the smaller the middle class, the less developed the country.

World Bank researcher VijayendraRao raises

an interesting point in distinguishing the
inequality trap from the larger poverty trap,
writing, ³if a poverty trap describes a
situation where µthe poor are poor because
the poor are poor,¶ an inequality trap would
say that µthe poor are poor because the rich
are rich.¶´ The power and social status
conferred upon the wealthy protects them
from downward mobility and prevents the
poor from gaining access. Addressing inequality traps is about more than
providing more money; it speaks to the need to reform the larger infrastructure and
norms of a society.
All of the factors described above are both causes and symptoms of extreme
poverty: all mutually reinforce and/or exacerbate the others. They all directly
contribute to poverty, prevent growth, and diminish the effectiveness of outside
development assistance. Most of the poorest are caught in at least one, and usually
many, of these cycles or traps, and are said to reside in what are called failing or
 failed states. u  )  annually ranks the world¶s countries according to a
Failed State Index based on 12 measures of political, economic, military, and
social insecurity. These factors are:
 Demographic pressures;
 Refugees and internally displaced persons;
 Group grievance;
 Human flight;
 Uneven economic development;
 Economic decline;
 Delegitimization of the state;
 Public services;
 Human rights;
 Security apparatus;
 Factionalized elites; and
 External intervention.
A list of the top 20 countires provides a further sense of where many of the poorest
live: Somalia, Sudan, Zimbabwe, Chad, Iraq, Democratic Republic of the Congo,
Afghanistan, Ivory Coast, Pakistan, Central African Republic, Guinea, Bangladesh,
Burma, Haiti, North Korea, Uganda, Ethiopia, ©ebanon, Nigeria, and Sri ©anka
(See the July/August 2008 edition for the latest rankings). In research conducted
using World Bank data, Paul Collier and ©isa Chauvet were able to conclude that a
full three-quarters of the world¶s poor live in failing or failed states, and that the
probability of any such country sustaining a turnaround in any given year is only
1.6%. From this, they predicted that the average length of time it takes to rise from
the status of failing state is 59 years.

& "(+,+,%4#%

Put simply, these countries do not have 59 years to tunraround their failing
conditions. The crux of the development challenge in today¶s era of globalization
is that economic evolutionary time has been compressed. At the risk of
oversimplification, it may be said that what it took the West nearly 300 years to do,
China did in a mere 30 years. Rapid industrialization, modernization, and the
diversification of exports are all prominent factors, and the ©DCs are so far behind,
many worry they have lost the chance to catch up. Ironically, the success of their
former brethren in the developing community, the BRICs (Brazil, Russia, India,
China, and others), has worsened prospects that they will be able to make similar
progress.
Experts theorize that the first step on the ladder of economic growth is the export
of simple processed goods ± agricultural and industrial, usually textiles. This
bottom rung is now almost completely locked up by China and India. Even if they
could escape the traps listed above, and even in the absence of Western
protectionist trade policies, the nascent economies of the poorest countries are
generally not seen as able to compete with the prices and productivity of China and
India. Most believe this gap will only widen as Asian economies continue to
expand and attract further foreign direct investment. As Collier poignantly notes
when he writes that the bottom billion ³have missed the boat,´ it will be decades
before the BRICs¶ prices will reach the point where it will make sense to outsource
labor-intensive production to places like Africa.
By this point, it may be too late for the populations of the ©DCs. Furthermore, the
fact that globalization facilitates not only the transport of goods, money, and ideas,
but also weapons, disease, radical ideologies, climate degradation, and terrorism,
poses a significant threat to the rest of the world. The developed and truly
developing countries of the world are becoming increasingly cognizant of the fact
that leaving behind countries that are failing to develop, or are even regressing, is
not only immoral, but dangerous to the global community and to global security.
Moreover, globalization makes it more possible than ever for the poorest billion to
see how the other 5 billion live, through media and the internet. Resentment builds
in pace with the ever-widening gap, and dangerous polarization is accelerated.
Demoralization and pessimism are reinforced.

!,%& %,(

There are many who take issue with Thomas Friedman¶s proclamation that the
world is flat. Economist Joseph Stiglitz is among others who believe that the
playing field is far from leveled today. In fact, they believe it is currently heavily
tilted in favor of developed countries in the way in which the globalized
marketplace functions (see International Trade Policy section), and that this figures
heavily in the dismal prospects for the ability of the poorest to catch up.
Interestingly, the National Bureau of Research recently conducted a study that
shows the playing field has never been level. Researchers DigeoComin, William
Easterly, and Erik Gong found that the technological sophistication of ancient
societies is strongly correlated with their current levels of economic success today.
Technology in its rudimentary forms from 1000BC to 1500AD took the form of
writing, use of draft animals, metalwork, ships, printing, and the compass. The
research shows that the regions that had adopted all of these innovations by
1500AD now have a per capita income 18 times greater than those that had not
begun to modernize by in the 16th Century. Even controlling for confounding
factors such as colonialism, the team posits that 75% of Africa¶s income lag
relative to Europe today is related statistically to the technology lag that existed in
1500.
What is being done to bring the world¶s poorest and most desperate populations
into the functioning world economy and help provide for their most basic needs?
The sections that follow describe and evaluate the various tools in the toolbox of
the developed world to do just this. The overall theme is that poverty is about
more than impoverishment (all societies were poor at one time in history, even the
United States) ± it is about failure to grow. It is generally agreed that the
³solutions´ must address the concept of development, not just humanitarian relief,
although providing a minimum standard of living while working on long-term,
macro growth strategies is necessary.
Development is about building capacity in all sectors of society in the ©DCs; at the
same time, development is about managing the incentives and interests of all the
world¶s 6 billion inhabitants. The debates within the development community are
intense ± for every instrument there is disagreement about magnitude,
effectiveness, efficiency, unintended consequences, level of local input and
involvement, and transformative potential. Yet, it is important to remember the
concept of the cycles and traps discussed above ± it is generally agreed that no one
type of development assistance can provide the ³solution´ the world seeks; rather
multiple arsenals must be brought together address the intractability of global
poverty.
 IN HIS BOOK : µTHE END OF POVERTY¶ JEFFREY SACHS
COMMENTED ON THE SPREAD OF ECONOMIC PROSPERITY . A FEW
EXCERPTS FROM HIS BOOK ON THIS ISSUE

 The ³great rupture´ of modern economics - the gap between the richest and the
poorest countries - is not some great historical truth. Indeed, during the European
³dark ages´ of the fifth-fifteenth centuries, it was China that could claim to be the
world¶s wealthiest and most technologically advanced civilisation. Àverall, though,
the gaps between nations were almost insignificant until very recently - at the start
of the nineteenth century, everyone was very poor by our modern understanding,
with high birth and mortality rates and low life expectancy.
 It¶s the coming of the Industrial Revolution in Europe, in around 1800, that first
sees the gap between countries grow. countries and areas of the world have
grown since then - not only in population and income, but in income per capita -
but the wildly differing  of growth, exacerbated by some areas¶ lower starting
point, leads us to the massive divides we see today. The difference between 1%
and 2% average growth, over 200 years, amounts to a great deal.
 Several key advantages enabled England to lead the Industrial Revolution - relative
political stability and openness; freedom from threat of invasion; access to and
dominance of the seas; abundant coal; a strong showing of scientific genius, from
Newton to steam engine pioneers James Watt and Matthew Boulton; and access to
the near-limitless markets of North America. Industrialisation brought with it
specific changes, amongst which were changing gender roles and the demographic
transition - so even as population rocketed, birth and infant mortality rates
dropped. Above all, the Industrial Revolution brought with it immediate rises in
living standards.3
 Industrialisation spread across Europe through a mixture of trade and plagiarism.
However, it reached much of the rest of the world through colonialism. Contrary to
the resurgent view that colonialism benefited the colonised, it gave them a twisted
version of modern economic growth that worked primarily to the benefit of the
colonisers, and left them without the educated classes or infrastructure to develop
proper economies on independence.
 The incredible growth of per capita income - even with massive population growth
- in the two hundred years since the Industrial Revolution shows it is the correct
path to development. The poverty of the poorest countries stems from their failure
to fully undergo this process at the same pace that the rich world has. But
it  possible for every country to achieve this transformation, because the primary
factor fuelling it - technology, and therefore, scientific knowledge and innovation -
is ³nonrival,´ economics-ese for ³able to be shared widely without any one
holder¶s share being reduced.´
 o 


7


Below is a timeline of events that have been instrumental in the growth of

democracy around the world. Click on any date to view its relevant information.

DATE MAJÀR DEVEÀPMENT EVENTS G©ÀBA© PÀVERTY

©EVE©S
1910s [+] 1914-1918 Note: Few official
WÀR©D WAR 1
poverty statistics are
available prior to 1960.
1919 The Industrial
©eague of Nations established at the close Revolution in Western
of World War I nations increases
economic output and
innovation, leading to
some reductions in
poverty.
Europe experiences
economic stagnation and
increased poverty
following WWI.
1940s [+] 1939-1945
WÀR©D WAR 2
1944 1947
The United Nations Monetary and At the close of WWII,
Financial Conference (usually referred to the Marshall Plan is
as the Bretton Woods Conference) held in adopted to help
Bretton Woods, New Hampshire to European nations recover
regulate the international monetary and from the war.
financial order after the conclusion of
World War II; delegates agree to set up the
International Bank for Reconstruction and
Development (IBRD)*, the General
Agreement on Tariffs and Trade
(GATT)**, and the International Monetary
Fund (IMF)
*IBRD is one of five institutions that make
 up the World Bank Group; to reduce
confusion, throughout the remainder of the
timeline, IBRD activities will be attributed
to its parent organization, the World Bank

**GATT was replaced by the World Trade

Àrganization (WTÀ) in 1995

1945
World War II ends

United Nations (UN) Charter drafted in

San Francisco, CA and UN comes into
official existence
The World Bank and IMF begin their
formal existence
1947
World Bank issues its first loan to France
for post-war construction

IMF officially begins operations and the

first drawing from the IMF is made by
France
GATT signed

Marshall Plan for European recovery

proposed by US Secretary of State George
Marshall

1948
World Health Àrganization established by
the United Nations
1949
World Bank expands technical assistance
activities

1950s [+] 1957

European Economic Community (the

 predecessor of the European Union) is
established
1958
Mao Zedong launches the ³Great ©eap
Forward´ in an effort to speed
industrialization and bring development to
China

1960s [+] 1960 1960

International Development Association In the United States,
established by the World Bank to address 22% are living below the
the development needs of the poorest poverty line
developing countries

1961
ACCIÀN International founded as a
traditional humanitarian aid organization
1967
Association of South-East Asian Nations
(ASEAN) established

The Republic of Biafra declares

independence from Nigeria; a three-year
civil war ensues and more than one million
people die in battle or from starvation.
Médecins Sans Frontières was formed to
provide medical attention to civilians;
many experts point to this war as
launching the aid industry

1970s [+] 1970 1970

First World Bank loan for family planning In the United States,
issued to Jamaica 13% are living below the
poverty line
1971
US announces it will no longer freely buy
and sell gold to settle international
transactions; this causes µpar values¶ and
µconvertibility,¶ two main features of the
 Bretton Woods system, to cease to exist
1973
Famine devastates Ehtiopia, leading
Emperor Haile Selassie to be deposed the
following year
ACCIÀN begins its microlending program
1976
Muhammad Yunus, head of the Rural
Economics Program at the University of
Chittagong in Bangladesh, launches an
action research project to examine the
possibility of providing banking services
specifically targeted to rural poor
1978
³Four Modernizations´ program initiated
in China, moving the country¶s economy
toward capitalism, industrialization, and
urbanization.
1980s [+] 1980 1981
First Structural Adjustment ©oan issued by 42% below $1/day
World Bank to Turkey 70% below $2/day
World Health Àrganization (WHÀ)
announces the eradication of smallpox
1981 1984
Scientists identify AIDS 35% below $1/day
68% below $2/day
1982 1987
Àil prices fall; Mexico defaults on 30% below $1/day
international loans, marking beginning of 63% below $2/day
world debt crisis, and several other
countries follow
1983
The Grameen Bank Project is transformed
into an independent bank by an act of
Bangladeshi government legislation,
providing the poor in Bangladesh with
greater access to banking services, and
especially microcredit
1984
 Famine strikes Ethiopia again, killing an
estimated one million, and leading to
worldwide efforts at fundraising for
famine relief including the high profile
©ive Aid concert
1986
25,000 cases of AIDS diagnosed in the US
1989
Fall of the Berlin Wall; Cold War tensions
begin to thaw

1990s [+] 1993 1990

European Union established by the Treaty 30% below $1/day
of Maastricht, leading to the creation of 63% below $2/day
the Euro.
1994 1993
North American Free Trade Agreement 27% below $1/day
(NAFTA) signed, aimed at opening up 61% below $2/day
trade among Canada, the US, and Mexico

Heavily Indebted Poor Countries (HIPC)

debt initiative approved, providing debt
relief to poor countries with good policy
performance by World Bank and endorsed
by IMF
1995 1996
World Trade Àrganization (WTÀ) 24% below $1/day
established 58% below $2/day
1997 1999
World Bank and WTÀ sign formal 23% below $1/day
agreement of cooperation 57% below $2/day

Widespread Asian Financial Crisis

Kyoto Protocol is adopted with the aim of

reducing greenhouse gases in order to
prevent climate change; notably, the US is
the only developed nation to not sign the
treaty
 1998
Uganda becomes first nation to receive
debt relief under the HIPC initiative
1999
Euro adopted as the common currency for
eleven European countries (though
currency is not issued until 2002)

©arge protests at WTÀ conference in

Seattle

2000s - 2000 2002

Present
[+]
International AIDS Conference in South 21% below $1/day
Africa 54% below $2/day
2001 2005
IMF Executive Board reviews the 16% below $1/day
conditionality of use of its resources 48% below $2/day

Argentine economic crisis after the Between 1981 and 2005,

breakdown of the country¶s banking
system
Terrorist attacks in New York City and
Washington DC lead US to launch the
Global War on Terror
2002
IMF adopts new conditionality guidelines Using a poverty line of
aimed at promoting µnational ownership of $1.25/day, the World
policy reforms and streamlining and
focusing conditionality¶
2003
Joint IMF-World Bank project to monitor
the policies and actions needed for the
achievement of the Millennium
Development Goals approved
poverty rates have fallen
by about 25%; however,
the reduction in poverty
in China (from 85% to
15.9%) accounts for a
significant portion of this
reduction; excluding
China, poverty rates have
fallen by about 10%
2008
Bank estimates that 1.4
billion people live at or
below the poverty line
2005
The International Monetary and Financial
Committee and the Development
Committee reach agreement on a G-8
proposal to provide 100% debt relief on all
debt incurred by HIPCs to the IMF, the
World Bank, and the African Development
Fund (ADF); three months later, the IMF
approves 100% debt relief under the
Multilateral Debt Relief Initiative for 19
countries
2007
World food price crisis leads to political
and economic instability and social unrest,
especially in developing countries

According to estimates by WHÀ, 33.2

million people are living with HIV, 2.5
million became newly infected, and 2.1
million died of AIDS; two thirds of HIV
infections are in Sub-Saharan Africa
2008
Effects of the subprime mortgage crisis
reach other financial institutions in the US
and begins to spread throughout world,
and especially to Europe
  7

77


The 7%,,%3 ',# ," (7")

are eight international development goals that
all 192 United Nations member states and at
least 23 international organizations have agreed
to achieve by the year 2015. They include
eradicating extreme poverty, reducing child
mortality rates, fighting disease epidemics such
as AIDS, and developing a global partnership
for development.

The aim of Millennium Development Goals (MDGs) is to encourage development

by improving social and economic conditions in the world's poorest countries.
They derive from earlier international development targets, and were officially
established at the Millennium Summit in 2000, where all world leaders present
adopted the United Nations Millennium Declaration, from which the eight goals
were promoted.
The Millennium Summit was presented with the report of the Secretary-General
entitled µWe the Peoples: The Role of the United Nations in the Twenty-First
Century¶. Additional input was prepared by the Millennium Forum, which brought
together representatives of over 1,000 non-governmental and civil society
organisations from more than 100 countries. The Forum met in May 2000 to
conclude a two-year consultation process covering issues such as poverty
eradication, environmental protection, human rights and protection of the
vulnerable. The approval of the MDGs was possibly the main outcome of the
Millennium Summit. In the area of peace and security, the adoption of the Brahimi
Report was seen as properly equipping the organization to carry out the mandates
given by the Security Council.

The 7%,,%3 ',# ," 57"6 were developed out of the eight
chapters of the United Nations Millennium Declaration, signed in September 2000.
There are eight goals with 21 targets,and a series of measurable indicators for each
target.

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£ Progress towards reaching the goals has been uneven. Some countries have
achieved many of the goals, while others are not on track to realize any. The
major countries that have been achieving their goals
include China (whose poverty population has reduced from 452 million to
278 million) and India due to clear internal and external factors of
population and economic development. However, areas needing the most
reduction, such as the Sub-Saharan Africa regions have yet to make any
drastic changes in improving their quality of life. In the same time as China,
the Sub-Saharan Africa reduced their poverty about one percent, and are at a
major risk of not meeting the MDGs by 2015.Fundamental issues will
determine whether or not the MDGs are achieved, namely gender, the divide
between the humanitarian and development agendas and economic growth,
according to researchers at theÀverseas Development Institute.
£ Achieving the the MDGs does not depend on economic growth alone and
expensive solutions. In the case of MDG 4, some developing
countries like Bangladesh have shown that it is possible to reduce child
mortality with only modest growth by rolling out inexpensive but effective
interventions, such as measles immunisation, widely.
£ Goal 8 of the Millennium Development Goals is unique in the sense that it
focus on donor government commitments and achievements, rather than
successes in the developing world. The Commitment to Development Index,
published annually by the Center for Global Development is often
considered to be the numerical targeting indicator for the 8th MDG.It is a
more comprehensive measure of donor progress than simply Àfficial
Development Assistance as it takes into account policies on a number of
 indicators that affect developing countries such as trade, migration, and
investment.
£ To accelerate progress towards the MDGs, the G-8 Finance Ministers met
in ©ondon in June 2005 (in preparation for the G-8 Gleneagles Summit in
July) and reached an agreement to provide enough funds to the World Bank,
the IMF, and the African Development Bank (ADB) to cancel an additional
$40±55 billion debt owed by members of the HIPC. This would allow
impoverished countries to re-channel the resources saved from the forgiven
debt to social programs for improving health and education and for
alleviating poverty.
£ Backed by G-8 funding, the World Bank, the IMF, and the ADB each
endorsed the Gleaneagles plan and implemented the Multilateral Debt Relief
Initiative ("MDRI") to effectuate the debt cancellations. The MDRI
supplements HIPC by providing each country that reaches the HIPC
completion point 100% forgiveness of its multilateral debt. Countries that
previously reached the decision point became eligible for full debt
forgiveness once their lending agency confirmed that the countries had
continued to maintain the reforms implemented during HIPC status. Àther
countries that subsequently reach the completion point automatically receive
full forgiveness of their multilateral debt under MDRI.
£ While the World Bank and ADB limit MDRI to countries that complete the
HIPC program, the IMF's MDRI eligibility criteria are slightly less
restrictive so as to comply with the IMF's unique "uniform treatment"
requirement. Instead of limiting eligibility to HIPC countries, any country
with annual per capita income of $380 or less qualifies for MDRI debt
cancellation. The IMF adopted the $380 threshold because it closely
approximates the countries eligible for HIPC.
£ Yet, as we head towards 2015 increasing global uncertainties, such as
the economic crisis and climate change, have led to an opportunity to rethink
the MDG approach to development policy. According to the 'In Focus'
Policy Brief from the Institute of Development Studies, the 'After 2015'
debate is about questioning the value of an MDG-type, target-based
approach to international development, about progress so far on poverty
 reduction, about looking to an uncertain future and exploring what kind of
system is needed after the MDG deadline has passed.
£ Further developments in rethinking strategies and approaches to achieving
the MDGs include research by the Àverseas Development Institute into the
role of equity. Researchers at the ÀDI argue progress can be accelerated due
to recent breakthroughs in the role equity plays in creating a virtuous circle
where rising equity ensures the poor participate in their country's develop
and creates reductions in poverty and financial stability.Yet equity should
not be understood purely as economic, but also as political. Examples
abound and include Brazil's cash transfers, Uganda's eliminations of user
fees and the subsequent huge increase in in visits from the very poorest or
else Mauritius's dual-track approach to liberalization (inclusive growth and
inclusive development) aiding it on its road into the World Trade
Àrganization.Researchers at the ÀDI thus propose equity be measured in
league tables in order to provide a clearer insight into how MDGs can be
achieved more quickly; the ÀDI is working with partners to put forward
league tables at the 2010 MDG review meeting.
£ The effects of increasing drug use has been noted by the International
Journal of Drug Policy as a deterrent to the goal of the MDGs.
POVERTY IN INDIA
0
 
is widespread with the nation estimated to have a third of the world's poor. According to
a 2005 World Bankestimate, 42% of India falls below the international poverty line of US$ 1.25 a day
(PPP, in nominal terms 21.6 a day in urban areas and 14.3 in rural areas); having reduced from 60%
[1]
in 1981. According to the criterion used by the Planning Commission of India 27.5% of the population
was living below the poverty line in 2004±2005, down from 51.3% in 1977±1978, and 36% in 1993-1994.
A study by the Oxford Poverty and Human Development Initiative using a Multi-dimensional Poverty
Index(MPI) found that there were 421 million poor living under the MPI in eight north India states
of Bihar, Chattisgarh, Jharkhand,Madhya Pradesh, Orissa, Rajasthan, Uttar Pradesh and West Bengal.
This number is higher than the 410 million poor living in the 26 poorest African nations. However, latest
estimates by NCAER(National Council of Applied Economic Research), show that 48% of the Indian
households earn more than 90,000 (US$2,025) annually(or more than US$3 PPP per person).
According to NCAER, in 2009, of the 222 million households in India, the absolutely poor households
(annual incomes below 45,000) accounted for only 15.6 % of them or about 35 million (about 200
million Indians). Another 80 million households are in income levels of 45,000-90,000 per year

a
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Causes of poverty in India

¦
 
u



  


According to S. M. Michael, Dalits constitute the bulk of poor and unemployed.

According to William A. Haviland, casteism is widespread in rural areas, and continues to segregate
Dalits. Others, however, have noted the steady rise and empowerment of the Dalits through social
reforms and the implementation of reservations in employment and benefits.

Caste explanations of poverty fail to account for the urban/rural divide. Using the UN definition of poverty,
65% of rural forward castes are below the poverty line.


The Mughal era ended at about 1760. Jawaharlal Nehru claimed "A significant fact which stands out is
that those parts of India which have been longest under British rule are the poorest today. The Indian
economy was purposely and severely deindustrialized, especially in the areas of textiles and metal-
working, through colonial privatizations, regulations, tariffs on manufactured or refined Indian
goods, taxes, and direct seizures..
A rural worker drying cow dung in Bihar.

In 1947, the average annual income in India was US$439, compared with US$619 for China, US$770 for
South Korea, andUS$936 for Taiwan. By 1999, the numbers were US$1,818; US$3,259; US$13,317;
[27]
and US$15,720. (numbers are in 1990 international Maddison dollars) In other words, the average
income in India was not much different from South Korea in 1947, but South Korea became a developed
country by 2000s. At the same time, India was left as one of the world's poorer countries.

Hindu rate of growth is an expression used to refer to the low annual growth rate of the economy of India,
which stagnated around 3.5% from 1950s to 1980s, while per capita income averaged 1.3%.[28] At the
same time, Pakistan grew by 5%, Indonesia by 6%, Thailand by 7%, Taiwan by 8%, and South Korea by
9%.[29] The term was coined by Indian economist Raj Kumar Krishna.

License Raj refers to the elaborate licenses, regulations and the accompanying red tape that were
required to set up and run business in India between 1947 and 1990.[30] The License Raj was a result of
India's decision to have a planned economy, where all aspects of the economy are controlled by the state
and licenses were given to a select few. Corruption flourished under this system.[31]

The labyrinthine bureaucracy often led to absurd restrictions - up to 80 agencies had to be satisfied
before a firm could be granted a licence to produce and the state would decide what was produced, how
much, at what price and what sources of capital were used.
[32]
²BBC

[33]
India had started out in the 1950s with:

£ high growth rates

£ openness to trade and investment
£ a promotional state
£ social expenditure awareness
£ macro stability
[33]
but ended the 1980s with:

£ low growth rates (Hindu rate of growth)

£ closure to trade and investment
£ a license-obsessed, restrictive state (License Raj)
£ inability to sustain social expenditures
£ macro instability, indeed crisis.
[34][35]
Poverty has decreased significantly since reforms were started in the 1980s.

Also:

£ Over-reliance on agriculture. There is a surplus of labour in agriculture. Farmers are a large vote bank
and use their votes to resist reallocation of land for higher-income industrial projects. While services
and industry have grown at double digit figures, agriculture growth rate has dropped from 4.8% to 2%.
About 60% of the population depends on agriculture whereas the contribution of agriculture to the
GDP is about 18%.[36]
£ High population growth rate, although demographers generally agree that this is a symptom rather
than cause of poverty.
[c ]
Despite this, India currently adds 40 million people to its middle class every year. Analysts
such as the founder of "Forecasting International", Marvin J. Cetron writes that an estimated 300 million
Indians now belong to the middle class; one-third of them have emerged from poverty in the last ten
years. At the current rate of growth, a majority of Indians will be middle-class by 2025. Literacy rates have
[37]
risen from 52 percent to 65 percent in the same period.
× 
 
 
Other points of view hold that the economic reforms initiated in the early 1990s are responsible for the
collapse of rural economies and the agrarian crisis currently underway. As journalist and the Rural Affairs
editor for The Hindu, P Sainath describes in his reports on the rural economy in India, the level
of inequality has risen to extraordinary levels, when at the same time, hunger in India has reached its
highest level in decades. He also points out that rural economies across India have collapsed, or on the
verge of collapse due to the neo-liberal policies of the government of India since the 1990s[38]. The human
cost of the "liberalisation" has been very high. The huge wave of farm suicides in Indian rural population
from 1997 to 2007 totaled close to 200,000, according to official statistics[39]. That number remains
disputed, with some saying the true number is much higher. Commentators have faulted the policies
pursued by the government which, according to Sainath, resulted in a very high portion of rural
households getting into the debt cycle, resulting in a very high number of farm suicides. As professor Utsa
Patnaik, India¶s top economist on agriculture, has pointed out, the average poor family in 2007 has about
[40]
100 kg less food per year than it did in 1997 .

Government policies encouraging farmers to switch to cash crops, in place of traditional food crops, has
resulted in an extraordinary increase in farm input costs, while market forces determined the price of the
[41]
cash crop . Sainath points out that a disproportionately large number of affected farm suicides have
occurred with cash crops, because with food crops such as rice, even if the price falls, there is food left to
survive on. He also points out that inequality has reached one of the highest rates India has ever seen. In
a report by Chetan Ahya, Executive Director at Morgan Stanley, it is pointed out that there has been a
wealth increase of close to US$1 Trillion in the time frame of 2003-2007 in the Indian stock market, while
only 4-7% of the Indian population hold any equity[42]. During the time when Public investment in
agriculture shrank to 2% of the GDP, the nation suffered the worst agrarian crisis in decades, the same
time as India became the nation of second highest number of dollar billionaires[43]. Sainath argues that

Farm incomes have collapsed. Hunger has grown very fast. Public investment in agriculture shrank to
nothing a long time ago. Employment has collapsed. Non-farm employment has stagnated. (Only the
National Rural Employment Guarantee Act has brought some limited relief in recent times.) Millions move
towards towns and cities where, too, there are few jobs to be found.

In one estimate, over 85 per cent of rural households are either landless, sub-marginal, marginal or small
farmers. Nothing has happened in 15 years that has changed that situation for the better. Much has
happened to make it a lot worse.

Those who have taken their lives were deep in debt ± peasant households in debt doubled in the first
decade of the neoliberal ³economic reforms,´ from 26 per cent of farm households to 48.6 per cent.
Meanwhile, all along, India kept reducing investment in agriculture (standard neoliberal procedure). Life
was being made more and more impossible for small farmers.

As of 2006, the government spends less than 0.2% of GDP on agriculture and less than 3% of GDP on
education[44]. However, some government schemes such as the mid-day meal scheme, and the NREGA
have been partially successful in providing a lifeline for the rural economy and curbing the further rise of
poverty.


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 7
 

Ô

Mahatma Gandhi National Rural Employment Guarantee Act

The Mahatma Gandhi National Rural Employment Guarantee Act (MNREGA) is an Indian job
guarantee scheme, enacted by legislation on August 25, 2005. The scheme provides a legal
guarantee for one hundred days of employment in every financial year to adult members of any
rural household willing to do public work-related unskilled manual work at the
statutory minimum wage of Rs.100 per day. The Central government outlay for scheme is Rs.
40,100 crores in FY 2010-11.

This act was introduced with an aim of improving the purchasing power of the rural people,
primarily semi or un-skilled work to people living in rural India, whether or not they are below
the poverty line. Around one-third of the stipulated work force is women. The government is
planning to open a call center, which upon becoming operational can be approached on the toll-
free number, 1800-345-22-44. It was initially called the × 2
( &

,×2(&- but was renamed on 2 Àctober 2009.
The plan

The act directs state governments to implement MNREGA "schemes". Under the MGNREGA
the Central Government meets the cost towards the payment of wage, 3/4 of material cost and
some percentage of administrative cost. State Governments meet the cost of unemployment
allowance, 1/4 of material cost and administrative cost of State council. Since the State
Governments pay the unemployment allowance, they are heavily incentivized to offer
employment to workers.

However, it is up to the State Government to decide the amount of unemployment allowance,

subject to the stipulation that it not be less than 1/4th the minimum wage for the first 30 days,
and not less than 1/2 the minimum wage thereafter. 100 days of employment (or unemployment
allowance) per household must be provided to able and willing workers every financial year.

Process
Adult members of rural households submit their name, age and address with a photo to the Gram
Panchayat. The Panchayat registers households after verification and issues a job card. The job
card contains the details of the adult member enrolled and his/her photo. A registered person can
submit an application for work in writing (for at least fourteen days of continuous work) either to
the panchayat or to Programme Àfficer. application daily unemployment allowance will be paid
to the applicant.

No discrimination between men and women is allowed under the act. Therefore, men and women
must be paid the same wage. All adults can apply for employment.
History and Funding

The scheme commenced on February 2, 2006 in 200 districts, was expanded to cover another
130 districts in 2007-2008 and eventually covered all 593 districts in India by April 1, 2008. The
outlay was Rs. 110 billion in 2006-2007, and rose steeply to Rs. 391 billion (140% increase in
amount with respect to previous 2008-2009 budget) in 2009-2010.
Implementation

The Comptroller and Auditor General (CAG) of India, in its performance audit of the
implementation of MGNREGA has found "significant deficiencies" in the implementation of the
act. The plan was launched in February 2006 in 200 districts and eventually extended to cover
593 districts. 44,940,870 rural households were provided jobs under NREGA during 2008-09,
with an national average of 48 working days per household.
Works/Activities

The MGNREGA achieves twin objectives of rural development and employment. The
MGNREGA stipulates that works must be targeted towards a set of specific rural development
activities such as: water conservation and harvesting, afforestation, rural connectivity, flood
control and protection much as construction and repair of embankments, etc. Digging of new
tanks/ponds, percolation tanks and construction of small check dams are also given importance.
The employed are given work such as land leveling, tree plantation, etc. First a proposal is given
by the Panchayat to the Block Àffice and then the Block Àffice decides whether the work should
be sanctioned.
Criticisms

Many criticisms have been levelled at the programme, which has been argued to be no more
effective than other poverty reduction programmes in India, with key exceptions such
as Rajasthan.

The first criticism is financial. The MGNREGA is one of the largest initiatives of its kind in the
world[6]. The national budget for the financial year 2006-2007 was Rs 113 billion (about
US$2.5bn and almost 0.3% of GDP) and now fully operational, it costs Rs. 391 billion in
financial year 2009-2010[6]. Funding was argued by Jean Dreze and others to be possible through
improved tax administration and reforms, yet the tax-GDP ratio has actually been falling. There
are fears the programme will end up costing 5% of GDP.

Another important criticism is that the public works schemes' completed product (e.g. water
conservation, land development, afforestation, provision of irrigation systems, construction of
roads, or flood control) is vulnerable to being taken over wealthier sections of society. A
monitoring study of NREGA in Madhya Pradesh showed the types of activities undertaken were
more or less standardised across villages, suggesting little local consultation.

Further concerns include the fact that local government corruption leads to the exclusion of
specific sections of society. ©ocal governments have also been found to claim more people have
received job cards than people who actual work in order to generate more funds than needed, to
be then embezzled by local officials. Bribes as high Rs 50 are paid in order to receive the job
cards.

7

7 Ô<576

The then Hon¶ble Prime Minister announced on Independence Day, 2001, from the
ramparts of the Red Fort, a new Centrally sponsored scheme called Valmiki Ambedkar Awas
Yojana (VAMBAY) with a view to ameliorating the conditions of the urban slum dwellers living
below the poverty line who do not possess adequate shelter. The scheme has the primary
objective to facilitate the construction and upgradation of the dwelling units for the slum
dwellers and to provide health and enabling urban environment through community toilets under
Nirmal Bharat Abhiyan, a component of the scheme. This scheme was formally launched by the
then Hon¶ble Prime Minister himself on 2nd December 2001, at Hyderabad. This is the first
scheme of its kind meant exclusively for slum dwellers with a Government of India subsidy of
50 per cent; the balance 50 per cent to be arranged by the State Government with ceiling costs
prescribed both for dwelling units/community toilets. The State¶s share may consist of funds
from any source in the form of subsidy or loan from Housing and Urban Development
Corporation ©imited (HUDCÀ) or any other agency. The guidelines of the scheme provides for
submission of proposals by the nodal agencies of State Governments to HUDCÀ who, in turn,
process and forward them to this Ministry with their recommendations. The funds are released
by this Ministry only after a VAMBAY account is opened by the State Nodal Agency and the
share of the State/Union Territory Government is deposited in that account.

2. Details of Allocation and Releases of funds are as under: -

 Allocation GÀI GÀI Net No. of No. of
subsidy Subsidy Releases DUs TSs
released refunded targeted targeted
(3-4) for for
(Rs. in constructio constructi
©akhs) n/ on
(Rs. in (Rs. in upgradatio
©akhs) ©akhs) (Rs. in n
©akhs)
1 2 3 4 5 6 7
2001-02 6900.00 7356.000 488.650 6867.350 25150 4342
2002-03 25685.01 21835.030 2505.745 19329.285 105449 21393
2003-04 23850.00 23854.600 39.035 23815.565 108160 3090
2004-05 28058.00 26941.161 0.000 26941.161 112143 35086
2005-06 24900.00 16713.420 311.600 16401.820 89772 1420
Total 109393.010 96700.211 3345.030 93355.181 440674 65331

3. VAMBAY and the discontinued National Slum Development Programme (NSDP) have
been subsumed in a new scheme called Integrated Housing and Slum Development Programme
(IHSDP). This scheme was launched along with Jawaharlal Nehru National Urban Renewal
Mission (JNNURM) by the Hon¶ble Prime Minister on 3rd December 2005. IHSDP aims at
having an integrated approach to ameliorate the conditions of the urban slum dwellers who do
not possess adequate shelter and reside in dilapidated conditions.

4. The scheme is applicable to all cities and towns as per 2001 Census except cities/towns
covered under JNNURM.

5. IHSDP is funded on 80:20 basis between Central Government and State Government/
U©B/ Parastatals and 90:10 basis between Central Government and Special category States.

)<#%!!% 4&:5< 6

INTRÀDUCTIÀN:

The Swarna Jayanti Shahari Rozgar Yojana (SJSRY) shall seek to provide gainful
employment to the urban unemployed or underemployed poor through encouraging the setting
up of self-employment ventures or provision of wage employment. This programme will rely on
creation of suitable community structures on the UBSP pattern and delivery of inputs under this
programme shall be through the medium of urban local bodies and such community structures.

The Swarna Jayanti Shahari Rozgar Yojana shall be funded on a 75:25 basis between the
Centre and the States.
 The Swarna Jayanti Shahari Rozgar Yojana shall consist of two special schemes,
namely:-

(i) The Urban Self Employment Programme (USEP)

(ii) The Urban Wage Employment Programme (UWEP)

SA©IENT FEATURES:

The Swarna Jayanti Shahari Rozgar Yojana shall rest on a foundation of community
empowerment. Rather then relying on the traditional method of top down implementation, this
programme shall rely on establishing and promoting community organisations and structures to
provide supporting and facilitating mechanism for local development. Towards this end
community organisations like Neighbourhood Groups (NHGs), Neighbourhood Committees
(NHCs), and Community Development Societies (CDSs) shall be set up in the target areas based
on the UBSP pattern (Annexure IV). The CDSs shall be the focal point for the purposes of
identification of beneficiaries, preparation of applications, monitoring of recovery, and generally
providing whatever other support is necessary to the programme. The CDSs will also identify
viable project suitable for that particular area.

These CDSs may also set themselves up as Thrift and Credit societies to encourage
community savings, as also other group activities. However, Thrift and Credit Societies may be
set up separate from the CDSs as well. These bodies will try to link local resource generation
efforts with wider institutional finance. It is expected that these bodies will be registered under
the Societies Registration Act or other appropriate Acts to provide them direct access to funds
under various schemes as also a wider finance and credit base. A maximum expenditure at the
rate of Rs. 100 per member for the first year, and Rs. 75 per member for each subsequent year
will be allowed for activities connected with the CDSs. The CDSs, being a federation of different
community based organisations, shall be the nodal agency for this programme. It is expected that
they will lay emphasis on providing the entire gamut of social sector inputs to their areas
including, but not limited to, health, welfare, education, etc. through establishing convergence
between schemes being implemented by different line departments within their jurisdiction.

THE URBAN SE©F EMP©ÀYMENT PRÀGRAMME (USEP):

This programme will have three distinct parts: -

(i) Assistance to individual urban poor beneficiaries for setting up gainful self-employment
ventures.

(ii) Assistance to groups of urban poor women for setting up gainful self-employment
ventures. This sub- scheme maybe called" The Scheme for Development of Women and
Children in the Urban Areas (DWCUA)".
(iii) Training of beneficiaries, potential beneficiaries and other person associated with the
urban employment programme for upgradation and acquisition of vocational and
entrepreneurial skills.

CÀVERAGE

(i) The programme will be applicable to all urban towns in India.

(ii) The programme will be implemented on the whole town basis with special emphasis on
urban poor clusters.

TARGET GRÀUPS

(i) The programme shall target the urban poor, defined as those leaving below the urban
poverty line, as defined from time to time.

(ii) Special attention will be given to women, persons belonging to Scheduled Castes/
Tribes, disabled person and other such categories as maybe indicated by the Government
from time to time. The percentage of women beneficiaries under this programme shall
not be less than 30%. SCs and STs must be benefited at least to the extent of the
proportion of their strength in the local population. A special provision of 3% shall be
reserved for the disabled under this programme.

(iii) Educational Qualification: There will be no minimum educational qualification for

beneficiaries under this programme. However, to avoid an overlap with the PMRY
scheme, for the self-employment component, this scheme shall not apply to beneficiaries
educated beyond the IX standard. As regards the wage employment component, there
will be no restrictions of educational qualifications whatsoever. Where the identified
activity requires skill, training of an appropriate level, as may be necessary, will be
provided to the beneficiaries before extending financial support.

(iv) A house-to-house survey for identification of genuine beneficiaries will be done.

Non-economic parameters will also be applied to identify the urban poor in addition to
the economic criteria of the urban poverty line. (Detailed Guidelines are given
in Annexure I). Community structure like the CDSs will be involved in this task under
the guidance of the Town Urban Poverty Eradication Cell/ Urban ©ocal Body. ©ists of
beneficiaries finalised will be displayed at the Urban ©ocal Body Àffice as also in the
concerned local areas. For ease of operation, if desired, the house-to-house survey and
beneficiary identification can be got done by the State nodal agency through any
identified body at the U©B/community level specially empowered in this behalf.

All other conditions being equal, women beneficiaries belonging to women-headed

households shall be ranked higher in priority than other beneficiaries. For purposes of this
section, women headed households shall mean households, which are headed by widows,
divorcees, single women, or even households where women are the sole earners.
CÀMPÀNENTS

(i) Self-employment through setting up Micro-enterprises and skill development

This programme encourages under-employed and unemployed urban youth to set up

small enterprises relating to servicing, petty business and manufacturing, for which there is a lot
of potential in urban areas. ©ocal skills and local crafts are encouraged for this purpose. Each
town has to develop a compendium of such projects/activities keeping in view cost,
marketability, economic viability etc. To avoid duplication with the ongoing Prime Minister's
Rozgar Yojana (PMRY), this component of SJSRY is confined to below poverty line
beneficiaries who have got education upto ninth standard with emphasis on those given a higher
priority on the basis of the non-economic criteria. The maximum unit cost will be Rs. 50,000 and
the maximum allowable subsidy will be 15% of the project cost, subject to a limit of Rs. 7,500.
The beneficiary is required to contribute 5% of the project cost as margin money.

In case a number of beneficiaries, either male or a mixed group consisting of males and
females, decide to jointly set up a project shall be eligible for a subsidy which will be equal to
the total permitted subsidy per person as per the above criteria. In this case too the provision
relating to 5% margin money per beneficiary will apply. The over all project cost, which can be
permitted, will be the simple sum of the individual project cost allowable per beneficiary.

Skill development through appropriate training is another element of this programme. It

is intended to provide training to the urban poor in a variety of service and manufacturing trades
as well as in local skills and local crafts so that they can set up self-employment ventures or
secure salaried employment with enhanced remuneration. Training should also be imparted in
vital components of the service sector like the construction trade and allied services like
carpentry and plumbing and also in manufacturing low cost building materials based on
improved local technology. Services of the Building Centres sponsored by the HUDCÀ/BMTPC
within the states may be utilised for this purpose, as per the local requirements.

Training institutions such as it is/Polytechnics/Shramik Vidyapeeths, Engineering

Colleges and other suitable training institutions run by Government, private, or voluntary
organisation may be utilised and provided appropriate support for this purpose. In addition, the
Building Centres existing within the states may also be utilised.

The unit cost allowed for training will be Rs. 2000 per trainee, including material cost,
trainers' fees, other miscellaneous expenses to be incurred by the training institution and the
monthly stipend, to be paid to the trainee. The total training period for skill upgradation may
vary from two to six months, subject to a minimum of 300 hours.

Infrastructural support may also be provided to beneficiaries setting up micro-enterprises

in relation to marketing of their products etc. This can be accomplished by providing selling
places for the poor in the form of kiosks and rehri markets, setting up of "Nagar Palika Seva
Kendras" for construction and other services, (like those provided by carpenters, plumbers,
electricians, TV/radio/refrigerator mechanics who will be available to city residents on call), and
through provisions of weekend markets/evening markets in municipal grounds or on road sides
on the one hand and technical assistance in relation to market surveys/trends, joint brand
names/designs and advertising on the other hand. It is also proposed that a Service Centre should
be set up at the CDS level for those who have undergone skill upgradation training. Appropriate
space should be provided to trained persons who can be asked to enrol themselves with the
Service Centre so that they could be sent to attend day-to-day skilled tasks on call from citizen
against appropriate payment fixed by the Community Development Society (CDS). Appropriate
publicity may be done within the town regarding the facilities available under the Service Centre.
(Àperational details in regard to training and infrastructural support are at Annexure III).

Tool kits may also be provided to trainees who complete the training satisfactorily. The
cost of tool kit should not exceed Rs. 600. In case the cost exceeds Rs. 600 there is no objection
to the excess amount being met from funds other than this programme funds or even as
beneficiary's contribution.

(ii) Development of Women and Children in Urban Areas (DWCUA) :

This scheme is distinguished by the special incentive extended to urban poor women who
decide to set up self employment ventures in a group as opposed to individual effort. Groups of
urban poor women shall take up an economic activity suited to their skill, training, aptitude, and
local conditions. Besides generation of income, this group strategy shall strive to empower the
urban poor women by making them independent as also providing a facilitating atmosphere for
self-employment.

To be eligible for subsidy under this scheme, the DWCUA group should consist of at
least 10 urban poor women. Before starting income generating activity the group members must
get to know each other well, understand the group strategy, and also recognise the strength and
the potential of each member of the group. The group shall select an organiser from amongst the
members. The group will also select its own avtivity. Care should be exercised in the selection of
activity because the future of the group will rest wholly on an appropriate selection. As far as
possible activities should be selected out of an identified shelf of projects for the area maintained
by the Town Urban Poverty Eradication Cell. In addition, every effort will be made to
encourage the group to set itself up as a Thrift and Credit society.

Coverage of benifitiaries under the community structure component was 337.4 lakh both in
2005-06 and in current year upto December 31st, 2006.

7  7 = <5 6

There were two major Programmes of this Ministry for Wage-Employment Generation in the
rural areas, one dedicated to wage employment itself namely the Employment Assurance
Scheme (EAS) and the other for Infrastructure creation at the village level known as the Jawahar
Gram Samridhi Yojana(JGSY). The EAS was basically meant for creation of additional
employment opportunities during the period of acute shortage of wage employment through
manual work for the rural poor living below the poverty line and the JGSY aimed at creation
of need based rural infrastructure at the village level. These programmes contributed to a great
extent in alleviating rural poverty and in improving quality of rural life. To meet an unusual high
demand for wage-employment and food security due to occurrence of calamities, the Food For
Work Programme was introduced in January 2001 and was also continued in the year 2001-
2002.
The need was felt that the different programmes for wage-employment in the rural areas be
merged and one ambitious programme be introduced which would take care of food security,
additional wage-employment and village infrastructure at the same time. With this noble
idea, a new Wage-Employment Programme namely the Sampoorna Grameen Rozgar Yojana
(SGRY) was announced by the Hon¶ble Prime Minister from the ramparts of the Red Fort on
15th August 2001. The new programme was launched on 25th September 2001 with an annual
outlay of Rs.10,000 crores. Under the Scheme, 50 lakh tonnes of foodgrains amounting to
Rs.5,000 crores (at economic cost ) will be provided every year free of cost to the State
Governments and Union Territory Administrations. The remaining funds will be utilized to meet
the cash component of wages and the material cost. The expenditure of the scheme will be
shared by Centrel and States in the ratio of 87.5 : 12.5. Under the Scheme, about 100 crore
mandays of wage-employment is envisaged to be generated every year. Even though the EAS
and the JGSY have been merged with this new Scheme, in order to avoid confusion, these two
Schemes will be implemented as a part of the SGRY during the remaining part of the year
2001-2002.

,%# #3"$#!
 4&:5 6
1.The Sampoorna Grameen Rozgar Yojana (SGRY) has been launched w.e.f. September 25,
2001 to provide Wage Employment in the rural areas.
2. Under the Scheme, 50 lakh tonnes of foodgrains amounting to Rs. 5,000 crore
(at economic cost) will be provided every year, free of cost, to the State Governments and Union
Territory Administrations.
3. The remaining funds (Rs. 5,000 crores), will be utilized, to meet the cash component
of wages and material cost.
4. The expenditure of the scheme will be shared by the Centre and State in the ratio
of 87.5:12.5. However the Cash Component is shared between centre and state in the ratio of
75.25.
5. The payment of foodgrains will be made by the Ministry of Rural Development to the Food
Corporation of India (FCI) directly.
6. About 100 crore mandays of employment are envisaged to be generated every year in the rural
areas through the SGRY.
7. The SGRY will be implemented in two streams. First Stream will be implemented at the
District and Intermediate Panchayat levels and the Second Stream, will be implemented at the
Village Panchayat ©evel.
8. The basic objective of the first stream would be to provide additional Wage-Employment
while the second stream would primarily aim at creation of need based rural infrastructure
Ô 
>

>


What we see is that although it is widely acknowledged that the way we define
poverty doesn¶t concur much in terms with poverty really is; but in order to tackle
poverty we have to lay down a set of rules through which we have to achieve
certain goals. Hence we have to define poverty in order to statistically lay down the
problems and then plan ways to tackle this problem. This strategy is basically
organic ,that is we define the problem, we see the way this problem is affected by
our actions and then plan further. Though we try to design a control system which
tries to be robust, that is if the situation changes our action change automatically in
order to match the situation. The problem is that these effects need to be studied
and pondered upon only then we apply our actions. In this process we lose most of
the efficiency of our actions as the environment changes. Thus this is the problem
that arises on the macro µpolicy¶ making scale. Though the effects of working on
macro scale are more rife, but these problems have always been their. Also, the
basic problem of poverty meaning different to a section of society comes into
play. Working on a micro scale we can understand the problem in a better way and
also implement means to counter the problems of the µpoor¶. These actions applied
on a smale scale will be more easily implemented and their results can be more
easily felt. This is the tenet of certain philosophical aspects: µ’
 

         

Thus, working in groups on a small scale can help us better solve this problem. But
this doesn¶t mean that there is a large scale solution to this problem. Certain areas
of this µbundle¶ of problem are common and methods to check this that have
worked on the small scale can be implemented throughout. For example, the
µ¶ or free kitchen started by the first Sikh Guru, Guru Nanak Dev Ji has been
something which has been phenomenal to this cause. Irrespective of caste or creed,
everybody is served food two times a day and nobody is turned down. It is like a
community meal organized by those who have the surplus and it¶s effect reach
those who don¶t. Such a system if implemented on a large scale will surely help
eradicate the problem of hunger.

Thus what we need to do is isolate the basic needs of all and make sure that these
are met by all. The rest portion of our needs are our comforts which should be dealt
at personal level.
The question is how? How can we achieve this. The answer lies in wealth
redistribution. From centuries the problem of poverty has not been lack of
resources it has been the allocation or distribution of resources. Some have
abundance of resources and they have grown in power while others lack these
basic amenities and have struggled. At 0 A.D. the population was about 200
million and people were still poor and now it¶s about 6 billion and people are still
poor. So why is this question being raised to a critical level now? This is because
although the percentage of people being poor might be same now and back then
but in life we can¶t depend on percentage , it¶s the real number that matter and
currently it¶s over 1 billion.

Moving back to the topic of wealth redistribution, should it be forced in the form
of taxes or should it be voluntary like corporate social responsibility. As the
system of µlangar¶ was introduced earlier it was voluntary and works well and if
we consider taxes they are necessary for overall welfare. But to eradicate poverty a
balance mix of both is required. Corporate social responsibility which envokes
voluntary social work from larger institutions capable of doing so has raised
several doubts on the way it¶s being used. It¶s changing more from a social
upliftment plan to a way of advertisement. Companies need to be more flint and
envolve the basic ethics and morals of humanity into the corporate world. History
has shown us that at the beginning all trade was based on was relations, but as we
moved away from our basic values and relations to profitability it has led to our
current situation which though might be comfortable for some but overall not the
best for all.

In today¶s world, where for example : The Ambanis are building a 8,000 crore
house comprising of 27 floors for a 6 member family. Now these money is a bit
short of the total funding for NREGA . Imagine how much this money might have
been use to some but instead it is being used for extravagant standards of living
and surprisingly this surreal activity is happening in India which unfortunately
hosts the largest section of poor in the world.

The point being raised here is that the rich have to step up and confront their moral
issues and help to this cause. Ànly if we all step up together than we can eradicate
poverty from it¶s roots.
CERTAIN CALCULATIONS AND sURVEYS TO BE INCLUDED