Global Economy Mechanisms: Economic Disparities PDF

Economic disparities at global scale Structure of the lecture Poverty: definition and typology The state of poverty and quantifying instruments for different poverty forms Vulnerability at poverty. Quantifying economic gaps...

Economic disparities at global scale Structure of the lecture Poverty: definition and typology The state of poverty and quantifying instruments for different poverty forms Vulnerability at poverty. Quantifying economic gaps The „new poverty” in the global context ❑Case study: How we measure poverty?  The poverty problem Most sources of poverty are outside a person's control In many countries This leads to poor job The poor have no education must be paid prospects and bad private property. for, and the poor health. cannot afford it. The poor are unlucky, not bad The concept of poverty from The concept of poverty from the institutional perspective Poverty: definition and typology the social perspective World Bank (2000): ”poverty is People describe ill-being as lack of pronounced deprivation in wellbeing”. material things, as bad experiences, and The Committee on Economic, Social as bad feelings about oneself. A group and Cultural Rights (2001): ”poverty of young men in Jamaica ranks lack of may be defined as a human condition self-confidence as the second biggest characterized by sustained or chronic impact of poverty: “poverty means we deprivation of the resources, don’t believe in self, we hardly travel capabilities, choices, security and out of the community—so frustrated, power necessary for the enjoyment of just locked up in a house all day.” an adequate standard of living and Crime and violence are often mentioned other civil, cultural, economic, political by poor people. In Ethiopia women say, and social rights” “we live hour to hour,” worrying about UN (1998): ”a violation of human whether it will rain. An argentine says, dignity whereby humans are denied “You have work, and you are fine. If from having choices and opportunities” not, you starve. That’s how it is.” The concept of poverty Amartya Sen (1973) Poverty is about limitations in capabilities and functioning's – the people can succeed in doing or being – not the goods or services they have access to Ill-being Well-being ❖ Bad social relations ❖ Good social relations ❖ Material lack/Poverty ❖ Enough for a good life ❖ Insecurity ❖ Security ❖ Physical weakness/illness ❖ Physical wellbeing ❖ Powerlessness ❖ Freedom of choice and actions The concept of poverty Dimensions Relative poverty Absolute poverty Defined in relation to the income distribution of a country; that is, Is experienced when when a person’s income is less than people lack the basic some fraction of average income necessities for survival: (income threshold) deemed proper shelter, clean necessary to maintain a general water, adequate food, standard of living. medicines and clothing.  Poverty: absolute or relative Absolute Relative poverty poverty World Bank: Absolute poverty line – the percentage of the population of a Defined in relation to the overall country living on less than $1,90 a day distribution of income or consumption in (PPP) at constant 2011 prices a country. For example, the poverty line United Nations: a condition could be set at 50 or 60 percent of the characterized by severe deprivation of country‘s mean income or consumption. basic human needs, including food, safe Ex: In the European Union, relative drinking water, sanitation facilities, poverty is defined as 60% of the median health, shelter, education and income. The OECD uses the threshold of information. 50%.  Poverty: dimensions and sources Dimensions Sources ❑ DIFFERENCES IN ❑ INCOME POVERTY PROPERTY WEALTH – – conceptual issues poor people have virtually ❑ HEALTH AND no assets while the EDUCATION - the wealthiest have net mortality rate and the worth's in the millions. gross primary enrolment ❑ DIFFERENCES IN rate PERSONAL ABILITY - ❑ VULNERABILITY - IQ, willingness to run the risk of falling into risks, ambition poverty in the future ❑ DIFFERENCES IN EDUCATION AND TRAINING Poverty: causes 1. Corruption World Bank: ” Weakens public service delivery, misdirects public resources, and holds back the growth that is necessary to pull people out of poverty... [Corruption] undermines the driving forces behind reform... Vital resources are siphoned off shore. Foreign investors turn away in frustration... [It] reduces public revenue, undermines public trust, and weakens the credibility of the state” Among the factors found to increase corruption are low levels of law enforcements, lack of clarity of rules, transparency and accountability in public actions, too many controls that give too much discretion to the public officials, too much centralization and monopoly give to the public officials, low relative wages of public officials, as well as the large size of the public sector. Country like Bangladesh and India face this public sector corruption especially in the police department, customs, taxation and the national secretariat. In Bangladesh and India, bribery is the most damaging form of corruption in the public sector. It has become a standard practice in most departments to bribe the concerned officials. 2. Education Poor countries increase their poverty level due to lack of training skills, productive knowledge and transforms human beings into more valuable human capital and education. The features of education poverty include non-participation or low rates of participation of children in schooling, high rates of drop out and failures, low rates of continuation in schooling, low rates of achievement and finally exclusion of the poor from education. Poverty: causes 3. Political Instability, Wars, Civil Wars Civil wars lead to poverty mainly due to destruction of capital, displacement of people and increased insecurity. Civil wars can be disruptive to capital or transactions-intensive activities such as roads, production of manufactures, or financial services. 4. Natural and Geographical Characteristics Most Africans live much inwards from the sea coast or navigable rivers than in other regions and hence face higher transportation costs for exports. Furthermore, much of the population lives in countries which are landlocked. Also, these problems of distance are compounded by political barriers. 5. Ineffective Governance & Government Policies Most African governments have been undemocratic for much of the post-colonial period. A typical pattern is that governments are controlled by the ruling elites, educated, urban resident population who are resistant or indifferent to pro-poor policies. Poor service delivery handicapped firms through unreliable transport and power, inadequate telecommunications networks, and unreliable courts. A survey of Ugandan firms found that shortage of electricity was identified as the single most important constraint upon firm growth; indeed, the provision of electricity by firms for their own use was almost as large as the public supply of electricity. On a range of indicators, Africa has had much higher trade barriers and more misaligned exchange rates than other regions.  Equity vs equality ❖ Equity – fair distribution of income ❖ Equality – equal distribution of income The costs of equality ❑ Equality of political rights ? The costs of redistribution ❑ Economic opportunity ? In taking steps to redistribute income from the rich to the poor, governments may harm economic efficiency ❑ Equality in terms of economic and reduce the amount of national income available to outcome distribute. On the other hand, if equality is a social good, it is one worth paying for. The question of how “From each according to his much we are willing to pay in reduced efficiency for abilities, to each according to his greater equality was addressed by Arthur Okun in his needs” was Karl Marx’s “leaky bucket” experiment. He noted that if we value equality, we would approve when a dollar is taken in a formulation of this philosophy” bucket from the very rich and given to the very poor. But, he continued, suppose the bucket of redistribution has a leak in it. Suppose only a fraction—maybe only one-half — of each dollar paid by the rich in taxes actually reaches the poor. Then redistribution in the name of equity has been at the expense of economic efficiency.  How to Measure Inequality among Income Classes ❑ Lorenz curve – visual indicator ❑ Gini index – mathematical indicator https://data.worldbank.org/indicator/SI.POV.GINI ❑ Source: Samuelson, P., Nordhaus, W., 2010 , ECONOMICS Nineteenth Edition, pp. 324-325. ANTIPOVERTY POLICIES: PROGRAMS AND CRITICISMS 1. Income-Security Programs ◦ Food stamps ◦ Welfare assitance ◦ Medicaid 2. Two Views of Poverty ◦ Proponents of strong government action see poverty as the result of social and economic conditions over which the poor have little control. ◦ A second view holds that poverty grows out of maladaptive individual behaviour—behaviour that is the responsibility of individuals and is properly cured by the poor themselves.  HPI (Human Poverty Index) – United Nations UN: HPI focuses on three dimensions: the capability to (i) survive, measured by vulnerability to early death defined as before 40 (60) years; (ii) be knowledgeable, measured by the adult illiteracy rate; and (iii) have access to private income as well as public provisioning, measured by the percentage of measure poverty? malnourished children under five and by the percentage of people without access to safe water. HPI 1 – for developing countries HPI 2 - for developed countries (OECD) countries MPI (Multidimensional Poverty Index) - United Nations How do we Identifies multiple deprivations at the household level in education, health and standard of living. It uses micro data from household surveys, and—unlike the Inequality-adjusted Human Development Index—all the indicators needed to construct the measure must come from the same survey. Poverty headcount ratio at $1.90 a day – World Bank The percentage of the population living on less than $1.90 a day at 2011 international prices Poverty gap – OECD The ratio by which the mean income of the poor falls below the poverty line Poverty ratio – OECD The ratio of the number of people (in a given age group) whose income falls below the poverty line; taken as half the median household income of the total population.  Multidimensional poverty Index Dimensions of Indicator Deprived if living in the household where… Weight Poverty An adult under 70 years of age or a child is Nutrition 1/6 undernourished. Health Any child under the age of 18 years has died in the five Child mortality 1/6 years preceding the survey. No household member aged 10 years or older has Years of schooling 1/6 completed six years of schooling. Education Any school-aged child is not attending school up to the School attendance 1/6 age at which he/she would complete class 8. Standard of living Cooking fuel The household cooks with dung, wood, charcoal and coal. 1/18 Sanitation The households sanitation facility is not improved. 1/18 Drinking water The household does not have access to improved drinking 1/18 water or safe drinking water is at least 30 minutes’ walk from home. Electricity The household has no electricity. 1/18 Housing Housing materials for at least one of roof, walls, and 1/18 floors are inadequate Assets The household does not own more than one of these 1/18 assets: TV, radio, telephone, computer, refrigerator and does not own a car. Source: http://hdr.undp.org/en/2019-MPI  Questions? Opinions / Suggestions? Thank you, see you next session