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Explain the cause of poverty in LDC s and the most appropriate policies to tackle poverty + Introduction In any year nowadays between half a billion to three fourths of a billion people are living in starvation conditions. At the same time it has to be admitted that in the years since the end of the Second World War we have witnessed a more sustained growth in output of almost all goods than at any other time in history of mankind. Population has grown, life expectancy has increased and at the same time incidents of catastrophic mortality in any part of the world have attracted sympathy. But still a vast percent of the population of Earth is ill fed, ill clothed, ill housed, under-educated and prey to preventable disease. Some believe that over time the laws of supply and demand will establish an optimal equilibrium in the national and the international markets.
In that case, governments in LDC s have to stop interfering with the operation of these laws. Obviously the rate of the problem often referred to as poverty, is not as easy to explain and equally so is its solution. + The causes of poverty By far the most important reason for the failure of previous efforts to mitigate poverty and its symptoms in the developing world, has been the explosive increase in population. This has been the result, principally, of the deep disturbance to ecological balance brought about by the antibiotic-therapeutic revolution in the highly developed areas of the world, which, was transplanted to the less developed countries after the Second World War. On the other hand, there has as yet been relatively little success in increasing output in the traditional sectors of agriculture. It is still uncertain, for example, to what extent recent increases in agricultural output have been associated with the cycle in climatic conditions rather than with new techniques of production, although much has been made of the spectacular success in some countries, such as South Korea Taiwan and Mexico. The so-called Green Revolution with its miracle seeds has obviously had an important impact on agricultural productivity in certain areas.
The application of the new seeds, however, is limited by their heavy technical requirements. Moreover, as with other transplanted techniques, it is possible that, given unfavourable circumstances, even their direct effects might be deleterious. The failure in agriculture, in turn, has contributed to the lagging development of industry after the brave start that had been made and which had been connected mainly with the introduction of protective policies in the wake of independence. Unfortunately, however, the newly created independent markets were so small and fractured that, in conjunction with their poverty, import- replacement has been unable to provide a sufficiently large impulse, a sufficiently wide front, for industrialisation. Moreover, savings available have failed to increase rapidly enough, despite the frightening inequality in the distribution of income and wealth in the less developed areas. The consequences of this failure have been aggravated by the fact that exports of the less developed countries have grown at a slower rate in terms of value than those of the developed countries.
The restrictions, which the latter have placed on imports from low wage countries, can only be partial explanation of this trend. The inability of LDC s to produce suitable manufacturers efficiently was surely also to blame. The failure of the expansion of trade between LDC s is a pointer in this respect. The examples of Hong Kong and other Far Eastern countries on the other hand also show what can be done, despite the pressure of protection from labour intensive industries in the developed areas.
In retrospect, what investment there has been made seems to have been rather less effective than had been hoped in bringing about an expansion of incomes, despite all the planning and analysis that had been undertaken with the reinforced help of both the rich donor countries and the multilateral agencies. But the establishment of subsidiaries or long-term contractual suppliers by giant, technologically advanced firms in LDC s can open opportunities for employment at wages far higher than the average national income: it also transfers know-how, skills and resources. If this leads to the growth of capability then this might accelerate development. Many examples though, of such cases, have proven that large corporations tend to ignore these advantages that they could offer to LDC s. Progress in the underdeveloped world has not least been retarded by the acute shortage of skilled manpower, especially in the vital rural sector. This could be due to poverty itself, or even by religious or tribal attitudes, which are incompatible with individual social responsibility and economic incentives.
It should also be mentioned that many of the above mentioned problems are the consequence of deep-seated institutional and social factors, which themselves have been results of past failures. + Policies for tackling poverty The strategic choices that governments make to tackle poverty reflect both economic and political factors. Countries differ enormously in their political culture, in the nature of their political organisations, in their leadership and so forth Policies that help the poor but impose costs on the nonbook will encounter resistance whether or not they increase national income. The nonbook are usually politically powerful and they exert a strong influence on policy. Giving the poor a greater say in local and national decision making would help to restore the balance.
Also, it is important to design poverty reducing policies that will be supported, or at least not actively resisted, by the nonbook. With appropriate policies, he poor can participate in growth and contribute to it, and when they do, rapid declines in poverty are consistent with sustained growth. Also, policies should focus on tackling poverty by creating human capital rather by redistributing nonhuman capital. Countries that have been most successful in alleviating poverty have made adequate provision for these human capital investments in their government budgets. However, increased government spending is not always the answer in providing these investments in human capital. Dramatic improvements can be achieved through a more efficient use of public funds that is specifically directed toward the poor.
When the government fails to provide adequate funds for education and health, the poor often make those investments with private funds. This suggests that a balanced approach in which public investments in human capital complement private investments will be most effective in alleviating poverty. Investments in the human capital of the poor will only be productive if there are opportunities for the poor to utilise their skills to improve their income and wealth. Countries that have been most successful have been ones in which economic growth increases the productivity and returns to labour, particularly in the rural agricultural sector. This requires a balance between policies to promote economic growth and policies that enable the poor to participate in growth. Developing countries must often improve the infrastructure, particularly in poor agricultural regions that would otherwise be bypassed by economic growth.
The provision of transportation, communication, credit, markets and so forth may require government investments to complement the limited private investments in the poorer regions. Countries that have successfully pursued such a balanced growth policy are Indonesia, Malaysia and Thailand All the developing countries have policies to transfer income, usually in the form of food subsidies. A system of well-targeted transfers and safety nets for the poor is necessary complement to the kind of balanced growth strategy outlined above. The fact is that some of the poor will not benefit from economic growth and will require transfers of income.
The infirm, the aged, and those living in resource poor regions will require transfers to bring their standards of living above the minimum standards in the society. The countries that have been most successful in improving the welfare of the poor have not pursued a basic needs strategy. The welfare of the poor has improved most in those countries that have achieved the highest rates of economic growth. In short, economic growth reduces poverty and economic decline decreases it. The market oriented countries of East Asia such as South Korea, Taiwan, Hong Kong and Singapore have been the most successful in achieving high rates of economic growth; they have also been the most successful in reducing inequalities in income distribution, and in alleviating poverty. These countries demonstrate that market oriented development is the most efficient solution to poverty in the long run.
They have been successful because their population, including the poor, acquired education, skills, and human capital needed to improve their welfare and because they created a market environment in which people had the opportunity and incentive to use their human capital to improve their lives. Public policies fostered a private market economy and limited the role of government to essential functions. The ability of these countries to meet the basic needs of the poor depended not upon the vagaries of public policy, but rather upon the ability of all the population, including the poor, to improve their income and wealth through the private market system. As a conclusion, success in tackling poverty policies is built on objectives and strategies that are shared to some degree by the poor and at least some groups among the non poor.
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