Economy

Is Faster Economic Growth the Only Solution to Poverty Eradication?

Poverty is multidimensional and can have many definitions. One such definition is by the United Nations (UN), which defines poverty as a denial of choices and opportunities and a violation of human dignity. It encompasses the various deprivations experienced by poor people in their daily lives. Poverty leads to insecurity, powerlessness and exclusion of individuals, households and communities. While some instances of poverty are created by situations, others are trapped in poverty because of the generation before them, hence continuing the vicious cycle of poverty. The international poverty line, a monetary threshold under which an individual is considered to be living in poverty, is set by the World Bank at periodic intervals as the cost of living for basic food, clothing, and shelter around the world changes. It is currently set at $2 per day and based on data projections, the World Bank estimated that more than 700 million people lived in extreme poverty as of 2015. In India, 23.6% of the population is said to be living in abject poverty.

Poverty Alleviation- A Multidimensional Approach

In essence, poverty reduction or poverty alleviation is a set of measures that are intended to permanently lift people out of poverty and improve their living standards. Poverty alleviation has been one of the central motives of almost every country and has been given due importance in the Sustainable Development Goals, developed by the UN. But to rid the world of extreme poverty, the concerned nations must first understand the causes that contribute to increasing poverty. Inadequate access to clean water and nutritious food, little or no access to livelihoods or jobs, inequality, poor education, climate change and lack of infrastructure are some of the leading factors for the prevalent destitution in India.

Conventionally measured as the increase in the real Gross Domestic Product (GDP), economic growth is considered as the most fundamental instrument for reducing poverty and improving the quality of life in developing countries. Measures to promote rapid and sustained economic growth is key to a successful strategy of poverty reduction. Strong growth leads to higher employment opportunities, improving incentives for parents to invest in their children’s education by sending them to school. Employment generates a higher income, hence will allow poverty-stricken people to access resources that fulfill their needs. Economic growth and increased education may lead to the emergence of a strong and growing group of entrepreneurs, which should generate pressure for improved governance. Strong economic growth, therefore, advances human development, which, in turn, promotes economic growth and so on and so forth. In many direct and indirect ways, growth can generate virtuous circles of prosperity and opportunity, allowing people and countries to escape the vicious poverty trap. However, while economic growth is a necessary condition for the eradication of extreme poverty and income inequality, it cannot be said to be the one condition required. In other words, it is a necessary but not sufficient condition for poverty alleviation. Other facets determine the impact of poverty alleviation programmes and are complementary to economic growth.

Social Measures

Education is a powerful driver of development and one of the strongest and most effective means for reducing poverty and improving the standard of living. Economic growth without the spread and improvement in education standards across and within countries will nullify the effect of an increase in income on poverty. Economic growth and education have a positive relationship, with higher incomes leading to higher education and opportunities and vice versa as well. According to UNESCO, even with basic reading skills, an estimated 171 million people could escape extreme poverty. If all adults completed secondary education, the global poverty rate could be cut by more than half. These figures highlight the importance of spreading education in the alleviation of poverty.

Access to clean water and sanitation is one of the most cost-effective development interventions and critical for reducing poverty. With more than 2 billion people without clean water at home, the lack of easy access to water, sanitation and nutritious food is stated as one of the most important reasons for chronic poverty. It also affects people disproportionately, with women being the worst affected. Women and girls collectively spend hours every day walking long distances to fetch water, using time and energy that could be used working or acquiring education. Diseases caused by unsafe drinking water and poor sanitation are the most significant reasons for health problems worldwide, draining poverty-stricken people of their monetary resources on fighting preventable diseases. As per the UN World Water Development Report, investment in Water, Sanitation and Hygiene, commonly known as WASH, guarantees one of the highest rates of return as a $1 investment in WASH yields $3-$34 in economic return. It also states that the lack of WASH can cost up to 5% of a country’s GDP. Economic growth without investment in this sector will not have as much impact and might be counteractive. Apart from investment, it is important that the programmes, policies and measures reach the appropriate stakeholders.

Energy and Climate Factors

For developing nations, the need for reliable and affordable energy is fundamental. More than 1.3 billion people live without electricity, hindering their productivity and hampering their ability to study, become entrepreneurs, work and connect with the outside world. Energy security and access to cheap energy have become essential to all nations, especially developing nations. However, the energy sector has also been directly linked to the increasing climate change crisis which has its own impacts on poverty. Bringing environmentally sustainable and affordable energy to all is essential for poverty reduction and social inclusion. Focused effort on projects involving renewable energy such as geothermal, solar, nuclear and other clean sources of energy can not only reduce poverty but also promotes green growth, provides clean, reliable, renewable and affordable power to people and generates more employment.
Climate change is increasingly important and poses a huge challenge for development and poverty eradication. Focussing only on economic growth and not the quality of growth and the repercussions of it has in turn increased carbon emissions and contributed to climate change. The direct effects of climate change are obvious as witnessed through shifting weather patterns, rising sea levels and more extreme weather events whose impacts affect every country on every continent. However, climate change is more profound in developing countries with a chunk of its population already burdened by poverty and affects them proportionately higher. Millions of poor people in developing countries are more vulnerable to climate change impacts on ecosystems, water and agriculture as they do not have the resources to bear the brunt. Governments need to increase focus towards developing resilient and more adaptive infrastructure to assist the poor and enable them to withstand disaster without losing their livelihood, pushing them into further poverty.

Thus, it can see that economic growth on its own cannot be the sole determinant of poverty alleviation and reduction of income inequality. In fact, some studies have shown that economic growth can have varied effects on different countries, including negative effects in the short run as economic growth can be directly linked to increasing income inequality. Poverty reduction schemes need to focus on the causes of poverty in order to determine what conditions need to be established, other than economic growth, in order to create an environment for equality amongst all.

Picture Credits: humanosphere.org / Flickr-barnyz



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