Poverty gives way to inequality and the Great Frustration

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TheGlobeandMail.com – commentary
Oct. 20 2012.   Doug Saunders 

Former Chilean president Ricardo Lagos recently told me a story to explain why he, like a growing number of political leaders, has stopped viewing poverty as his primary problem.

The story involved a poor village in the foothills of the Andes. When Mr. Lagos was education minister in the early 1990s, he built its first school. Later in the decade, as minister of public works, he built the first modern road to the village. Then as president after 2000, his programs delivered the village’s first supplies of clean water, agricultural irrigation and electricity.

And then the presidential election came around. Mr. Lagos campaigned hard in the village he had so dramatically transformed, reminding voters that he had ended poverty there within a decade.

“My opponent? I am not sure he knew where that village was,” Mr. Lagos said. “But he got 60 per cent of the vote there, and I got 40 per cent. Why? After we gave them so many things? Well, what the villagers told me was that those things had made them less poor, but also gave them more stress and made them less happy.”

Water and electricity meant there were now bills to pay, and expensive TVs on which to watch the inaccessible lives of the country’s upper-middle class. With roads came car payments and trips to the city, and the growing discovery of just how poor these newly middle-class villagers really were – and how impossible it would be to bridge that gap.

Around the world, politicians are making the same discovery. Their constituents, who were satisfied simply not to be poor a generation ago, have now entered an era that might be called the Great Frustration. Those people on the lowest edge of the middle class – in both poor and rich countries – have discovered they have little chance of advancing further. In countries such as Canada, they may be starting to slip back.

That’s why inequality has replaced poverty as the great political theme of the moment. Once upon a time, we might have believed the two were related – but it turns out, as leaders from Beijing to Berlin to Bogota are discovering, they’re very different problems.

Five decades ago, Lyndon Johnson built his presidential election campaign around a “war on poverty,” a phrase that was to dominate his country’s politics for a generation. Today, Barack Obama is running a re-election campaign that makes far less mention of poverty, instead focusing on inequality and the frustrations of an American lower-middle class whose situation, financially and emotionally, looks a lot like those Chilean villagers.

In poor countries, the emerging almost middle classes are stuck. In countries such as Canada, the middle classes have seen their incomes and purchasing power stagnate, even slip back somewhat. Inequality has increased – and when that happens, economists have shown that there’s a corresponding collapse of social mobility, the ability to escape your income group for a higher one.

Yet, as much as we use the word “inequality” to describe this problem, we really don’t understand it. Politicians on both ends of the spectrum abuse the term, and suggest unrealistic solutions.

When those on the left discuss inequality, they too often fall for a “lump-of-money fallacy” – the belief there’s a fixed pile of cash, too much of it in the hands of the rich, that needs to be spread around more evenly.

But wealth doesn’t work that way: What the non-rich lack is not a share of the pot but a productive economic situation in which to generate wealth. The problem isn’t the 1 per cent. It’s the 60 per cent whose world of productivity and security is increasingly denied to the lower 40 per cent.

When politicians on the right discuss it, they too often fall for the “zero-sum fallacy”: the belief that fixing inequality through government action will kill wealth creation and, by extension, make everyone poorer. It’s true that less poverty usually equals more inequality – the policies that get people out of poverty (by creating growth) usually benefit the rich even more. When the rich get richer, the poor usually get poorer. But the converse isn’t true: Countries with strong redistributive systems and free economies are usually both wealthy and equal.

And it isn’t inevitable: Both Brazil and South Korea have seen lengthy periods where their citizens became both wealthier and more equal. The U.S. once did that, too, a century ago. Now that the fulcrum has swung from poverty back to equality, maybe it will again.

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2 Responses to “Poverty gives way to inequality and the Great Frustration”

  1. It is heartening to realize that governments are beginning to discuss inequality as a current issue. However, poverty and inequality are intrinsically linked. When distributions of income and access to resources are unbalanced, there will always be extremes of rich and poor. Canadian middle class equality concerns aren’t necessarily about income but rather about the inability to bridge the huge income gaps between the upper percentiles of rich and the middle class. In essence, our middle class is facing inequality through the same kind of exclusion problems that the poorest in the country face, without the confounded lack of sustainable, survivable income. Inequality is not just about income, it is also about inclusion and access to opportunity. The middle class is not only frustrated; it is marginalized by inequality. This social poverty is quite concerning, especially from a social welfare point of view.
    While redistribution techniques will help the very poorest of the poor reach economic viability, redistribution is not a zero-sum game. Redistribution techniques alone do not solve inequality or poverty, they are simply not enough: injections of cash are only temporary reliefs. The distribution of productive assets becomes necessary to reduce both inequality and poverty. Investing in Canada’s human capital through improving education and lowering post-secondary costs will help to create long-lasting economic growth. However, human capital investment has to come at every level, not just the poor without any opportunity, but also to those frustrated people rutted in the middle class who make too much to qualify for bursaries, subsidies, and government student loans but still can’t afford the rising cost of education in this country. Education must be equally accessible so opportunity for everyone exists. Not just opportunity to escape the bounds of poverty, but to achieve the social mobility to break through middle and upper class boundaries and maximize potential growth.
    When governments stop trying to band aid social issues with cash and focus on long-term solutions it won’t matter if they label it as solving inequality or fixing poverty. The same solution addressed from either definition will create the same result. Perhaps if our education system was better, they would already know this.

  2. Julia Martellacci says:

    Reducing poverty is not about handing money and middle-class luxuries to those who are poor; giving them a home in a subdivision will not benefit a family in poverty who cannot afford the bills which come with it. The best way to address the issue is to look at the structural inequalities which exist in our society. The reasoning behind different groups living in poverty is varying, yet the underlying issue appears to be the opportunities, resources, and access which they are not able to attain. Some of these include barriers in accessing social assistance, lack of support to address personal problems, and political leaders who fail to recognize the importance of supporting the most vulnerable. As the article discusses, people do not want to settle for being ‘not poor’, but rather they want to be able to sustain for themselves and work towards social mobility and the opportunity to move from poor to middle class. They also want a sense of well-being and the ability to have a life of dignity. Living off welfare and other social assistance programs do not allow people to live a good quality of life, but rather one where they are barely able to get by. No one wants to stay on welfare their entire lives, but due to the lack of equality and opportunity many are forced to live this way.

    The reality is that we have a situation of the working poor. While social assistance programs are meant to be temporary, it is often difficult for those on social assistance to get out of their situations of poverty. Even if they are able to get a job, the wages are often low and thus they continue to work and have income but remain poor. There is a vicious cycle that has been created where those that are poor stay poor throughout their lives, and that their children grow up poor as well. Those who say that everyone has equal opportunities in Canada are wrong. Affording an education while obtaining a secure job are not opportunities which all Canadians have, but rather a privilege which is reserved for the middle to upper class. Even the middle class is experiencing difficulties with the increasing gap between rich and poor and the shrinking of the middle class population.

    The article addressed the right and left wing responses and how they fail to acknowledge what inequality means. I have to agree with this as the issue at hand is not that money isn’t being fairly distributed or that creating equality will create more poverty. If the problem of poverty could be solved by giving homes, cars, and fancy toys to those who are poor, it would have been done by now. The problem is that there is not enough equal access to success and opportunity in Canada. By addressing the issue of inequality, political leaders are recognizing that the target of change should not directly focus on poverty, but the circumstances and reasoning behind these increasing rates. Poverty is not the primary problem; poverty is the result of inequalities.


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