Difference Between Inequality And Poverty: Definitions, Causes And Relationship

Poverty and inequality

What is the difference between inequality and poverty?

The term inequality and poverty originated from all contemporaneous societies. They are quite visible and blatant in some societies than others. The association between poverty and inequality is not clear and distinct. Poverty and inequality are considered to be analytical concepts. The interdependence of poverty and inequality occurs up to a certain point, beyond which it is not relevant enough to say that they reckon on each other. In fact, poverty and inequality vary independently of each other. It becomes difficult to define the relationship between poverty and inequality as it is not clear as to which concept of poverty and which dimension of inequality one has in mind. We can say that poverty and inequality does not change at the same pace and degree, it may even change paradoxically. To analyze and understand the relationship as well as the disparity between poverty and inequality, it is necessary to apprehend the definition and key issues related to inequality and poverty. (Beteille, 2003)

The extent of poverty and inequality remains a topic of abiding interest in the entire world.

Amartya Sen, Nobel Prize winner in the field of Economics, defined poverty as the lack of affirm freedoms which include the capabilities to select a life when one has a reason to appraise and value. He also described that a mere low level of income does not signify an individual to be poor it is the concept of deprivation of basic capabilities that identify someone to be poor.

In other words, poverty can be defined as the scarcity and deficiency of material possession or lack of monetary resources. The definition of poverty is multifaceted as it includes social, economical, political aspects. Poverty has varying categories. It can be persistent or transitory, absolute or relative and so on. Most of the time, poverty is correlated with the concept of inequality. Poverty can also be seen as a dynamic concept which adapts and adjusts to changes in the consumption pattern, social advancement and technological amelioration. (Defining Poverty, 2015)

Now taking about the two prevailing types of poverty, the absolute poverty is a concept that is more related to deprivation of basic human needs which ordinarily include food, water, sanitation, clothing, shelter, health care and education. The other type which is relative poverty is described circumstantially as economic inequality within the society in which people reside.

According to the definition provided by the World Bank, Poverty is an evident deprivation in the well-being of people. Poverty is identified as low levels of income, inability to access the basic goods and services that are required to lead a dignified life. Poverty also encircles low levels of health care and educational attainment, no proper access to clean water and sanitation, meager physical security and lack of sufficient and favorable circumstances to improve one’s life.

An evaluation of the data from the World Health Organization has revealed that every day around 40,000 people die which is 15 million per year because they do not have access to the basic necessities of life such as food, clothing, water, shelter and health care facilities. The official poverty rate is recorded to have increased from 12.5 per cent in 2007 to 15 per cent in 2012.

Analysis of scholarly articles

The causes behind the evolution of poverty are diverse. Some causes can be eliminated by proper implementation of measures and eradication programs. Considering the less developed economies and the developing economies the elimination of the causes of poverty still remains a dilemma. The popular causes of poverty include altering trends in the economy of a country, lack of education, high rate of divorce which can lead to feminization of poverty, overpopulation, and spread of an epidemic disease like AIDS or tuberculosis. Environmental problems like lack of rainfall, extreme weather conditions that cause conditions of drought or flooding can result in poverty. The primary causes of poverty include lack of money. Poverty prevails in an economic system where the unemployment rate is high or labors are working with low wages in order to draw sufficient investment in the country. Lack of access and control to local resources, prevalence of corruption, lack of democracy in the country, most people are deprived of the potential benefits of the success in an economy, no proper law and order, limited property rights and preventing businesses to retain most of their profits, all these are the causes of poverty.

We have already discussed that poverty and inequality are linked but haven’t clarified the rationale of inequality.

Inequality is a destructive phenomenon and has been pronounced as a burgeoning social problem. Economic inequality is described as the extent of distribution of certain economic metrics among individuals within a group or among groups within the population. Economist identifies three metrics signifying economic disparity. They are wealth inequality, income inequality and consumption inequality. Intense inequality can be detrimental to the economic as income inequality and concentration of wealth can impede long term growth.

A senior scholar associated with the Luxembourg Income Survey, Branko Milanovic had undertaken a meticulous research based on the global income inequality. His research inferred that inequality within the nations was increasing. The emergence of middle class families in China and India seemed to slightly decline the worldwide inequality. Also the income levels of typical families in the United States along with other rich nations seemed to stagnate and even tend to decrease. A new Millennium Development goal (Un.org, 2015) recognizes and adapts measures to reduce inequality is unlikely to move ahead positively. Over the decades the inequality seemed to rise sharply which are depicted by the income of the world’s top 1.75% of earners surpassed those of the bottom 77%.(MAKWANA, 2013)

There are many causes of inequality that are determined within the societies. They are labor market outcomes which are responsible for wage disparities of the working class, policy reforms, regressive nature of taxation, different levels of discrimination, nepotism. Globalization is another important factor that causes inequality by suppressing the wage in the low skilled labor surplus countries, providing investment proposition for the rich nations etc. (Inequality.org, 2015)

The Stanford Center on Poverty and Inequality had prepared “The Poverty and Inequality Report, 2014” which focused on seven key realms that globally assessed the existence of the problem of poverty and inequality and coordinated endeavor to reduce poverty and democratize opportunities. Analyzing this report we can reveal that after the Great Recession ended, there wasn’t substantial generation of jobs. This implies that people are left unemployed and no income which gave rise to inequality. In November 2013, the proportion of all 25-54 year olds who possess job was around five percent lower than it was recorded in December 2007. Taking the poverty picture, the report reveals that poverty rates had increased from 12.5 percent in 2007 to 15 percent in 2012. Income inequality and consumption inequality had also increased during the year 2009. There had been decline in the health outcomes that reflected a decrease in the poverty rates. For the first time, the wealth inequality had seen a rise since the early 1980s. The Gini Coefficient for 2010 was recorded to be higher than any level in the near three decades. The wage disparity has also caused an inequality in the educational sector. (The Poverty and Inequality Report 2014, 2014)

The paper on “Growth, Inequality And Poverty Reduction In Developing Countries: Recent Global Evidence” by Augustin Kwasi FOSU published by OECD Development Centre (FOSU, 2015) has focused on the developing countries regarding the growth, income inequality and poverty reduction. We have always seen that poverty and income inequality are interdependent that is we can formulate that as whenever there is income inequality or wealth inequality, there comes in poverty within the economy. This implies that the existence of inequality in an economy gives rise to poverty. But it not always the case as the direction of occurrence of poverty and inequality can be opposite. This paper tells us that in China poverty reduction had taken a substantial place which occurred in the absence of increasing income inequality along with economic growth. Again the article analyzed the dual situation in Botswana and Ghana, it was found that in Botswana income increased extremely but there was no slight reduction in poverty followed by growth. The moderate growth in Ghana has led to considerable reduction in poverty. These two different levels of income inequality between the above mentioned two countries revealed the disparity in the performance. Bolivia depicts an extreme case where its monthly income accentuated slightly from USD 175.1 (2005 PPP-adjusted) in 1990 to USD 203.5 in 2005 and the poverty rates in Bolivia at the USD1 standard accentuated from 4 percent to 19.6 percent for the same period ( a considerable increase had been witnessed in the Gini Coefficient from 0.42 to 0.58 during the same time period). (Fosu, n.d.) Thus, a positive correlation between the poverty and inequality is believed to be a myth and there lies several differences between the poverty and inequality which we will be discussing in the next section. (Fosu, 2010)

 Poverty and inequality are most of the time are considered to be related but they are not. It is somewhat explained in the above analysis of the OECD article where we see that poverty gets reduced largely in countries who witnessed modest growth. Poverty in layman’s language can be described a lack of monetary resources and basic goods and services associated with the monetary resources. On the other hand inequality is a phenomenon where some individuals are in a better off situation than others. Inequality is considered to be a relative term but poverty can be relative as well as absolute term. A revealing difference between the poverty and inequality is that poverty has a vulnerability measurement. This can be explained by an example. A person earning $100 a week has to incur an expenditure of $99. The saving of $1 implies him to be poor. But an unexpected expenditure of $2 may put him below the red line. Inequality doesn’t measure such exposure. It is more concerned with the comparison of the standard of living of two sets of people. (Difference Between Inequality And Poverty, 2014)

Since inequality is a relative issue, it cannot be estimated individually. On the other hand, poverty can be estimated on an individual basis. One can say that a person is living in poverty, but it will be irrational to say that the person is living in inequality. He may be said to be living in inequality if he is compared to another person with better life style and standard of living. Poverty is affected and influenced by inequality but the direction of impact from poverty to inequality can be described. Poverty can be considered to be a nuanced term and inequality is referred to as a fixed term. Economic disparity is described by inequality but one can refer someone to be sometimes poor, usually poor, always poor. Poverty is believed to describe different ways in which inequality can exist. This explains that poverty and inequality may not be related and occur hand in hand. The difference leads to the fact that poverty may exist even when inequality is absent.

Conclusion:

The study revealed a lot of understanding about the two concepts that affect the performance of the economy: poverty and inequality. The distinct definition of poverty is hard to formulate as the concept of poverty is multidimensional. Inequality on the other hand is more of a comparative issue. Inequality can be estimated when the standard of living of two individuals are compared. We have analyzed two research papers on inequality and poverty.  Both established a relationship between poverty and inequality. But it is not always the case that both of them drive towards the same direction. As we have come across the fact that poverty can be reduced even when there is no inequality in the economy. We lastly tried to draw certain differences between the phenomena poverty and inequality. We can infer that poverty refers to more individualistic whereas inequality is more relative in nature. But it is important to note that poverty is driven by the existence of inequality. When inequality prevails in the economy, most of the time we experience acute poverty within the economy.

References

Beteille, A. (2003). Poverty and Inequality. Economic and Political Weekly, [online] Vol. 38,(No. 42). Available at: https://www.jstor.org/discover/10.2307/4414161?sid=21105425684901&uid=2&uid=60&uid=3&uid=3738256&uid=2486607033 [Accessed 23 Feb. 2015].

Defining Poverty. (2015). 1st ed. [ebook] Available at: https://www.polity.co.uk/keyconcepts/samples/lister-chapter.pdf [Accessed 23 Feb. 2015].

Difference Between Inequality And Poverty. (2014). [image] Available at: https://www.youtube.com/watch?v=DrgivWJQHFw [Accessed 23 Feb. 2015].

Fosu, A. (2010). Inequality, Income, and Poverty: Comparative Global Evidence*. Social Science Quarterly, 91(5), pp.1432-1446.

FOSU, A. (2015). GROWTH, INEQUALITY AND POVERTY REDUCTION IN DEVELOPING COUNTRIES: RECENT GLOBAL EVIDENCE. 1st ed. [ebook] OECD DEVELOPMENT CENTRE. Available at: https://www.oecd.org/dev/pgd/44773119.pdf [Accessed 23 Feb. 2015].

Fosu, A. (n.d.). Growth, Inequality, and Poverty Reduction in Developing Countries: Recent Global Evidence. SSRN Journal.

Inequality.org, (2015). Global Inequality | Inequality.org. [online] Available at: https://inequality.org/global-inequality/ [Accessed 23 Feb. 2015].

MAKWANA, R. (2013). The Causes of Global Inequality » CounterPunch: Tells the Facts, Names the Names. [online] Counterpunch.org. Available at: https://www.counterpunch.org/2013/03/25/the-causes-of-global-inequality/ [Accessed 23 Feb. 2015].

The Poverty and Inequality Report 2014. (2014). 1st ed. [ebook] The Stanford Center on Poverty and Inequality. Available at: https://web.stanford.edu/group/scspi/sotu/SOTU_2014_CPI.pdf [Accessed 23 Feb. 2015].

Un.org, (2015). United Nations Millennium Development Goals. [online] Available at: https://www.un.org/millenniumgoals/ [Accessed 23 Feb. 2015].