Dynamics of Poverty Trap

By: Bikal Dhungel 

Over 1 billion people in the world live in extreme poverty. This number is going to rise in the future as population growth is occurring in least developed countries. Poverty is detrimental to health, education and finally to economic development. So poverty itself is a poverty trap because when you are poor, you lack the ability to afford better nutrition, healthcare facilities, proper education which in turn keeps you poor. The fundamental question of our time is why some countries are poor and some are rich and even within a country, why some people are rich and others are poor. This is a too general question that should be dealt with pre-caution. Not the whole world is poor due to one single reason. Countries vary about why they have failed to grow and why certain forms of poverty exist there. In previous articles I have dealt with why some countries were successful in achieving economic growth while others were not. I have concluded that every country has unique reasons. This article will focus only on poverty traps. What are the determinants of poverty traps that keeps the country poor which will then fail to achieve growth. I will structure the reasons in numbers so that the reader can be selective in reading about how the individual factor plays role in keeping the country poor.

1. Physical Geography- Geography is the most important determinant of development. With physical geography I also mean the natural resources and climate with it. Navigable rivers, long coastlines and harbours have been important for trade patterns. Countries with an access to sea are generally richer than landlocked ones. Also navigable rivers inside a country can be important in internal trade. For example Germany has few big rivers where ships can carry goods to other places. The access to the sea gives them an advantage of trade across the Atlantic. When we see Nepal for example, none of the rivers are navigable and Nepal does not have access to the sea. As a consequence, trade will be costly, which will increase the prices of goods due to higher transaction costs which reduces the competitiveness in the market. So, buyers prefer goods from somewhere else. We can then look at Nepal's complex hills where it is difficult and costly to build roads. Many rivers also need bridges which is again lacking. This problem exists in high mountainous areas but also in lower hills. So, complex geography makes it difficult to develop, difficult to trade and poverty remains. The climate then makes the situation more worse. Both too cold climate and too hot climate is bad for poverty reduction. When we see tropical areas for example, the incidence of Malaria or other diseases are high. When people are sick, they are less likely to participate in economical life, they need to spend their savings for medicine and they will impose burden on their family members. So, too hot climate is another determinant of poverty within geography. Jared Diamond has written an excellent book in this topic called 'Guns Germs and Still' where he highlights the importance of climate and the animals that lived there who determined the economic success of of the region. Regions that are vulnerable to diseases are poorer, regions with high hills and mountains are poorer, hot regions are poorer with an exception of the Middle East where since the discovery of oil, rapid development was possible. Hence, geography determines the fate of a nation either it will accomplish growth or not.
2. Fiscal Trap – When poverty exists, it will have an impact in every field. Fiscal trap has more to do with the role of government. When a country is poor or when its government is inefficient and incapable, it will lack resources to provide basic education, healthcare, infra-structures, ports, power grids etc. As a result, citizens of that country lack the fundamentals that are necessary to come out of the poverty trap. Fiscal trap might exist either because the government can do nothing or the government doesnt do it though it can.
3. Government Failures – means when a government fails to perform basic tasks or have external factors that hinder it from performing its duty. This can be in terms of war, revolutions, political unrest, long term protests etc. A government is like us. When we do one thing, we cannot concentrate on the other or do other things. A government cannot do many things at a time. It has to focus. When it is focusing on war, it will miss economic development. When revolution is going on, it will focus on how to manage the revolution and will do less for health. Similarly when there is political unrest or sectoral violence, government will fail to concentrate on things that really matter. When such things go for a long time, it will impede development , as a result, poverty will remain and crossing the poverty trap will be unlikely.
4. Cultural Barriers – Culture can be detrimental to poverty reduction. It can be spending a lot for festivals or the dowry system of south asia where parents of girls will have to give a dowry to their daughters husband. Once people start saving for dowries, they cannot invest in proper nutrition, health or education. Similar story goes for festivals and celebration. Some cultures also discriminate against women. They are kept at home and do not participate in the job market. So sending girls to school is also low. When it is the case, half of the work force are excluded from economic life. We might miss many intelligent minds that can contribute to the society. Though female literacy has increased globally, discrimination against girls is still vivid. This has economic costs. This will put the women in poverty but also her family. Poverty itself is female. Over 70% of extreme poor are females. There are higher barriers for them to come out of poverty trap.
5. Geo-Politics – A country might have all fundamentals to start growth but geo-politics might be one of the reason it is in poverty. Geo-politics means things like trade barriers, sanctions, trade embargoes, etc. Barriers can mean many things. For example, the lack of road is a barrier. High import tariff of a country is a barrier. Sanction can also mean many things. Sanction can be imposed on a country in certain areas or it can be in every area. For example, if a government is brutal towards its citizen and use violence, other countries can impose a sanction against it in arms trade, that means, no country is allowed to sell the arms to the country. It can also be in other sector. For example France exports fine wines. If countries impose sanctions on french wine, it cannot sell it in international market. As a result, all wine producers in France will be jobless and the government will receive lower tax. Trade embargo is similar to sanction. If India has imposed trade embargo for Nepal, on indian firm is allowed to import and export from and to Nepal. This will hamper the Nepalese economy. The US has imposed trade embargo on Cuba. Consequently Cuba cannot trade with the US. Because the US is a big market, in the presence of trade, even if Cuba produce single good and can sell it in the US, it could overturn their economy for better but in the absence of trade, Cuba will remain impoverished, as it is today, and Cuba cannot surpass the poverty trap.
6. Demographic Trap – The demographic trap is about population growth. We live in a world of 7 billion people today. It will reach 10 billion in the middle of the century. With optimistic figure, it can reach as much as 14 billion until the end of this century. All of this population growth will take place in developing country. Population growth is not only due to the lack of contraceptives but also due to poverty. Having more children means old age security. When parents think that more children will avoid old age poverty because at least some of them will take care of the parents, they have an incentive to have more children. When everybody thinks so, the population will double in a very short time. This dilemma is understandable. Noone wants to live in poverty, and when they reach old age, they will not be able to work in the fields or somewhere else, so the children will take care of them. So, people simply want to have more children. On the other hand, due to the lack of proper healthcare and infrastructures, infant mortality rate and under-five mortality rate is very high in developing countries. So, having more children means at least some of them will survive. Hence poor people get more kids. Unfortunately, they ignore the fact that having more children also requires to feed them, or educate them. If they cant, they send the children to work in informal sector. This is the reason we have tens of millions of child labourers in developing countries. More children means less financial resources and poverty will continue to remain.
7. Nutrition based trap – Although nutrition is also a part of demographic trap, it can be a trap in itself because people might not have many children rather just one but still have problem of food. Not having enough food will cause severe health impact, distort the learning ability of the children and impede health in long term. The circle will remain. No food means no ability to work and no ability to work means no work and no food.
8. Health based trap – Similar to nutrition based trap, if one is sick, he cannot work. If he does not work, he will lack funds to pay for his health and poor health in turn keeps him poor. This vicious cycle will continue until there is an external intervention where he gets support from outside. Otherwise the poverty trap will remain.

The points mentioned above are examples of poverty traps. Due to such traps, people are poor. We can say that people are poor because they are poor because they cannot come out of the vicious cycle of poverty. If the trap is only about Nutrition and Health, an external intervention though financial support can end the cycle but other traps like geography, culture and fiscal trap cannot be ended by financial means alone. Once development takes place by any means, geography will disappear as a trap because there are developed countries with complex geography. See Switzerland, with its high mountains. Even the US has complex geography. There are places like Las Vegas where no settlement was possible before the invention of air condition. Today Las Vegas is a dynamic place famous for its casino world and a major tourist attraction. Fiscal trap can be ended by external support or genuine intervention and government failures are also normally temporary. If a development oriented government is in place, poverty reduction will follow. But it needs a strong will and commitment.

It is important to mention the 'Entitlement Approach' of Amartya Sen, a moral philosopher here. Sen has written some of the finest books, one also on Famine which is closely related to poverty trap. The entitlement approach has two aspects: 1) Endowment Set and 2) Entitlement Set. Endowment set means a combination of all resources owned by a person, both tangible and intangible. Tangible resources means his land, house, equipment, animals and any other objects he has. Intangible resources means his skills, labour power, belonging in a particular group or party etc. Entitlement set means set of all possible combination of goods and services that a person can legally obtain by using the endowment set. To simplify this, take an example. I am a doctor and my endowment set is my skill as a doctor. I can use this skill and earn money from which I buy bread. So, I am entitled to have a bread. Now suppose I have no skill but some physical resources which I can sell. With that money I can also buy a loaf of bread. So, again I am entitled for a loaf of bread. Now imagine, my resource were stolen. So I cannot sell it to buy a bread. Hence, in this case I am not entitled for a loaf of bread. A man will be in poverty because he lacks the endowment set. When a large portion of the population lack this endowment set, there will be either famine or mass starvation. Similarly, when a boat of a fisherman is destroyed, he cannot fish and he cannot sell the fish to buy other goods, so he will be in poverty. In this case, a non-entitlement intervention is necessary, which is a charity. I dont have to give anything to get some money from a charity organisation, this is why they are called charity. So, in the absence of endowment set in a large scale, there must be some form of non-entitlement intervention to avoid the poverty trap.

Economic History tells that every successful story had an external element that helped it in the process. The UK couldnt be so rich without the supply of raw materials from the empire. The US couldnt be rich without the wealth taken from Europe, Europe couldnt develop without the Marshall Plan and East Asia and China couldnt maintain their growth without their export to the rest of the world. Hence, either in the beginning or during the process, economic growth is dependent on external factors. In a same way, many developing countries cannot solve the problem of poverty by themselves. External support is needed. However, it doesnt mean that external support will do everything. The origin of their poverty is mostly local. Major factors lies on their own system. It is also not in their own interest to develop because the ruling class who made their way to power gives everything to maintain the power and continue to rule. It is those who profit from the current system who do not want to change the system even if it is for better for the public. For example, the ruling class in Nepal will do anything to avoid other people coming up to rule, otherwise their own position will be in danger. Thatswhy many governments throughout the world restricts education to their citizen. For such rulers we can call dictators. Moreover, there are tyrants, psychopaths who made their way to the top through violent means and can now use power to stay. Then there are another type of people like in Nepal , who gained the position by democratic means but have designed the system in such a way that its very difficult for the new comers to gain control of the nation. They practice democracy, but are not fully democratic. They participate in international negotiations and go to sign agreements proposed by the UN, sign it, sit in negotiation tables but have nothing to say, nothing to negotiate and just display their presence. This kind of act will harm the country silently. As they are also not experts, mostly not well educated, they dont seem to understand the importance of having experts in every ministry and government institution. Recruitment takes place from their own surrounding and at last, the whole country suffers, development will not take place and poverty will remain. From this argument, I want to say that poverty is not the absence of food or resources, it is also about the fair distribution, proper policy and governance. With all other traps solved, but if governance traps remain, it would make less sense. Government trap is the most important of all. When there is a development oriented government, other forms of traps can slowly be solved.