Lessons from a history of thought on poverty

Martin Ravallion, 13 August 2013

a

A

Over the last 200 years the world as a whole has seen a marked decline in the incidence of absolute poverty (Sala-i-Martin and Pinkovskiy 2010 ). The success of Western Europe and North America over the 19th and 20th Centuries in reducing absolute poverty is well-known, as is the success of China and India in more recent times. We have also seen encouraging signs of faster progress against poverty in much of Africa since the late 1990s. The proportion of the world’s population living below (say) $1-a-day has fallen from over 80% in the early 19th century to under 20% today (see Ravallion 2013a, drawing on cited sources).

We have also seen a marked transition in thinking about poverty. Observations of poverty have long interacted with prior ‘theories’ (including ideologies) to yield an ‘interpretation’ of the causes of that poverty, with possible implications for action. Two stylised interpretations can be distinguished in past thought, both scholarly and popular.

  • In the ‘utility of poverty’ interpretation, some people are poor largely because of the choices they make and there is little reason to think that they have the potential to be anything else than poor;

And their poverty is seen as necessary for the country’s economic success, which requires a large number of people eager for work, and avoiding hunger is seen as a necessary incentive for doing that work. The view of Patrick Colquhoun (1806), the founder of the modern police force, is a fair representation: “Poverty is a most necessary and indispensable ingredient in society, without which nations and communities could not exist in a state of civilization. It is the lot of man – it is the source of wealth”. This appears to have been the dominant mainstream view until well into the 19th century, and versions of this view survive today, though it is clearly no longer dominant.

Past advocates of the ‘utility of poverty’ saw little hope for poverty reduction through technical progress and economic growth, given the claimed lack of ‘moral restraint’ amongst poor people. Classical economists (from Adam Smith to John Stuart Mill) acknowledged the logic of policies for mass education to change behaviours and thus assure more pro-poor growth in a capitalist market economy. But there was little enthusiasm for public intervention to foster basic schooling for all children until the late 19th century. There was reasonably broad support within the elites for policies that helped protect people from transient poverty due to downside risks even when mass poverty was taken for granted (England’s Old Poor Laws, dating from Elizabethan times, were an early and seemingly successful example of such policies). But public action to reduce chronic poverty had few advocates.

  • The second, alternative, interpretation sees poverty as stemming in large part from market and other institutional failures;

One version came to prominence in the socialist movements of the mid-19th century, whereby poverty was seen as an inevitable consequence of capitalism. Similarly to the classical economists, Karl Marx was skeptical of the prospects of poverty-reducing growth under capitalism, but not because of the moral failings of poor people; rather he believed that full-employment would be impossible, and the ‘reserve army’ of the unemployed would hold back any wage gains.

As economic analysis deepened, a version of the institutional-failures idea emerged in which market failures interact with initial inequalities to impede progress against poverty. For example, credit constraints entail that children in poor families do not attract the investments – in nutrition, health care and schooling – they need to eventually escape poverty. Threshold effects, such as the existence of a (positive) lower bound to human capital in order to be productive, create the potential for poverty traps. General equilibrium effects, notably on the distribution of labour earnings given unequal human capital endowments, entail that the benefits of labour-augmenting technical progress are shared quite unequally. Governments fail in not adequately addressing these problems. There were hints of these ideas in 19th-century economic literature, but well-developed formulations did not emerge until the late 20th century (there is now an extensive literature; see the discussion in Ravallion 2013a).

This version of the institutional-failures idea saw poverty as a social ill that can be avoided through public action in a capitalist market economy. Furthermore, doing so came to be seen as perfectly consistent with growth in such an economy. Indeed the right policies were expected to contribute to that growth by removing material constraints on the freedom of individuals to pursue their own economic interests.

Steps in the transition

The ascendancy of the institutional-failures view was highly uneven over time, with long periods of inaction and many set-backs. However, two significant historical steps can be identified, which I dub the First and Second Poverty Enlightenments. The First Poverty Enlightenment was in the 20 or so years prior to the turn of the 19th century. Popular critiques of prevailing social hierarchies blossomed in London and Paris, in the latter case famously culminating in the French Revolution. The philosophical writings of Immanuel Kant, Jean-Jacques Rousseau, Smith and others articulated a new respect for poor people as people, not merely serving some purely instrumental role as means of production. The economy itself came to be seen as a means for promoting all human welfare.

Smith’s (1776) influential critique of the mercantilist view that a country’s progress should be judged by its balance of trade was an important step in opening the way to (eventually) seeing progress against poverty as a goal for development, rather than a threat to it. Smith also argued in favor of promotional antipoverty policies, such as public subsidies to help cover schooling costs of the ‘common people’. But on this and other social issues, Smith was evidently far more progressive than most of his peers or near-term followers. Classical economists such as Thomas Malthus and David Ricardo were hostile to the idea of antipoverty policy, pointing to adverse incentive effects, although (not for the last time) such effects were almost certainly exaggerated, such as in the intense and influential early 19th-century debates on reforming England’s Poor Laws (Ravallion 2013a). While the recognition that institutions were at least partly responsible for poverty was a crucial step, it would be a long time before we saw the emergence of comprehensive antipoverty policies that could promote as well as protect.

The Second Poverty Enlightenment came in the period around 1960-80, with continuing influence today. This saw both a steeper pace of decline in the global poverty rate and intellectually stronger and better-informed arguments for antipoverty policy. Mass attention to poverty also reached its historical peak. This is evident if one enters the word ‘poverty’ in the Google Books Ngram Viewer; there was a sharp increase in the 1960s and by the first decade of this decade references to ‘poverty’ as a proportion of all published words reached its highest value in 300 years, in both English and French. The institutional failures interpretation had clearly become dominant over the utility of poverty. Debates continued of course. Some still blamed poor people for their poverty. Some did not see poverty as a global concern. However, a reasonably broad consensus emerged that poverty was morally unacceptable and across the globe – including in the newly free countries of the developing world – there was new optimism about the scope for fighting poverty. While mistakes happened, and some optimistic but ill-conceived plans were soon frustrated, numerous policy innovations emerged in both rich and poor countries. Incentive effects were still debated, though with better evidence to draw on. A combination of directly promotional policies with robust pro-poor growth in a reasonably open market economy came to be seen as key to fighting poverty. Old-style protection policies also came to incorporate incentives for promotion, such as transfers to compensate poor families for the costs (including foregone labour income) of schooling their children.

While the foundation for the transition in thinking was laid in the First Poverty Enlightenment, it was really only by the latter half of the 20th century that it came to be understood that freedom, self-fulfillment and overall prosperity required (amongst other things) that people were not held back by poverty and that governments had a responsibility to help assure that they were not. Philosophical and economic thought played an important role (in the writings of John Rawls, Amartya Sen and others), but so too did more popular works (such as by Michael Harrington and JK Galbraith). The state was seen to have a role in assuring that all individuals had access to the essential material conditions for their own fulfillment – arguably the most important requirement for equity, but also the key to breaking out of poverty traps. Good public education, sound health systems and financial inclusion all came to be seen as crucial elements for the next generation of poor families to escape poverty, for good.

Three mutually reinforcing factors stand out in explaining both this shift in thinking and falling poverty incidence globally: new technology, new knowledge and political voice (Ravallion 2013a). New technologies created economic opportunities and demands for new skills in the workforce, which mass schooling could provide, and a smarter workforce also needed to be healthy. New data and research on poor people influenced public thinking and policy making from the late 19th century, and also taught policymakers about the efficacy of their policy responses. Popular writings, social novels and plays also helped transform knowledge into public awareness. Success of the (often painful) struggles for broad political representation came roughly hand-in-hand with better informed policy debates and better policies, and were reinforced by new knowledge and awareness.

Conclusions

We live in a far less poor world than 200 years ago and it is a world that has become generally smarter at fighting poverty. The causation undoubtedly goes both ways between our progress against poverty and the transition in thinking. It is a lot harder to make rapid progress against poverty when there is a lot of it, and mainstream thinking 200-plus years ago could not easily entertain the idea of a world without poverty. With some painfully long lags (the time it took before real wage rates rose in the wake of the industrial revolution is especially notable), the heavy lifting out of absolute poverty in Western Europe and North America was eventually done through technical progress, economic growth and (crucially) complementary progress in basic health and education. Opportunities were created, and in due course policies emerged to assure that a great many people could take advantage of those opportunities. Then new options opened up for more focused and effective direct interventions emphasising both promotion and protection. Antipoverty policies have both fuelled, and been fuelled by, rising overall affluence.

With the global incidence of extreme poverty now at its lowest level, and public attention and knowledge at their highest point, the ideal of a world free of such poverty is surely closer than ever. But history also warns against complacency. Just as the heavy lifting in the successful developed countries of today was not easy, the poorest countries today face huge challenges. With a sustained effort, building on past experience, it should be possible to come close to eliminating extreme poverty by 2030 or so (Ravallion 2013b). But less optimistic scenarios can also be readily identified, returning to the more sluggish progress of the past.

References

Colquhoun, Patrick (1806), Treatise on Indigence, London, Hatchard.

Ravallion, Martin (2013a), “The Idea of Antipoverty Policy”, NBER Working Paper 19210.

Ravallion, Martin (2013b), “How Long Will It Take To Lift One Billion People Out Of Poverty?”, World Bank Research Observer.

Sala-i-Martin, Xavier and Maxim Pinkovskiy (2010), “African poverty is falling … much faster than you think”, VoxEU.org, 6 December.

Smith, Adam (1776), An Inquiry into the Nature and Causes of the Wealth of Nations, Electronic Classic Edition, Pennsylvania State University.

Topics: Development, Economic history
Tags: Poverty