LITERATURE REVIEW: THEORETICAL LITERATURE
There are many theories on poverty and inequality. In this work, we shall consider those, which provide us with better insight for the understanding of the problem of poverty and poverty alleviation. Some of these theories includes:
The individual attribute theory of poverty.
The mutual circumstantial theory of poverty.
The income or personal income distribution theory of poverty.
The power theory of poverty.
The five finger fallacy of poverty.
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THE INDIVIDUAL ATTRIBUTES THEORY OF POVERTY
Angaye (1998: 55) in discussing the theory of poverty, inequality and development, sited the individual attribute theory, which argues that “the poor individuals are responsible for their own plight since an individual location in the society’s hierarchy of income and wealth is presumed to be determined, above all by his abilities, motivations and aptitudes”. Relating on the individual attributes theory of poverty Agris (1999: 12) claimed that it is different to deny the fact that individual attributes cannot determine one’s position in the society but he observed that we can also realize that one’s position in the structure of possibilities and within a structure of possibilities and power system in every society. Taking Nigeria as an example, Agris identified such forces to include corruption, political instability, market imperfection, tribalism, poor government policies, ethnic conflicts, etc. he therefore concluded that an individual in Nigeria who is self motivated, full of strength, stamina, vigour, vitality and above all equally having high aptitudes might still remain poor due to the above mentioned forces. Thus, the greatest short coming or limitation of the individual attribute theory.
THE POWER THEORY OF POVERTY
Boye (1999: 51) in Bullion published by the Central Bank of Nigeria in this discussion “Poverty and measures for Poverty Alleviation” made references to the work of Akeredolu Are (1975) and Shelfideen (1997) who provided some four theories of poverty among which was the power theory of poverty.
According to Boye (1999: 74), the power theory of poverty argues that the political power structure in any society determines the extent and distribution of poverty among the population. The theory further explains that poverty is regarded as a necessary feature of any situation in which the few posses some political power that can help them to organize the economic system in their own selfish interest.
Akeredula (1976: 4) then concluded that the policy implication of the power theory of poverty is that poverty will remain prevalent as long as there is no effective pressure from the majority poor to restructure the distribution of political power in the society in favour of all.
According to Boye (1999:51), Angaye (1998:036) and Eyong (1999:7) the power theory of poverty seems to be more relevant to developing countries in view of the tendency of those without economic power to seek political power to amass ill-gotten wealth either through means or through gun.
This is computed according to Eyong (1998) by the low political consciousness of the generality of the people, the high degree of centralization of national resources and the tendency toward one partism and dictatorship. Eyong (1998) equally agreed with the power theory of poverty that it explains the paradoxical situation in a country like Nigeria, which is rich, but yet the generality of the people are poor.
The policy suggestion of the power theory of poverty has been criticized. Akeredolu (P30) pointed out that the policy suggestion of the power theory of poverty that poverty from below is brought to restructure the distribution of political power in favour of the masses has generated heat debate.
“Akeredolu (P31) sited the French Revolution on the 14th. Of July 1789, Nigeria 1967 to 1970 etc. and concluded that much attempts by the masses to overthrow the power structure usually result to war. According to him, such suggestion is very ridiculous since it is associated with killing. Akeredolu (P. 16) was supported by Forgha (1998: 14) as he equally sited the situation in Burundi 1991, Mali 1992, Cameroon 1982, 1989, 1992 etc. as attempted by the masses to overthrow the exploitative class. Forgha (1998) and Akeredolu (P. 23) both criticized the power theory of poverty that it does not provide us with any policy suggestion to alleviate poverty peacefully.
Iboronke (1999: 11-13) also criticized the power theory of poverty on the ground that even if there is revolutionary response within the vast majority of the population to overthrow the political structure in the society in question, such cannot be possible in the short-run. For example, it took the people of federal Republic of Congo 29 years to send away momentous Sessieko, 8 years for the dictatorship of Ibrahim Badamosi Babagida of Nigeria, 5 years of Abacha of Nigeria, 23 years of Alhaji Ahijo of Cameroon etc. Thus, the powerlessness of the power theory of poverty to deal with poverty alleviation in the short-run and peacefully constitutes the greatest shortcoming of the theory.
THE NATURAL CIRCUMSTANTIAL THEORY OF POVERTY
The natural circumstantial theory of poverty expounded by Sheriffdom (1997:31) identified some geographical location, inadequate natural endowment of some areas in which people live, unemployment, old age, physical and mental disabilities etc. as explanatory variables of poverty. This theory therefore suggests that for poverty to be eradicated there should be sectional and regional developmental policies and welfare measures that should be directed to the unemployed, the aged and the disabled. Fanwi (1998:16) pointed out that although the policy suggestion of this theory is very useful on a poverty alleviation measure, many developing countries are still not making effective uses of this suggestion as it has instead encouraged laziness, corruption and mismanagement of state funds.
According to Fanwi, statistical result have revealed that gifts or aids directed to those victimized by transitory poverty such as drought, floods, pests, eruption, landslides and other form of natural disasters are not usually directed to the victim in good faith. Hence, the limitation of the natural circumstantial theory.
THE DIVINE THEORY OF POVERTY
Erone (1998:301) cited the work of Anikpo on explaining the divine theory of poverty and the five fallacies. According to Erone (1998) there is tendency among divine theories to explain ways poverty arises from a divine design. Thus the theory, which is closely related to the natural circumstantial theory of poverty, explained that the inequality in natural endowments is a sufficient reason for the existence of poverty in our world. For example, some animals are strong, others are weak, some trees are either taller, others are short; a man is stronger than a woman, etc. Arising from this understanding, Erone explained the divine theorist’s thinking that is logically consistent that there is bound to be inequalities in term of our material acquirements.
Erone therefore accepted with Mark Anikpo that poverty is rationalized as a natural order of phenomenon ordained by God and the poor are expected to accept their conditions with humility and hope for better days ahead in God’s kingdom where they may appear much richer and happier. To him, the wealthy are entitled to their wealth and may choose to help the poor by giving alms and other acts of generosity.
Erone explained that such arguments by the divine theorists have been dismissed on the ground that it is merely rationalization as shared in Mark Anikpo’s views; that such explanation by the divine theory is theological in conception and erroneous in application. To him, it confuses a man-made phenomenon with natural ecological imbalances; it encourages graft and legitimizes fraud thereby making religion a major obstacle in the understanding and eradication of poverty.
THE INCOME AND INCOME DISTRIBUTION THEORY OF POVERTY
Solomon (1980: 16-20) reviews the Marx’s economic theories among which are the theory of income and income distribution. According to him, the starting point of Marx’s analysis was the labour theory of value. Specifically, the theory of income and income distribution focuses attention on the labour market and the determinants of labour’s income, based on demand and supply factors, which also depends on the educational levels, motivation, regional location and age among others.
According to Angaye (1998: 56) the classical economists (Adam Smith, Thomas Malthus, David Ricardo) supported the income distribution theory by saying that income inequality means a higher income for the working classes, rise in their consumption and population, fall in savings investment and economic growth. To the classical economists, equality is preferred to income inequality.
Lewis (1998: 16) explains that the share of profits in national income should be increased because the larger profits accruing to the capitalist sector (which perpetuate income inequalities) will mean larger savings, which will be invested for larger capital formation and higher growth rate.
Angaye also argues that although wealth and income inequalities in 19th. Century western Europe led to larger savings and investment on the part of the wealthy classes, there is no guaranty that the rich in developing nations like Nigeria will utilize their savings in productive investment, in fact many of their incomes on conspicuous consumption, foreign travel deposits in foreign banks and hoarding of foreign currencies.
According to Eyong (1998: 16) the income distribution theory further explains that since majority of families or households rely on labour market earning for most of their income, any rise in unemployment may result in large income decline particularly among those whose income are low. Thus, the theory according to Eyong predicts a positive relationship between unemployment and poverty rate.
The theory also predicts that the increase in employment without a corresponding increase in output of goods and services (disguised unemployment) will generate more poverty, such a situation will result to inflation which will tend to benefit debtors at the expense of creditors, causing falling value of money and balance of payment problem, especially during galloping and hyper inflation. Eyong pointed out that such an environment of rising prices would generate high incidence of poverty especially amongst low and fixed income earners. This also shows a positive relationship between the rate of poverty and the level of inflation.
Eyong concluded the explanation of the income distribution theory with its policy suggestion that: a policy to eradicate poverty should be those that will reduce the rate of inflation and equally deal with the problem of unemployment.
However, the income distribution theory has not provided us with any particular economic instruction to solve the twin problem of unemployment, inflation and poverty, which remain the most contemporary problem of all society today.
Boye-Ilori (1999: 51) also discussed the capitalist entrepreneurial theory, which argues that crude exploitation of workers through low wages and poor conditions of savings leads to pauperization of the working class is considered very relevant in Nigeria. Let us at this point, look at the other side of the coin.
Under the empirical literature review, the works of the following authors are very influential. Hence Blank and Blinder (1986), Cutter and Katz (1991) in United State and Yoshino (1993) in Japan examined the relationship between poverty, inflation and unemployment, while Blank and Blinder finds a significant positive relationship between poverty, inflation and unemployment, Cutter and Katz reported of a negative relationship between inflation, poverty and unemployment.
Gray (1996) examines the Kuznet hypothesis, which stated that income inequality first increases in the early stages of development but decreases in the later stages thereby generating an inverted U-shaped curve. That is in simple language, things must first of all get worse before they get better. The study by Gray (1996) using cross sectional data covering 34 countries did not find any confirmation of the Kuznets inverted U-shaped curve hypothesis; but his own results were ambiguous. His result shows that income inequality and poverty both decreased in some countries; they increased in others.
However, the reasons for these differences were attributed to the different methods that he used. That is income inequality in some countries while in others he used the absolute poverty income approach.
Gray (1996) concluded his study saying, “Rapid economic growth tends to reduce poverty as was the cases of East Asian and Latin America countries”.
However, from Fields (1990), Eyong (1998), Kabuin (1996), Jebbin (1996) and Amadi (1994), we can deduce a different experience for other countries such as Sri Lanka and Philippine and concluded that “economic growth is neither necessary nor sufficient for poverty alleviation”. That, in addiction to economic growth, other factors also determines the level of poverty in a society.
Furthermore, studies by Torado (1992) indicate that higher levels of per capita income do not guarantee a lower level of poverty. But that the understanding of the nature of poverty problem in less developed countries must center on the analysis of the size distribution of income, to him, the magnitude of absolute poverty as based on the combination of many factors viz; low per capita income and highly skewed income distribution consequently, the problem of poverty and income inequality is not just one of economic growth and the political and institutional arrangement according to which rising income are distributed among a large segment of the population.
Unlike in other countries, Okoh (1997) in Nigeria examines the conceptual and methodological issues in poverty measurements. This includes the setting of the poverty lines based on cost of basic need approach, the food energy intake method, the poverty index using head count index, the poverty gap index and the Foster-Grcertheorbecka squared poverty gap index. Using the basic needs approach for instance, Okoh (1997) concluded that if the greatest proportion of the population of a country lack adequate assess to the consumption of nutritional specification like protein, calcium, vitamins, iron etc. such country or person is said to be poor. Going by this, it is clear that the greatest percentages of Nigerian are poor.
However, the basic need approach measures can be criticized based on its arbitraries and neglect of the utility compensation variation, which create substitution effects in consumption. That is, the basic need approach takes into consideration only the income effects as price changes, in neglect of the substitution effect.
In case of poverty lines, he concluded that a food-energy intake yields deceptive poverty comparisons between individuals or countries. The poverty lines can also be criticized on the ground that poverty line do not have constant purchasing power for the poor between different states in a country like Nigeria hence, most comparison can be considered unreliable.
Considering the headcount index, Okoh noted that this measurement of poverty is reliable since it could explain the incidence and magnitude of poverty in Nigeria. However, it equally fails to capture the severity and dept of poverty in Nigeria.
This is clear to us that non of these measures of poverty are free from one weakness or the other and are controversial. None of the measures also made specific focus on the effect of macroeconomics conditions on the observed poverty rate in Nigeria.
Englama and Bamidele (1998) in the examining the measurement problems of poverty in Nigeria recommended the need to move beyond the income or consumption measures of poverty to social, economic and environmental ramifications of poverty to operate greater insights. The P-index income inequality (Ginicoeffeicient) should be used so as to eliminate some of the limitations, which are inherited in the use of one of them, and to provide more fruitful insights in formulating policies for poverty alleviation.
Strategy for growth-led poverty alleviation attracted the attention of Atoloye (1997: 313). He explains that the partial barter arrangements and the production for consumption in rural areas complicate the realistic assessment of the level of poverty in Nigeria. While deficiencies of various measures of poverty such as the poverty line based on minimum necessities of life, the absolute income received by the poorest 40 percent of the population cannot be ignored. He therefore suggests the revolutionalization of the production system in Nigeria through labour intensive and rural based production activities for the purpose of achieving the desired objectives of growth-led strategy for poverty alleviation.
Furthermore, a re-orientation of production system based on local technology that is proficient and less dependent on modern infrastructure will achieve the desired impact of poverty alleviation. Thus, employment generation constitutes one of the critical elements in a poverty alleviation programme.
An appraisal of the World Bank report that poverty is overwhelmingly a rural problem, the study also shows that the main determinants of poverty includes location (rural and urban), education levels, age of the head of household, family size, extent of income inequality, inflation rate among others.
The study identified a number of poverty reducing strategies including promotion of high and broad-based access to social services and infrastructure by generality of the people, the targeting expenditure programmed towards the primary education, health and services infrastructure improvement. He emphasizes the need to establish a viable and macroeconomics environment and to streamline an incentive regime to promote broad based economic growth with equality.
A comparison of the policy suggestion in the World Bank report, Okunmade (1999) and Atoloye (1997) indicate contradictions and difference in emphasis. While the former recommends labour intensive technology, the latter recommend labour incentive technology.
Further analysis on the World Bank (1996) indicated that poverty improves during period of Structural Adjustment Programme (SAP) (1986-1992). Additional findings show that the percentage of population under poverty line declined from 43 percentage in 1985 to 34 percentage in 1992. The study also shows that calamities decline in poverty in the past 1992 period.
Foluso (1999) in examining the contributions of international agencies towards poverty alleviation argues that although the international agencies have committed more than 20 percent of their total assistance package to poverty reducing activities in Nigeria, more and more Nigerians are still entering into the cold hands of poverty. He further explained, although there is an attempt to fashion out a Poverty Alleviation Programme by UN agencies in Nigeria, the absence of a policy document to set goals and objectives as well as providing frameworks for the proper articulation of the programme is likely the major constraints.
Foluso therefore suggested that a national framework for poverty alleviation in Nigeria is comparative and recommended that a strategy document called Community Action Programme for UN Agencies and other donors’ bodies need to be encouraged towards their supportive roles in alleviating poverty in Nigeria.
Unlike Foluso (1999), Ogundipe (1999) in examining the role of the non-governmental organization on poverty alleviation explains that the major objective of micro-credit of the NGO’s involved in poverty alleviation can be summarized as that of expanding the productive capacities and improving the social-economic status of the low-income people through effective provision of financial and institutional building services. It also include the use of flexible approaches towards new product development and the influences on the rural poor through the process of capacity building by training specialist researchers, professionals etc. in developmental activities.
Ogundipe in appraising the activities of some eight NGOs in Nigeria based on their sources of funds, savings, mobilization, credit delivery mechanism, loan recovery and their socio-economic impact with particular emphasis on the essence of micro credit as a useful tool for poverty alleviation in Nigeria shows that although much of the NGOs as still to achieve their main objectives. However, the poor are the best judges of their own situation since they know best to use credit when available.
Ogundipe observes that the activities of the Nigerian based NGOs like others elsewhere in Latin America and South East Asia are adaptive and he therefore challenge the NGOs to make greater impact in Nigeria to the extent that the problem of inadequate loanable funds, limited sustainability, inadequate broad-based programmes must be addressed. Ogundipe then concluded that the major challenge to NGOs, in their ability to expand the size of the programme, building with numerous financial institutions encourages the integration of rural financial institution, provision of a special credit window where viable NGOs dirt-could access funds at the market rate. Looking at the place of any government in economic development Ogundipe explains that the government ought to provide a conducive environment for the growth and sustainability of NGO through the provision of infrastructures (roads, water, electricity etc.) to rural communities. This will help in reducing the cost of operations by NGO, increase outreach and visibility by the poor who are bound to feel the increased impact of the NGO’s activities.
Boye-Ilori (1999) in his paper on the topic “politics and measures of poverty alleviation in Nigeria” argues that some school equates national development efforts to poverty alleviation. According to Boye, the level of poverty is the manifestation of the state under development and as such national development effort cannot be equated to poverty reducing effects. In comparison of national development forces on all aspect of the society to move forward in terms of development, poverty alleviation efforts relate only to policies, programmes and other measures emplaced specifically to address poverty as a problem. Boye saw development programmes as highly anti-poor in design and implementation as he sited the case of dam, which supplies power to the urban dwellers but causes flooding and diseases to the rural dwellers. This increases poverty instead of alleviating it for rural inhabitants.
Boye therefore argues that poverty alleviation efforts must be focused and targeted to the poor and possess desired features that would enable them address the needs of the poor. He then further explained that such poverty desired features is that they must be demand driven and formulated bottom-up with the poor as active stakeholders in the decision making process.
Eloho (1999) acknowledges that in line with the wrong notion of equating development with poverty alleviation, many analysis and policy makers in Nigeria have cited development programmes to poverty reducing efforts of the government. Eloho cited such programmes to include; Electrification scheme, Rural Banking Scheme, Agricultural Development, River Basin Development Authorities, Urban Water Supply Scheme, Credit Scheme, Health Scheme, Immunization Scheme, Transport Scheme, Operation Feed the Nation / Green Revolution, Universal Primary Education Scheme, Adult Education and Low Cost Housing Scheme.
Eloho pointed out that although these programmes provided very crucial services to the populaces and some were quite successful in achieving their objectives, they were in conception design and their execution did not serve as poverty alleviation programme and as such their benefit did not “trickle down” to the poor.
Eloho concluded that although recently the Federal government have designed a poverty alleviation package which outline the term goal for poverty alleviation as well as broad base strategies such suffer the same effects as their predecessors due to what he called the Nigerian’s factors although he could not point out what these Nigerian’s factors are.
Obandan (1997), unlike Sam (1997), Ak (1997), Ibrahim and Bulus (1997), Echebiri (1997) in the annual conference of the Nigerian Economic Society, presented papers on the Nigerian economic growth versus other strategies. Obadan (1997) reports the World Bank to have argued that a high rate of economic growth is the most effective strategy for reducing poverty in Sub- Sahara Africa.
Obadan however, pointed out that in the early 1980’s that some Banks initiated some market based strategies to reverse the economic decline, however, he affirmed that the majority of the poor in Sub-Sahara Africa especially Nigeria did not benefit from these strategies and in fact their economic situation worsened. Obadan therefore argues that economic growth may help to reduce poverty in the long run, but it is not sufficient in it self to assist the chronically poor. He therefore lamented that investments in human capital are necessary to equip the poor with education/training they require to enable them share in the benefit of development. To him, educated citizens can take advantage of technologies, which will improve their health and nutritional status and enhances their earning power.
Obadan concluded that for poverty reduction, economic growth is necessary but not a sufficient condition. For growth to be effective, he noted that it has to be accompanied by a deliberate policy of reduction, the pattern of growth need to be changed so that the poor in rural and urban areas can participate in the process. In Nigeria, where the incidence of poverty has remained high in spite of growth and the existence of number of poverty-related programmes, targeted efforts are required to induce broad-based growth and provide social service and infrastructures aimed at reducing the depth and severity of poverty across the country. He therefore recommended that a labour intensive growth strategy needs to be complemented with a sustainable growth of living standard along with other features. A desirable poverty alleviation strategy includes; targeted poverty programmes and projects, support of income and employment generating opportunities provision.
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