THEORETICAL REVIEW
Different
proposers of history of economic thought have in the past sought answers to the
pervasive effects of poverty in many economics. This was because while most of
the rich countries have maintained a continuous growth, others with falling
incomes kept on declining or at most maintaining a stagnant economy. Apart from
countries like Japan which was able to maintain a steady growth from under
development to full development between the late 17th and early 20th
centuries, the rest of the poor economies either remained poorer or had a
stagnant economy (Angus: 1970:34).
Research carried
out by Food and Agricultural Organization (F.A.O.) and United Nation
Organization (U.N.O.) in 1940 indicated that for more than a decade, there
existed a total of twenty-five rich countries (Angus, 1970:35. Clarke (1968:1)
pointed a clear picture by estimating that two third of the world’s population
suffered from inadequate calories intake (absolute poverty). Clarke went
further to define a more modest figure of ten and fifteen percent for developed
countries.
More in the
Nigerian context J.C. Anyanwu (1997) categorizes the following as the poor:
(a)
Households or individuals below the poverty line and
whose incomes are insufficient to provided for their basic needs.
(b)
Households of individuals lacking access to basic
services, political contracts and other forms of support.
(c)
People in isolated rural areas that lack essential
infrastructure.
(d)
People whose nutritional needs are not being adequately
met.
(e)
Persons who have lost their jobs and those who are
unable to find employment as a result of economic reforms, hence, they are in
danger of becoming the “new poor”.
(f)
Ethnic minorities, who are marginalized, deprived and
persecuted economically, socially culturally and politically.
These classes of
poor people are seen to spread across geographical divisions, urban, rural and
occupational categories. In this conception, it follows that poverty is both
income and non-income driven. It refers to a lack of physical necessities; it
also represents a general deprivation manifested in social inferiority,
powerlessness, isolation and degradation.
According
to Obadan (1997), the dimension of poverty in Nigeria may be structural (chronic)
or transitory (Conjectural). In his view, poverty is structural when caused by
more permanent facts such as joblessness, limited productive resources, or endemic
sociopolitical problems. On the other hand, conjectural poverty is reversible
and is caused by natural or man-made disasters such as flood, war or even failure
of a public policy.
Western
economic thought on the goal of economic growth and income distribution are
incompatible. It emphasize the maximization of the growth rate of the economy
leaving the distribution of income untouched. This has been the case of England, Western Europe and Japan where poverty on one part and
wealth on the other led to large savings on the part of the wealth, class who
used them for productive investments.
Earler
classical economists like Malthus were also in support of income inequality.
For the income equality means less poverty but discouraging savings by leading
to a rise in the income of the working classes and a rise in their consumption.
This in turn leads to a rise in population. Therefore for creation of the
incentive for economic growth income inequality becomes vital (Jhigan,
1995:75).
Malthus,
for example maintained that the increase in income of workers reflects itself
in their sexual propensity to reproduce themselves. He therefore envisaged that
while population will be increasing in a geometric progression, food production
would grow in arithmetic progression. This would lead to deletion of material
resources adding nothing to the productive sector. Malthus’s work is criticized
on the basis that it did not consider the replenishability of natural resources
through technological advancement.
Karl
Max was of different view. He argued that poverty and income inequality would
rather bring doom to capitalism. He stated that poverty meant less consumption
for the poor masses. This would lead to unsold stock (gut) and a stop to
further production.
Keynes
also favoured equality and in his own words, “a society which saves more due to
inequalities brings about secular stagnation because inequalities would reduce
its consumption capacity and bring contraction in demand”. Ultimately, it will
lead to a fall in production and a slowdown in economic activities (Jhingan,
1925:725). Keynes therefore favoured income equality which would lead to
sustained economic growth through the multiplier effect. Amongst the post
Keynesian economist, Professor Kurihara carried Keynes views further, Keynes’s
believed that encouraging consumption is an alternative to saving but Kurihara
showed that they are complementary. Income inequality leads to excessive
thriftiness and fall in inducement to invest as a result o declining marginal
efficiency of capital. Kurihara therefore stated that economic growth requires
the balancing of the two forces which is possible in a high wage, low profit
economy and investment free economy.
Richardo
saw poverty and income inequality as necessary tool for rapid economic
development. Most of our thoughts are influenced by issues and problems of our
time and Richardo too was not different. Following the continuous rise in the
price of corn by 15% per annum between 1970 and 1810, Richardo argued as
follows: that the price of the product is determined by profit, wage and rent.
That if earnings of workers are pegged at subsistence level rising profit will
increase capital accumulation for the rich. Accumulated capital is reinvested
in industrialization thereby initiating economic growth. On the other hand, if
workers salaries rise above subsistence initiating no growth (Kuller, 1995:5-6)
like Malthus, Richardo assumes that only capitalists can reinvest while
labourers prefer marring and increasing population.
In
the 1950s and 1960s, the thinking on income inequality; poverty and growth was
influenced by Kuzent’s U-shaped curve. Kuznet suggested on the experience of developed
countries that historically there was a tendency for income inequality to
increase first and then to be reduced as countries developed from low level.
Accordingly, it was believed that a high degree of inequality in the
distribution of income has a favourable effect on the economic growth in the
early stages of development and as development gained momentum its benefits
will automatically trickle down to the low income group over a long run. This
approach therefore emphasizes the maximization of the growth rate of the
economy by building up capital infrastructure and productive capacity of the
economy and leaving the income distribution untouched.
Another
principal supporter of this view was Arthur Lewis. He outlined processes through
which income inequality led to the growth of 18th century in England, the nineteenth
century Japan. Lewis contended that voluntary saving form significantly large
share of national income. According to him, the share of profit national income
should be increased by expanding the capitalist sector of the economy
deliberately. This should be achieved by taking those who live on unearned
income heavily. These proceeds should be given to capitalists. Larger profits
accruing tot eh capitalist sector would mea larger savings which would be
invested for large capital formation and higher growth rate.
Much
criticism which centers on the facts that poverty and income inequality may
hamper economic development has been raised against Arthur Lewis model. There
is no guarantee that capitalist would utilize their savings in productive
speculations, foreign deposits etc. furthermore, saving lead to heavy economics
was through inheritance.