ENDING GLOBAL POVERTY

A GUIDE TO WHAT WORKS

STEPHEN C. SMITH

PALGRAVE MACMILLAN         2005

PART III

 

Chapter 2: The Keys to Capability: Eight Keys to Escaping Poverty Traps

The escape from poverty requires the keys to unlock poverty traps. In providing various kinds of freedom, the keys to capability are intrinsically valuable. They also open the door to increasing income and wealth, which can in turn provide the means for building further capabilities and assets and resiliency to the many risks and shocks that people in developing countries face. Only with sufficient capabilities and assets can a person’s escape from poverty be reasonably secure over the long run. Acquiring the keys to capability can enable most people to use their resourcefulness to escape from extreme poverty, even when they do not live in high-growth countries and their standard of living remains very modest.

The keys to capability are closely interrelated. Unlocking one capability can sometimes help unlock others, but by the same token, the benefits of having one key are inherently limited if you lack the others.

The First Key: Health and nutrition for adults to work and children to grow to their potential

• Health requires good nutrition, safe water, and knowledge, as well as access to medical care when needed. Nutrition in turn depends on health. In the poorest countries all these requirements are sorely lacking.
• Undernutrition is responsible for more than half of the infant and child deaths in poor countries.
• The poor do not need much to meet their basic nutrition. In most cases an extremely small amount of money would be enough for people to escape undernutrition traps in which they have too little nourishment to be able to work with sufficient strength.
• To end poverty we must make it a top priority to address hunger.
• If the poor are well nourished (and have the other keys to capability), they can frequently use their creativity to earn a basic living in microenterprises and other activities.
• Food security has three components: food availability, food access, and adequate food utilization (knowing and providing a proper diet, safe water, and sanitation).
• There is no shortage of food in the world as a whole – there is only a shortage of entitlement to food.

As a general policy, shipping food as part of foreign aid is not effective for two reasons. The first is the perverse effect it has on the rural population where poverty is concentrated. Food shipments will generally lower the price of food in the cities, where better-off people tend to live. Very little food aid will reach the rural areas where the chronically poor live, largely because they lack the political clout to demand it. The impact may well be to make poor farmers worse off, because the greater supply of food has lowered the national food price. The second reason that food aid does not work stems from a blend of politics and markets. For example, the government of India calls the country “food self-sufficient”; but this is because the market demand for food is met by local supply. However, the market demand is woefully low because of the impoverishment of nearly half its people.

• A permanent solution is to increase the purchasing power of the poor – and create local entitlements for people when for whatever reason they cannot provide a minimum number of calories for their family.
• As long as most of the poor remain farmers, it is vital to improve the productivity of their farms, along with ensuring their claim on the income from that productivity.
• This in turn generally means helping the poor farmers to gain the keys to capability.
• Access to clean water, and to basic sanitation, are also critical. If the water is not safe, the poor have to boil it. This uses up scarce fuel wood.
• If the water is not safe, people will get sick. The poor are sick many more days than the non-poor.
• Better health knowledge among the poor is critically needed.

 

The Second Key: Basic education to build foundations for self-reliance

• To be illiterate in the 21^st century is truly to be blind to much of what the world has to offer.
• Despite the fundamental importance of basic education, even today the United Nations Development Program (UNDP) estimates as many as 113 million primary school-age children do not attend school at all. Many children who enrol in government schools find no desks, no books, and often as not, no teachers.

 

The Third Key: Credit and basic insurance for working capital and defence against risk

For the poor rural peasant, access to credit provides the chance to purchase tools, a draft animal, or a small tractor, and irrigation. Thee animals and instruments can help a farmer greatly improve her productivity, help her diversify crops, and help her move toward commercial farming. Fertilizer, once a luxury, is now essential for survival in many poor areas, where population growth has necessitated an end to traditional practices that left land uncultivated for many years to restore its fertility.

For the poor landless laborer, access to credit can mean a chance to purchase raw materials (such as cloth) and tools (such as a sewing machine), and eventually move from the edge of survival to becoming an established businessperson. For the poor urban peddler, access to credit can mean a chance to build a bigger inventory so that she has items on hand when customers request them, and so that she can eventually move from the insecurity of being a petty street hawker to the stability of being an established vendor.

This message – that credit can be a powerful tool for poverty alleviation – has spread throughout the world. There has been a virtual explosion of microfinance institutions, sometimes called village banks – may sponsored and supported by donors in the developed countries. Millions of borrowers have taken part, and these banks have done much good, particularly when accompanied by programs that help the poor to gain some of the other keys to capability.

• It has been estimated that microfinance institutions are currently serving only 11% of the world’s 240 million poorest families.
• The effort to provide credit and insurance to the poorest to help them escape from working capital traps has only just begun.

 

The Fourth Key: Access to functioning markets for income and opportunities to acquire assets

On December 10, 1948, the United Nations General Assembly adopted the Universal Declaration of Human Rights. Article 17 of the Declaration asserts that: “Everyone has the right to own property alone as well as in association with others” and “no one shall be arbitrarily deprived of his property.”

If every poor person has these rights, with real access to functioning markets, it would provide a great foundation – a step to equal opportunity. But many of the poor simply cannot take part freely in economic life. Opportunity includes the ability to start a business. But when economic power is overwhelmingly concentrated in the hands of elites, the natural entrepreneurial abilities most people are born with are snuffed out. The rich may find ways to skim or steal the newly growing assets of the poor. In Mozambique, registering a new business requires 19 steps taking over 5 months – showing that part of the problem also rests with government bureaucracy. To end global poverty reforms are needed both of government policies and of markets and the distribution of wealth.

The need of the poor for land is critical, and is also emblematic of problems gaining access to markets and productive resources. Genuine land reform on economically viable farmland is an essential part of the struggle to end global poverty. Most of the poor are still rural, often living in remote areas. If you ask the rural poor what is most important to them, what would make the biggest positive difference in their lives, they frequently say owning enough of their land to make a living, and holding it securely. This is an overwhelming concern in densely settled South Asia, but also in Latin America and Africa: Remember the Nigerian who said, “all our problems stem from lack of land.” A UN study has concluded that at least a half a billion people – 100 million households – depend for a living on farming land that they do not securely own, whether as day laborers, sharecroppers, tenants, or as squatters (in the eyes of the law, however long they have been farming there.) when farmers have insecure land tenure rights, there is also an incentive to treat land as a short-term resource.

• Landless farmers or those eking out a living on a tiny plot of land cannot directly purchase land from the big landowners. This is because credit markets do not function adequately enough to provide a loan.
• Even if they did, the price of land is too high, because the big landowners are unwilling to dilute their holdings.
• Ownership confers many additional benefits beyond the income from farming activities, such as disproportionate political influence and social prestige.
• Only an active policy of land reform can provide the needed changes.
• Where land reform has succeeded, such as in Taiwan and South Korea, it has made an enormous difference for poverty reduction.
• It is still common to come across regions in low-income countries where many farmers live on paths impassable by vehicles, miles from the nearest functional road.
• As a poor person in rural Ecuador said, “a community without roads does not have a way out.” Roads give people essential connections to markets – and a way out of poverty.

 

The Fifth Key: Access to the benefits of new technologies for higher productivity