The poverty trap

It is significant to point out that poverty breeds more poverty. In situations of abject poverty, poverty itself has a tendency to breed more poverty. There are situations where the handicap of poverty is passed down from one generation to generation. This could occur when the family is caught in a trap of poverty, ―…a situation in which a relatively small increase in income will take the family over the threshold for entitlement to benefits, thereby creating a net loss.‖ A possible consequence is that members of the household may be discouraged from seeking employment, therefore, losing the opportunities for social advancement that such employment might afford them ("Poverty." Microsoft® Encarta® 2006 [CD]).

Smith (2005:12-17) proposes sixteen major poverty traps that keep the poor enslaved to the vicious cycle of poverty. Although this is not an exhaustive list, it does reflect the range of

24 _{In his 1991 book, Lords of Poverty, Graham Hancock provides a wealth of evidence to show that official aid is,} quite bluntly, a cover for economic and political exploitation of poor nations.

42 problems that affect the poor. The poverty traps are listed as traps of: Family Child Labour25, Illiteracy26, Working Capital27, Uninsurable-risk28, Debt Bondage29, Information,30 Under-

25 _{In a family child labour trap, parents may be too unhealthy and unskilled to be productive enough to support their} family. Consequently, the children would have to work. In such a case where children work, they cannot receive the kind of education that they deserve, such that by the time they are parents, they will have to send their own children to work, and not to school. In this way, poverty is transmitted across generations (Smith, 2005:12).

26

Illiteracy trap is closely related to the problem of child labour trap, in the sense that, even in situations that parents may not send their children to work, the parents may not send their children to school because they are poor and cannot afford such things as transportation, school uniforms, or a modest school fee. If the poor families could borrow money from the credit facilities, the higher incomes received by the child a few years later by their then- literate child, could pay back the loans easily. But if the poor lack access to credit, they may not be able to get loans to finance otherwise very productive schooling (Smith, 2005:12).

27

Lack of credit also plays a role in the poverty traps. Smith (2005:13) writes that, ―In a working capital trap, a micro entrepreneur must make do with an inventory too small to be productive – but this means she will also have too little net income to have a larger inventory in the future.‖ Smith illustrate this point thus: ―For example, I met a woman in Ecuador trying to make ends meet by selling three pairs of used American jeans door to door – all she could afford to hold. But that made a chance for a sale – a matching style and size that the customers want – so low that her income was not enough to buy a large inventory the next day.‖ Smith further observes that despite the explosion over the last 15 years of microfinance institutions (MFIs) giving small loans to the poor, they are currently serving just 11 percent of the world‘s 240 million poorest families. This statistic suggests that working capital traps are still pervasive.

28 _{More often than not, it is the people with the fewest assets who face the greatest chances of loosing what is most} important to them. Such would include their land, their basic nutrition, and their health – the greatest uninsured risk. Smith (2005:13) observes that the majority of the poor are farmers, and they are generally unable to get any weather insurance. Consequently, they have to orient their entire approach to farming to minimize the risk of a catastrophic drought, or other shock in which their families face ruin. However, such an approach to farming also makes it unlikely that they can take advantage of opportunities to do much better and begin to build assets that can lift then out of poverty in the long run. Subsequently, these poor farmers are unable to change their circumstances in a way that would let them gain more security against high risks in the future. Although the poor may show great ingenuity in developing informal risk-sharing arrangements in their communities, the result can be considerable distortions and inefficiencies that also retard the rate of economic progress.

43 nutrition and Illness,31 Low-skill,32 High Fertility,33 Subsistence,34 Farm Erosion,35 Common Property Mismanagement,36 Collective Action,37 Criminality,38 Mental Health,39 and Powerlessness.40

29 _{While credit is needed, the wrong kind of debt from unscrupulous moneylenders can also be a trap. Smith} (2005:13) notes that colluding moneylenders calibrate loan amounts and interest payments to ensure that a family can never get out of debt. He observes that sometimes the rate of pay for impoverished people working for their creditors is so low that it is insufficient even to pay back the interest they owe. He notes that, ―Such is the plight of tens of thousands of low-caste salt workers in rural India‖. Although bonded workers may be allowed to keep a subsistence income so that they can survive to work, essentially all the surplus is extracted by the moneylender in an endless cycle of debt. Terms are designed so that the more one works, or the more productive one becomes, the more one must pay to the master: the quick sand of poverty. The children of such bonded labourers will be born into bondage, never to escape. This is slavery, but by another name.

30 _{Impoverished labourers, including housemaids, and others among the poorest of the poor do work long hours each} day just to ―put one or two meals on the table‖. Even though there may be existing options that would pay a higher remuneration, these people may have no time or energy to inform themselves about what these occupations pay, or how to work in them. In such cases, their employers may not have incentives to help their workers to learn about better opportunities, and may even work to prevent such moves. Lack of access to information keeps the poor in poverty and conditions of poverty prevent the poor from getting information needed to escape from poverty (Smith, 2005:14).

31 _{In a situation where an undernourished person is too weak to work productively, her resulting income is too small} to pay for sufficient food, so that she continues to work with low productivity for low wages. This is an under- nutrition trap, and it is an extreme form of structural poverty, which is found in families and deeply impoverished areas. A comparable vicious cycle may keep chronically ill, but treatable people, in bondage of poverty. Poor shelter from severe weather, can cause sleeplessness and prolonged illness, therefore, reducing one‘s earning power along with the chance of affording better housing (Smith, 2005:14).

32 _{Under circumstances where there is no employer in a particular region who would be seeking skilled workers, (for} example, basic manufacturing jobs) there would be no visible incentive for individuals to invest in attaining such skills. On the other hand, if there is no workforce available with these skills, outside investors may not invest in the region. This kind of trap is the ―chicken or the egg problem‖, which one comes first, the investment or the skills? Although governments may be called to help, some governments may be lacking in resources due to such conditions as high debt burden. A way out of such poverty would be difficult or impossible from within the trapped economy (Smith, 2005:14).

44

33

High fertility traps is found in situations where families have many children, and few decent jobs to go around. In such cases, families give birth to too many children with the hope that these children would take care of them (parents), when they grow old. There is a possibility that such people could be better off if they had a low fertility rate, but how can one expect a poor, powerless woman in an obscure village to make such a change? (Smith, 2005:15).

34

Overall, the majority of the poor do not specialize. However, people can only specialize if, for example, they can trade their skill for the other goods and services they need. When, for example, everyone within a particular region practices subsistence agriculture, there would be no one to sell to, and one will be faced with the sad reality of producing for subsistence with perhaps a little trading on the side. An alternative to such a situation would be to produce for more distant markets. However, to do so, one must first know of them, must somehow get the product to these markets, and indeed must convince distant buyers of its quality. The result of the inability to do so can be an underdevelopment trap in which a region remains stuck in subsistence agriculture (Smith, 2005:15).

35

Smith (2005:15) observes that in farm erosion traps, the poor are so desperate for food that they have to overuse their land even though they know the results will be reduced soil fertility and productivity, and ultimately even desertification. During famine periods, poor farmers have been known to feed on the seeds they had saved from the previous harvest. In such cases, their families are faced with the sad reality of starvation. Smith (2005:15-16) notes that, ―This is a metaphor for the basic problem. Even though you know you are overusing your soil and that it will degrade if you do not rest it or plant less aggressively, the degradation happens at some point in the future. You have to grow more food today to keep your family from becoming badly undernourished. But in the end, you are simply trapped into the cycle of poverty.‖ Any gains obtained in productivity from learning new techniques may be undermined by the poorer quality of the soil, and while fertilizers and other land improvements might be a good investment by conventional calculations, they are of no help if one cannot afford them or borrow to finance them. 36 _{Mismanagement of common property involves situations, for example, where lakes are over fished, forests are not} managed in a sustainable manner, and land is overgrazed. What constitutes such a problem is the reality that community management of common resources has broken down, coupled with a legacy of greedy colonial practices, and now all too often imitated by post-colonial regimes. Smith observes that, ―Once broken down, responsible use of shared resources is difficult to restore. Put in stark terms, someone in this predicament may think, “if I do not fish

today even at sustainable levels, someone else will catch those fish instead of me – either way, I will catch fewer fish tomorrow” [Italics, mine] (2005:16).

37 _{Time and again, a community of poor people can improve its conditions by working collectively on joint projects.} However, such joint projects require leaders who have time to organize. Generally, the poor do not have the time

45

and the resources to do this. Furthermore, for the reason that the payoff of group action goes to the group and not just the coordinator, the reward rarely makes up for the risk. Consequently, it can be difficult for individuals to take the initial steps (Smith, 2005:16).

38

Smith (2005:16) makes a note of the fact that young people (youths) who do not have access to useful education, and who see little future in legitimate work are drawn to gang membership, and other cultures of criminality. The emotional scars from the experience of violence also reinforce such trends. The results from such a way of life include fights, thefts, and criminal activities, which in the long run multiply the community‘s poverty trap by destroying assets, diverting resources to provide for personal and property security, and even taking the lives of able-bodied young men. In many cases, majority of the victims are innocent, and poor. Such a situation of worsening social and economic conditions draws people into criminality, a vicious circle that reinforces poverty. 39

Depression and anxiety are pervasive among the poor in many developing countries, due, in part, to poverty and its associated powerlessness. In Smith‘s (2005:16) words, ―Being unsure where your family‘s next meal is coming from creates tremendous emotional stress. Many poor people are deeply ashamed of their poverty, even when it is not their fault. They commonly have to endure daily mocking and humiliation for their circumstances. And they usually feel terrible that they are unable to provide adequately for their children. This inability creates chronic feelings of hopelessness and anguish.‖ In addition, depression and anxiety are inflicted upon the poor, especially when the rich abuse and terrorize the poor to keep them from gaining any bargaining power. To compound the situation, the women face domestic violence and abuse, along with a lack of personal identity, factors which contribute to the much higher incidence of depression among women than men. Once depression takes root, a poor person can become listless, exhausted, and unable to take initiative. Drug and alcohol abuse also become increasingly common – and so depression also becomes a cause of poverty. A vicious cycle ensues, making poor mental health a form of poverty trap (Smith, 2005:16-17).

40 _{Smith (2005:17) notes that the condition of powerlessness is a trap in which it is not only the relatively impersonal} forces such as the environment or even the market that keeps the poor ensnared, but the active convenience of the rich, who benefit from low wages and subservience. He further states that, “Poverty entrapment is poverty of, by,

and for the rich” [italics mine]. The poor, then, remain in poverty not because they want to, but because of the many

barriers deliberately built around them by those who benefit from their poverty. Such barriers would include nexus of landlords, colluding moneylenders, corrupt officials, and the very few in the world who would be better off if poverty continued than if it was ended.

46 From the discussion of the poverty traps above, the indication is that, not only is poverty not the fault of the poor, the underlying cause of poverty usually blamed on the poor such as high fertility, may also be a result of poverty.

It is, however, important to note that these traps are pure types, not an exact description that necessarily applies to any one person. In particular, some poor people may show many of these ―symptoms‖ and others may not appear to be affected by any. These traps are guides to general understanding, not a ready-made checklist to diagnosis and action.