The Root Cause of Systemic Poverty & Why Economic Growth Cannot Fix It

This article is the first in a series of eleven short papers that address how we can use ‘market mechanisms’ to better share our resources, without destroying the biosphere upon which all life depends; now and into the future.

It identifies the root cause of systemic poverty and explains why ‘economic growth’ is not the answer.

Each of the articles is written to be ‘self-contained’. If you want an overview of the series, it is provided here.

Context: Definition of Poverty
Of course, ‘poverty’ is relative. For the purposes of this article, it is defined as the inability to meet your ‘basic needs’ to survive in a modern economy: water, food, clothing, shelter, energy, transport, healthcare and education, and other essentials (including, ideally, basic smartphones, computers and communications).

Context: There is No ‘Silver Bullet’ for All Aspects of Poverty
The cost and availability of healthcare (including dental), education, and housing remain major issues, regardless of the systems we use to share wealth.

Fortunately, new technologies are emerging that will drive down their price and increase availability. Cheaper and better remote health and education services, and as well as remote working will take the pressure off city housing by allowing people to live in places where prices are lower, without loss of work or essential services. Other policy changes may also be required to increase supply and lower prices.

Context: Production and Consumption in the Real Economy
Given the way money and markets work in the real economy, the end result is that:

The total incomes of all those engaged in the production process equals the total value of their combined output.

Which means, in principle, those ‘in the production process’ can consume all that they produce, as they spend their incomes.

Leaving nothing for anyone ‘outside’ the process.

The Root Cause of Poverty
Without an income (money), you have no say in, nor can you share in, what gets produced in the real economy.

Over 50% of the population have no direct income (hence no say or direct share) simply because they cannot contribute to the paid economy: the young, old, incapacitated, their unpaid carers, and those between jobs.

This is not a static group of ‘takers’.

We are all members of it at several points in our lives, often contributing ‘unpriced’ value: children learning, adults maintaining a home, elderly providing childcare, those ‘between jobs’ looking for paid work, as well as undertaking creative, volunteer and social activities that build community.

People in this group get money from:

  1. Saving, if you are fortunate to have earned or inherited sufficient to see you through. For many, their savings are in their home and superannuation that cannot be easily accessed; while most on low wages ‘live pay to pay’ having barely enough to get by, with nothing left for ‘emergencies’.
  2. Borrowing, a short term solution at best, and extortionate at worst if provided by ‘payday’ lenders.
  3. Family, if you can. Though many have little or no family support; or are at risk of destitution if the breadwinner loses employment.
  4. Welfare, if you qualify. Even then, for many, it does not cover basic needs
  5. Charity, if welfare is inadequate, and for emergencies
  6. Crime… a rational response to exclusion, causing us to divert resources to combat and punish it.

Sharing with the unpaid group is a moral issue for society as a whole.

It is also a matter of ‘equity’. To recognise the value of the unpaid work.

Most people will at times be a contributor, sharing some of their income with the ‘unpaid’ group, at other times a beneficiary.

There is a lesson to be learned from this current COVID-19 crisis.
If it is good enough to pay a ‘living wage’ to a large section of the population who suddenly find themselves ‘unpaid’ during a pandemic, why not in other circumstances that also impact a large section of the population ‘all at once’?

The only difference between a pandemic and ‘normal times’ is that, in the case of the pandemic, the cause of loss of income is common to all.

Normally, the cause is particular to each person or a small group.

Yet, the impacts are no less traumatic and needful across a wide section of the community when added together on any day.

Causes of Income Loss are Mostly Beyond Our Control
Future pandemics; or other natural catastrophes (storms, fire, flood, droughts, sea-level rise) that disrupt local economies; or the simple failure of the business that employs you, or just a fall in sales leading to a reduction in staff; not to mention the daily vagaries of life (ill health, the need to care for others, etc.), and the thousand other things that put people out of paid work…

Any and all of these events can and do throw people into ‘poverty’ through no fault of their own.

As well, increasing automation threatens ‘technological unemployment’.

Some people are comforted by the fact that in every other shift in the nature of work, more work has been created than was eliminated.

However, this time is different.

As this talk by Daniel Susskind shows, there is every likelihood that the extra work will be done by ‘machines’, not people.

While the timescale may be longer, the threat of job loss due to automation may be every bit as severe as that caused by the pandemic. In fact, there is every indication that the current crisis will greatly accelerate the process: machines don’t get sick, and automated systems work 24/7!

Employment Has Also Become More Precarious
As supply chains have become more lean, so more workers have been placed on contract, enabling companies to manage both materials and labour on a ‘just-in’time’ basis. These changes have made the supply chain much more efficient; but also made it less resilient, as revealed through the current COVID-19 crisis.

It has meant that workers carry the immediate brunt of any downturn. However, when the disruption is wide-spread, the effects flow through the economy as those losing their incomes have nothing to spend.

Traditional Responses to ‘Sharing’ are Not the Answer
Despite the welfare and charity we provide, around 12% of the population in Australia live in poverty, with similar percentages in the US, and across the developed world.

As these percentages have remained relatively static across the decades, it’s clear that our current systems of welfare and charity do little more than maintain the status quo.

The traditional response to on-going poverty is that, if the current multiplicity of government programs is not working, we need to improve or replace them; or for those with a more libertarian bent, to: ‘give more to charity’.

However, the answer is neither ‘more or better government programs, or charity’.

We already have the production capability, logistics and shops/service providers necessary to get ‘goods and services’ to where they are needed, when they are needed.

All that is missing is money in the hands of a large (and ever-changing) group of people to express their basic needs in the market.

As this is the case, the solution to ‘systemic poverty’, is to change the system so everyone has enough money.

The next in the series discusses:

How to Eliminate the Root Cause of ‘Systemic Poverty’



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