Poverty Reduction Occur on a Local Scale

¶ … Poverty Reduction occur on a Local Scale or must it be in a Broader Scope to be Meaningful? Discuss with Reference to Specific Examples.

One of the biggest issues that a host of governments and international organizations are wrestling with (i.e. The UN) is how to effectively eliminate poverty. This is because, a number of different programs have been implemented in the past that were suppose to have a dramatic impact on reducing levels. Yet, in reality they are having limited effects at addressing the underlying causes. Instead, most of the money that is intended to tackle these challenges is squandered through: government bureaucracy and corrupt leaders.

A good example of this can be seen by looking no further than Tanzania. After gaining independence in the 1961, the country began to experience 6% economic growth. This caused many international aid organizations and donors to provide increased amounts of funding for a variety of activities. These were designed to encourage economic development and the reduction of poverty. However, many of the governmental institutions were squandering these funds and focusing exclusively on supporting economic growth. Over the course of time, this made any kind of programs ineffective. At which point, the country would experience decades of negative economic growth. The below table illustrates the how this was occurring with the GDP levels from 1961 to 1985. (Mammo 1999 pp. 56 -- 57)

Tanzania GDP Growth 1961 -- 1985

Time Frame

Percentage GDP Growth

1961 -- 1967

6%

1967 -- 1973

-4.3%

1973 -- 1979

-2.5%

1979 -- 1985

-1.4%

(Mammo 1999 pp. 56 -- 57)

These figures are significant, because they are illustrating how efforts to support economic activity are not working. As many of these funds, are not addressing the root causes of the problems. Instead, they are focused on increasing economic growth through: the reduction of trade barriers and social programs that are deal with the lingering amounts of poverty. This is because, most of the funding that they received was often tied to various stipulations (i.e. The removal of trade barriers). Then, when you combine this with increased amounts of corruption, meant that many of the programs are ineffective. Once this begins to happen, the economy will go into a never ending spiral of stagnation. This is when you can see long periods of negative economic growth and no improvements in addressing poverty levels. The reason why, is because many nations have squandered the money they were receiving and they are forced to pay the debt service on the amounts that they received. This will serve as a way of making the problem worse, as this is allowing economic stagnation to occur. (Mammo 1999 pp. 56 -- 57)

Further evidence of this can be seen with a report that was released by the OECD in 1991. They found that one of the main reasons why anti-poverty and economic aid programs were not working is due to the fact that countries have shifted their priorities. As, they have begun to divert funds away from poverty reduction and economic growth initiatives. With many underdeveloped nations focusing, on paying the interest on the outstanding debt service that they received. This is important, because it is illustrating how international efforts to address poverty reduction have failed. (Mammo 1999 pp. 56 -- 57)

As a result, a new kind of focus must be taken in effectively tackling the problem. However, the issue as to the levels of responsibility has been increasingly brought into question. This is because, many people believe that poverty reduction efforts must be locally focused by: taking into account the culture and specific regionalized factors that are affecting these levels. To determine the best approach for dealing with these challenges requires comparing if poverty reduction is effective on: a micro or macroeconomic level. Once this takes place, it will provide the greatest insights as to what kinds of strategies need to be utilized to effectively tackle the consistently high rates of poverty.

Current Efforts to Tackle the Problem

According to World Hunger.org, there are currently 1.34 billion people who are considered to be living in poverty. The basic definition that they are using is someone who is living on less than $1.25 per day. Furthermore, they determined that that the underlying levels of poverty are tied directly to economic well being. As they found that there are number of different factors that can have a direct impact on rates to include: the over control / utilization of resources, war and climate change. At the same time, they also determined that many nations who begin to have large amounts of poverty will fall into a downward cycle of reduced output. This is because these high levels will have an impact on public perceptions (which will feed negative sentiments that are causing slower growth). The below table illustrates the underlying poverty rates around the world. (World Hunger 2011)

Worldwide Poverty Rates

Region

% of the Population Living in Poverty

Total Population (in millions)

East Asia / Pacific

16.8%

1,884

Latin America / the Caribbean

8.2%

South Asia

40.4%

1,476

Sub-Saharan Africa

50.9%

Europe and Central Asia

4.0%

Middle East / North Africa

4.0%

(World Hunger 2011)

This is important, because it is showing how poverty can impact different regions of the world and large segment of the population. As a result, this has lead to shift in thinking on how to effectively tackle the problem.

International Efforts

The main focus in reducing poverty was established as a part of the Millennium Development Goals (MDGs) in 2000. The emphasis of this program was to reduce the amounts of global poverty worldwide in all developing and developed nations around the globe by 2015. There are total of eight different objectives that the plan is addressing to include: the eradication of poverty / hunger, universal primary education, promoting the empowerment of women, reducing child mortality rates, combating infectious diseases, improving maternal health, environmental stability and establishing global partnerships for development. (What are the Development Goals 2011)

Since the implementation of these goals, the effects that they have been having on different regions have been mixed. In some cases, the overall amounts of poverty are dramatically being reduced. While in other areas of the world, the situation is continuing to become worse. An example of this can be seen with comments from UN Secretary General Ban Ki Moon who said, "Encouraging progress has been made in a significant number of least developed countries. This is no small feat; it shows that the MDGs are achievable. Far more than that, these nations need the tools with which they themselves will use to create jobs, generate income and unleash the continent's own potential." (Aid and Fairer Trade 2010) This is important, because it is showing how tremendous amounts of progress have been made in addressing the levels of poverty around the world.

Rwanda

One of the many countries that proponents will often point to as a success of MDGs is Rwanda. After the civil war ended, the country made considerable strides to reduce poverty and increase economic growth. At the heart of their strategy, was to focus on infrastructure and other public works projects that will support long-term economic growth. This helped the country move closer towards some of the various goals that were established under the program. Evidence of this can be seen with the country electing its first woman member of Parliament in 2008. (Rwanda, 2007)

Yet, beyond the increased amounts of economic growth and improvements in reaching some of the millennium goals there have been continuing disparities. What has been happening is that the tremendous amounts of growth have done little to address the inequalities between various groups within society. As, the economic expansion has been benefiting: the wealthy and political elite, but are ignoring many of rural parts of the country. This is creating, large differences in various segments of the population and select regions. Over the course of time, this means that these disparities will become even worse. At which point, it will become difficult for the country to reduce poverty through economic growth.

Instead, there needs to be consistent investments in programs and sectors that will help to improve the lives of low income families. One possible way to achieve this objective is to have the government invest in industries that will support the livelihoods of these segments of the population. If this kind of an approach could be used it will help to reduce poverty through: economic growth vs. focusing on certain segments of the economy. This is different from the strategy that has been embraced by the government. As, they have been focusing on reducing poverty through: concentrating on those sectors that can provide the most foreign direct investment. (Rwanda, 2007)

Evidence of this can be seen a report that was released by the UN. They found that this is creating uneven levels of growth in country. This is problematic, because the lack of focusing on select areas will cause the underlying amounts of poverty to become worse. Commenting about these findings the UN Resident Coordinator in Rwanda (Moustapha Soumare) said, "The report constitutes a rigorous and objective piece of research, which takes a hard look at the facts without trying to embellish them or tweak them to suit one or the other interest. Disparities cut across all sectors and undermine Rwanda's progress towards the MDGs in all areas from health to education and even poverty reduction. The government needs to increase investments in development sectors, mainly in agriculture." (Rwanda, 2007) This is significant, because it is showing how despite the tremendous amounts of success that is taking place with the MDG program. The reality is that it is creating vast disparities in society. Over the course of time, this will have a limited impact on reducing the total amounts of poverty. Instead, it could be making the situation worse. The reason why, is due to the fact that there is a lack of investment in many sectors (which will caused the differences in society to become more severe).

As a result, one could effectively argue that larger macroeconomic efforts to address these issues are having limited effects. This is mainly from the desire of government officials to focus on those sectors that will deliver the highest rates of growth over the short-term. Instead of creating a plan, that can grow the economy (in the long-term), while addressing the disparities in society. If this kind of an approach could be taken, it will help Rwanda move closer towards achieving the majority of the Millennium Development Goals. This is important, because it is how international efforts to reduce poverty are having limited long-term impacts. The reason why, is because most governments will not create policies that will benefit everyone. Over the course of time, the current approach that is being taken to reduce poverty will fail to achieve its intended objectives.

Micro Economic Programs to Reduce Poverty

Another approach for effectively reducing poverty is: to focus on specific micro economic factors that could have an impact on the lives of individuals. This is when you are tackling the problem, by providing the people in areas that have severe amounts of poverty with: the financial resources to improve their lives. The most notable components of these kinds of programs include: easy access to financing, tools to improve their lives (i.e. computers, livestock or new plants); educational services and information technology. These different elements are important, because they are illustrating the views of many economists. They believe that poverty is the result of poor people not having access to resources that can improve their lives. Evidence of this can be seen with comments from the economist Milton Freedman who said, "The poor stay poor, not because they are lazy but because they have no access to capital." (Macro Economic Development 2011) This is significant, because it is showing how these kinds of programs are an effective alternative. As they can reduce poverty by focusing on the lack of resources that many low income individuals have.

According to AID Indonesia, there are several different reasons why these programs have been proven to be so effective. A few of the most notable include: the funds are controlled locally, they are creating a sense of empowerment for communities and they focus on long-term solutions for addressing chronic unemployment. These different elements are important, because they are highlighting the benefits that these kinds of programs are offering a wide variety of individuals around the globe. (Macro Economic Development 2011)

A good example of how successful these programs are can be seen with poverty eradication efforts in Cambodia. During the 1990's the first of these institutions began to appear. They were part of an effort to: help rebuild an economy that had been devastated by genocide and civil war. The results of this program are: that interest rates began to decline and a transformation took place in society. What was happening was these loans were allowing many individuals the chance to be able to start small businesses. This helped to increase the wealth in the community, as they hired more people to work for them. At which point, spending began to increase and more people began to seek out similar loans to start their own businesses. This created transformation for many people within local communities, who had no access to outside resources for assistance (such as women). In Cambodia, these loans helped 70% of rural women to improve their lives. As a result, this has lead to a transformation within society. (Microfinance in Cambodia 2011)

However, there have also been situations that have developed with a wide variety of borrowers facing financial challenges. This is because the interest rates on the loans are so high that they are difficult for most people to make their loan payments. At which point, many bankers will often engage in strong arm tactics to ensure that all borrowers are making their payments. At the same time, many critics will claim that these banks have done little to reduce poverty in many of the poorest countries of the world. (Mallaick 2009)

Evidence of this can be seen with a documentary conducted by Al-Jazeera. They found that number of these kinds of banks will often engage in unscrupulous lending practices of encouraging individuals to take out these loans. Then, they will utilize aggressive collection methods to force people to make their payments.

One of the most notable is the Grameen Bank of Bangladesh. What has been happening is past employees, have stated that the company policy is if someone cannot back the loan you are suppose to forgive the debt. To keep defaults to a minimum, bank managers have encouraged collectors to engage in tactics such as: harassment and making verbal / physical threats to ensure everyone is making their payments. This is problematic, because it is highlighting how many of these kinds of microfinance banks have become focused on increasing their profit margins at the expense of poor people. In response to these kinds of issues, many governments have increased regulation of these banks. This is a part of an effort to improve transparency and help address the possible abuses that are occurring. (Muhammad Yunu's Forced Exit 2011)