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Penury portrait

The consensus on raising people out of poverty is surprisingly recent

Jul 27th 2013 |From the print edition

ON JULY 17th India released its latest poverty figures. They tell an encouraging tale: just under 22% of Indians were below the poverty line in 2011-12, down from over 37% in 2004-05. With an election not far off, these statistics will not go unchallenged. Naysayers are already grumbling that the numbers have been released early to make the government look good. But even as political opponents slug it out, it is worth noting what they are not arguing about. Nobody is saying that a decline in poverty is a bad thing. Nor does anyone dispute that policymakers should try to help large numbers of poor people out of penury. This mirrors a worldwide consensus: whether the United Nations or the World Bank, sundry public officials or high-minded celebrities, everyone thinks that poverty alleviation is both desirable and possible. The debates are about the details.

That might sound wholly unsurprising. Yet in a new paper Martin Ravallion, an economics professor at Georgetown University and a former research director at the World Bank, charts the evolution of thinking on poverty over the past three centuries. He reckons that this consensus is of remarkably recent vintage. Not that long ago every element of the received wisdom—that poverty is a problem, that public policy should try to reduce the numbers of poor, and that there are good ways to try to do so without hurting the economy—would have been suspect.

According to the mercantilist thinking that dominated European thought between the 16th and 18th centuries, poverty was socially useful. True, it was miserable for the poor. But it also kept the economic engine humming by ensuring the availability of plentiful cheap labour. Bernard de Mandeville, an 18th-century economist and philosopher, thought it “manifest, that in a free nation where slaves are not allow’d of, the surest wealth consists in a multitude of laborious poor.” That attitude was the norm.

If poor people were regarded as instrumental in ensuring economic development, that explains why there was little appetite for policies to help them leave poverty behind. What action there was tended to be palliative in nature. In the 18th century changes to the Poor Laws were designed to stop adverse shocks like failed harvests or bereavements from making life even harder for already poor people. Such policies were designed to protect the poor from the worst deprivations, not to raise them up.

In the late 18th century attitudes towards the poor took on a moralising tone. Thomas Malthus, a clergyman, blamed the plight of the poor on their own flaws. Technological change might drive wages above subsistence levels, but only temporarily because the fecundity of the poor would soon drive wages back down. His thinking inspired the introduction of a new Poor Law in 1834, which tried to make the workhouse their only option. “Outdoor relief”—giving the poor money—needed to be stopped.

Adam Smith took a more humane view. He saw the social and emotional toll poverty could take, and sought to increase support for the idea of redistributive taxation: “The rich should contribute to the public expence [sic], not only in proportion to their revenue, but something more than in that proportion.” But even the father of economics did not provide a coherent strategy for moving people permanently out of poverty.

By the 20th century the research of Charles Booth and Seebohm Rowntree had brought the issue of poverty firmly into the public consciousness. This in turn encouraged new thinking about the economic rationale for reducing penury. The classical school believed that the real constraint on growth was aggregate savings. Given that the rich saved more than the poor, this implied that less poverty would mean lower growth. John Maynard Keynes disputed this view, arguing that it was aggregate consumption that mattered, in which case reducing poverty could actually aid growth. But it was not until the 1990s that a coherent theoretical framework emerged to show how high levels of poverty stifled investment and innovation. For example, several models showed how unequal access to credit meant that the poor were less able to invest in their own education or businesses than was optimal, leading to lower growth for the economy as a whole. Scholars buttressed the theory with empirical evidence that high initial levels of poverty reduced subsequent growth in developing countries.

Poor relations

New theories of poverty were also overturning received notions of why the poor stayed poor. The fault had long been placed at their door: the poor were variously lazy, prone to alcoholism and incapable of disciplined work. Such tropes are still occasionally heard today, but the horrors of the Depression in the 1930s led many to re-evaluate the idea that poverty was mainly the result of people’s own actions. Advances in economic models meanwhile allowed policymakers to see how low levels of education, health and nutrition could keep people stuck in penury. Policies to subsidise education or health care were desirable not merely for their own sake but also because they would help people break out of poverty.

The growth of “conditional cash transfers”, schemes like Brazil’s Bolsa Familia that give poor people money as long as they send their children to school or have them vaccinated, are logical developments of these ideas. The notion of schooling the poor to a better life seemed absurd in the era of de Mandeville: “Going to school in comparison to working is idleness, and the longer boys continue in this easy sort of life, the more unfit they’ll be when grown up for downright labour.” Such poverty of thinking may sound archaic, but it persisted for longer than you might think.