The Economics Of Poverty

‘A decent provision for the poor is the true test of civilization.’ Samuel Johnson.

‘The richest 1% are almost 2,000 times richer than the bottom 50%.’ S Lansley, The Cost Of Inequality.

The Economics of Poverty looks at 4 contentious issues related to maintenance of the poverty and unemployment. After looking at the definition and some causes of poverty we look at: The Geography Of Economics and how local, national and international poverties differ; A Short History of Unemployment in the UK; Rhetoric & Representation: how blaming the poor for their situation has a long political pedigree from Malthus through to Jeremy Kyle; The Profits of Poverty: there is money to be made out of the poor from local loan-sharks and banks to global aid agencies.

 What is poverty?

‘Go and discover why, with so much wealth in Britain, there continues to be such poverty and how poverty can be cured?’ Edward Caird (Timmins, 12)

‘Poverty may thus exist when sections of a population are unable to participate in activities determined by national normative standards.’ (Gaffkin & Morrissey , 35)

Different people experience and explain poverty differently: from the most destitute of street drinkers to a recently impoverished ‘hard working family,’ from being skint to mass starvation caused by the gross mishandling of national material and agricultural wealth by corrupt governments, poverty appears to be a relative term.

In seeking to define ‘poverty’ we find that the general definitions appear to be from global organisations whose individual members are hardly likely to be poor. The World Bank claims there are 1.25 billion whereas the International Centre For Poverty puts it closer to 1.75 billion. Which is quite a difference. There are also nearly 2 billion in ‘hidden poverty’ who eat an inadequate diet. Whoever you listen to, it is too many. Horrendous though these figures are (1/3 or the world’s population) they cannot encompass the misery, desperation and futility that poverty brings in abundance to well over a billion people a year.

 The Economics Of Geography

Although poverty is a global concern, there are local distinctions. There are clearly different  poverties: urban, rural, post-industrial, youth poverty, age and poverty, homelessness, decaying housing, all are different kinds of suffering that expand ‘the idea of poverty.’ Poverty can be defined by lack of access to and quality of basic requirements: food, housing, healthcare and education but also environmental and geographical: where you live determines the kind of poverty you experience.

‘If poverty is relative, it can be related to social inequality – the overall distribution of resources within society.’ (Gaffkin & Morrissey, 36).

Being poor is a relative evaluation: I may be poor here but by the standards of Brazil I am well off. (UK and Brazil are both strong economies with a large % of people suffering bad accommodation, poor diet, and lack of opportunities to escape poverty). Being poor is therefore a subjective experience. In the UK over 14 million or 1 in 5 are living below the poverty line at time of writing (2014). Was it ever thus?

‘From barely one million people on national assistance in 1948, of whom just fifty three thousand were unemployed, most of the remainders being pensioners, the numbers by 1993 had risen more than five fold. More than 5.6 million people were living on income support as income inequality had grown … Four million children were growing up in households living on under half the average income.’ Timmins, 498.

The children should surely have ‘got on their bikes’ and found a suitable form of income. In the UK the problem is thought to be that the majority of unemployed workers live too far from where the majority of jobs are and it is immensely difficult to relocate but it may not be so. In 1928, the Ministry of Labour trued to implement a scheme ‘to find vacancies in the south for the unemployed in the depressed areas … The limited success of this scheme suggests that it was largely the poor job prospects, rather than unwillingness to move, that limited geographic mobility.’ (Floud & Johnson351). Much later, the problem persisted: ‘One of the most visible aspects of the 1979-81 recession has been the widening of the north-south divide.’ (Gaffkin & Morrissey ,148). The poor up north, the jobs down south.

The main things people need are food, water, accommodation, and access to utilities. The UK is the 6th strongest economy with a large % of unemployment. What are the principle reasons for poverty? Weak infrastructure, corruption and bad governance, armed conflict, large numbers of refugees and dispossessed people, epidemics or major health problems, a lack of energy, resources and water, major debt, trade embargos, famines, pestilence, ethnic unrest and poor education availability. None of these affect the UK.

‘Monetarist theory was ideologically vital because the focus on inflation it recommended had an important political corollary: societies would have to learn to tolerate whatever unemployment levels the market dictated.’ Anatole Kaletsky, (Capitalism 4.0, 76)

Proceeds of the economy are distributed unequally between wages for workers and profits for shareholders. If wages stay the same and prices go up, you have inflation. Real wages cannot buy what they used to. For many of us, wages rarely catch up with the cost of living comfortably. London and the south-east is the only area where the private sector is bigger than the public sector.  In certain parts of the UK the public sector accounts for up to 35% of jobs. Cuts mean lost jobs and in places where the private sector cannot absorb the loss fully, the growth in unemployment and poverty is never far behind. Not only that but as Lansley eloquently points out that unemployment is not an unfortunate economic side effect but ‘because of an increasing endemic myopia guiding investment decisions – with excessive value given to short term over long term returns, the nation is weak in a range of high technology sectors.’ (Lansley)

A Short History of Unemployment

‘In terms of relative poverty, long-term unemployment and poverty are synonymous. Exclusion from the labour market involves a host of social costs, of which income loss is only one.’(Gaffkin & Morrissey, 43).

Mass unemployment has been a continuous economic feature since the Industrial Revolution and although legislation and research have been initiated to deal with it more comprehensively, the attitudes towards the unemployed remain embedded in a continuous discourse. ‘The Unemployed’ have never been a unified entity and unemployment affects workers in different ways. Skilled workers may be the better off in the workforce but they could still be subject to cyclical though temporary stints of idleness although probably better off in the long term that semi-skilled and unskilled workers.

‘In mid-Victorian times, middle class observers saw unemployment as the result chiefly of indigence or incapacity and largely a feature of the lowest stratum of society.’ (Floud & Johnson, 344).

The Victorians differentiated between the ‘deserving’ and ‘undeserving poor’ as the recipients of charity. That is, they blamed people for their situations rather than seeing it as a result of larger forces and that some were responsible for their plight and other were not. Mayhew categorised the unemployed into 4 distinct groups:

Those that will work

Those that cannot work

Those that will not work

Those who do not need to work

This was not just a conservative viewpoint. In The Condition of the Working Class in England, Engels discussed the ‘New Poor Law’ of 1834 that was set up to help the unemployed and ‘revealed a multitude of abuses’ as ‘the whole of the working class in the country was pauperized and more or less dependent upon the rates, from which it received relief when wages were low; it was found that this system by which the unemployed were maintained … was ruining the nation.’(Engels, 282-3).

As well as seeing the recipients of relief as ‘ lazy, vicious and improvident’ Engels also claims that ‘relief fosters laziness and increase of ‘surplus population.’ (283):

‘Under present social conditions it is perfectly clear that the poor man is compelled to be an egotist, and when he can choose, living equally well in either case, he prefers doing nothing to working.’ (Engels, 283).

‘The ‘personal factor’ in unemployment was not eliminated [but] the stress was placed firmly on larger and more impersonal forces. Studies like this highlighted periodic cycles in unemployment, which permeated the entire labour market.’ (Floud & Johnson on Beveridge. 345).

From 1926, the Ministry of Labour defined three separate kinds of unemployees: ‘the wholly employed, the temporarily stopped and the casuals.’ (F&P, 351). That is, job seekers, the laid off and those irregularly in and out of work. Beveridge wrote extensively on Unemployment: A Problem Of Industry (1909) which de-emphasised the personal aspects and identified cyclical patterns as well as differences in industries and skill levels. Unskilled labour are clearly going to face a different set of problems to highly skilled artisans regarding future employment prospects. In 1911, the National Insurance Act ‘was designed to provide workers with unemployment benefit during depression in trade.’ (Floud & Johnson, 345). The global depression that peaked in the 1930s turned unemployment into a major concern and became apparent that it was a side effect of contemporary capitalism. Writing later in the utopian sounding Full Employment In A Free Society (1944), Beveridge described unemployment as ‘a problem of persistent weakness in labour demand.’ (F&P, 346).

The Welfare State was set up in the post-war era with the idea that all people should have access to free health care, education, affordable housing and support if unemployed. As ever political language was used to disguise rather than highlight the current situation and Beveridge, the main figure behind it avoided using the word poverty and instead ‘settled for the then common synonym ‘Want’.’ (Timmins 50). The idea of ‘what is required for reasonable human subsistence’ (Timmins, 51) has always been a top down idea of what the poor must survive on. Previously Beveridge stated that it was imperative to get the ‘full use of powers of the state to maintain employment and to reduce unemployment to seasonal, cyclical and interval unemployment, that is to say to unemployment suitable for treatment with cash allowances.’ Beveridge, 1941. (Timmins, 20). Full employment was almost achieved in 1948 and between 1945 and 1975 unemployment averaged out at around 1.8% before rising to 3% in the 1970s.

By 1993 Family Credit had been ‘made more generous and rapidly came to support half a million workers and then more – creating a new independence for those it helped into work, but also a new form of dependence: dependency on benefits in work.’ (Timmins, 531). This is something that remains today. It is fairly clear that in areas that have been ‘de-industrialised’ with a scarcity of jobs that benefit dependency increases. The reasons for this are widely argued. People are being subsidised by welfare payments in order to survive on the wages of low paid jobs but even this is found to be not enough and for others it is not worth working: ‘You don’t have to be jobless to be poor in modern Britain… the majority of people living in poverty actually have a job.’ (Jones, 203). So why work and be poor when you can be just as poor by not bothering?

A friend told me he had been at the same job for 19 years. What was even more remarkable was that an ex-colleague of his had worked at the same firm from 14 to retirement at the same place. In dire economic circumstances this is understandable though generates a low turnover of new vacancies. In the area there are over 50 applicants per job.

Rhetoric & Representation

‘The view then was strong, and its echoes can still be heard today, that poverty was the fault of the individual and should be punished.’ (Timmins, 26, writing in 2001 on the 1834 Poor law).

As ever, the political language remained virulent and in 1973 Employment Minister Keith Joseph refered to ‘scroungers, layabouts and people who have never worked’ and ‘the fact that there are a large number of people who are not employable’ and who were ‘too inadequate to hold down jobs.’   (Timmins, 286).  Which is strikingly reminiscent of Mayhew’s four categories and the Victorian idea of the ‘deserving’ and ‘undeserving poor. Several years into the Tory administration the rhetoric had scarcely changed with ‘a rising chorus of attacks on scroungers and tales of social security fraud’ that usually involved ‘a black man.’ (Timmins, 350) along with tabloidal headlines involving ‘Kings of the Dole Queue Scroungers’ and ‘Dole Fiddlers.’ By the late 1970s, there was an even larger revision of what poverty was: ‘At the centre of Thatcher’s philosophy was the idea that poverty did not really exist. If people were poor, it was because of their own personal failings.’ (Floud & Johnson, 64).

‘Poverty is a crime, and, as such, to be visited with heinous penalties which should serve as a warning to others.’ Engels on Malthus (283).

In 1989 there were denials that1/3 of the population were either impoverished or about to be were deemed ‘bizarre’ when out of ‘the poorest fifth of families 70 per cent had a colour television, 85 per cent had a washing machine and nearly 50 per cent had a car.’ (Timmins, 448). So is the suggestion here that the poorest should flog the telly and live on that? Or the washing machine? And what happens when that money has gone? The rhetoric of blaming the poor for being poor (and the notion of the ‘undeserving poor’) is clearly long established only it is now thoroughly enhanced by an ultra-persuasive media. The poor are vilified and Kyle-ified: the most visible of the most poor are not the most representative but instead make it easier for the media to stigmatise. Jeremy Kyle, who looks like an animated mannequin from a Burton’s window, pursues a reactionary agenda: abortion is wrong, unemployment is due to fecklessness and ‘the tax payer’ has to fund their decadent lifestyles. Mick Philpott, the ‘ultimate chav/dole scrounger,’ was a former guest on Kyle’s show and gave the mainstream media more lead to blast the unemployed and urban poor. Wanton sex, drinking, no job, lots of children paid for by the state all rolled into one terrible tragedy. (And he did himself no favours making his weepy public appeal sound like Gwyneth Paltrow at the Oscars).

‘If poverty is relative, it can be related to social inequality – the overall distribution of resources within society.’ (Gaffkin & Morrissey, 36).

People are blamed for living in poverty as if it is a regrettable lifestyle choice. Who would willingly allow their family to eat badly and live substandard accommodation if they had a choice? The poor are not only stigmatised for their poverty but for their consequent lifestyle choices from the limited selection available. The ‘Big Mac’ economy sustains low level workers as well as those who use the fast food places for sustenance and to alleviate impoverishment. At BK an egg and cheese, hash browns and coffee is £3.49: The calorific intake is approximately 644 and the fat content is 42 grams. The reason why these places are filled is because they are cheap, efficient and child friendly. It means a treat for the kids and not having to shop, prepare, cook and do the dishes (it also means listening to very bad pop music and minor dehydration due to the salt and sugar content). Obesity is a problem of high fat, low quality food as well as education and economics. Obesity is not a problem like starvation but one like malnutrition: that is, the high fat, salt and sugar and nutritional value from cheap food result in such disorders. Marx said that in any economy, the lowest quality goods are always used by the poorest people.

The Profits Of Poverty

‘Poverty is man’s most powerful and massive affliction. It is the progenitor of further pain – from hunger and disease on to civil conflict and war itself.’ JK Gailbraith, 21.

Recently the right wing media expressed alarm that foreign countries were still receiving aid whilst some of the richer villages who had been flooded out in the south of the UK were getting little help from the government. This is a deliberate obfuscation of the role of aid. Aid is contingent on other stipulations: that is, if money is sent by 1 government for water purifiers it is on the condition that those purifiers are bought from them. This is not foreign investment where the money goes in and helps the infrastructure. It is a method of putting money in and taking it out to benefits ones own economy. To imply that foreign aid is not contingent on a broad range of conditions is politically mendacious.

Contrary to the best intentions, the UN, World Bank, IMF and more responsible NGOs know that poverty is profitable: global organisations employ 10s of 1,000s; it is good for export, maintaining strategic influence and ‘investment/development.’ Organisations like the World Bank or the IMF can make demands for ‘structural readjustment’ as they hand over cash. A country then has to focus on generating capital as well as redirecting public spending to repay loans. Public services, health, education, jobs, and wages are cut; resources are wholly or partly sold off; and deregulation and export of national resources increases. As Black writes:

‘For much of its existence the World Bank has not even pretended to be addressing poverty, mostly supporting a wide range of infrastructural projects: dams, power generation, roads, communications systems. After a brief flirtation with poverty reduction during the 1970s, its main activity became the provision of funds to promote ‘structural readjustment.’ (Black, 43).

In the late 1980s, Hancock wrote:

‘In Chile, adjustment policies have caused massive increases in unemployment and an also oddly skewed inflation that seems to have hit goods purchased by the poor much harder than goods purchased by the rich.’ (Hancock, 63).

The purpose of aid is perceived to be the alleviation of distress and poverty for those in a worse situation than the donor. In some cases, aid increases the poverty of those for whom it was intended, side-tracked into ‘developments’ which have a very different agenda. In places where the availability of water is a problem, large scale damming projects have displaced many and exacerbated and already parlous situation. Although the dam may be of great economic/political significance and show a country being developed, the amount of local suffering is increased. So the people we see on adverts, bereft and malnourished, i.e., those who need aid the most, do not necessarily receive it. We have to ask, who is the ultimate beneficiary, the giver or the receiver and how much have the people, whose suffering generated these funds, are getting it?

The best way of identifying the difference between the rhetoric and efficacy of aid is to look at long term results. In the 1990s, the UN, after the usual convolutions, set out to ‘eradicate’ poverty by X%, to reduce infant mortality, hunger and diseases like HIV/AIDS. It is apparent that this most noble intention has been a limited success. Making such pronouncements about what will happen in 20 years time is easy; its realisation something else. And who remembers such speeches from two decades ago?

‘A great deal of what can be measured relies on the monetary and not what affects the poor.’ (Dembitzer, 22)

It is pretty obvious that just because a beleaguered government can announce an increase in Gross Domestic Product (GDP, the overall value of goods and services a country can provide annually) or an increase in the number of businesses and per capita income (the mean average of income) this does not mean that life has improved for everyone. Just because a country appears to be statistically improving does not mean the population per se are enjoying improving lifestyles. Quite the contrary. According to Dembitzer, growing economies and development does not take into account the class divide between rich and poor, ethnic groups or the behaviour of power elites siphoning money out of the country. Poor countries are affected by environment, ambivalent local power structures, corruption as well as an array of external forces. Inadequate taxation and welfare, money drained from the country and skilled workers migrating all increase poverty. Money and valuable minerals like oil are taken out of the country, food is grown for export only to be repay debts, and neither generate adequate taxes which could be reinvested in the infrastructure.

Rather than aid, a form of benevolence, sustained investment is required. Long term aid causes ‘a continuing dependence, thus delaying the challenge for people to solve their own problems.’ (Dembitzer, 218).

A percentage of aid money goes to the running of the institution distributing it and there are many involved in the handling of aid between government and the impoverished. There is money to be made from poverty, and not only by charitable organisations and Non-Government Organisations (NGOs)  involved in the Aid industry. The crisis in the banking system (which has had such a disastrous effect on the wider economy) has been caused partly by giving out zero to low percentage loans and mortgages which borrowers can scarcely afford to pay back. This is only the most visible and ‘respectable’ side of the poverty industry: there is also a small and growing industry of usurers working in pawn shops, paying below price for goods that can be sold at greater profit if not redeemed, and thriving in poorer areas where access to instant cash begins to denude households of what few ‘luxuries’ they have left. A pawn shop in a run down street near the station in the North East advertises the following: ‘we buy gold and silver’; ‘we lend cash’; ‘we buy phones’; and ‘instant cash loans.’ Pawnbrokers thrive on poverty and the 3 balls are now a very common sight in larger towns and cities. There are also loans sharks, both ‘official’ and those who operate on the illicit economy, who prey on the poor and give loans with impossibly high interest rates that many find difficult to pay back, so the cost of the loan increases, which makes it even more difficult …

It is not only usury that keeps people poor. The fluctuations in the general economy affects against those who can ill afford it the most. Inflation is when prices go up which are rarely matched by wage increases so the cost of living continually goes higher. Although some workers do get small wage rises those on benefits hardly notice the tiny % increase in the weekly ‘benefit’ which again make the cost of living higher. Wages go up when productivity and consumption increases. A strong economy means better wages, more surplus cash on the high street and bigger demand for all round goods and services. When the economy contracts firms keep wages down or sack workers in order to preserve their profits. This means less surplus money, less demand, more jobs lost and so on. As usual, it is those at the bottom of the economic scale who lose out.


Maggie Black, International Development

Benny Dembitzer, The Attack On World Poverty

F Engels, Condition of Working Classes …

Floud & Johnson, The Cambridge Economic History of Modern Britain

Gaffkin & Morrissey, The New Unemployed (Zed Books, 1992).

JK Gailbraith, The Nature Of Mass Poverty

Graham Hancock, Lords Of Poverty

Gertrude Himmelfarb, The Idea Of Poverty

Owen Jones, Chavs

S Lansley, The Cost Of Inequality

Thomas Lines – Making Poverty History

Anatole Kaletsky – Capitalism 4.0

Henry Mayhew – London Labour & The London Poor

Nicholas Timmins – The 5 Giants: A Biography of the Welfare State


About malatesta32

Malatesta, undercover anti-fascist blogger, has analyzed the changing fortunes of the British far right since 2009. He has written for the anarchist magazine Freedom and the book, Militant Anti-Fascism: 100 Years Of Resistance (AK Press 2015).
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