Economic Human Rights (40): How Do Poor People Live?

The poor tend to become a number, a statistic, an undifferentiated mass, especially here on this blog. Talk of the “bottom billion” and the one-dollar-a-day people only makes things worse. Of course, it’s important to know the numbers, if only to see how well we are doing in the struggle against poverty. But to actually know what we have to do, we need to know what poverty actually means to poor people. How do these people live? Which problems do they face? Who are they? None of this can be captured in numbers or statistics. Pure quantitative analysis doesn’t help. We need qualitative stories here, and these stories will necessarily differentiate between groups of people because poverty means different things to different people.

Keeping in mind the caveat that poverty is “multidimensional” and that it varies with the circumstances, is it possible to give a more or less general impression of the “lives of the poor”? There’s an interesting attempt here. Banerjee and Duflo analyzed survey data from 13 countries in order to distill a picture of the way people live on less than one dollar a day, of the choices they have and the limits and challenges they face.

The countries are Cote d’Ivoire, Guatemala, India, Indonesia, Mexico, Nicaragua, Pakistan, Panama, Papua New Guinea, Peru, South Africa, Tanzania, and Timor Leste. Obviously, the lives of the poor are very different in these different countries, and vary even for different groups within each country. Still, some general information can be extracted:

  • The number of adults (i.e. those over 18) living in a family ranges from about 2.5 to about 5, with a median of about 3, which suggests a family structure where it is common for adults to live with people they are not conjugally related to (parents, siblings, uncles, cousins, etc.). When every penny counts, it helps to spread the fixed costs of living (like housing) over a larger number of people. Poverty has consequences for family structure, and vice versa.
  • Poor families have more children living with them. The fact that there are a large number of children in these families does not necessarily imply high levels of fertility, as families often have multiple adult women.
  • The poor of the world are very young on average. Older people tend to be richer simply because they have had more time to accumulate resources.
  • Food typically represents from 56 to 78 percent of consumption expenses among rural households, and 56 to 74 percent in urban areas.
  • The poor consume on average slightly less than 1400 calories a day. This is about half of what the Indian government recommends for a man with moderate activity, or a woman with heavy physical activity. As a result, health is definitely a reason for concern. Among the poor adults in Udaipur, the average “body mass index” (that is, weight in kilograms divided by the square of the height in meters) is 17.8. Sixty-five percent of poor adult men and 40 percent of adult women have a body mass index below 18.5, the standard cutoff for being underweight. Eating more would improve their BMI and their health, and yet they choose to spend relatively large amounts on entertainment. Which just shows that the poor have the same desires as anyone else and choose their priorities accordingly.
  • The poor see themselves as having a significant amount of choice, and choose not to exercise it in the direction of spending more on food. The typical poor household in Udaipur could spend up to 30 percent more on food than it actually does, just based on what it spends on alcohol, tobacco, and festivals. Indeed, in most of the surveys the share spent on food is about the same for the poor and the extremely poor, suggesting that the extremely poor do not feel the need to purchase more calories. This conclusion echoes an old finding in the literature on nutrition: Even the extremely poor do not seem to be as hungry for additional calories as one might expect.
  • Tap water and electricity are extremely rare among the poor.
  • Many poor households have multiple occupations. They may operate their own one-man business, sometimes more than one, but do so with almost no productive assets. They also have jobs as laborers, often in agriculture. And they cultivate a piece of land they own. Yet, agriculture is not the mainstay of most of these households. Where do they find non-agricultural work? They migrate. The businesses they operate are very small, lacking economies of scale and without employment opportunities for people outside the family. That’s a vicious circle because it means that few people can find a job and are forced to start petty businesses themselves. This circle makes economies of scale very difficult.
  • The poor tend not to become too specialized, which has its costs. As short-term migrants, they have little chance of learning their jobs better, ending up in a job that suits their specific talents or being promoted. Even the non-agricultural businesses that the poor operate typically require relatively little specific skills. The reason for this lack of specialization is probably risk spreading. If the weather is bad and crop yields are low, people can move to another occupation.
  • The poor don’t save a lot, unsurprisingly. Some of it has to do with inadequate access to credit and insurance markets. Banks and insurers are unwilling to give access to the poor and saving at home is hard to do; it’s unsafe and the presence of money at home increases the temptation to spend (that’s true for all of us by the way).
  • In 12 of the 13 countries in the sample, with the exception of Cote d’Ivoire, at least 50 percent of both boys and girls aged 7 to 12 in extremely poor households are in school. Schooling doesn’t take a large bite from the family budget of the poor because children in poor households typically attend public schools or other schools that do not charge a fee.

The Causes of Wealth Inequality (18): Government Backed Corporate Expropriation

Consider these two commonly accepted ideas:

  1. the interests of business and government are incompatible: business wants as little government as possible, and government wants to regulate and tax business for the common good
  2. wealth or income inequality is to some extent or perhaps even principally caused by differences in effort, talent and productivity: those who have greater wealth deserve it.

These ideas have intuitive appeal and are undoubtedly correct in some cases. As overall assessments, however, they are clearly false. Inequality has many causes. Regarding #2: very deserving people may end up very poor, and very undeserving people may end up very rich. Many other factors besides effort or talent determine monetary outcomes, such as disability, the coincidence of place of birth, parental influence, education facilities, tax policy, discrimination, technological evolution etc.

Regarding idea #1: one could just as easily make the case that big business depends on government and uses government to acquire unfair advantages, thereby deepening the inequality gap. These unfair benefits should perhaps even be called forcible expropriation because some people are getting better off at the expense of those who have less, and are using the government for this purpose.

For example, you often see big corporations embracing government regulation of their business (e.g. Philip Morris accepting restrictions on cigarette advertising) because they know that smaller competitors will have a much harder time digesting the regulatory burden (and, in the case of Philip Morris, filling the name recognition gap when advertising is prohibited). Regulation in such cases gives big companies and big earners a competitive advantage, and causes the income gap to widen. Another example of regulation are quality standards: those also favor big existing companies and make it harder for new and smaller players to enter a market. The same is true for intellectual property rules, zoning restrictions, occupational licensing, capitalization requirements and many other types of regulation. Legislation or regulation is often embraced by big business and wealthy economic actors as a means to benefit at the expense of smaller actors.

Some types of collusion between big corporations and government are even more direct and open: protectionist import tariffs, subsidies, bailouts, expropriation of private property for corporate use (through eminent domain rules) and military interventions abroad.

By the way, this logic does not only widen the wealth gap but also drives the growth of government. Big business leads to big government, which in turn favors big business. Even if you don’t identify as a libertarian – and I don’t – you’ll probably do well to accept that government backed corporate expropriation is a thing.

More posts in this series are here.

The Causes of Wealth Inequality (8): Weak Unionization

Among the rich countries that are very unequal are also some which have very weak labor unions. It’s tempting to see a causal link in this correlation, since the purpose of a labor union is – among other things – to negotiate a better income of its members. Declining labor union membership and influence should then translate in declining wages (at least relatively speaking) and more income inequality. If most workers are members of labor union, most low incomes benefit from the influence of labor unions. It’s even likely that non-members also profit from wage increases negotiated by labor unions, since employers don’t like to differentiate between the wages for identical jobs.

[W]eak unions are a key cause of US inequality. The argument goes that weak unions have little political presence in policy debates, which tend to be dominated by business. The result is that policy debates in the US are systematically skewed in favor of business (which tends to favor policies that advantage, or at least do not hurt) rich people, with little in the way of countervailing voice, let alone power. …

In analyzing sources in [news] stories … the fundamental pattern is the same. Those in government, and especially Obama administration staffers, dominated the conversation. Representatives of business and industry came next, followed by academics and independent observers. … fully 61% of stories included a government representative of some kind, including those from state and local government. … Representatives of business, those identified as clearly speaking on behalf of the company or corporation, were the next most prominent sources, figuring in about 40% of the stories. … ordinary citizens and workers were well down the rung of sources. … One subset of the American workforce was virtually shut out of the coverage entirely. … Representatives of organized labor unions were sources in a mere 2% of all the economy stories studied. …

This measure is not the only index of strength in policy debate, obviously, but it is an important one. And on it, business representatives were twenty times as visible in public debate as union representatives. That’s a whopping disparity. (source)