The Hindu Business Line : Is poverty the best policy?

The poor are engaged in a struggle within the hierarchies of poor countries. When the prospects of their succeeding in this struggle are bleak, they willingly accept poverty. There is less to lose when they are poor. Their poverty blunts the severity of the threats, blunts the power of the powerful and sets a limit to what the powerful can appropriate from the poor, says G. Ramachandran.

A disdain for riches? — A . Roy Chowdhury

POVERTY is the power the powerless exercise so as to make the powerful powerless. Powerless but rational people use their volition to determine how much they will work, and how much they will earn.

They use their discernment to determine how much they will save, if at all, and how they will invest. All four decisions have a common objective. They are aimed at curbing the economic power of the powerful.

These decisions collectively suppress the gross domestic product of nations and per capita incomes. Above all, they collectively compress the inflow of taxes into the exchequers of the least developed and developing economies. The poor may take comfort that their poverty is being noticed.

Poverty is behavioural

Poverty is a willing choice made by the poor. This behavioural view debunks the notion that poverty is the result of a paucity of physical and financial resources, paucity of jobs, inadequate technology or the improper use of resources and technology.

The behavioural view of poverty explains why more than two billion people in Asia, Africa and South America remain poor.

The rationale is clear. Citizens of countries with low per capita income face significant threats while making the best of their physical and intellectual resources.

These threats affect the manner in which their incomes are earned and spent. Ordinary people then face significant threats while holding on to their assets.

There is less to lose when they are poor. Their poverty blunts the power of the powerful. It sets a limit to what the powerful can appropriate from the poor.

The principal corollary is that when the prospects of their success brighten, the poor willingly reject poverty. The first round of empirical analysis of the impact of e-choupal in some of India's districts supports the corollary (Business Line, December 28, 2004).

Mass poverty

Mass poverty in hierarchical societies is a desirable outcome. It is good for the powerless; it is bad for the powerful. It is worse for per capita income.

For example, India is regarded as a superpower. But it is a super-poor superpower. Its small neighbour, Sri Lanka, has a per capita income of $3,450 in purchasing power parity (PPP) terms. But India's per capita income in PPP terms is about $2,600. Aggregate India is very rich; individual Indians are very poor. The principal focus is, therefore, on India.

Mass poverty characterises hierarchical countries such as El Salvador, Paraguay, Ecuador, Zimbabwe, Angola, Kenya, Philippines, China and India. The nine countries are in three continents.

They are rich in resources such as rivers, arable land, mountain slopes and awesome peaks, coastlines for fishing, forests and minerals. But they are all poor.

The choice of poverty by an individual may well be irrational. No rational individual would willingly prefer low income to high income, or dissavings to savings. But it is rational for large groups within economic pecking orders to collectively choose poverty. All nine countries have economic pecking orders.

Economic pecking orders modify the behaviour of large groups. Constituents of large groups may observe one another, interact with one another and then implicitly determine what is good for them. Moreover, it is wholly possible that they can decide what is `bad' for the powerful at the top of the hierarchy.

Palanquin bearers

Ordinary people in the poor countries are powerless. They constitute the tail end or the bottom of hierarchies. These hierarchies vest vast and often unilateral power with those at the top of the hierarchy. Those at the top are powerful, both financially and socially.

The first irony is that those at the top derive their social power from their financial power.

The second irony is that the financial power of those at the top is derived from the effort and enterprise of those at the bottom of the hierarchies. Taxes and extortion enable the upward movement of financial power.

The third and the most devastating irony is that the powerful exercise their power to extract more power from the bottom.

It is, therefore, rational for citizens at the bottom of the pecking order to be deeply concerned about being separated involuntarily from the rewards of their hard work, diligence and enterprise.

They are as deeply concerned about being separated involuntarily from their assets through usurpation. When faced with the high likelihood of involuntary separation from their precious earnings and assets, the powerless choose poverty voluntarily to get even with their usurpers or to make the efforts of the usurpers costly and futile.

Powerful usurpers

Government, bureaucracy, feudal lords and extortionists constitute the powerful in the hierarchical economies.

Skewed direct and indirect taxes augment their power. Skewed allocation of government revenues acts to reinforce their first advantage. The asymmetric sharing of macroeconomic upturns and downturns follows. It favours the powerful. They get more of the upturns and less of the downturns.

Loose, ambiguous property rights then aggravate the position of the powerless.

Tardy and expensive processes pertinent to law, order and judicial processes make it impossible for the powerless to defend their already shaky property rights.

High tax, low service

Governance is often an elitist, urban phenomenon in poor countries. Ordinary people at the tail end of hierarchies are also at the tail end of government services. The economic priorities of ordinary people, especially in semi-urban and rural locales, are at the bottom of the economic priorities of governments.

This explains why the poor migrate to overburdened urban shantytowns. This also explains why PURA can alter the situation rapidly and favourably. PURA is aimed at improving rural lives and livelihoods in India.

However, the harsh pecking order makes staying in underserved locales as bad or as good as migrating to urban shantytowns. The economic equation remains unaltered. Poor people remain at the tail end of government services. Empirical analysis of Indian households in 187 predominantly rural districts, 55 semi-urban districts and 14 predominantly urban districts supports the view that the poor lose regardless of where they live. The rich win regardless of where they live.

For every rupee paid as direct and indirect taxes, especially the latter, the poor in India receive the least from utilities and from government. Moreover, they receive the least per person and per square kilometre. By contrast, for every rupee earned, for every rupee spent, and for every rupee paid as direct and indirect taxes, the rich in India receive the most from utilities and from government. They receive the most per person and per square kilometre too.

The second rip-off

Poor people at the tail end of hierarchies face the significant threat of not being able to work where and when they want. They also face the serious threat of not being able to buy and hold the assets that best serve their income aspirations. These are not trivial threats. Those at the top end of hierarchies hold out these real threats. They often act in connivance with constitutionally established authorities.

Civil liberties activists and chambers of commerce typically restrict their attention to the freedoms of the urban middle-class but turn a blind eye to the restricted freedom of the underclass everywhere. They do so because the poor are hardcore capitalists, workers in the unorganised sector or migrant workers. They are not the right constituency.

Payoffs from rip-offs

The behavioural view of poverty challenges the suggestions made by Mr Nelson Mandela, former President of the Republic of South Africa, at the ``Make Poverty History'' rally in Trafalgar Square in London on February 3, 2005. It also challenges the report on poverty sponsored by the United Nations and overseen by former Harvard economist, Dr Jeffrey Sachs. Dr Sachs has urged rich countries to spend more on cutting hunger and poverty in the developing world.

Mr Mandela and Dr Sachs have externalised the causes of poverty. They are both wrong. The poor, like all people, are human and very proactive. They hate rip-offs. Poor economies have social, governance and taxation structures that promote rip-offs. If the poor strive to make something of their lives, the hierarchical top wins. The poor get to keep little of the rewards of their endeavour.

Mass poverty solves this rip-off problem. The poor can aspire to hold an absolute but small magnitude of the rewards by suppressing their endeavour. Since it is a mass decision, even if only implicit, there is little dissonance. There are no comparisons. No one loses, relatively.

But the volitional suppression of the endeavour by the poor suppresses by a large magnitude the absolute transfer of unearned rewards, incomes and wealth to the hierarchical top. Therefore, poverty is the apt defensive behaviour adopted by the vulnerable and the powerless in poor economies.

(The author is a financial analyst. Feedback may be sent to indiagrow@yahoo.com)

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