The Causes of Poverty and the Search for Solutions - The Myths And Realities Of Poverty

countries poor trade world

Poverty is a multidimensional problem, with numerous causes and contributing factors. Because of its complexity and subtleties, misconceptions abound about the poor. One common belief is that poverty is caused by overpopulation; many people think that if the poor would only stop having children they could rise out of poverty. Another belief is that poor people must have made wrong choices that led to their poverty. While these explanations might seem to make sense on the surface, they are in fact extremely simplistic. In the United States and other developed nations, beliefs about the poor frequently are based on stereotypes: many people think the poor are lazy; that the majority of poor people are immigrants or ethnic minorities; that the poor are single parents who should never have had children to begin with; or that the poor are dangerous, criminals, or mentally ill.

Poverty is not the result of personal failings, nor is it only a matter of income. Poverty is directly related to health, education, housing, political opportunities, and other factors. Likewise, poverty worsens people's social status and diminishes their involvement in their communities and in the larger sphere. These human development factors are critical to understanding poverty. They are also critical to solving the immense problem of poverty. Additionally, there are political and economic policies that can contribute to impoverishment. Most of the explanations are, however, as problematic as poverty itself.

Globalization and Fair Trade

Globalization—the growing economic interdependence of nations—is extremely controversial, with strong supporters and bitter detractors. Meetings of the World Trade Organization (WTO) and the G8 summits, which bring together leaders of the world's eight largest economies (Canada, France, Germany, Italy, Japan, Russia, United States, and the United Kingdom)—regularly draw large, sometimes violent, anti-globalization demonstrations and protests.

The proponents of globalization maintain that opening markets across national borders will allow for freer exchange of money and technology, which has the potential to develop the world's smaller and poorer economies and therefore help alleviate poverty in developing regions while increasing the wealth of developed ones. Theoretically, at least, globalization should work for everyone. The World Bank, the International Monetary Fund (IMF), the World Trade Organization, and the G8 countries are all proponents of globalization. A major facet of globalization is the forging of free trade agreements (FTAs). FTAs are agreements between countries that allow the exchange of goods and labor across borders without the imposition by governments of tariffs (a tax on imported goods) or other trade barriers. Two of the best-known FTAs are the North American Free Trade Agreement (NAFTA), among Canada, Mexico, and the United States, and the Central American Free Trade Agreement (CAFTA), among the United States, Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua. Other FTAs exist throughout the world. As of early 2006, thirty-four countries from North, Central, and South America were negotiating the details of a Free Trade Area of the Americas (FTAA).

Opponents of globalization argue that it puts the welfare of multinational corporations above the welfare of poor and indigenous people. According to the International Forum on Globalization (IFG), the greatest danger of globalization is that it allows corporations to act without accountability, thus enabling them to victimize the poor. In "How to End Poverty: Making Poverty History and the History of Poverty" (, March 28, 2005), Vandana Shiva contends that the concept of poverty embodied by the globalization movement is mistaken because it is based on the notion that "simple, sustainable living" is the same as "dispossession and deprivation." According to Shiva, the globalization movement's focus on consumerism (selling products to people through international trade) denies people in traditional cultures the ability to support themselves by growing their own food, making their own clothing, and otherwise providing for themselves. Shiva further maintains that when corporations and industries take land from self-sustaining cultures, they actually push those people into poverty by depriving them of the resources they need to survive.

Other critics of globalization claim that it increases instances of unjust labor practices that take advantage of the poor, such as sweatshops and child labor. In addition, despite the increasing number of free trade agreements, poor countries are often subject to higher import tariffs when they export goods to developed countries. According to the report Rigged Rules and Double Standards: Trade, Globalisation, and the Fight against Poverty (Oxfam, Make Trade Fair, 2002), these tariffs cost developing countries about $1 billion per year, despite the fact that developing countries account for just 3% of the world's trade. However, the report does not attempt to discredit trade as a means of poverty reduction. Rather, it focuses on the importance of fair trade: eliminating trade barriers to poor countries and developing healthy, sustainable, trade-based employment opportunities within them. As low-income countries gain access to markets, investment is stimulated, which in turn promotes employment opportunities at the local level and economic growth at the national level.

International Debt

Lending and debt relief to underdeveloped and developing nations is another controversial issue. Many low-income countries became heavily indebted to wealthy nations in the 1970s, when banks around the world began lending money to developing countries that were rich in resources such as oil. The money, however, was often mismanaged by corrupt governments—particularly in the countries of sub-Saharan Africa—and spent on "pet" projects to expand the wealth of the upper classes rather than on infrastructure and social investments such as roadways, safe water, education, and health care. When interest rates on the loans rose and the prices of natural materials dropped in the 1980s, the indebted countries were left unable to repay the loans. Many of these nations turned to the World Bank or the International Monetary Fund for help. These organizations underwrote more loans, but required that the poor countries agree to undergo "structural adjustment programs" (SAPs).

In essence, the World Bank and IMF demanded that poor countries restructure their economies by cutting spending and revaluing their currency so that they could begin to repay their loans and emerge from debt. Most low-income countries met the restructuring criteria by limiting their social spending (on education, health care, and social services, for example), lowering wages, cutting jobs, and taking land from subsistence farmers to grow crops for export. This focus on increasing trade has generated the most severe criticism from opponents of SAPs, who argue that the United States and other wealthy countries encourage such measures to improve their own trading opportunities, which destroys the ability of poor countries to support themselves because they become dependent on imports of food and other basic necessities. Supporters of SAPs, however, point out that this economic system allows poor countries to participate more fully in the global market, and that the benefits of restructuring will eventually "trickle down" to the poor.

In 1996 the World Bank and International Monetary Fund created the Debt Initiative for Heavily Indebted Poor Countries (HIPC), which was intended to provide debt relief to the poorest countries with the most debt. In June 2005 the G8 leaders met in Scotland, where they forged a massive debt relief agreement that was designed to go further than HIPC. The G8 proposal would effectively cancel the debt of eighteen countries (Benin, Bolivia, Burkina Faso, Ethiopia, Ghana, Guyana, Honduras, Madagascar, Mali, Mauritania, Mozambique, Nicaragua, Niger, Rwanda, Senegal, Tanzania, Uganda, and Zambia), with the possibility of adding or dropping countries and raising or lowering the amount cancelled. According to BBC News ("G8 Reaches Deal for World's Poor," June 11, 2005), a total of $40 billion in debt would be canceled, saving the poorest countries at least $1 billion a year in repayments. In December 2005 the IMF announced 100% debt relief for Benin, Bolivia, Burkina Faso, Cambodia, Ethiopia, Ghana, Guyana, Honduras, Madagascar, Mali, Mozambique, Nicaragua, Niger, Rwanda, Senegal, Tajikistan, Tanzania, Uganda, and Zambia. Because the World Bank and the IMF would essentially lose billions of dollars in capital if the total amount of debt was forgiven, the G8 finance ministers agreed to cover the loss in addition to paying the regular membership dues for both organizations. Early in the spring of 2006 the World Bank approved the debt cancellation plan—newly named the Multilateral Debt Relief Initiative (MDRI)—with relief for the world's poorest countries to begin on July 1, 2006.

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The Causes of Poverty and the Search for Solutions - The Myths And Realities Of Poverty

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