Here are 3 Disturbing Factors that Cause Global Poverty
We read the news, see the horrifying images from isolated regions of the world, and get outraged. World poverty is something that all of us should care about — it’s an attack on humanity itself.
Our world contains too much prosperity for anyone to suffer and do without the basic necessities. This is especially true for suffering children who have the greatest needs of all.
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How many times do good people open up their wallets for the cause, yet it seems to have very little impact. It makes us want to scream.
Unfortunately, we will scream even louder when we take a deeper look into what causes this blight of poverty afflicting our planet.
Factors that are causing global poverty
World leaders and other global elites have a nasty habit of focusing only on metrics that satisfy their goals and ambitions. Very few of them seem to concern themselves with parameters that actually measure the quality of life.
For instance, finance gurus like to compare GDPs (gross domestic product) of the world’s countries to evaluate their economies quickly. Nations with large populations tend to fare better in terms of GDP than smaller countries. If we were to compare GDPs per capita instead¹, then the list looks much different — smaller counties begin showing up in the leaderboard.
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There is a metric that measures the quality of life. It is called the Human Development Index (HDI) and combines factors like income, education, and life expectancy to assess life quality in a given country. So there has been an honest effort.
The only problem with HDIs is that sometimes they can differ wildly among countries with similar poverty levels. For this reason, we must look deeper into the factors that lead to world poverty.
Common sense and logic might tell us that a country's prosperity — especially a small one — would hinge on the amount of natural resources it contains. Oddly enough, several countries in the world that have rich resources happen to be among the poorest.
Examples of this are certain African nations that export valuable mineral resources. Yet, these nations are constantly ranked among the world’s poorest countries using any financial metric. Economists and geographers have referred to this as the ‘resource curse².’
It seems this resource curse is attributed to the presence of valuable, nonrenewable resources like oil or diamonds. And it tends actually to depress economies over time. There are two apparent reasons the curse takes place.
The first reason is legitimate, as it pertains to the expenses incurred to extract these valuable resources. Such an operation can be very costly, especially when the operation is a new endeavor.
The second reason is maddening. Often in smaller countries, revenues from these resources tend to concentrate among their elite classes. Thanks to corruption, it is not uncommon for over 80% of resource revenues to flow into the pockets of 1% of that nation’s population.
Transparency and corruption
The level of wealth and poverty within a country greatly depends on the quality of its institutions. This level of quality directly correlates to corruption and transparency.
A transparent operation is one that is open and subject to public scrutiny. This means its citizens can easily see where their tax money goes, and they can watch the laws at work that govern the process.
Whenever transparency is low, corruption is usually high, and crooked officials operate in secrecy. Unfortunately, laws that should control the country’s limited wealth flow are either broken or nonexistent.
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Common sense tells us that high levels of corruption should correlate with poverty. As it turns out, corruption is difficult to define and map, but it’s not entirely impossible. What clouds the picture is that corruption takes so many forms.
However, we can see the effects of corruption when compared to the Human Development Index (HDI)³. Countries that have low HDI ratings are consistently corrupt. And countries with high HDI ratings have a varied range of corruption levels. Thus, corruption itself is prominent either way and plays a role.
The third factor of global poverty is something that makes many of us poor — debt.
Following World War II, there was great concern about how to rebuild so many nations ravaged by the widespread conflict. In addition to this, there were new nations emerging that needed the means to build their initial infrastructure.
An economist named Walt Whitman Rostow postulated a ‘modernization theory⁴.’ In his 1960 book entitled The Stages of Economic Growth, he urged large scale capital investment of economic infrastructure. He believed this was the springboard for impoverished nations to attain prosperity.
Rostow’s ideas caught fire, and poor countries took on incredible amounts of debt. They obediently followed investment recommendations passed down by both the International Monetary Fund and the World Bank. Between the years 1976 to 1982, the total debt of underdeveloped nations tripled.
But this wasn’t all.
The global oil boom also took place after World War II. Many underdeveloped countries in the Middle East were sitting on potential gold mines in the form of oil fields.
Large developed nations offered the leaders of these poor oil-producing countries a chance to build a modernized infrastructure. The large country would finance the project entirely to gain leverage over them through long term indebtedness.
Some claim that these infrastructure promises and projections were inflated and outright lies⁵. Either way, the result was the same. Leaders and elites from these oil-producing nations became incredibly wealthy — and even corrupt — while most of their population suffered in poverty.
Sadly, as one might expect, the international financial markets dried up in the 1980s. Suddenly, the poorest countries in the world couldn’t even make their interest payments.
As we review these three contributors to global poverty, we notice that human choice and intervention plays by far the largest role. Circumstances and good fortune don’t seem to have much influence.
In the case of nonrenewable, valuable resources — which are determined entirely by good fortune and circumstances — have actually hindered a country’s prosperity more times than not.
There are several movements out there that are sincerely seeking solutions to global poverty. And many of them are making some headway. But unfortunately, the human lust for wealth and power will always be speedbumps to any progress.
: Mish Talk. (July 30, 2020). GDP Estimates Proven Useless: It’s Time to Replace Them. https://www.thestreet.com/mishtalk/economics/gdp-estimates-proven-useless-its-time-to-replace-them.
: Jason Fernando. (October 22, 2020). Resource Curse. https://www.investopedia.com/terms/r/resource-curse.asp.
: Max Roser. (November 2019). Human Development Index (HDI). https://ourworldindata.org/human-development-index.
: Thomas M. Dunn. (June 26, 2013). The Failings of Liberal Modernisation Theory. https://www.e-ir.info/2013/06/26/the-failings-of-liberal-modernisation-theory/.
: Amy Goodman. (November 4, 2004). Confessions of an Economic Hit Man: How the U.S. Uses Globalization to Cheat Poor Countries Out of Trillions. https://www.democracynow.org/2004/11/9/confessions_of_an_economic_hit_man.