Rich Nations, Poor People: The Cause For Rising Poverty In The Western World

David Smith

Last Updated: 23, November 2011

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Poverty rates are on the rise in the Western world, as recession, rising fuel costs and austerity cuts to social welfare benefits, take their toll on the most vulnerable people. But rather than trying to alleviate the problem, most continue to perpetuate the cycle even further.

The European Anti-Poverty Network (EAPN) has warned that the austerity packages introduced by European governments desperate to reduce their deficits are responsible for rising levels of poverty and social exclusion.

The EAPN, a representative network of European NGOs fighting poverty, points to Eurostat data showing steep rises in poverty. The biggest hikes have been in Spain, where the poverty rate rose to 21.8 percent this year from 19.7 percent in 2007. There is also a greater risk of severe material deprivation in Eastern European countries such as Latvia and Lithuania, and a higher risk of child poverty and social exclusion in most EU states. Poverty rates range from 10 percent in the Czech Republic and the Netherlands, to more than 20 percent in Bulgaria and Romania.

Rising fuel prices add to the pressures. The UK’s Office of National Statistics said petrol prices have risen by 52 percent since 2001, putting petrol out of reach for many people. Last year, 77 percent of the top fifth of British households bought fuel compared to 47 percent of the bottom fifth. The ONS report also said the poorest households spend three times as much of their income on petrol as the richest, meaning they are hit proportionally harder.

The biggest cause of rising poverty, however, remains cuts in welfare spending as a result of austerity packages, which are biting in all the major European economies. Fintan Farrell, the director of EAPN, said austerity measures were driving more and more EU citizens into precarious financial situations.

[quote]“Cutting benefits is the wrong approach to economic recovery. Welfare systems are strong economic stabilisers as they maintain confidence and consumer spending, as well as meeting basic needs,” he said. “Instead of being seen as an investment which pays off in the long run, like good healthcare or education, they are seen as a cost burden.” [/quote]

Farrell said poverty in Europe was closely correlated with rising inequality. According to OECD data, the average income of the richest 10 percent in the EU is nine times that of the poorest 10 percent, though this ratio is much lower in Nordic countries and in some continental European countries. Using the Gini coefficient, a measure of income inequality that ranges from zero (when everybody has identical incomes) to 1 (when all income goes to one person), the equality level in OECD countries was 0.28 on average in the mid-1980s, but by the late 2000s, it had increased by 10 percent, to 0.31. Income inequality rose in 17 out of the 22 OECD countries for which data are available. In Finland, Germany, Israel, New Zealand, Sweden and the US, it increased by more than 4 percent.

[quote] “More equal societies do better on measures of poverty,” said Farrell. “We often perceive welfare systems as safety nets of last resort rather than systems helping to keep things in balance, but they are not just for the poor. Growing inequalities are undermining welfare states. The most resilient ones in the crisis are the Nordic countries. And the systems in Belgium and France have helped to mitigate its effects.” [/quote]

Related: Effects of Economic Inequality

Farrell’s view of the dangers of austerity measures echoes the analysis of economist Joseph Stiglitz in a recent article on Economy Watch:

[quote]“As Greece and others face crises, the medicine du jour is simply timeworn austerity packages and privatization, which will merely leave the countries that embrace them poorer and more vulnerable… The financial markets and right-wing economists believe that austerity produces confidence, and that confidence will produce growth. But austerity undermines growth, worsening the government’s fiscal position… confidence is undermined, and a downward spiral is set in motion.” [/quote]

The severity of the experience of poverty in the Western world is often underestimated because it is perceived that there are adequate safety nets, but the system does not always function as it should. According to the traditional European definition of poverty, which is having less than 60 percent of median equivalised income, there are 82 million poor people in Europe.

According to the European Parliament’s Employment and Social Affairs Committee, 20 percent of the EU’s population lives in poverty, including 20 million children. In addition, 43 million people in the EU are at risk of “food poverty”, which the World Health Organization defines as not being able to afford one meal containing meat or fish every second day.

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Demonising Social Welfare

Despite this widespread hardship, the desire to make financial cuts prompted a coalition of Germany, Britain, the Czech Republic, Denmark, the Netherlands and Sweden, this month to try to slash food aid to Europe’s poorest people by 80 percent. The Aid The Needy EU free-meals programme costs €480 million (US$660 million) and in 2009, it delivered 440,000 tons of food to 18 million people in 19 EU states. The German-led coalition backed down in the end and allowed two more years of funding, but the scheme may well end by 2013.

Farrell said European Governments intent on cutting benefits justify their austerity measures by stigmatising the beneficiaries of social welfare.

[quote]“They are demonized and blamed for their own plight. The pervasive assumptions made in a neo-liberal context are considered common sense, but they aren’t. Politicians and economists comment without knowledge of the realities of life on benefits,” he said. [/quote]

Related: Unemployment and Poverty

An example of this demonization of benefit recipients came from Ian Duncan Smith, the Secretary of State for Work and Pensions in the British Conservative Party. Attempting to justify billions of pounds of cuts in benefits by branding their influence as negative, Smith said: “This gap between the richest and poorest has accelerated over the last five years despite an astonishing £150 billion injected into tax credits alone.

[quote]”The end result has been to make benefit dependency and worklessness inherent to the UK way of life, with the middle- and low-income earners picking up the bill.” [/quote]

Smith’s comments carry an echo of the famous dictum of Republican President Ronald Reagan in 1988: “The Federal Government declared war on poverty, and poverty won.”

Reagan claimed welfare programmes and billions of dollars had, “created a poverty trap that wreaks havoc on the very support system the poor need most to lift themselves out of poverty: the family”.

But Reagan’s systematic undermining of financial assistance schemes made matters worse for America’s poor and offers a salutary warning from history to governments hell-bent on cutting welfare packages. By the end of Reagan’s term in office, federal assistance to local governments had been cut by 60 percent. In 1980 federal dollars accounted for 22 percent of big city budgets. By the end of Reagan’s second term, federal aid was only 6 percent. He slashed federally funded legal services for the poor and cut the anti-poverty Community Development Block Grant programme. These cutbacks had a disastrous effect on cities with high levels of poverty.

Reagan’s housing policies were even more damaging. In his first year, he halved the budget for public housing and Section 8 housing benefits to $17.5 billion. Not surprisingly, the number of homeless people shot up to 600,000 a night by the late 1980s.

Reagan, of course, blamed the victims.

[quote]“People who are sleeping on the grates…the homeless…are homeless, you might say, by choice,” he said. [/quote]

The eight-year Presidential reign of Ronald Reagan fan George W. Bush provided more evidence of the link between government policies and rising poverty. When President Bill Clinton left office in 2000, the Census Office counted 31.6 million Americans living in poverty. When Bush left office in 2008, the number had jumped to 39.8 million. Over two thirds of that increase occurred before 2008’s economic collapse.

Unlike Reagan and Bush, the British Conservative Prime Minister David Cameron has promised to be proactive in tackling child poverty in the UK, but the figures do not support his claims. The Institute for Fiscal Studies estimates that the British Government’s austerity cuts will push a further 300,000 children into poverty. Unemployment will cause the most poverty, of course, but there will also be the effect of £18 billion of cuts to family support.

The cuts over two years will affect children most of all. The Child Poverty Action Group showed that an English baby born in April 2011, will have £1,500 less than one born in April 2010. Meanwhile, Daycare Trust research showed nursery prices rising twice as fast as wages in 2010, yet childcare credits will be cut by 10 percent.

One thing conveniently ignored by Ian Duncan Smith in his stigmatisation of people on welfare benefits was that the Labour Party, which governed from 1997 to 2010, lifted 600,000 children out of poverty through redistributing income to the poor.

Despite these improvements, the Labour Party fell far short of its targets. In a UNICEF 2010 list of 22 European countries’ child poverty rates, the UK was ranked number 18, ahead only Slovakia, Poland, Hungary and Italy. There is ample evidence, however, that child poverty rates could rise sharply again under the Conservative Party’s austerity measures.

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Poverty In The US

Child poverty is even worse in the US than the EU. Nearly half (49.2 percent) of all US children, including an overwhelming majority of black children (90 percent), will eat meals at some point paid for by food stamps, an indicator of poverty, according to a study by Mark Rank, a professor of Social Welfare at the University of Washington in St Louis.

The study, based on analysis of a 32-year study of some 4,800 US households, concluded that American children face the highest levels of poverty and social deprivation in Western developed nations and have the flimsiest social safety net.

Professor Rank, the author of One Nation, Underprivileged: Why American Poverty Affects Us All, said:

[quote] “Our welfare system has always been stingy compared with European countries, Canada and other industrialised countries. Our Governments have traditionally made the system as difficult and as stigmatised as possible. But the American public has gone along with them. The traditional American view is that these programmes are a necessary evil.” [/quote]

The American attitude to benefits, Rank said, was tied up with the country’s culture of self-reliance.

[quote]“We believe in the rugged individual who makes it on their own and doesn’t turn to the government for help. Americans still believe this is the land of opportunity so if you don’t make it, it’s your own fault. But all the evidence suggests the contrary. We have lower rates of social mobility than any other Western country.” [/quote]

The typical American paradigm for poverty was changing, however.

[quote]“More and more people who have lost their jobs and houses in the recession are saying ‘I can’t believe this happened to me’. This is making them think that the causes of poverty can be structural rather than simply the individual’s fault,” he said. [/quote]

Professor Rank’s research shows that poverty is not just someone else’s problem, but affects a majority of Americans at some time in their lives. “If you use the official poverty line, 60 percent of Americans will live below the poverty line for at least a year between the ages of 20 and 75, and two thirds will need some form of social welfare help, such as food stamps,” he said.

Rank said America scored badly compared to other Western countries on all measures of poverty and data from the US Census Bureau supports his claim.

The Census Bureau now uses two different ways of calculating US poverty. The official government measure since the 1960s is based on a system created by statistician Mollie Orshansky who used the cost of a nutritionally adequate diet as the basis of her poverty threshold. Under this traditional method, the number of poor Americans reached a record 46.2 million in 2010, or 15.1 percent. The Census Bureau said the number of poor Americans rose 12.3 percent in the last decade.

But there is also a new Census Bureau measure which will co-exist with the older one, and comes up with an even higher level. Unlike the official measure, the new calculation takes into account government benefits, such as food stamps, as well as household expenses such as taxes, medical costs and housing, and regional differences in living costs. The broader formula generates an overall US poverty rate of 49 million, or 16 percent, with an annual poverty income threshold of US$24,343 for a family of four, compared with US$22,113 under the official measure.

The Census Bureau reports that minorities, especially blacks (27 percent) and Hispanics (26 percent), are still considerably more likely to be poor than white Americans (13 percent). About half of those living below the poverty line were classified as the poorest of the poor, meaning they live at less than 50 percent of the poverty line. In 2010, that would mean an individual income below $5,570; for a family of four, below $11,157.

As an indication of the benefits of government assistance, Census officials said the poverty rate would have risen to 18 percent, but for income tax credits for low earners.

About David Smith PRO INVESTOR

An English journalist who, when he's not exploring the social consequences of political actions, likes to write about cricket for some light relief.

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