Objectives The correct indexes to measure poverty and inequality; Different theoretical perspectives on poverty and inequality; and The complexity and diversity of inequality.

1. Faculty: Political Science & PA
Dept: Public Administration
Course: Political Economy
Asignt: Poverty, Equality & Inequality
Lecturer: Mr. Omar Dhagahor

2. Group Members
1. Mohamed Abdirahman Aden
2. Mohamud Mohamed Daudi
3. Omar Said Mohamed
4. Hiba Mohamud Ahmed
5. Harun Abdisalam Ahmed
6. Suleka Nor Hassan
7. Zahra Hassan Abdi

3. Maybe

4. Poverty, Equality
&
Inequality
Political Economy

5. Objectives
• The correct indexes to measure poverty and inequality;
• Different theoretical perspectives on poverty and inequality; and
• The complexity and diversity of inequality.

6. ‘’Any city, however small, is in fact divided into two, one the city of the poor,
the other of the rich; they are at war with one another.’’
_ plato Ancient
Greek Philosopher

7. Introduction
Plato, student of Socrates and teacher of Aristotle, clearly sees something
that is still very much true today: inequalities in human societies. We live in
an age of material abundance and yet, the persistent problem of poverty amid
affluence continues show the darker side of modern societies.

8. A society could appear to be rich when measured in terms of standard GDP-
percapita. Hence, Mexico and Brazil appear to be countries that are not doing
too bad economically. However, hiding behind the GDP-per-capita
measurement could be glaring poverty and income inequality.
Mexico and Brazil both have significant populations living under the poverty
line. This line refers to a designated level of income below which a person is
officially considered poor. Commonly, the poverty line is different between
developed countries and developing countries.

9. The most common standard used for developing countries is the World Banks
definition of poverty roughly one US dollar per day. Hence, in an economy
with a high degree of income inequality, the average GDP per person could
appear to be solid and sound but it could hide the fact that a large number of
people live below the poverty line.
How do we measure income inequality? In general, there are two methods. One
is called the Lorenz Curve, named after an American economist by the name of
Max Lorenz (1876-1959). The Lorenz Curve uses a vertical axis measuring the
percentage of income earned and a horizontal axis measuring the percentage of
the population earning that income.

10. The bow of the curve indicates the level of inequality. The greater the bow, the
larger the level (Pearce, 2008: 100). The more widely used indicator today is the
Gini coefficient, pioneered by Corrado Gini (1884-1965), an Italian
demographer and sociologist.
The calculation of the Gini coefficient is a bit complicated and beyond the
scope of this module. The Gini coefficient ranges from 0 to 100. A rate of 100
indicates maximum inequality, while a rate of 0 indicates maximum equality.
Hence, the higher a country’s Gini coefficient is, the more unequal the
distribution of income in the country.

11. Cadani

12. Theoretical Perspectives On Poverty & Inequality
Theorists of different theoretical persuasions try to explain the persistence of
inequalities and poverty amid affluence from different angles. Based on the
previously identified four main theoretical schools.

13. The Classical Liberal Perspective
For classical liberals, inequalities arise and persist due to each individual’s
different productivity. The marginal productivity theory, advanced by American
economist John Bates Clark (1847-1938), postulates that in a perfectly
competitive market, each factor of production will be rewarded in accordance
with its contribution to output.
From this theory, an argument emerges that stresses on human capital,
postulated by neoclassical economists. Individuals possession of human capital,
such as talent, knowledge and skills, will enhance the value of their labour and
therefore their income.

14. Economic inequality mainly shows that some members of society are more
talented and knowledgeable, possibly because of their own efforts in investing
in their education as opposed to others who paid less attention to good
education.
Another reason commonly cited by classical liberals is technology. The gap
between the rich and poor can be the result of the breakthrough and adoption of
new technology in society. For example, the arrival of the computer age
naturally gave advantage to not only information technology experts but also
professional and technical employees.

15. Omar

16. It also eliminated jobs and occupations that were deemed obsolete in the
information technology era. Less-skilled workers would then face issues of
wage stagnation or even layoffs.
Finally, government intervention in the market could be considered a factor in
generating income inequality. Government intervention in the market distorts
its efficient allocation of resources. Hence, the minimum wage policy for
example, discourages the hiring of unskilled workers, while welfare
programmes discourage self-discipline and initiative.

17. Classical liberals see the inequalities generated by government interference in
the market as a problem but they see „natural inequalities, resulting from
uneven distribution of abilities, talents and preferences among individuals, as
just that.
In terms of poverty alleviation, classical liberals abhor extensive government
help and prefer private charity, and ultimately the market, as a better solution.
According to their analyses, welfare merely perpetuates poverty, since it rewards
irresponsible behavior.

18. Quintessential radical thinkers Karl Marx and Frederic Engels associated the
historical stage of human society with primitive communism a state of
communist equality that existed in the original state of humanity.
According to the radical perspective, one of the main factors contributing to
persistent poverty and inequality in the capitalist system is primitive capital
accumulation.

19. Hiba

20. Radicals also charge that the human capital theory presented by classical
liberals fails to address the critical issues in the labor market. Under the dual
labor markets thesis (Gordon, Edwards, Reich 1982), two sectors exist in the
capitalist economy.

21. Primary Sector Secondary Sector
 Workers with credentials and talents  Workers without the necessary credentials
 High-paying jobs in corporations  Low-paying and less-satisfying jobs in smaller
firms.
There is little mobility between the two sectors. Human capital theory works
only for employees in the primary sector. They are paid exorbitant wages and
benefits to keep their allegiance, while workers in the secondary sector are paid
far lower wages.

22. Radicals want to smash social, economic and political inequalities. They
believe that ultimately economic efficiency can only come from greater equality.
The persistence of poverty, as well as inequality, only shows that a large pool of
human talent stays wasted.

23. Soleka

24. The Conservative Perspective
Unsurprisingly, conservatives are naturally opposed to equality. Social and
beconomic inequality seem natural to conservatives. Social and economic
hierarchical order exists, not just because of traditional legacy, but because it
motivates hard work and innovation, and ultimately increases productivity.

25. Example of a hierarchy in organization

26. While modern conservatives accepted the legitimacy of mass democracy, traditional
conservatives were opposed to the egalitarian ethos of democratic politics. Alexis D.
Tocqueville, the French writer who wrote the first comprehensive book on the
American democratic republic, Democracy in America, a book that is still highly
relevant today, was particularly concerned about the effects of democracy on
civilizations.
Traditionally, conservatives have not formulated useful policies to deal with poverty.
One strand of conservatives argued for eugenics, believing that selective forms of
population control, including sterilisation of impoverished people, would result in the
reduction of poverty by preventing the birth of genetically below-par people.

27. Modern conservatives believe that poverty can be attacked through institutions
such as family and religion. If the family and religious institution could foster
the „right attitude towards education and appropriate social roles, citizens will
be more accepting of the present social order.

28. Zahra Hajji

29. The Modern Liberal Perspective
Modern liberalism seeks a middle point between the elevated individualism of
classical liberalism and the elevated equality of radicalism. It seeks to promote greater
equality while respecting individual rights and ownership of private property.
Modern liberals see the persistence of poverty and inequality as caused by several
factors.

30. Modern liberals do not despise private property as radicals do. They also affirm
the principle of protection of private property. However, unlike classical
liberals who advocate the principle of the maximum based on their commitment
to liberalism, modern liberals suggest that the doctrine of private property has
to be updated to reflect modern circumstances.
Modern liberals argue that improving equality by sacrificing some market
autonomy and efficiency is necessary and desirable. Most modern liberalists are
believers in the welfare capitalism model. Freedom cannot be meaningfully
exercised by any individual if the individual has no access to basic life
necessities such as food, clothing, shelter, education and healthcare.

31. The more traditional strand of modern liberal economic thought has condemned the
market for its role in generating and exacerbating poverty and inequalities.
Modern liberal scholars of this mode tend to advocate policies such as progressive
income tax, inheritance tax, workplace regulation, minimum wage laws, labour unions,
rent controls and other measures that require large expansion of government regulatory
power and bureaucracy.

32. The more contemporary of the modern liberals have been more aware of the
negative consequences of the increasing government size. A large bureaucracy
not only increases deficit but could alienate the very same people it is supposed
to help.
These modern liberals therefore are willing to consider newer proposals to
tackle poverty, such as tax incentives for businesses to hire people previously
unemployed, restricting government benefits to only persons falling below a
designated level of income or wealth, retraining workers together with
programmes to assist job search, employee stock-ownership plans and others.

33. Harun

34. Diversity and Inequality
Inequality is offered primarily through the lens of income inequality, which is the purpose of
this topic. However, in the final section here, we shall note a rethinking of this issue.
Some scholars have contended that inequality cannot be viewed, understood and measured
purely through economic terms. Inequality is a complex phenomenon that is tied to the political,
social and cultural arrangements of a society. This focus on cultural and social inequalities is
centred on the idea of „diversity of inequalities.

35. Accordingly, „equality claims must come to terms with this fundamental
empirical fact, as there are times when equal consideration for all matters
demand unequal treatment in favour of the disadvantaged (Pearce, 2008: 105).
Henceforth, policies tackling poverty and inequality should recognise that
people are also diverse when it comes to advantages and disadvantages. Such an
idea directs our attention away from the traditional equality-enhancing policies
such as redistribution to capabilities building and recognition.

36. Political equality, hitherto unrecognised as an important factor in literature on
poverty and literature, also made a comeback. For example, the following quote
from the World Bank clearly shows the intricacies between politics and
economics in the phenomenon of inequality:

37. How do societies develop equitable non-market institutions? First there must be sufficient political
equality - equality in access to the political system and in the distribution of political power, political
rights and influence. Poor institutions will emerge and persist in societies when power is concentrated
in the hands of a narrow group of elites.... Because the distribution of power, through its impact on
institutions, helps to determine the distribution of income, the possibility of vicious and virtuous
circles is clear. A society with greater equality of control over assets and incomes will tend to have a
more equal distribution of political power. It will therefore tend to have institutions that generate
equality of opportunity for the broad mass of citizens.

38. Summary
The poverty line delineates a level of income, below which one is considered
poor. The standard level, used by the World Bank, is roughly one US dollar
per day.
 Both the Lorenz curve and Gini coefficients are indexes used to measure
inequality. The more widely used index is Gini coefficients. The larger the
score of the index, the greater the level of inequality.

39. Classical liberal theorists explain inequality in terms of marginal productivity
theory and human capital theory. They also cite factors such as technological
advancement and government interference in the market to explain inequality.
Classical liberals prefer to let the market sort out the issues of poverty and
inequality.

40. Radical theorists fault the market capitalist system as the fundamental cause
of persisting poverty and inequality. Primitive capital accumulation displaces
a large number of people from their stable incomes, thus forming a large
reserve army of labour that continuously pulls down the wage rate. Dual
labour markets that disadvantage secondary sector workers also exist. Some
radical scholars favour the use of asset-based redistribution to ameliorate
inequality.
.

41. Conservative theorists see inequality as natural and functional. They oppose
the levelling of income and the use of preferential treatment policies such as
affirmative action to address the inequality between ethnic groups.
Modern liberal theorists see the need for government to address inequality
while maintaining commitment to liberty. They believe that the present
market is characterised by imperfect competition, which gives advantage to
the entrenched elite rather than allowing for a fair game for disadvantaged
groups to catch up. Modern liberals are architects of modern welfare
capitalism, which emphasises citizens social and economic rights.

42. Inequality manifests in diverse forms. Capability building is an approach in
which the building of peoples capability to realise their freedom is more
important than the transfer of wealth.

43. Any Question?