Atanu Dey On India's Development

The Persistence of Poverty

Economic analysis can be broadly categorized as either ‘positive’ or ‘normative.’ Positive analysis refers to the investigation of how things are, whereas normative analysis is concerned with how things should be. The former is supposed to be value-neutral whereas the latter is necessarily an expression of one’s values. A study by the UN determined that about a billion people around the world live in absolute squalor in the world’s cities and that every third person will be slum dweller within 30 years. That is a positive statement. The Guardian reports:

One in every three people in the world will live in slums within 30 years unless governments control unprecedented urban growth, according to a UN report. The largest study ever made of global urban conditions has found that 940 million people – almost one-sixth of the world’s population – already live in squalid, unhealthy areas, mostly without water, sanitation, public services or legal security.

The report, from the UN human settlements programme, UN-habitat, based in Nairobi, found that urban slums were growing faster than expected, and that the balance of global poverty was shifting rapidly from the countryside to cities.

Africa now has 20% of the world’s slum dwellers and Latin America 14%, but the worst urban conditions are in Asia, where more than 550 million people live in what the UN calls unacceptable conditions.

The emphasis on the word ‘unacceptable’ is mine. The UN in labeling something unacceptable is making a normative statement, not a positive statement. Meaning, the UN is saying that so many people living in slums should be unacceptable. Normative statements arise only in cases where the normative and the positive diverge. That is, when what is is not what should be. Here I argue that the reason that the reason so many people do live in squalid conditions is precisely because it is acceptable by all parties concerned.

Before you reject this seemingly idiotic stance, consider what it means for something to be unacceptable. If I accept something, I clearly cannot find it unacceptable. If I don’t totally and unconditionally reject it and somehow reluctantly accept it, it means that I don’t find it unacceptable. It is not ideal but it is not unacceptable either. If something were truly unacceptable, I would not accept it. So now consider the statement “550 million people living in unacceptable conditions.” They not only find it not unacceptable, but given that their numbers grow, they thrive in there. So slum dwellers find the slums acceptable in the strict sense of the word. So also, the rest of world which does not live in slums finds the existence of slums acceptable as well. If it were not acceptable, then they would have done something about it. There are ample resources in the world which if it were equitabley distributed would have resulted in a different outcome. The fact that this alternative distribution is feasible but not chosen reveals that the world as a whole prefers the unequal distribution. Therefore it is acceptable in the strict sense of the word.

I have just used what is called a revealed preference argument. If you really want to know what the preferences of an economic agent is, just note what they do rather than what they say. I don’t need to ask you whether you prefer tea or coffee at a particular time if I can simply observe you choosing tea over coffee when both were available to you. You would have revealed that you prefer tea over coffee by your choosing tea. The world has a billion people living in slums. The people of the world could choose an alternate state of being in which no one is forced to live in slums. The world chooses the former over the latter and therefore reveals its preference for the current setup.

The point I would like to stress is this: if poverty were truly unacceptable, then it would not exist given the technology and resources at the disposal of the global community. Both the poor and the rich are implied in this global community. The poor tolerate poverty as much as the rich do. I think I can explain why the poor accept poverty. I believe it has something to do with biology. The urge is for survival and therefore we adjust to unimaginably difficult conditions. People in concentration camps survive horrible deprivation. Slums are economic concentration camps. People survive. Life is Hobbesian (nasty, petty, mean, brutal, and short) but sufficiently large numbers survive so as to produce the next generation of slum dwellers. The poor breed poverty.

The rich and the powerful also tolerate poverty. If they did not, they would have mobilized against it and eradicated it. Poverty is not seen as unacceptable the way terrorism is seen as unacceptable. The US moves rapidly to spend hundreds of billions of dollars at real or imagined areas of terrorism. But it does fancy little for eradicating global poverty. A few hundred billion dollars every year would totally eradicate global poverty. But the US does not choose to wage a war against global poverty like it does against global terrorism. The rich are apparently quite comfortable with the idea of poverty. How else would one explain the persistence of poverty?

  • Walker

    Can the concept of revealed preference be applied meaningfully to more than one person? Even with one person, the concept of revealed preference assumes that decision making capacity approaching omniscience is a reasonable approximation.

    Once the concept is applied to two individuals, it breaks down utterly, as there is no reasonable way to aggregate the subjective preferences of two individuals. One might say trade reveals those preferences, but trade (even accepting the simplistic models) can only reveal an equilibrium given initial conditions. It is the initial conditions that are really important not the subsequent trade.

    Applying revealed preference at the scale of a society or the global community, politics adds another level of complication. In particular what is optimal to the world at large (however you measure it) is not necessarily optimal to all factions. Particular factions can be at an optimal state in a sub-optimal world.

    Having said all that, there is a sense in which (non-metaphysical) “preferences” are being shown — the poor, for the most part, would rather live in poverty than not live at all. People generally want to live.

  • Jyoti Iyer

    Hi Atanu,

    That is astute reasoning. Could one call this passive acceptance , driven by the I, me, myself attitude of most people and their unwillingness to drive change? “Little drops of water make a mightly ocean” can be paraphrased as “Little drops of inertia make a poor world”. Ultimately both parties (the poor and the rich) end up blaming each other for this condition.