Why poverty occurs

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When I was small, I was frequently told by my parents to persevere, work hard, and not to be indolent. From the car windows, we often saw young folks in a range of ages – I guess between 5 and 20 – playing guitars on the street side or begging for money. Their bodies were covered in dirt, oftentimes with torn-down clothes, and messy hair. Sometimes, there would be old ladies or men, slowly knocking on the car windows when traffic happened, asking for some pity. Some displayed physical deformities, such as cataract-affected eyes, amputated limbs, or tumors with the size of a human face. “You often have this strong feeling that you want to help them, but sometimes it’s better to be safe than to be sorry,” that is the near-typical expression my parents told me. “When you help a person, their friends will follow suit. And we are also not legally allowed to hand in cash for beggars or street urchins. But where the heck is the government?”

Afterwards, they quipped this familiar line. “That’s why you need to work really hard so that you have a better future.”

And that is also where we build this familiar, generalized adage of correlating people being poor with people being lazy, or ‘not being hardworking enough’. The reality, however, is far more complicating and incomprehensible than the pattern appears on the surface.

I was forever grateful for my family – especially my parents – that my family was able to support my overseas education, and that I was able to study in HKUST, one of the world’s youngest and fastest-rising research universities. And truth be told, if you happen to study in Hong Kong, it is also one of the ‘best’ places in the world not only to learn business, finance, or investment banking, but also to study about poverty. Not studying about poverty as a university major or degree of specialization, but rather to allow us to compare and contrast the unprecedented wealth and income gaps in one of the world’s most globalized cities.

I participated in several community service activities organized by a university-led outreach program throughout Hong Kong, and there, I began to experience – and learn more – about the more ‘sophisticated’ picture of the reality of poverty. If what you perceive of Hong Kong is mostly about its glitzy skyscrapers, you have only seen ‘one-half’ of the reality; you need to come across its numerous dilapidated multi-storey buildings, mostly spread around Kowloon, in order to get the other half of the reality. Inside the buildings, the alleys separating the flats are extremely shallow that you can hardly switch over your body. For a space the size of my own bedroom (back in my hometown), I think there may be like 5-6 ultra-small flats within that ‘alley’.

To make matters worse, there are other ‘quirks’ that epitomize poverty in this city. Many people, mostly elders, live in cages, due to ‘exorbitant housing rents’. There are also people who live in very compressed conclaves between two storeys of a building, to the extent that they can no longer stand, but need to crawl in within these spaces. And I can tell you that they are not lazy, either; these people, aged in 60s, 70s, or even 80s, still continue to eke out a living – an uneasy living – by picking up cardboards across the streets, and selling them to any hawkers for a tiny amount of money. Sometimes, they work for like more than 10 hours a day in restaurants and cafes, serving dishes and/or cleaning tables. Others stand for hours in certain stations to hand out pamphlets or advertising newsletters to any passersby. I once observed an old lady – perhaps already in a mentally ill state – getting in an altercation with a shopping mall security guard because of her pamphlet-distributing activity that is considered ‘annoying’. She murmured to herself in an angry tone while handing out these papers, to the ignorance of the passersby.

It’s not only about the old people. There are also young folks who are already working for hours a day, all the while doing menial tasks. Cleaning up tables in campus restaurants, removing food trays, or mopping the floors. And these people are definitely not lazy, just to keep this thought in mind.

Gradually, there came this awareness that people are poor not necessarily because they are lazy. That’s why it matters to look at the wider circumstances that facilitate such condition. If our parents are themselves poor, there is also a certain degree of likelihood that we will be in the same condition, and inherit it to our children and beyond. That is where the dichotomy comes in: we must work hard to lift ourselves from this evil cycle. But again, the outcomes can be mixed: some of them manage to have their offspring lifting the families out of poverty through education and skills, but others remain in the cycle, or even become economically worse off.

Consider two families of janitors. Just because their occupation is to clean out toilets does not mean we can easily dismiss their potential, especially their dignity. Suppose one family works really hard to provide adequate support for their children’s education; it is possible for them to support these children to finish high school, it is also possible their children can get scholarships to study in some of the best institutions to complete a bachelor’s degree, and it is even possible that they can complete a PhD degree. At the same time, the other family also works similarly really hard, but their children dropped out of high school, and given their inadequate educational backgrounds, end up working in a similar occupation as their parents do.

There are many possible answers on why the outcomes diverge for these two families. It can be mindset. Their parents may frequently tell the children how important education is, and why hard work and achievement matters, but they can also tell the children to ‘forget education, your stomach matters more’. It can be the neighborhoods they are in as well. There may be schools or educational institutions near their vicinity that offer subsidized education and renewable merit-based scholarships, with fully motivated teachers and educators doing their best to educate these guys. But there can also be a neighborhood ridden with crimes, infested with drug abuse, suffering from dilapidated, under-funded schools, obesity, or deadly gang fights. It can also be generational. The similar neighborhood their children live in is no different from the setting where their parents used to live. It can also be due to government policies. There are governments that favor free education and free healthcare because their tenet is social justice, so their families would be pretty much already ‘covered’ under its social security framework. There are also authorities that fully believe in laissez-faire principles, ‘to each one’s own’; your social status is defined by your own making. There are also regimes whose only task is to win the next election by handing out cash and other favored packages to their constituencies. You don’t call it social security; it’s clientelism. It can also be due to countries’ level of socio-economic development. The chronicle of this janitor families changed because the country shifted from a Third World country to a high-income economy. And don’t forget other ‘empirically unexplainable factors’. You can call it luck, bad luck, or if you don’t believe in any of these, simply refer to them as random events, absurdities, what have you.

Let us term them ‘unexpected circumstances’. It could be possible that one of the family members suffers from a terminal illness, and it takes a huge amount of money for its medical treatment. Or that the company the parents are employed in needs to lay off some people, including the parents themselves. Or it can be that an accident befalls to one of the family members, forcing them to forfeit their savings for education to pay for the medical costs. Or that either one of the breadwinners or the other family members is either seriously incapacitated or killed in a gang fight, a robbery, or an attempted murder. Or that a systemic economic or financial crisis takes place and the family lost their savings value. Or that another party wins election and promises to roll back every social security measure to ‘ensure a healthy fiscal setting’. Or that the social security benefits are taken away by other already-middle-class families. Or because of automation. Or that the children struggle to find jobs despite their high school or educational backgrounds. And it could also be possible that the family either never encounters or never becomes seriously affected by any of such calamities.

The reality becomes even more difficult to accept when one reads Thomas Piketty’s Capital in the Twenty-First Century. Using years of research output and armed with arsenals of statistical figures, Piketty showed that since early 1970s, most of the world – particularly the Western world – has witnessed a U-shaped growth in inequality (instead of the inverted-U theorem as argued by Simon Kuznets), due largely to globalization, outsourcing of jobs to less developed countries, and more recently, disruptive technologies and artificial intelligence. He argued that in the last 40 years, the growth of capital income has surpassed that of labor income; the larger the capital-labor income gap is, the more unequal a society will be in the future.

How do we define capital income? It can be gains made through productivity improvement when companies invest in sophisticated machines that produce more and better. It can also be gains invested from our parents’ inherited wealth. It can also be home prices. It can also be universities’ endowments. What about labor income? It’s the salaries that we receive from the occupations we are doing. And whether you feel your aggregate labor income is growing or stagnating may depend on the location where you live. As shown by economist Branko Milanovic, the biggest ‘winners’ of globalization in the last three decades are middle class in emerging markets (led by China) and the elites in Western world, while the biggest ‘losers’ are the poorest people living in poor and developing countries, as well as the middle class in the Western world.

It becomes even more confusing when we look into two totally different things: poverty continues to decline, yet inequality continues to increase worldwide. The number of people living in extreme poverty has dropped from 1.8 billion in early 2000 to now around 800 million as of 2015, but the wealth concentration among the top 1% of the world’s population has surpassed 51% of the global wealth in the same period. Nobel Prize-winning economist Angus Deaton, in his book The Great Escape (released in the same year as Piketty’s book), argued that the reasoning may be that while many people escape poverty through expanded access to education, healthcare, and other public services, they are still struggling to enter into the middle class. That said, the poverty-reduction effort is a success, but that success is built on a fragile foundation. This may mean that should anything occur, and should these people be ‘unprepared’ of its repercussions, they may either fall back into poverty, or remain trapped in the low-income-but-not-poor-cycle for a very long time.

That said, the reality of poverty is more difficult to understand than normally assumed. I will not take much of the explanation here into direct conclusion, as more research needs to be worked out to better understand its peculiar nature. Still, I think policymakers need to embark on policy innovation, as the world today is dramatically different from the world in the past. Lastly, the ages-old recipe of ‘job creation’ (as politicians like to promise) or ‘poverty eradication’ (as these UN aficionados and/or bravados like to voice out) has sounded so hollow with the complicating realities of today, that we all need to silence ourselves and reconfigure the definition of this concept, one that we think is as simple as street urchins or beggars asking for money on the street side.

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Esther Duflo: Social experiments to fight poverty

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Here’s one big question: what has happened to poverty? While optimists talk about flourishing economic growth and proudly declare that this disease will end sooner or later, realists, or the skeptics, point out worsening inequality in nearly all parts of the world as the main consequence of globalization. Despite an ever increasing abundance of various materials amid a burgeoning world population now 7.2 billion strong, 40% among them still earn 2 US$ a day or even less – threshold of what constitutes as ‘economic poverty’ in developing world.

Hundred billions of dollars, the countless of it, have been spent by industrialized countries for decades to help lift these people from the satanic cycle that has plagued them for generations – for little effects. Food production has now enabled surpluses, but people go hungry. Latest marvels in medical technology have shown their potential to heal a great many diseases, but millions of people remain untreated for diseases that are easily recoverable. Children still drop out of school and are entrapped in labor exploitation. What is happening here?

Esther Duflo, a development economist, believes that the root of this problem lies in rampant mismanagement of available resources. The TED talk below offers a detailed explanation, and also solutions as well as examples, on how to handle these mistakes.

 

An uneasy life in Omaha

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You realize reaching The American Dream ain’t easy, this time with a story about the plight of Sudanese and South Sudanese communities, already ravaged by poverty, unemployment, and gang violence, in Omaha, Nebraska.

Read the whole story in The Huffington Post.

 

Excerpt:

 

For over 50 years, Sudan — a political invention of British colonizers in East Africa, covering an area nearly three times the size of Western Europe — was wracked by civil war between the ethnically Arab and Muslim north and the black, Christian and animist south.

A 2005 peace settlement, brokered in part by the U.S., finally halted the conflict between north and south, which had claimed more than 2 million lives. By that time, millions of Sudanese had fled the south to live in sprawling camps in neighboring Ethiopia, Chad and Kenya.

The United Nations ultimately resettled nearly 31,000 refugees from these camps in the U.S. with the help of religious groups such as the Lutheran Immigration and Refugee Service.

In the 1990s, Omaha emerged as an unlikely hub for the Sudanese, both for primary resettlement from camps in Africa, and for secondary resettlement, as refugees placed in other cities migrated there in search of jobs, cheap housing and a sense of community.

Many Sudanese arrived in the U.S. with next to nothing. “You would see a family of six with not one bag,” Goak said.

Fleeing South Africa

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What exactly happens to the country’s dominant minority, the White South Africans, in the post-apartheid era. Approximately 5 million people strong in an overall population of 50 million, many of them are expressing a strong desire to leave the country, now already marred by the world’s highest crime rates only comparable to those of countries at the brink of war.

Will the passing out of Nelson Mandela, father of the brand-new South Africa it is now, as he’s being buried today, exacerbate the whole matters for the nation? Will Mandela’s vision of a united nation, either black and white, continue in the long term? Such questions are yet to be answered at this moment.

This is the full article from Newsweek, published in February 2009.

Excerpt:

The primary driver for emigration among all groups, but especially whites, who still retain the majority of South Africa’s wealth, is fear of crime. With more than 50 killings a day, South Africa has one of the highest per capita murder rates in the world. The same goes for rape—ranking the country alongside conflict zones such as Sierra Leone, Colombia and Afghanistan. Future Fact polling indicates that more than 95 percent of those eager to leave South Africa rate violent crime as the single most important factor affecting their thinking. Lynette Chen, the ethnic-Chinese CEO of Nepad Business Group, is the only member of her family left in South Africa. Her parents departed in 2002 after being carjacked—twice. Her brother, also a victim of crime, followed suit shortly thereafter. “They’re always getting homesick,” she says. “But they won’t come back unless the crime is reduced.”

Another largely unnoticed problem is the growing number of attacks on South Africa’s white farmers. As in neighboring Zimbabwe, some of the attacks appear to be racially motivated. Others seem simply opportunistic, but the result is that white farmers’ numbers continue to decrease, leading to fears that despite the government’s good intentions, a Zimbabwe-style crisis—where the flight of skilled farmers led to an agricultural collapse—is possible here too.

The two faces of Singapore

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The existence of this tiny, little, 5.5-million-people-strong nation is primarily due to the inflow of two main things this country critically needs: capital inflow and foreign talents.

Speaking of capital influx, it takes this city-state no more than five decades of absolute one-party control to restore law and order, from a previously poverty-laden, conflict-plagued shantytown into one of the world’s richest metropolises equivalent to its doppelgangers, either Hong Kong, Shanghai, Tokyo, New York City, or London. With social stability perfectly well-maintained, the flow of capital is well sustained. It is now one of the planet’s most promising banking hubs, and also tax havens, tantamount to that of Switzerland or Cayman Islands.

Simultaneously, as Singaporean population’s fertility rate is critically below its replacement rate (1.2 instead of 2.0), the government also finds itself increasingly necessary to attract foreigners to come, work, and also live in this tiny country whose GDP size is equivalent to that of its counterpart, Malaysia. Approximately 1 million foreign workers make up one-third of Singapore’s workforce currently, and overall, nearly 2.5 million people living in Singapore are not born in this island. The government has even announced plans to import ‘another’ 1.5 million migrants until 2030 to stabilize the population structure, which is expected, altogether with the number of migrants, to reach 7 million by that year.

Nevertheless, there are unexpected costs with such phenomena.

With global nouveau riches, and also an influx of foreign workers from Third World countries, flocking in to Singapore, problems arise. Relationship between them and the locals becomes intense, social gap widens, and most commonly, political repression prevails. Many, among the latter, who do menial jobs, complain of low pay and unequal treatment, but opinions are frequently suppressed in the highly strict government.

And with the Little India riots recently taking place two days prior (and conducted, ironically, by foreign migrant workers), this is becoming an increasingly alarming concern among all the populace in the country.

Two articles below highlight the two faces of Singapore: one dominated by the globe’s millionaires, and the other by commoners struggling for a better life in a brand-new megalopolis.

 

This is the article, about the former, from Wall Street Journal. Here is the excerpt:

 

Welcome to the world’s newest Monaco, a haven for the ultra-rich in what until recently was mocked as one of the most straight-laced, boring cities in the world. When most people think of Singapore, if they do at all, they think of an order-obsessed Asian version of Wall Street or London’s Canary Wharf, only with implausibly clean, sterile streets and no crime. The southeast Asian city-state of five million people is perhaps best known for banning the sale of chewing gum or caning vandals, including American Michael Fay in 1994 for spray-painting cars. Drug traffickers face the death penalty, and even Ault complains the authorities won’t let him import his prized gun collection, which now sits in his other homes in Palm Beach and Manhattan.

But over the past decade, Singapore has undergone a dramatic makeover, as the rich and famous from Asia and beyond debark on its shores in search of a glamorous new home—and one of the safest places to park their wealth. Facebook co-founder Eduardo Saverin gave up his American citizenship in favor of permanent residence there, choosing to live on and invest from the island while squiring around town in a Bentley. Australian mining tycoon Nathan Tinkler, that country’s second wealthiest man under 40, whose fortune is pegged at $825 million by Forbes, also chose to move to Singapore last year. They join Bhupendra Kumar Modi, one of India’s biggest telecom tycoons who gained Singapore citizenship in 2011, as well as New Zealand billionaire Richard Chandler, who relocated in 2008, and famed U.S. investor Jim Rogers, who set up shop there in 2007. Gina Rinehart, one of the world’s richest women, slapped down $46.3 million for a pair of Singapore condominium units last year.

 

And this is the latter, from The Daily Beast, primarily concerned about foreign-hired construction workers. Here is the excerpt:

 

Construction workers don’t get issued regular work visas; they are considered “transient workers,” welcome in Singapore only for the labor they are doing. The rules stipulated in their work permits bar them from marrying Singaporean citizens (unless approved by the government) and from changing jobs. With permission to be in Singapore conditional upon their employer, workers are discouraged from rocking the boat. Complain too much and you could find your work permit cancelled and your right to remain in Singapore withdrawn. An unlucky worker might even find himself forcibly repatriated.

This gives employers an enormous amount of power over their migrant workers. Activists say they’ve come across contracts with all sorts of unreasonable and downright illegal clauses. A 2008 contract from a subcontractor stipulated that workers would not be entitled to payment for overtime or work done on public holidays. Workers who complained to any government ministry could also be made to pay between $80—$240, which could account for about three to ten days’ worth of wages, for the employers’ trouble in addressing these complaints. And these are for the ‘lucky’ ones, who actually have contracts.

 

An uneasy home named Hong Kong

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Were it not for its mountainous terrains, Hong Kong would not have been dubbed the world’s most vertical city.

Occupying an infinitesimal carve out of Chinese land, and a few hundred outlying islands, all of which are no larger than 1100 sq km, Hong Kong can only afford to provide to its 7.2 million inhabitants approximately one-fifth of its total areas, given the geographically steep contours, virtually on all its entire spaces. Even the skyline on Big Apple, the first major city on Earth to proudly attest its nature-defying abilities with supertall skyscrapers, is no match to the enormity – and the monstrosity and all its narrow-gauge compactness – of the skyline in Hong Kong. New York City, in a century, has built over 4000 high-rise buildings, mostly in Manhattan; Hong Kong has put up to 8000 in half a centenary, scattered all over Hong Kong Island, Kowloon, and New Territories.

Sum it up, in historical sweepstakes, with its integrated 99-year rule by British Empire. Firstly concentrated on manufacturing, the government, realizing the potential impacts China’s open market reforms could impede on its economic growth, created a brand-new experiment to jack up its popularity as a global city: laissez-faire market, mainly on financial and trading sectors, with government intervention almost null-and-void. Thus is the brand-new Hong Kong we recognize today: glitzy skyscrapers, burgeoning elites, vibrant streets and markets, beyond-excellent infrastructure, and highly flexible bureaucracy.

Nevertheless, the environment simulated by the laissez-faire system has also procreated ruthless competition among individuals to achieve paramount success, enforced the people’s appetites to far-reaching extents, and pushed them for more recognition upon their higher social echelons. Driven even further by China’s economic boom, by which numberless mainland Chinese, mostly parvenus, have begun to enter the competition, the contest has been itself increasingly arduous. This is evident, particularly, from one major detail: more and more mainland Chinese are buying up apartments and condominiums, the already-exorbitant prices of which having been marked up by major real-estate developers bulk of the locals, self-dubbed ‘Hongkongers’ can barely afford in their lifetime.

As a consequence, social gap has increasingly exacerbated in the last decade. Despite the fact there are up to 100,000 millionaires and multimillionaires living lavish lives in over-sized condominiums, or to a lesser extent, mansions on mountain peaks, it is also estimated that more than 170,000 people in Hong Kong are struggling to live in cubicle-sized, stacked boxes they call ‘homes’, most of whom are former construction and industrial workers having been displaced due to the city’s dwindling industrial sectors.

In short, the race itself is not going to stop anytime soon.

The New York Times has published an article and a slide show to document the plight of Hong Kong’s poorest, each of whom is struggling to find a better home for oneself.