INCOME GENERATION, POVERTY AND WEALTH
by Phil Bartle, PhD
Core Document in the Module
This handout is aimed at the trainer or facilitator of fieldworkers who are either training for the first time in this area, or are upgrading their skills. It is focussed on the principles that lie behind the skills, techniques and methods that are in other documents on this site
Because you, as a trainer and facilitator, are undertaking a very important task, contributing to the elimination of poverty, you need to know some basic principles that lie behind the techniques and activities that you will carry out. You will learn to attack the causes of poverty, not its symptoms.
You will learn that the enemy is poverty, not poor people. You will learn that to eliminate poverty, wealth must be created; merely moving money (or sewing machines) from one owner to another merely alleviates the pain temporarily. You will learn that poverty is a social problem, and that assisting individuals is different from bringing durable solutions to a social problem.
You have a set of clients and you are going to intervene in their lives. This is a responsible task. Without an understanding of the economic and social factors and repercussions of your activity you are in danger of doing more harm than good. Remember the first oath of doctors, "Do no harm." Let that be your original guiding principles.
Our long term goal is the eradication of poverty. What causes poverty?
We will not eliminate it by temporarily alleviating the discomfort and pain caused by poverty. Those are symptoms. In fact, here is the first potential for harm. If you relieve the symptoms, you add barriers to the elimination of poverty. Giving charity to a person in need reduces her or his pain of poverty in the short run, but trains the same person to be more dependent upon that charity.
We must identify the causes of poverty, and counteract those powerful negative forces. Learn the "Big Five" major factors lying behind the social problem of poverty. Not only will you teach those big five to your trainees or participants, you need to know that the principles of poverty elimination require the elimination of that "Big Five."
We must devise methods to create genuine wealth as a sustainable process of growth. When some people see the word "wealth" they think of the huge wealth of rich and powerful people. Wealth, however, means whatever has value, no matter how small, and is what money measures. It is the opposite of poverty; it is the value that lies behind money.
If we are to defeat poverty, then we must know much about poverty (not only its symptoms) and about wealth.
We must first discard some common assumptions. Poverty is not merely the absence of money. Wealth is not merely the possession of money. Poverty and wealth go far beyond the absence or presence of money.
Money can be used sometimes as a measure of wealth, a means to store wealth, and a useful set of symbols for the exchange of wealth. But money is not wealth, and the nature of poverty is far more interesting and challenging than just the absence of money.
Remember, this handout is not aimed at teaching you techniques, it encourages you to analyse the causes of poverty, and the principles of the techniques that you learn in the other documents in this series.
Money can be a very useful tool. Money can be used to fight poverty and generate wealth. Money by itself, however, will not eliminate poverty. The transfer of money from one owner to another merely shifts it about; it does not solve the social problem of poverty.
You need three things to contribute to the removal of poverty: (1) an understanding of concepts and principles (2) some skills in training, facilitating and organizing, and (3) personal characteristics, including integrity, motivation and creativity. This handout focusses on the first.
What is Wealth, Really?
If money is not the same thing as wealth, and just adding money will not eliminate poverty, then what is wealth and how will it help to fight poverty?
We can not just print more money. If we simply add some money to an economy (eg printing more bills), then we contribute to inflation, making the money worth less than it was. Inflation simply means that the costs of things goes up. We can not just hand out money to poor people. If we just transfer money, from rich people to poor people (alms, charity), we do not create new wealth and we do not attack causes of poverty. (See "Dependency," and see the anecdote about "Mohammed and the Rope," in the "Stories" handout).
So, first let us understand the nature of wealth. What is it?
If we look at the economist's definition of wealth, we will come closer to seeing how it will be used in the fight against poverty. Economists talk about "goods and services" with value, but even "goods" have value only in the extent to which they provide a service. The key concept, here, is value. (See "keywords.") Something has relative value according to two attributes, (1) if it is relatively useful (has utility) and (2) if it is relatively scarce.
The wealth that is to be created (or income to be generated) is in the form of value added. That means something (valuable) already has some value, and the activities of your participants, trainees or clients will take it and add more value to it. That additional value is the wealth that is generated.
Any of us who have been short of cash feel that we know what poverty is. But the experience of individual poverty, which is alleviated by getting some money, is very different from the social problem of poverty, which a problem of the whole economy - the whole society. The social problem of poverty is lack of wealth, not lack of money. For low-income persons, poverty is also a result of how wealth is distributed through the society. If you just add money to the system, you only create inflation, and that does not rid society of poverty. You need to add value (wealth) to the system to reduce (not merely alleviate) poverty. The answer to fighting poverty, the social problem, then, is not to add money but to create or generate wealth; and your job as facilitator is to guide poor people in methods to generate wealth.
You can do three things with wealth: (1) consume it, (2) store it, and (3) invest it. To illustrate this, let us take the example of an African farmer. (You can illustrate this concept by showing a small container with some dried maize kernels in it). Since the vast majority of farmers are women and girls, we will use "she," but will not discriminate against or forget males. Let us say she has just harvested a crop of corn. She can (1) consume, (2) store, or (3) invest it. (Show your container of maize kernels and ask which of the three things can be done; or divide the portions into three). She can cook and eat some, with her friends and relations; that is to (1) consume. (Of course you do not cook the food in the classroom, but showing the kernels will demonstrate the reality of your example). She can put some away in a container; that is to (2) store. If parasites and pests destroy some of the stored corn, we will just call that an unpleasant and unwanted form of consumption. She can also put some of the corn aside to use as seed, to plant and grow further crops in the future. This is (3) investment of her wealth, corn (which is relatively scarce and useful). Only the third choice creates new wealth.
The clue to increasing wealth in an economic system, then, is investment, where immediate consumption is forgone in the present or short run, in order to make increased production of wealth in the future. Our modern complex world is not as simple as that of one farmer making three choices, but the principle remains the same, investment leads to increasing wealth, and fighting poverty.
That is an important principle in the income generation scheme in this series; and is essential for you to understand before you start your work.
Poverty as a Social Problem:
What causes poverty? (The social problem poverty).
Lack of money is a measure and a symptom of poverty. Treating the symptom or the measuring device will not cure the disease. The causes of the social problem of poverty lie in several factors, especially the big five: disease, ignorance, dishonesty, apathy and dependency.
Disease causes the labour supply of the society to be less productive. Sickness and death subtract from one of the three main factors of production, human labour. Disease itself can be reduced by a greater understanding of how to prevent disease, and ensuring that public wealth intended to be used to prevent and cure disease is not diverted for personal gain.
Thus the factors of poverty are inter linked: dishonesty and ignorance contribute to disease, and all three contribute to poverty.
Ignorance, as mentioned elsewhere, is not a shameful thing, it is merely a fact. It is caused by isolation so that some people do not know some things simply because they have not heard of those things (information). Other factors of poverty can contribute to ignorance, including disease and dishonesty. Both those factors contribute to a lower availability of education and information.
Dishonesty, in turn, is a major cause of poverty as a social problem. When a person in a position of trust diverts a hundred units of value towards personal use, the society at large may lose much more than a hundred units of value that could contribute to development and to the reduction of poverty. That is part of what economists call the "multiplier effect." Dishonesty thrives in an atmosphere of apathy, ignorance and dependency, so here is another example of the inter-linking of factors of poverty.
Note that this is not a value judgement. We do not say dishonesty, disease, ignorance and apathy are bad. That is for our religious leaders to teach about good and bad. This is just a scientific analysis (social science) of the factors of poverty.
To fight the social problem of poverty (if that is the decision of the people) it is necessary to identify and analyse the causes of poverty.
Further factors of poverty include lack of markets, lack of leadership, lack of supporting institutions, corruption and poor infrastructure. These factors, in turn, are the results of the five key factors: apathy, disease, dishonesty, dependency and ignorance.
Poverty, like wealth, comes in several varieties related to ownership. The lack of communal human settlement facilities and services belongs to public or group ownership. These include lack of access to health facilities and educational facilities, lack of infrastructure such as roads, market places, electricity or telephone, and lack of other communal infrastructure such as sanitation, potable water and a dependable food supply. These forms of communal wealth differ from personal ownership, where poverty is manifested in low or no wages, lack of land and other property, lack of privately owned capital (tools, buildings, factories), and lack of human skills.
This methodology emphasizes private capital formation and poverty reduction by stimulating private micro enterprise.
The Need for Investment:
This method initiates, at a very low level, private investment that, if it takes root and grows, contributes to country-wide wealth creation and poverty eradication.
As a trainer, you need to know the meaning of investment, and its role in fighting poverty and the creation of wealth (generation of income).
Existing wealth can be directed towards consumption or investment. Corn, as a food, is an example of a consumption good. A garden hoe, used to prepare the farmland, is an example of a capital good. A capital good can not be directly consumed, but can contribute to increased further wealth. Investment means directing wealth towards the production of capital, which is needed to contribute to growth of wealth in the community and society.
When you initiate this income generation scheme, you are guiding low income entrepreneurs in the conversion of wealth for consumption to wealth for investment, and therefore the increase of wealth and the reduction of poverty. Small scale productive business, especially the initial processing of agricultural products, is most effectively carried out by individual entrepreneurs. That initial processing is highly needed throughout the continent, and is the most promising sector for reducing poverty on a wide scale basis.
Your job as a mobilizer is to introduce low income individuals, especially women (also unemployed youth, disabled, vulnerable), to become creators of wealth, ie individual off-farm entrepreneurs processing agricultural crops.
As in any community work, the generation or creation of income among your low income clients is something more than just blindly following a recipe of actions to take; it is necessary for you to understand the social and economic principles that lie behind the correct actions to take.
Without understanding those important principles, you may be tempted to make incorrect decisions regarding your actions and the purpose, intent, and results (output) and consequences (outcome) of your actions.
There are many individuals, with arguments that on the surface look convincing, who will attempt to lead you astray; there is real danger then of you taking actions that contribute to dependency and poverty in the long run (perhaps temporary alleviation in the short run), rather than a sustainable reduction of poverty and a genuine generation of income.
To assist you in this important understanding, this handout aims at explaining the nature of wealth (how it differs from money), the social (not individual) nature of the social problem of poverty, the meaning and essential purpose of investment, and the realization that charity (free gifts of money or goods) and grants or subsidized loans will contribute to the problem rather than to the solution.
© Copyright 1967, 1987, 2007 Phil Bartle