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Theories of relativity: linking poverty, inequality and development

On 24 November 2006, David Cameron, the Leader of The Conservative Party in the UK, gave an important speech in which he said that it was no longer sufficient to think about absolute poverty, but that relative poverty should be the main frame of reference:

‘Let me summarise my argument briefly. I believe that poverty is an economic waste and a moral disgrace. In the past, we used to think of poverty only in absolute terms – meaning straightforward material deprivation. That's not enough. We need to think of poverty in relative terms – the fact that some people lack those things which others in society take for granted. So I want this message to go out loud and clear: the Conservative Party recognises, will measure and will act on relative poverty … This has consequences for Conservative thinking. Tackling poverty is not just about a safety net below which people must not fall. We must think in terms of an escalator, always moving upwards, lifting people out of poverty. And, crucially, an escalator that lifts everyone together.’ (Scarman Lecture, ‘From state welfare to social enterprise’).   

Cameron’s analogy of an escalator refers to severe poverty; that, according to Conservative calculations, if the poverty line was set at 40% of the value of the median national income and not the conventional European Union figure of 60%, poverty levels would have increased since 1997. Thus, proclaimed ‘success’ in poverty reduction has been through shifting those closest to the 60% threshold just above it.

In addition to poverty gap arguments, Cameron contended that there has been a lack of appreciable improvement in persistent poverty or social mobility, and that health inequalities are widening.

The speech appears to mark a highly significant shift. My ODI Background Note aims to clarify some of the terminology and approaches within the current UK poverty debate.

The note highlights three main issues.

First, that documents from the Conservatives’ Social Justice Task Force (SJTF), through drawing on Polly Toynbee’s analogy of society as a camel caravan, implicitly accept that excessive inequality, including excessive wealth, can lead to a breakdown in social cohesion.

Second, the Conservatives link relative poverty to the work of Adam Smith. However, Smith’s work does not refer to the conventional modern-day definition (the proportion of the population under 60% of the median national income), but to Townsend’s classic (1979) notion of relative deprivation.

There are two key shifts of emphasis between relative poverty and relative deprivation. On the one hand, there is an implicit switch from objective criteria to consensual criteria – that deprivation is judged by what is deemed important by society, not an objective measurement of wealth. On the other hand, there is a shift from money-metric indicators to non-income indicators – thereby focussing on the ultimate ends of human welfare and not the means of achieving them. This is achieved by measuring multiple dimensions of human well-being: health and housing indicators; access to opportunities, employment and services; inclusion in everyday conventional social practices. There are key advantages to such a ‘human development’ approach: firstly, as implied above, it allows for participants to specify and define key dimensions of poverty; and secondly, it allows for non-material aspects of well-being, such as autonomy and security to be included.

Third, that Adam Smith’s contribution to debates around social exclusion and relative poverty may be much greater than the Conservatives have recognised. Smith’s work in The Theory of Moral Sentiments shows that poverty is a relationally-lived social experience – that it is not intrinsically what we have that makes us poor or not, but how this is interpreted by others, and their expectations of us.

Why is this important? There are two clear reasons. Not only is poverty relative in the sense of comparisons of income and assets, etc., to those around you, but, as Layard (2003) argues, status matters – our broader wants and desires are derived from society, especially from within reference groups. Moreover, the (unconscious) outcomes from such comparisons constitute your self-worth, your confidence, influence how you interact with others who are richer or poorer – thus influencing your value orientation, affecting opportunities and possibilities in life, and impacting on health and well-being.

The key implication of Smith’s approach, in particular how he highlights the important emotions of shame, disgrace and grievance, is that a key determinant of social exclusion is extreme inequality.

By drawing on recent ODI work, the note links these three issues with a current debate in international development on inequality. The final section of the note draws-out some tentative similarities between the poverty debate in the UK and the inequality debate in the South.

The implication of the discussion is that any Government must address extreme inequality directly, not only for intrinsic reasons or for instrumental reasons around growth, but also because it fosters social exclusion that undermines any progress on poverty reduction.