1. Introduction
Most readers would agree that eradication of absolute poverty (EAP) is no easy task for various reasons. These would include inter alia factors inherent in the concerned individuals
1.1. unreliable data on who the individuals concerned are, because some of those in the EAP database do not belong to the absolute poor category
1.2. some of those in the EAP database are not keen to make the necessary effort to extricate themselves out of their current situation in spite of the support provided, while others would like the support to go on for ever
1.3. others lack the confidence that they would be able to fall back on their feet in case something goes wrong and find it safer to remain where they are and continue benefiting from the available support
1.4. others still have got themselves into behavior patterns that make it difficult for them to get back to the mainstream – this would include victims of substance abuse and alcoholics
1.5. A small minority are simply unable to help themselves because of extreme physical and/or mental disabilities or age.
2. Systemic factors
While the issues raised above are complex enough, there are definite systemic factors that further exacerbate the problem. Some of these relate to issues of fair pricing and fair wages.
2.1. It is a known fact that developed countries inflict all sorts of restrictions and quotas on imports from the Third World while advocating free trade. As if these measures were not enough, importers from these countries impose the lowest possible prices on their helpless suppliers in the developing countries while requiring compliance with principles which were openly flouted when the developed countries were in their early phases of industrialization. In fact, the Chagos saga clearly shows that some developed countries do not hesitate to flout basic principles of justice and human rights when it suits their purpose while posing as defenders of these same principles.
2.2. This state of affairs results in a situation where companies in countries like Mauritius are forced to pay their workers salaries amounting to less than Rs5,000 per month – in other words, within the range of the definition of absolute poverty! How can someone work hard in a textile factory from 07:30 to 17:00 (and travel to and from work for 1-2 hours per day) and earn a salary that does not enable him/her to get out of absolute poverty or to earn a salary that is significantly higher than social aid? It is thus not surprising that Mauritius has run short of factory/manual workers and has had to import workers from countries where they are paid still less.
2.3. In order to camouflage this blatant injustice which results in developing countries remaining poor (like of the factory worker referred to in 2.2 above) in spite of all efforts, developed countries set up schemes for foreign aid and position themselves as benevolent donors – remember the recent 6 billion rupee grant received by Mauritius. Once could almost refer to this as ‘International CSR’!
2.4. This ‘International CSR’ reminds us of some local companies which pay relatively meager salaries to their lower level staff while posing as generous donors through their CSR programs. In fact, one may see the international situation described above replicated on a smaller scale at the local level. The lowest wage policy (like the lowest price policy) – dictated by the elementary supply- and-demand model - results in a situation where the real benefits of not working far exceed the benefits of working.
2.5. This dysfunctional system is indirectly reinforced not only by the presence of government and/or non-government organizations but more importantly through the creation of bodies like the Ministry of Social Integration. These, like their international counterparts, create a false aura of permanence around the problem. While one does not dispute the excellent work done by this Ministry and its committed staff, any objective observer would agree that there is almost nothing for which the Ministry of Social Integration is responsible that does not represent an attempt to deal with a failure of one of the existing ministries (e.g., ministries responsible for Social Security, Child Development and Family Welfare, Education and Human Resources, Housing, Public Infrastructure, Labour etc, etc). If all these ministries had been fully effective in dealing with failures of their respective systems, there would have been no need for an additional ministry to tie up the loose ends.
3. Vested interests in the status quo
We may wonder what would happen to the host of government and non-government organizations theoretically involved in EAP if absolute poverty happens to get eradicated?
3.1. Here one is not referring to focused NGOs involved in heroic efforts in the rehabilitation of victims of substance abuse or those caring for individuals suffering from extreme physical and/or mental disabilities, or vulnerable individuals (e.g., old people and children) abandoned by their family and other similar activities.
3.2. The finger is being pointed at those organizations whose office bearers have become experts in applying for and obtaining local and/or international grants to set up fancy schemes that never produce any noteworthy results. Some of these organizations are headed by influential individuals or their spouses who have easier access to fund owners because of their social contacts. Some of these organizations consciously or unconsciously operate in such a way that the problem is never solved as this would make them redundant. In other words they have vested interests in the status quo.
3.3. There are so many of these government and non-government organizations that problems often remain unsolved not because of lack of resources but because of overlapping responsibilities and/or lack of coordination among them. To make matters worse, this multiplication of agencies results in a significant increase in transaction costs (and risks of corrupt practices) and a further decrease in the amount that actually trickles down to the beneficiaries (assuming that the latter are genuine deserving ones).
4. Solutions
In view of the above, the solution would seem to lie in a multi-pronged approach that would include the following:
4.1. Ensuring that the relevant ministries actually do what they are supposed to do and not leave any loose ends to be handled by another Ministry and thus avoid a dilution of accountability. If there is a Ministry for Housing, there should be no need of a separate budget under the Ministry of Social Integration to take care of housing for the poor. Similarly, the Ministry responsible for Human Resource Development should also take care of the training of the poor. The assumption here is that if all the existing Ministries do their job properly, no one should remain permanently poor.
4.2. Ensuring that government institutions involved in offering services like education or health offer excellent service with a bias towards the poor and not the other way round. Thus schools in poor neighborhoods should be staffed by the best teachers and head teachers. This would decrease the need for private tuition or private health service providers that further reduce the disposable income of the poor.
4.3. The other assumption is that there are sufficient funds to ensure that no one lives in absolute poverty. If we concede for the sake of argument that there are 7,000 families living in absolute poverty (i.e., with a monthly income amounting to less than Rs5,000 per month) as is often claimed, it would be possible to get all of them to a salary level of Rs10,000 or more by simply doubling their current declared income up to a specific ceiling. Thus, 7,000 x Rs5,000 x 12 months would amount to Rs420M per year – a sum that Mauritius can easily afford without any costly schemes. It should be noted that the amount used to top up the salaries of the poor would not be very different from the one used to finance social aid for the 7,000 families. So the additional expenditure, if any, would not be significant.
4.4. Moreover, given that about a third of the 7,000 families may turn out to be earning much more than the stipulated Rs5,000, we may even set up a scheme where even if someone earns Rs8,000, this income is supplemented by Rs2,000 to reach a minimum of Rs10,000. The above income matching scheme may sound crazy, but it would not be crazier than the socialization of losses that underlies the stimulus package programs set up supposedly to speed up economic recovery.
4.5. The above minimum monthly salary of Rs10,000 will have the following advantages:
4.5.1. It would make it more worthwhile to work and declare one’s true income than to depend on social aid while often working in the informal sector and under-declaring one’s income.
4.5.2. This salary level would ensure that the incumbents are able to pay a rent for a decent house, pay for child care etc. especially if two members of the family decide to work.
4.5.3. There would thus be no need for any sophisticated housing scheme that often looks good on paper and leads nowhere. And even if the housing scheme is implemented, it would tend to result in ghettos for the poor with limited opportunities for social mobility. Helping the poor to pay their rent would encourage private investment in low cost housing in mixed neighborhoods and ensure that people from different social classes live close to one another and support one another with the poor providing scarce services (child care, security, house help etc) and the more fortunate ones supplying job opportunities and helping supplement the income of the less privileged while hopefully providing the necessary role models.
4.5.4. For the self-employed in the informal sector – what is proposed is a ‘inverse taxation’ where the EAP beneficiary is paid 10% of his annual declared income up to a maximum of Rs30,000-50,000 per year. The bonus could be guaranteed for a minimum of five years. This would encourage him to declare his real income and forego social aid. This bonus will replace the social aid currently being paid to the EAP beneficiaries.
4.5.5. Thus instead of tolerating a system where some companies pay meager salaries to their lower level staff while promoting costly CSR programs to feed the latter’s children at school, it would be more worthwhile to ensure (through Remuneration Orders and otherwise) that workers who are regular at work are paid decent salaries and are thus able to feed their children themselves – this would do a lot of good to their dignity and self-respect while reducing transaction costs where middlemen and brokers benefit from the bulk of the funds available.
4.5.6. The income supplement and inverse taxation referred to above may appear simplistic and it is possible that there would be cases of abuse – but the amount involved is a finite and known one. Moreover, none of the beneficiaries would be able to subsequently claim that they are living in absolute poverty. They would remain out of absolute poverty as long as they are willing to work honestly for a living. Moreover, they would receive the full disbursed amount as there are no middlemen and transaction costs are kept to a minimum.
4.5.7. With an income supplement scheme similar to the one described above one would not only be rewarding effort but also ensuring that we do not make the ‘industry of poverty’ the sixth or seventh pillar of the Mauritian economy – given the number of government and non-government organizations and ‘social workers’ who currently profess to be involved in poverty eradication programs!
4.6. The implementation of the above income supplement and inverse taxation schemes would result in a cleaner EAP database and enable the authorities to focus on the few cases that genuinely require support – e.g., the severely handicapped and old people who have only their old age pensions to live on etc. In these cases, one could, after close scrutiny of the individual cases, simply supplement their current pension with a special EAP allowance that would enable them to pay their rent and live a decent life.
4.7. Serious measures should be taken to curb the availability of narcotics on the local market – organizations involved in the rehabilitation of victims of substance abuse seem to be confronted with a Sisyphus-like situation – where they work hard at getting people off drugs while, on the one hand, the victims are helplessly addicted and on the other, there is a continuous supply of narcotics. Some of these organizations are firmly convinced that not enough is being done by control the inflow of narcotics in the country.
4.8. It is also known that companies involved in consumer finance related activities generally focus on the lower income groups who have no choice but to avail of credit facilities even though interest rates are often far above prevailing bank rates. It is not surprising that C.K.Prahalad had identified consumer finance as one of the means to tap the fortune at the bottom of the social pyramid. In the process, the poor who are often easy victims of shrewd advertisers, end up being heavily indebted often after buying non-essential goods. They thus require protection - and one effective way to do this is through the setting up of a Credit Bureau that will minimize the risk of the poor buying on credit more than they can afford and ensure that the little disposable income that is available is not used to pay installments to consumer finance companies.
4.9. Recently, gaming companies have come up with schemes that are designed to lure the naïve and the poor with dreams of winning prizes sometimes as high as Rs50M or more. This has resulted in a further depletion of the disposable income of those at the bottom of the pyramid. If we take into account the tax element and administrative costs, it would not be difficult to compute the astronomical amount that would have been lost by clients to make it possible to pay a prize of Rs50M. In fact, it has been said that these gaming schemes often constitute disguised ways to tax the poor. If we really want to eradicate absolute poverty, certain strong measures should be taken to curb the activities of these gaming companies.
5. Conclusion
5.1. This article has attempted to analyze the problem of absolute poverty in all its complexity and show that there are practical ways to eradicate absolute poverty in a very short time if one adopts a multi-pronged systemic approach. What is required is the willingness to think outside the box and not adopt the same old solutions that have failed us or have had limited success in the past.
5.2. Some of the proposed solutions, like the income supplement scheme, would not be easy to implement – but if the authorities are willing to use tax payers’ money to bail out failed businessmen – there is no reason why a fraction of this amount should not be used to bail out the poor in a sustainable manner. A small dose of socialism at the lower end of the social spectrum will not hurt anyone.
5.3. Other solutions, like the Credit Bureau, already exist in countries like South Africa and it would not be difficult to get an expert from there to help us set it up within a few months.
5.4. Finally, it is acknowledged that some of the measures proposed above may appear simplistic or extreme. These have been put forward to stimulate debate and encourage concerned people to consider drastic actions to deal with a serious social problem. Otherwise, in ten years we would end up with a still larger number of people living in absolute poverty after having spent billions of rupees.
[Note: I wish to place on record my gratitude for the numerous comments and suggestions received from those who read the first draft of this article – one of the readers even drew my attention to an income supplement scheme - similar to the one proposed above - which is currently being implemented in Brazil.]
[First published in Le Mauricien on December 7, 2010 and L'Express on Dec 9, 2010]
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