Poverty Trap

Aspiration inequality leads to a poverty trap.

In recent years there has been much debate as to whether a poverty trap exists in society today, and if so, why it continues to persist. Economists are divided. Those such as Jeffrey Sachs (an aid optimist), believe that for some reason poor countries are trapped in poverty: they are poor just because they were poor in the first place. There are possibilities to extricate themselves and make steps towards affluence, however this can only come with considerable resource help (financial or otherwise). Other economists on the other hand, such as William Easterly (an aid pessimist), believe that countries have become rich after being poor just as well as rich countries have become poor: poverty is not permanent, therefore the poverty trap cannot exist. There are two dominant psychological views of poverty and the poor. The rational choice view dictates that the poor act like consistent humans with well-defined preferences. They adapt to their environment in the best way possible: they are poor but rational. The primary alternative to this is the pathology view: the view that there are psychological pathologies which are particular to the poor. This view spans many stances – from views that the poor are impatient and lack planning ability, or that they are simply irrational. These views are relatively simple to refute, however one view which has developed considerably in recent times it that the poor lack the capacity to aspire. What is central to the argument is the concept of the individual. The broad consumer has wants and desires – simple commodities such as marriage and respectability – which are derived from a more fundamental concept: that of aspirations. These aspirations, found in every human, are formed from various forms of social relations. The argument points toward aspiration inequality: inequality in people’s capacity to aspire. Those in rich countries typically will have higher aspirations whilst those in poorer countries will be less conscious of the connections between their aspirations and the commodities which are available to them. This comes about because firstly the poor have less experience than the rich – they are unable to draw aspirations and commodities together because they have little experience of doing so. And secondly, they have fewer opportunities than the rich to experience what choices they can make to fundamentally change their well-being. Essentially the poor have little choice relative to the rich, and, as such, have a limited capacity to aspire. As such, the poor find themselves in an ‘aspiration trap’ and ultimately all choices the poor individual makes may well be sub-optimal due to their inability to foresee the potential of their own preferences. It is this aspiration inequality which leads to a poverty trap. Individuals form their aspirations as a result of what they believe is feasible, and ultimately individuals may set upon their entire life with aspirations lower than what they are truly capable of achieving. This behavioural bias combined with the greater risk which the poor are susceptible suggests that a poverty trap is ever more likely to occur. Take education – children who fall behind and cannot catch up due to a lack of resources (a position which the poor often themselves in) ensure that a poverty trap persists. Of course, aspiration inequality alone is not the sole cause of the poverty trap. Market and institutional failure certainly play a considerable role in the persistence of poverty, but perhaps more important in this 21st century world are the social norms and beliefs which accompany the state and legal systems which fail to break through the poverty trap which haunts so many countries.

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