Cycle of Poverty
Cycle of Poverty
Cycle of Poverty
poverty is a great curse. It is the biggest hurdle in the way of economic development. Ranger
Nurkse in ''Problems of Capital Formation in Underdeveloped Countries'' describes 'vicious
circle of poverty as the basic cause of under-development of poor countries. According to him, a
country is poor because it is poor. Being poor, a country has little ability or incentive to save.
The low of saving leads to low level of investment and to deficiency of capital. The low of
investment leads to low level of productivity. When the productivity per worker is low, the real
income will obviously be low and so there poverty and vicious circle is complete.
On the side of demand when people have low real income the demand for goods is bound to
be small. In the small size of market, there is no incentive of invest in real or human capital.
When the rate of investment is low, the productivity of the factors of production is bound to be
low. Low productivity leads to low per capital income which is rapidly absorbed by the rising
population growth. The country, therefore, remained poor.
Lower per capita incomes make it extremely difficult for poor nations to save and invest, a
condition that perpetuates low productivity and low incomes. Furthermore, rapid population
growth may quickly absorb increases in per capita real income and thereby may negate the
possibility of breaking out of the underdevelopment circle.
Remaining poor is certainly no crime. The accepting of poverty and allowing it to continue is
certainly a crime. Briefly, the vicious circle of poverty can be broken in developing countries
including Pakistan by adopting following measures.
(1) Increase in savings. The vicious of circle of poverty can be broken by making serious
efforts in increasing the volume of real savings both at the level of in development the govt. The
govt. can also mobilize foreign savings for capital formation country.
(2) Higher per capital growth rate. The per capital growth rate should be higher than the rate
of growth of population. This objective be achieved by increasing the level of employment in the
country and reducing the rate of population growth. If the rate of increase in real per capital
income is the same as the rate of growth of population, the real income per person will remain
unchanged.
(3) Efficient use of natural resources. The less developed countries (LDC) are not making the
efficient use of the natural resources available to them. At present the multi national companies
(MNCs) of the advanced countries are exploiting these resources more for their own economic
benefits. The economic advantages of the natural resources must pass on to the benefits of the
poor masses of the LDCs.
(4) Employment of human resources. Many of the less developing countries including
Pakistan are faced with serious unemployment problem. The quality of labour force is also poor.
The low level of literacy, malnutrition, absence of proper medical care etc are all barriers to
economic development Effective measures have to be taken for sufficient investment in human
capital to break the poverty barrier of the LDCs.
(5) Increasing the stock of capital goods. The LDCs can come out of the vicious circle pf
poverty if the wealthy class is motivated to make their savings available for investment in
productive activates rather than using their wealth on the purchase of urban real estates, precious
metals etc.
(6) Technological advance. The people in less developed countries (LDCs) can break the
poverty barrier by adopting and applying advance technologies which are appropriate to the
resources available to them.
(7) Role of the advanced nations. The advanced nations san help the less developed countries
in breaking the poverty barrier by:
(ii) increasing the flow of private and public capital in basic infrastructure.
(iii) provision of direct aid in basic social sectors such as education, health etc.
(8) Role for the government. The government in the less developed country is in the key
position to deal effectively with social institutional obstacles to growth and breaking out the
vicious circle of poverty. It can greatly root out political corruption and bribery. It can provide
incentives to save and invest. It can increase agricultural production by introducing effective land
reforms in the country.