Wednesday, November 22, 2006

Relative vs. Absolute Poverty

Greg Clark is pushing relative over absolute poverty and calling it the Toynbee agenda for conservatives. I think he may have oversimplified his analysis and wound up making the case for a definition of poverty quite different to the agenda of Adam Smith and other conservative fighters of poverty.

Consider two scenarios:

  1. Someone £1 below the median income picks up £5 that the Duke of Westminster has dropped in the street and pockets it.
  2. There is a depression in which the incomes of every section of society fall by 10% over a year.

Under the relative measure of poverty the former would be a rise in poverty and the latter would not. Adam Smith's measure, based on a changing basket of necessities, would come to the opposite conclusion.

Relative poverty works on the Marxist (in the intellectual sense - not Communist) assumption that envy, class hatred, is at the root of why we dislike poverty; that we dislike it because some are so much more rich than others who are poor. I would have hoped that a conservative, by contrast, dislikes poverty because it leaves some unable to form a part of our, one, nation. While this may change with average real income that change is not necessarily proportional.

Other factors besides median income may affect the basket of goods required to appear in society. Surely one reason the Ancient Greeks didn't have linen shirts in their basket of necessities to avoid poverty is also a reason that the Olympics in 2012 cannot involve as much as nudity as those in ancient times; Greece is a much warmer place than Britain. As such, British people would always have had the price of a greater quantity of clothing in their basket of necessities to avoid poverty. There will be other differences between time and place in what is needed to avoid poverty which are not a linear function of median income.

Further complicating the calculation is that prices do not change in a linear fashion across the economy. There is strong evidence that goods which the poor spend more of their income on (manufactures and food) are seeing much less inflation (thanks to currency manipulation and new capacity in the Far East among other things) than those the rich spend income on (education and other services). It could well be that a diminishing proportion of median income is needed to escape poverty in terms of the bundle of goods needed to get by in society (in the kind of society people in poverty want to be a part of; think Stevenage) and this again could confuse relative poverty numbers.

Clark is right to note that it makes some sense for the absolute poverty line to move over time. That would seem a decent representation of human progress and to represent changing cultural standards. This might want to be reflected by acknowledging that we see poverty as an absolute basket of goods and setting that basket explicitly, calculating its price for our poverty calculation and adjusting it over time.

However, the concept of relative poverty is rooted not in the thinking of conservative heroes like Smith or Disraeli but in that of class warriors like Toynbee and Marx whose views conservatives are right to reject.


Gracchi said...

Interesting post Matt- I've attacked this from the other angle in terms of the comparison with Churchill he evoked which I disagree with but anyway I'm not sure about your blog's argument.

Here goes the problem with poverty is as you rightly say a problem that lies in actual need. But there is another problem and that is the psychological one. This may be 'class warrior' of me but in a society where having money is the equivalent of success and competition is the purpose of a being's existance- then the problem with poverty consists in those that are poor being losers, failures if you like. Sorry I haven't phrased this well and will return to make the point better but I wonder if there is a political instability problem there.

Anonymous said...

Sinclair, well said.

A simpler example is, what would you rather be, in the bottom decile in the UK or half way up in Romania?

Serf said...


I think the streams of Polish immigrants rather answer that question.

Robert McIlveen said...

We should also be considering poverty caused by the failures of the state - especially in housing and education. State-sponsored poverty is something the government is in a position to do something about, whereas relative poverty is never going to be eradicable, and isn't really the key problem.

Focusing on the casues of social breakdown (which Cameron was using relative poverty as a proxy for on the Today programme) is an excellent approach to social problems, but it is slightly confused to tangle it up with relative poverty.