When is poverty more important than inequality?

Article of A. Moskovskaya “When is poverty more important than inequality? The difference of interpretations and the situation in Russia”
This article is a response to recent interview of new minister of Economics of Russia Maxim Oreshkin to Kommersant daily, in which the minister associated lowering barriers for the economic growth in Russia with overcoming poverty and lack of human resources. Alongside, he claimed that the problem of poverty is more relevant to the Russian economy than that of inequality.In her article, Moskovskaya A. offers five variants of response to the question what is more relevant – poverty or inequality, depending on socio-economic and political context of a certain country, the relevance of the Russian situation to each variant is discussed..

http://www.rbc.ru/opinions/economics/17/01/2017/587e17319a79477ca5fe6cdc  (in Russian)


ARTICLE (translation)

The priority of counteracting poverty over decrease of inequality is typical for the countries in transition from the traditional to industrial society. Russia is obviously not related to this group of countries.

In his recent interview the Minister of Economic Development Maxim Oreshkin associated the decrease of barriers for economic growth with overcoming poverty and lack of human resources. In the context of his interview, this formula is rather encouraging. However the phrase taken out of the context that the “problem of poverty in the Russian economy is much more important at the present-day stage of development than the inequality problem” was disseminated by mass media and stuck to memory apart of the context. This arouses concern, since the ideas can be taken as opposite when conveyed to their listeners.

To which economic and conceptual context does the opposition of poverty and inequality immerse us?

Context 1: “glass ceiling” of welfare growth

In certain conditions poverty and inequality can have common origin. Especially, if poor persons are perceived not as a share of population living below the poverty line, but the so-called disadvantaged, whose income rise over this line not more than 1.5 -2 times. In other words, they have sufficient resources only for the most important goods, but they are unable to reckon on social benefits.  If the share of economically disadvantaged/ low income population in Russia in higher than 1/ 3 and the statistics shows that the medium income is at the level of not the most poor countries worldwide (like in Russia) the position of disadvantaged persons in Russia is a consequence of state limitation of the access to economic and social benefits for a significant share of population.

The western countries experience shows than economic growth cannot lead to the increase of income of the economically disadvantaged population strata. Today’s concern with the problem of inequality in such countries is particularly associated with economic growth no longer leading to increasing employment and real income not only in economically disadvantaged, but also in average strata. According to OECD calculations, the reverse dependence is also relevant – extension of inequality hinders economic growth. If in Russia the problem of economic growth is not solved, the developed countries’ experience can serve a precaution from possible strategic errors.

Context 2 : The differences of approaches to poverty

Indicators of poverty are quite numerous, let us focus only on the differences between "absolute" and "relative" poverty. The first is based on conditional normative definition of quantitative poverty lines and the minimum income necessary for survival. With relative poverty, the situation is more complicated. It is determined using the ratio of income and the level of benefits the others have and what he is deprived of. This assumes the existence of a certain conditional level of benefits, that is deemed as decent.

In all cases, when assessing the relative poverty we are talking in a sense about a particular way of assessment of inequality. In this context, the juxtaposition of poverty reduction addressing inequality leads logically to focus on the indicators of absolute poverty in the definition of measures and evaluation of income policy results. But, as the experience of different countries, including Russia, the narrow orientation on absolute poverty easily leads to formalism associated with the establishment of standards and regulations (the border of poverty, level of benefits, means testing, etc.). With this approach, the reduction of the risk of falling into the category of the poor or the building of economic and social mobility to overcome the disadvantage typically goes beyond political decisions. However, they are most effective and logically related to the solution of the problem of inequality.

Context 3: Socio-economic backwardness

If poverty becomes a priority over other social policy tasks, it often indicates a low level of economic development of the country and inability to take on large social obligations. This situation is typical for developing countries and is usually associated with the transition from traditional to industrial society. Poverty reduction is a standard agenda of these countries’ social policy. This problem is especially relevant if a high proportion of the rural population. Russia and the structure of employment and the stage of technological development of these countries is markedly different. In addition, the level of GDP per capita Russia closer to the developed countries and even with the current exchange rate of the ruble slightly inferior to the countries with economies in transition, such as Poland and Hungary. In the lists of 2014-2015 according to this indicator Russia is ahead of Turkey and Mexico, to say nothing of the BRICS countries.

Context 4: Liberal welfare regime

The social policy agenda in any country (developed countries are no exception) depends on the "welfare regime", that is an established consensus among government, business and communities over the distribution of responsibility for the welfare of citizens. Limiting the role of the state focusing on the "bottlenecks" such as poverty or disability, in which the market and households are powerless, corresponds to the liberal welfare regime. Thus, test of needs and temporal limits of obtaining assistance,  serve accompanying conditions for its receipt, and the burden is transferred to non-governmental organisations and mechanisms of mutual assistance. This mode is typical for countries with a low level of involvement of the state in economy and social sphere.

In Russia, even a year after the adoption of the law "About bases of social service of citizens", that allowed in this area non-governmental organizations, approximately 95% of the operators of social services belong to the state, and that it is from state that the population and the non-state operators are waiting for help. In such circumstances, reliance on the establishment of a liberal regime of welfare makes no sense.

Context 5: “survival values”

From the point of view of global values survey within the framework of project WorldValuesSurvey the juxtaposition of poverty, inequality, and agreement to focus on the first, ignoring the second, shows lack of progress of the country from values of survival to values of development and personal expression, that is actually an unsolved problem of survival at the level of society. Threats to life support make it untimely to discuss the implementation of the rights of citizens to access social and economic goods. But the problem here is not in Maslow's hierarchy of needs, and the fact that many people in this country believe to be fair and highly prioritized. Poverty has not been overcome in developed countries, and the arrival of refugees and labour migrants makes this problem quite topical every now and then. At the same time this does not discard raising a question of the called inclusive economic growth, that is, the expansion of access to broader segments of the population, including migrants, to better working conditions, income, realization of their own potential and professional development. The program of measures to ensure the so called inclusive growth is being developed at the OECD level for several years.
It is possible to analyze in more detail the way the Russian situation falls into each of these patterns. In any case, you can thank the new Minister because he raised the problem of the relation of poverty and inequality and raised the question of who should bear the responsibility for overcoming both.