Poverty in Industrialized Countries

As mentioned earlier, poverty in industrialized nations is also an important issue. While many poor in wealthy countries may not be in absolute poverty as the many poor people in developing countries, the relative poverty and high inequality in many wealthy nations creates significant issues.

The gap between rich and poor has grown in more than three-quarters of rich countries since the mid-1980s, according to a study of income inequality and poverty by the Organization for Economic and Cooperative Development (OECD) released in October 2008.

In addition, the study finds that the economic growth of recent decades has benefited the rich more than the poor.

However, amongst those 30 countries, results are mixed. The study finds, for example, that the past five years saw growing poverty and inequality in two-thirds of OECD countries. Canada, Germany, Norway and the United States are the most affected. The remaining third—particularly Greece, Mexico and the United Kingdom—have seen a shrinking gap between rich and poor since 2000.

As summarized by an OECD briefing , the income of the richest 10% of people is, on average across OECD countries, nearly nine times that of the poorest 10%.

The average hides large variations. For example the top 3 countries with the highest income gaps are:

1. Mexico, where the richest have incomes of more than 25 times those of the poorest
2. Turkey, where the ratio is 17 to 1
3. USA, where the ratio is 16 to 1.

Portugal and Poland also have large gaps, making it the top 5, but their gaps are not as large as those first three. (For many years, the US was regarded as having the largest gap between rich and poor of any industrialized nations, but the group of industrialized nations has slightly grown since to include Mexico and Turkey—also the two poorest OECD countries—amongst others.)

In Nordic countries, however, such as Denmark, Sweden and Finland, the gap is much smaller. The incomes of the richest 10% average around five times those of the poorest 10%.

from Are we growing unequal?, OECD Briefing, October 2008, p.2

Although the elderly are more likely to be poor, the risk of them falling into poverty has reduced over the last two decades such that “people aged 66-75 are now no more likely to be poor as the population as a whole.”

Worryingly, however, “children and young adults have poverty rates that are now around 25% higher than the population average, while they were below or close to that average 20 years ago.”

from Are we growing unequal?, OECD Briefing, October 2008, p.4

The OECD report noted for example UK’s shrinking gap between rich and poor. Back in 2000, the UK was the worst place in Europe to be growing up if you were poor, as more children were likely to be born in to poverty there, compared to elsewhere in the EU.

Despite a period of boom, in April 2000, the UK National Office of Statistics found that disparities between rich and poor continued to grow in UK.

In April 2008, the BBC noted that after 30 years of unprecedented economic growth, the British are richer and healthier — but no happier than in 1973.

As well as growing inequality and other issues, the BBC noted that the UK figures “follow trends from around the world that show that happiness and satisfaction do not correlate with average income once countries reach ‘middle-income’ levels.” In addition, “one in six UK adults reported that they suffered from a variety of mental health problems in the latest survey, of which the largest category was ‘mild anxiety and depression.’”

As Britain’s wealth generally increased, improvements in health were also accompanied by unhealthy luxury consumption including excessive alcohol consumption and excessive unhealthy eating creating a rise in alcohol related deaths and in obesity.

Andrew Simms, policy director of the New Economics Foundation in an article mentioned further above about inequality notes that

Crime and unhappiness stalk unequal societies. In the UK the bottom 50% of the population now owns only 1% of the wealth: in 1976 they owned 12%. Our economic system’s incentive structure, instead of “trickle-down”, is causing a “flood-up” of resources from the poor to the rich. Inequality leads to instability, the last thing the country or world needs right now.

Even the former hardline conservative head of the International Monetary Fund, Michel Camdessus, has come to the conclusion that “the widening gaps between rich and poor within nations” is “morally outrageous, economically wasteful and potentially socially explosive”.

— Andrew Simms, Now for a maximum wage, The Guardian, August 6, 2003

However, although there has been some improvement, there is a long way to go. A UNICEF report in February 2007 found that UK is failing its children  as it comes bottom of all industrialized nations in terms of child well being. UK child poverty has doubled since 1979, for example.

As another example, it may be surprising for some readers to learn that the United States, although the wealthiest nation on Earth, has often had one of the widest gaps between rich and poor of any industrialized nation.

United For a Fair Economy reported that for 1998 almost 70% of the wealth was in the hand of the top 10%. In another report, they mentioned that the gap had widened in recent decades. “In 1989, the United States had 66 billionaires and 31.5 million people living below the official poverty line. A decade later, the United States has 268 billionaires and 34.5 million people living below the poverty line-about $13,000 for a three-person family.”

In the United States, wealth is highly concentrated in a relatively few hands. As of 2007, the top 1% of households (the upper class) owned 34.6% of all privately held wealth, and the next 19% (the managerial, professional, and small business stratum) had 50.5%, which means that just 20% of the people owned a remarkable 85%, leaving only 15% of the wealth for the bottom 80% (wage and salary workers). In terms of financial wealth (total net worth minus the value of one’s home), the top 1% of households had an even greater share: 42.7%.

— Prof. G. William Domhoff, Wealth, Income, and Power, Who Rules America, University of California, Santa Cruz, last updated July 2010

Inter Press Service also summarizes an updated report by the US Census Bureau that 1 in 7 people in the US are in poverty. In 2009, 43.6 million people — 14.6 percent of the population - were living in poverty in the U.S., up from 13.2 percent of the population in 2008. The United States currently has the highest number of people in poverty it has ever had since the government began counting in 1959, although the percentage of people this represents is lower than it was then (due to the increased population size since then).

IPS also notes factors such as the global financial crisis, stagnant wages and more contribute to this deepening poverty. But the article also adds that the poverty estimate may be understated because of assumptions made in calculations years ago and changes in costs of living since then as well as regional differences.

As with Britain, even during the “booming economy” in the late 1990s and early 2000, there was an increasing gap between the rich and poor. Into 2002, fighting poverty did not appear to have been a major election campaign issue (nor was it in previous election campaigns).

Then chairman of the Federal Reserve, Allan Greenspan, revealed concerns in mid-2005 that the increasing and widening income gap might eventually threaten the stability of democratic capitalism itself in the US.

While health and education are key to any economy or nation to grow and be strong, both of these suffer issues of access, equality and pressure to cut back (including elsewhere around the world as discussed in the structural adjustment part of this site). For example,

• As a summary of a report titled Economic Apartheid in America mentions, “that the United States is the only industrialised nation that ‘views health care as a privilege, not a basic human right.’”. (Unfortunately the report itself not available on the Internet, but is produced by United for a Fair Economy where you can see many extracts and similar reports.)
• In addition, as good education is linked to a strong economy, Business Weekreports (February 14, 2002) on a study that analyses OECD data from 1994 to 1998, and summarizes that “the literacy of American adults ranks 10th out of 17 industrialized countries.” In addition, the issue of inequality was highlighted: “More troubling, the U.S. has the largest gap between highly and poorly educated adults, with immigrants and minorities making up the largest chunk of those at the bottom.” While Business Week concentrates on the U.S. they also point out that “Despite the mediocre U.S. ranking, it still beat out most of its major trading partners except Germany, including France, Britain, and Italy. (Japan didn’t participate [in the study].)”

The above-mentioned UNICEF report on child health found that as well as the UK being ranked bottom of all rich countries, the US ranked second to last. The report suggests that absolute wealth isn’t necessarily a guarantor of poverty alleviation or a measure for indicators such as child well-being, and factors such as inequality are also important.

And it isn’t in just these two industrialized nations that these problems persist. AGuardian news report, for example, shows that certain types of poverty in various European cities can be regarded as worse than in some other parts of the world which one would not normally think would compare with Europe, such as India.