Why Poverty Hurts Everyone

By Philip Kotler,Nancy R. Lee

Date: Jun 18, 2009

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What is the impact of poverty on the rest of us—the nonpoor? Philip Kotler and Nancy R. Lee suggest it is enormous, and they make their case in this chapter.

At 5 a.m. in Zimbabwe, 13-year-old Chipo walks two miles to draw water to bring back to quench the thirst of her four younger siblings, ages 5 to 11. She prepares a slim pot of porridge, wondering where she will get something to feed them that night. She will have to carry her youngest sibling, who has had diarrhea for a week, to a medical clinic four miles away, where she expects a long wait. Her parents died from AIDS earlier in the year. Her neighbors are poor too, but they have provided a little help. She has no thought of schooling; her siblings and their survival are her only concern.

Meanwhile, near a vending machine at a gas station in Newark, New Jersey, Jim spots Suzanne after not seeing her for a long time. He is taken aback by her gaunt frame and worn-looking clothing. She breaks down and explains that she hasn’t been eating much because she doesn’t have money for food. Three years ago, she was hit by a drunk driver, and the accident shattered many bones in her body. She spent months in the hospital, and when she returned home, her husband divorced her. She has been living on $700 per month in alimony and $60 in food stamps. She applied for disability assistance but was told she was ineligible. She also has applied for part-time jobs, but she feels that when employers see her cane for walking, they immediately dismiss the idea of hiring her. Her rent is $430, her utility bill is $90, and her phone bill is $60. She spends over $70 a month on co-payments for doctor visits and prescription medication, and $40 a month for gas. That leaves $10 for food, since she usually runs out of food stamps toward the middle of the month. Suzanne fights back tears as she explains how awful she feels about not bathing, but soap and shampoo are not covered by food stamps.

Most of the terrible fates experienced by the poor like Chipo and Suzanne are familiar to many of us. We see the faces of the hungry, unemployed, and homeless. We read about gender inequalities, those who are illiterate, and villagers who have to travel an hour for health care or to get clean water—on foot. We know about mothers who experience their children dying young from diarrhea, who die in childbirth, and who age prematurely. We are frequently reminded of the vast numbers who have tuberculosis, malaria, or HIV/AIDS. And we hear about those whose farmland is producing less each year, whose livestock are not healthy, and whose water is contaminated.

But what is the impact on the rest of us—the nonpoor? We suggest it is enormous, and we make the case in this chapter. Over the years, many books have been written about poverty and its causes and cures. Some take a 360 degree view and offer broad policy and solution ideas often involving economic measures. Others get very close to the victims of poverty and describe their hardships and sufferings. Our book differs as it focuses on the fieldwork aspects of trying to solve specific problems of hunger, disease, inadequate schooling, family planning, inadequate or foul water, and other problems contributing to poverty. We believe that the developing field of social marketing, with its apparatus of concepts, tools, and principles can make a deep dent in these problems and has been missing in the poverty solution mix.

Our relentless focus and attention is on those poor who want to help themselves. What do they want and need that will address the barriers and support the behaviors that will move them out of poverty, even keep them out in the first place? They are the homeless people who don’t know what resources are available or how to access them; the millions of women who want to use family planning, but can’t convince their husbands; poor farmers who are afraid to try chemical fertilizers because they heard they might be bad for their livestock; sexworkers who fear they will lose business, even be jailed, if they suggest that their clients use condoms; fishermen who thought the mosquito net delivered to their door was for catching more fish; young adults wanting a job requiring computer skills they don’t have; tuberculosis patients who think because they feel better they can discontinue their medications; poor families wanting to save money but not trusting financial institutions; children dropping out of school because their itching from riverblindness makes them the brunt of teasing; and the high school students who end up not graduating because their attendance is so poor they get behind.

We will describe many cases in this book where social marketing theory and practice has been successfully applied to influence behaviors that reduced poverty and improved the quality of lives. We believe that the need to accelerate our progress in fighting poverty is growing more urgent than ever as a result of the financial meltdown starting in 2008 that has caused more people to lose their jobs and many to lose their homes and increase the numbers of poor. Hopefully help will be forthcoming along with these new tools and concepts for addressing the issues.

We begin with a brief picture of the poverty landscape, answering the questions: Who are the poor? How many are there? Where do they live? Why are they poor?

Who and How Many Are the Poor?

Governments are interested in measuring poverty for several reasons: to know its percentage in the population, to track whether it is rising or falling, to know its percentage among different groups, and, perhaps most importantly, to provide direction for developing poverty-reduction strategies. Several commonly used definitions of “poor” appear in the sidebar titled “Definitions of Poverty.”

The World Bank reports that a person is considered poor if his or her consumption or income level falls below some minimum level necessary to meet basic needs. This minimum level is called the poverty line. Because basic needs vary across time and societies, poverty lines vary in time and place. Each country uses a line that is appropriate to its level of development, societal norms, and values. Information on consumption and income is obtained through sample surveys of households, conducted fairly regularly in most countries. When estimating poverty worldwide, the same poverty reference needs to be used, providing a common unit across countries. Since 2005, the World Bank has used reference lines set at $1.25 and $2 per day of income, per person.2

Jeffrey Sachs, in his book The End of Poverty, distinguishes and describes three degrees of poverty. For each, we have applied the World Bank’s reference lines to estimate the size of each group:

Definitions of Poverty

Where Do the Poor Live?

Over 90% of the extreme poor live in three regions of the world: Sub-Saharan Africa, East Asia, and South Asia. Looking at extreme poverty by country, Table 1.1 shows the percentage of the world’s poor who live in each of these countries, with “poor” defined as living below the global poverty line of US$1 per day.10 As indicated, ten countries represent 84.24% of the world’s poor and almost two thirds (63%) live in India or China.

Table 1.1. The Top Ten Countries Representing 84.24% of the World’s Poor (Below US$1 Per Day)

Rank

Country

Percentage of the World’s Poor

1

India

41.01%

2

China

22.12%

3

Nigeria

8.03%

4

Pakistan

3.86%

5

Bangladesh

3.49%

6

Brazil

1.82%

7

Ethiopia

1.82%

8

Indonesia

1.49%

9

Mexico

1.43%

10

Russia

.99%

Source: NationMaster, 2008

To understand how “poor” a country is, however, it is more relevant to consider what proportion of its population lives in extreme poverty. Table 1.2 shows this statistic for all countries with 50% or more people living below the poverty line. As you can see, the vast majority (70%) of these countries are on the continent of Africa.

Table 1.2. Countries with 50% or More of Their People Living Below the Poverty Line11

Rank

Country

Percentage of the Population Living Below the Poverty Line

#1

Liberia: (Africa)

80%

#2

Gaza Strip: (Middle East)

80%

#3

Haiti: (Central America)

80%

#4

Zimbabwe: (Africa)

80%

#5

Chad: (Africa)

80%

#6

Sierra Leone: (Africa)

70.2%

#7

Suriname: (South America)

70%

#8

Mozambique: (Africa)

70%

#9

Angola: (Africa)

70%

#10

Nigeria: (Africa)

70%

#11

Swaziland: (Africa)

69%

#12

Burundi: (Africa)

68%

#13

Tajikistan: (Asia)

60%

#14

Bolivia: (South America)

60%

#15

Rwanda: (Africa)

60%

#16

Comoros: (Africa)

60%

#17

Guatemala: (Central America)

56.2%

#18

Malawi: (Africa)

55%

#19

Senegal: (Africa)

54%

#20

São Tomé and Príncipe: (Africa)

54%

#21

Afghanistan: (Asia)

53%

#22

Honduras: (Central America)

50.7%

#23

Kenya: (Africa)

50%

#24

Namibia: (Africa)

50%

#25

Ethiopia: (Africa)

50%

#26

Madagascar: (Africa)

50%

#27

Eritrea: (Africa)

50%

#28

South Africa:

50%

Source: NationMaster, 2009

Some are surprised to learn that India has (only) 25% living below the poverty line, China has 10%, and the United States has 12%. More detail on the United States is provided in the following sidebar.

Poverty in the United States

In the United States, an estimated 37 million Americans (12%) live below the official poverty line. Many are surprised by the following additional facts, published in 2007 prior to the collapse of the mortgage industry and the rise of gasoline prices:12

U.S. poverty rates vary significantly by race, age, education level, and other economic, social, and demographic characteristics. The overall poverty rate for minors (those younger than 18) is 22%, the highest in the developed world. The rate is highest for African-American minors (30%). And U.S. poverty has increased in recent years because of the rise in oil prices, the collapse of housing prices, the high debt burden, and deindustrialization resulting from the foreign outsourcing of more goods that normally would have supported blue-collar jobs in America.

A lot of controversy surrounds poverty measurements and solutions in the United States. Liberals tend to state that poverty levels are underestimated because these measurements ignore the medical costs of the poor, child support payments, and other costs. Liberals typically want government to spend more on antipoverty programs. Conservatives tend to believe that poverty levels are overestimated by failing to take into account the noncash benefits the poor receive, such as food stamps, public housing, church charity, and odd jobs. Conservatives also argue that living in poverty today is not as bad as it was in the past, with many poor people having TV sets, kitchen appliances, and even cars. They cite the 91% of households in the bottom 10% who own a color television, 55% who own a VCR, and 42% who own a stereo. They point to economic growth as the solution, not handouts.

Why Are They Poor?

There are ongoing debates over the causes of poverty, directly influencing the design and implementation of poverty-reduction programs that will be highlighted in Chapter 2, “Examining a Barrel of Current Solutions.” Most factors cited as contributing to poverty, however, are related to a few major categories: health, the environment, the economy, infrastructures, education, social factors, and family planning. Examples include the following:

New forces operating in today’s world are further threatening food supplies, raising food costs, and deepening the suffering of poor people. Major negative forces include the following:

The impact of these forces on living costs, credit availability, and joblessness has deepened the level of poverty. In 2008, for example, food riots broke out in Bangladesh and Egypt and required military interventions in Asia. Even in the United States, food banks and soup kitchens reported a 20% increase in visitors, and the number of citizens enrolled in food stamp programs grew by 1.3 million.13

And then there is the vicious cycle of poverty. Unfortunately, poverty has a built-in tendency to persist for generations within the poor and their offspring. Every baby born into a poor family faces a higher-than-average chance of dying at birth or shortly thereafter due to inadequate health facilities and abominable living conditions. If the baby survives, he or she will be exposed to hunger, polluted water, diseases such as malaria and dysentery, and other serious risks. The child, if he survives, is likely to grow up with little adult supervision because of parents who work in the fields or who are too weak to work. The urban poor child will grow up in slum conditions. He will receive either minimal or no schooling. The child will more likely bond with peers as he grows into his teens, many of whom will form gangs for mutual protection. Some children will end up in beggary or burglary or drug pushing. Early sexual intercourse is likely, resulting in young girls getting pregnant because of little parental supervision or ignorance about birth control methods. These young girls then bring into the world their newborns, who have no better chance than their parents of escaping poverty.

Why Should We Care About the Poor?

Poverty is a disgraceful and unjust condition that has always haunted mankind. Most people see the problem as insoluble. They see previous solutions that have failed. Some even think that previous remedies have worsened the condition of the poor. They claim that assisting the poor increases dependency and produces a “culture of poverty” that persists from generation to generation. Some go further and blame the poor for their problems. They think many of the poor are shiftless, lazy, unintelligent, or even parasitic. All that said, there is widespread pessimism about mankind’s ability to reduce the world’s level of poverty and wasted lives.

Why is it important to be optimistic about mankind’s ability to reduce the number of people who waste their lives living in penurious conditions? What will the nonpoor gain if the lives of the poor are improved? The answer is that the nonpoor, as well as the poor, can benefit for seven reasons.

First, poverty means wasted lives—lives of people who could have grown to their full potential, prospered, and contributed. How many could have become doctors, scientists, professionals, and contributors to the well-being of their families, friends, and society at large? Chapter 7, “Understanding Barriers, Benefits, and the Competition for Change,” tells the story of Cheong Chuon, a Cambodian farmer who, because of the Farmer Field School program he attended, learned to feed his chickens well and for less money by giving them earthworms, and to feed his tadpoles termites from a termite mound. He was also helped to apply for a microloan that he used to buy more chickens and build a chicken house. He was able to repay the loan with his increased productivity.

Second, poverty breeds desperation and leads some desperate poor people into wasted lives, in some extremes even to crime. Beggars abound in poor countries; in some cases they are even organized as a business. Some who are deprived of good things turn to criminal activities—burglary, holdups, prostitution, or drug running. The victims of crime include the poor themselves as well as many members of society at large. How many could be organized and supported to become productive instead of destructive? In Chapter 5, “Evaluating and Choosing Target Market Priorities,” you’ll read about scavengers who live in the slums outside Manila in the Philippines. They gather, on a daily basis, to dig through the 130-foot mountain of garbage at the city’s biggest dump. Their cottage industries thrive as thousands sort through the baskets that are then brought back to the slums. Consider what would have happened to these 150,000 residents if their activities weren’t supported by the city.

Third, the poor are more prone to illnesses and health problems. Consider that in today’s fast-moving world, diseases travel at breakneck speeds. Although it took decades for AIDS to spread, the bird flu showed signs of doing that in months. Those with only a few fowl to provide eggs and a few underfed chickens to eat will not destroy their only food source to save someone from the bird flu living in a land they have never seen. And, as described in Chapter 4, “Segmenting the Poverty Marketplace,” consider the fate of New York City if an aggressive condom distribution campaign had not been launched on Valentine’s Day in 2007. The city, with only 3% of the country’s population, had 18% of the HIV/AIDS cases.

Fourth, the hopelessness felt by the poor makes them apt to follow any demagogue who promises salvation, whether it is through communism, fascism, or religious extremism. Osama bin Laden operated in the Sudan for years and found an eager following. Poverty, and its accompanying hopelessness, is a primary source of suicide bombers willing to trade their life for the small rewards given to their surviving families. In Chapter 6, “Determining Desired Behavior Changes,” you’ll read about Gulbibi, living in Pakistan, who was married at the age of 16. By the time she was 26, she had been pregnant five times, suffered one miscarriage, and given birth to four children. Eventually, with the help of a family clinic, she was able to convince her husband they could not afford to have any more children for a while. But what would her future and potentially that of many others have been if she hadn’t taken action?

Fifth, the poor represent far more than a group that deserves our sympathy and charity. Helping the poor escape from poverty will also help raise the incomes of the rest of the world. The poor constitute a major untapped market opportunity for businesses that can imagine new ways to bring down the cost of products and services to the poor. Up to now, companies have largely failed to recognize “the fortune that lies at the bottom of the pyramid.”14 Through microfinance loans, smaller package sizes, and less expensive equipment (computers, cell phones, and so on), most of the poor would have access to the material fruits of modern society. Business and commerce need to pay attention to the poor if they want to know where they will sell or rent the next billion cell phones or computers.

Today millions of Chinese and Indians are employed making low-cost products to sell to other less-developed countries. Stripped-down models of electric generators that meet basic needs are sold for less than $200 in Africa to the working poor. Comparable output units but with more gadgets sell for three to four times as much in developed countries. Cell phone prices are dropping below $30, in part because they aren’t loaded with features that many customers don’t need. An inexpensive cell phone in a country such as Mali, where there is only one landline phone per 1,000 people, is a business opportunity, not just a convenience. The owner of that phone charges other people for calls by the minute and creates a livelihood.

C. K. Prahalad,15 in his book The Fortune at the Bottom of the Pyramid, makes a compelling case for adapting products for the poor to make them affordable. Using Prahalad’s math, the extreme and moderate poor have buying power equal to $8 billion per day. This makes the poor a multitrillion-dollar annual market for the world’s products. Prahalad believes that the poor are an opportunity, not a burden. Western companies can resurrect earlier and simpler models of successful products and provide them at lower costs to this vast marketplace.

A sixth reason that more advanced nations should worry about nations filled with poor people. These nations often collapse into “failed states” that fall into conflicts and violence that necessitate military intervention by U.S. or NATO or UN forces. This happened with Honduras, Lebanon, Somalia, and Bosnia-Herzegovina—each violent outbreak within or between countries posing a threat to U.S. and European national security. As described in Chapter 11, “The Nonprofit Sector’s Role in Poverty Reduction,” lack of preparation for natural disasters can also lead to failed states and increased need for international support. The massive disaster in Central America from Hurricane Mitch in 1998 served as a wake-up call, inspiring the government to take several actions to minimize the impact of inevitable future emergencies.

Seventh, the poor are desperate to leave their surroundings and enter other countries legally, or more often illegally, to better their lives. The United States itself estimates that 12 million Mexicans and other Latin Americans have entered the United States illegally in spite of billions spent on U.S. border control. Europe is beginning to feel the enormous pressures of illegal immigration from desperate people fleeing appalling circumstances in Africa and Asia. Not only is there the fear that they will take jobs away from workers in the developed countries, but that they will end up living in burgeoning slums along with some imports of criminality. Clearly the working class (middle and upper classes) in developed nations cannot claim they are safe and unaffected by poverty. The poor are no longer only a problem for the poor but a problem for all of us.

Summary

This chapter has presented the various definitions used to measure the number of people living in poverty. The “absolute definition” of people who live in extreme poverty is those who earn less than $1.25 a day (an estimated 1.4 billion). Those who live in moderate poverty earn between $1.25 and $2 a day (an estimated 1.6 billion). Adding to this the additional 1 billion estimated to be living in relative poverty, 4 billion could be considered poor. Although the majority (63%) of the extreme poor live in India and China, Africa has the greatest percentage of its population living in poverty.

Several major factors related to causing or reflecting poverty include those related to health, the environment, the economy, infrastructures, education, social factors, and family planning. Existing ideas (a barrel of solutions) for addressing these are presented in Chapter 2.

We concluded with ways that the nonpoor are also impacted by poverty, citing seven reasons we should all do all we can: