The Economics of Poverty, and the Poverty of Economics

A few years ago, a couple of local politicians made an extraordinary offer.  Come to Hawke’s Bay and invest, they said, for we have low wages and conditions.

This thinking imagines that economic success comes, not from the creative dynamism of our own local culture and enterprise, but when some outside ‘investor’ comes into our place like some latter-day colonist.  All the better to be cheap.  Hail cheap ‘human resources’, cheap environmental ‘resources’ (even free, if you can get it), cheap compliance costs.  Hail their ‘freedom’ to take the land and whatever lies beneath.

This is a seriously visionless view of our commercial world, whatever the propaganda of jobs and prosperity for all.

305K kids in poverty.jpgWe can think and act a whole lot better than this.

It was also more confirmation of what we have known for some time: there are many men in suits who see the wage rates of Bangladesh as our economic goal. Let us have poverty. Poverty is good for business. And let’s put the blame on the victims, make it a sport if we can. Perpetuate the myth of the undeserving poor and laud those who drive a Maserati.

Seriously, this approach to life and the economy is very dumb. It is stupid because it degrades the very basis of a strong local economy. It is morally and intellectually bankrupt because child and family poverty is our poverty, just as the degradation of our natural systems is our degradation. It is myopic because it kills opportunity, creates costs, and makes life worse for local business. It is deluded because it promotes the takers and the short-term wheeler-dealers who work in boardrooms, and makes life harder for creative enterprises that have smoko tables.

We lose community cohesion and quality, get less enterprise, get additional costs, and less money going around local business.

Here’s how. Kaumatua Des Ratima once told me that our people have lost hope. We were comparing the feeling of optimism and opportunity we once had with the feeling today that life is now different. When people lose hope and optimism, then society is worse, and the realisation of talent stalls.

The four capitals.pngWe are poorer.  Our social and human capital is degraded, and hand in hand goes the exploitation of our natural capital and our underfunding of essential infrastructure and service.

Social Capital Eroded: Potential Unrealised
This loss of social cohesion and belonging is the first and major cost of poverty. When we make policies that reduce hope we degrade our localised ‘social capital’; the very thing that creates economic prosperity – trust, participation, belonging, social and individual responsibility, justice and caring.

Social networks.jpg

Enterprise comes from a culture of trust, confidence and belonging

When you feel good about life, you meet, you trust in justice and each other, you exchange ideas, discussion flows – and things happen. Start-ups, clusters, art, expression, value-chains, new connections. And enterprise leads to more enterprise, hope to hope, a virtuous circle.

Social capital – or its lack – is more than related to the realisation of enterprise.  There is no such thing as a ‘rational’ thought outside a sociological system of belief and feeling – about yourself and the world.  When you are feeling like one of the ‘Precariate’ shifting from one short-term casual gig to another, or your expectation is that the next gig will be another controlled, thoughtless and unfulfilling job without any shred of commitment to you in the way of training, recognising what you are good at, or your personal development, then you can very quickly give up.

You build people Ziglar.jpgThese are sociological phenomenon understood by the best economists, those who focus on people-led development. Build a community, a team, not a mechanical factory staffed by unthinking and obedient Orcs.  The worst economists and corporate dealers do not accept sociology, because it doesn’t fit into their asinine models that reduce the complexity of life to a dollar number.  And so they perpetuate and accentuate failures that are very much their own, and presume those failures are all related to the individuals whose potential lies dormant.  The “Rational Choice” of “Human Resources”.

Social Costs Increase
To compound the idiocy of crushing potential, we get costs instead. The personal cost of misery when children are sick with preventable diseases. The public cost of having an ambulance at the bottom instead of cheaper prevention. More mental health problems. Wasted education investment. Violence, theft, police and prisons all increase.

We are poorer, though the GDP may rise with all the extra work we need to do to repair all the damage.

Local Purchasing Power Lost & a Shift from Local Firms to Cheap Bulk Retail
The last negative effect of poverty is in reducing economic demand upon which our local firms depend; less money to cycle and multiply, a vicious cycle. The Great Depression is a classic example of what happens when you reduce demand to a trickle. But we had our own mini-example when New Zealand’s local economies tanked after National Party Finance Minister Ruth Richardson stripped $1 billion off welfare support in her 1991 “Mother of all Budgets”. It tanked because poor people – who tend to spend locally – could no longer buy, and so those enterprises laid off staff, compounding the reduced spend and the layoffs.  And Big box retail came in to compound the problems for local business.  We become a more corporate uncaring world compounding the problems for local economies.   Communities dominated by local enterprises do far better on all metrics.

WalmartRichardson made the lives of the already poor even more miserable because economic fundamentalists in Treasury believe in the bollocks that people ‘choose’ to be poor and we all live in some Yellow Submarine world of equal opportunities. It follows from those cloud cuckoo land assumptions that any reduction (or elimination) of welfare payments will allow the market to adjust, and people will go out and get the jobs that are no longer there. Genius.

So let us start a conversation. Poverty is a choice we make; a very bad one. It is both a symptom of a stupid economic creed and a key driver of our own material and spiritual poverty. Poverty suits the takers, not the creators. Poverty is not the consequence of some moral or meritorious karma; it is a clear sign of an economy in trouble, and a need to think and discuss new ideas.


Chris Perley

Chris Perley is an affiliated researcher at Otago University’s Centre for Sustainability with a governance, research, management and policy background in provincial economies, rural sociology and land use strategy. He was the 2017 Green Party candidate for Tukituki.

An edited version of this article appeared in Hawkes Bay Today.


  1. Key Facts from the 2008 Ontario Study
    – Poverty disproportionately affects certain populations, and has a complex mix of institutional and individual causes.
    – Poverty has a price tag for all Ontarians.
    – The cost of poverty is reflected in remedial, intergenerational, and opportunity costs.
    – Reducing poverty with targeted policies and investments over the life course generates an economic return.
  2. According to a 2016 report by the Joseph Rowntree Foundation, poverty costs the UK £78bn a year. 
    From the Guardian article
    They “estimate that dealing with the effects of deprivation costs £1,200 for each person in Britain. ….. estimates that the impact and cost of poverty accounts for £1 in every £5 spent on public services.”  The biggest chunk of the £78bn figure comes from treating health conditions associated with poverty, which amounts to £29bn, while the costs for schools and police are also significant. A further £9bn is linked to the cost of benefits and lost tax revenues.”Julia Unwin, the chief executive of the foundation, said: “It is unacceptable that in the 21st century, so many people in our country are being held back by poverty. But poverty doesn’t just hold individuals back, it holds back our economy too.“Taking real action to tackle the causes of poverty would bring down the huge £78bn yearly cost of dealing with its effects, and mean more money to create better public services and support the economy. UK poverty is a problem that can be solved if government, businesses, employers and individuals work together.”
  3. Report Poverty and Education: Finding the Way Forward 2013 estimated the cost of US Child Poverty at $US 500 Billion per year.
  4. The banal view that we live in a Yellow Submarine world of equal opportunity and meritocracy is only believed within Neoliberal Economists’ models – the very empty vessel discipline that determines much of public policy, and is supported by corporate wealth and the political far right.John Hopkins Bloomberg School of Public Health reports “Linking extreme poverty and stunting among children to poorer educational outcomes and earnings as adults, researchers said that failing to invest in early child development is blocking about 250 million children globally from reaching their potential.”  The findings were published in a series of reports in the Lancet in October 2016.
  5. Child poverty is only a small part of the whole poverty story, but the statistics compiled by New Zealand’s Child Poverty Monitor make bleak reading, and are deeply embarrassing.

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6 Responses to The Economics of Poverty, and the Poverty of Economics

  1. HAMISH LEVACK says:

    Chris, I needed a silvicultural gang to tend my trees in the Wairarapa, and I pay $20+/hr, the living wage, for labour, but it proved impossible to obtain anyone locally although there are many fit people on the dole. The solution has been to engage a gang of Tongans and Samoans who are normally domiciled in Gisborne, and provide additional pay to accomodate them in a motel in Masterton. These guys are great. They have an excellent work ethic, and sing while they work. Is our national problem cultural, and spiritual rather than economic? Regards, Hamish.

    • cjkperley says:

      Don’t you think they are linked? So many people have lost hope. It is something I’ve seen so much of over the last six years when dealing in communities. Great people with great talent and ability continually crushed. And we don’t have the systems that train. Corporates don’t tend to train – the listed ones. Buy off the shelf is cheaper. Even hospitals have been doing it.

      Our economic system since 1984 is directly to blame in my opinion. It does not understand people or community. It doesn’t understand motivation or esprit de corps. We are all numbers and a cost on someone’s ledger. And that creates a culture of apathy and spiritlessness. Neoliberalism and corporate-thinking destroy social capital – and then they blame the people they have suppressed.

    • kiwilifenz says:

      I see that as a result of years of erosion in our economic, and social conditions, for once we were a happy nation of people who believed this was the “Land of Milk & Honey”, but slowly that feeling was lost, as year after year our hopes were crushed, year after year our lives became harder, as we watched the fatman get fatter, we lost hop.
      That loss of hope created a sector of people who now live in despair and depression, and a few months of work for a decent wage is not going to get this sector jump out of their depression, which took years to get a good foothold.
      A few months of work means a disruption in their way of life they have had to get conditioned to living, the loss of hope, the loss of dignity, the loss of our humanity, while we filled out forms and answered questions about how we spend our $200 a week, on why we need a food grant, on what are we doing to cut down on our spending.
      Yeah, most days we don’t even want to wake up to face another day of hopelessness.

      • cjkperley says:

        That is a reality that I have heard and seen so often over the last five years. It is also what Kaumatua Des Ratima told me. So many of our people have lost hope. Thanks for sharing.

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