The Problem of Poverty in a Society with Excessive Socio-economic Inequality

Ermakova Eka ORCID: 0000-0001-8464-9605 PhD in Economics Associate professor, Department of Theoretical Economics and Economic Security, National Research Ogarev Mordovia State University 430004, Russia, respublika Mordoviya, g. Saransk, ul. Mordovskaya, 35, 195, kv. 78 eka-tsulaya@yandex.ru Other publications by this author

Igonina Alina Aleksandrovna Student, Department of Theoretical Economics and Economic Security, "N. P. Ogarev National Research Mordovian State University" 430005, Russia, Republic of Mordovia, Saransk, Bolsheviststkaya str., 68 igonina-alina@mail.ru

Despite the qualitative changes in economic processes in the modern world and the constant development of all spheres of life support of the population, the problem of socio-economic inequality and poverty, as an extreme form of its manifestation, remains one of the unresolved global problems of humanity in the XXI century. Poverty is the cornerstone in ensuring sustainable development, therefore, the fight against poverty today is the most important task of the world community. People-saving, human potential development, and improving the well-being of citizens are defined by the National Security Strategy of Russia as national interests.

The problem of poverty today concerns not only the countries of the "third world", but is also relevant for the countries of developed capitalism, Russia, China, and the "Asian tigers". It is also not eradicated in the countries of the Old World. Today, more than 60% of the world's extremely poor live in middle-income and higher countries.Poverty and misery are global problems, and in this regard, the close attention and efforts of international institutions are aimed at solving them.

The World Bank has launched a large-scale project aimed at eradicating poverty by 2030 in countries with any income level. The UN Sustainable Development Goals program focuses on poverty eradication. Russia, like many other countries, has ratified this document and is implementing a policy to achieve the adopted Sustainable Development Goals.

Despite the fact that Russia belongs to high-income countries (according to the methodology of the World Bank), poverty in Russia is chronic. According to the results of research conducted by the Higher School of Economics, half of the poor population is chronically poor (that is, it retains this status for 3 or more years). At the same time, 56% of the chronically poor live in rural areas, and 36% live in small towns. This determines the scientific interest on the part of foreign and domestic scientists, directed to the study of the problem of poverty and ways to overcome it.

Poverty is a complex, complex, multidimensional and multidimensional phenomenon. It is studied both in the context of the Sustainable Development Goals, and in relation to economic growth, and as a socio-economic phenomenon. In our opinion, attention should be focused on the problem of poverty as one of the forms of manifestation of socio-economic inequality, since in a society that is highly differentiated in terms of income and well-being, poverty becomes a source of social and political risks and a serious limitation to development.

Society, as a rule, justifies its inequality – this is how various economic and social rules arise, designed to strengthen the established order of things. Turning to history, it can be argued that the phenomenon of inequality has existed since ancient times.However, the issues of its nature and influence on economic development have become interested relatively recently. Thus, in-depth studies of the problem of socio-economic inequality can be found in the works of S. Kuznets ^[1], J. Stiglitz ^[2-3], T. Piketty ^[4], Kiruta A. Ya, Shevyakova A. Yu. ^[5], Popov V.V., Jomo K. S. ^[6]

In his research, Branko Milanovich proves that in societies with a constant average income, epidemics are negative forces of inequality (that is, they increase it). This theory was also confirmed by the COVID-19 pandemic, announced by the World Health Organization in 2020. The situation of people of the lower income decile has deteriorated significantly due to the pandemic: morbidity and mortality rates from COVID-19 among the poor are higher than similar indicators of the middle class. This applies even to developed countries (Great Britain, France, Spain). The poorest segments of the population faced during this period not only the unavailability of medicines, but also the loss of a source of income.The modern understanding of poverty draws its origins from the views of 19th-century scientists on this phenomenon.

Almost the entire 19th century is a period of social insecurity and lack of labor rights and guarantees of a working person. Accordingly, by the end of the century, calls for solving the social issue, low wages and working conditions sounded more and more urgent and demanding. The basis for understanding the essence of poverty, certain aspects of its assessment and measures to support the poor part of the population was laid by representatives of the classical school of political economy - K. Marx ^[7], F. Engels ^[8]. - they proposed caridinal changes in the social structure, considering the interests of employees and capitalists as antagonistic.

The first serious attempts to study and measure poverty at the end of the XIX century are associated with the name of S. Rowntree ^[9], who conducted a study of household budgets in England and justified the need to quantify poverty through the definition of physiological limits of survival.S. Pamuzh and Ya. Sanden, based on a retrospective analysis of the economic development of England, formulated the "paradox of early growth" - economic growth only after 5-7 decades leads to an increase in the real incomes of those employed in industry and agriculture; it takes even more time to improve people's living standards.

 Fundamental and applied studies of poverty in the XX century are recorded in the works of J.

Saks ^[10], A. Sena ^[11], M. Orshansky ^[12], A. Banerjee, E. Duflo ^[13-14]. The latter became the winners of the N.O.B.E. Prize in Economics for an experimental approach to combating poverty, which caused a response not only in the scientific but also in the political environment. In our opinion, not all the tools offered by Nobel laureates can be applied to Russian practice (for example, micro-loans to small artisans and merchants)

Systematic study of the problem of poverty in our country began only in the 90s of the XX century, during the period of radical economic reforms, when poverty engulfed the broad masses of the population. Among the domestic scientists who have focused on this problem, V. N. Bobkov ^[15], L. N. Ovcharova ^[16], M. I. Voeikov ^[17] can be distinguished.The problem of poverty is global.

According to the latest data (2020) According to the World Bank, 7.6% of the world's population live below the poverty line set at $1.9 (PPP in 2011 prices), while in low-income countries more than 40% of the population live below the designated poverty line. The share of the population in the United States with incomes below $ 1.9 (PPP in 2011 prices) in 2020 was 1%.

24% of the world's population currently live on less than 3.2 US dollars (PPP in 2011 prices) and 42% of the population have an income of less than 5.5 US dollars (PPP in 2011 prices). If we apply the poverty line of 5.5 US dollars (PPP in 2011 prices d.) for low-income countries, 90% of the population of such countries have an average daily income below the designated level.

Poverty is one of the forms of socio-economic inequality. For 40 years, the income of the top 1% of the population is whiter than 2 times the total income of the bottom 50% of the population (according to the World Inequality Lab). According to the same organization that studies the phenomenon of socio-economic inequality, the annual growth of real incomes of the population in the top 10% is 3 times higher than that of the entire population as a whole, and in the top 0.001% - almost 15 times (Table 1).

Table 1 - Average annual growth of real incomes of the population in the world

Source: World Inequality Lab

According to official statistics, Russia has overcome extreme poverty and, since 2011, there are no people living in the country on less than $1.9 (PPP in 2011 prices). Taking into account the fact that, according to World Bank estimates, the Russian Federation belongs to countries with above-average incomes, for If it is recommended to use the poverty line at the level of 5.5 US dollars (according to PPP in 2011 prices), then 3.7% of the population can be attributed to the absolutely poor in the country. The national poverty line is usually higher than the absolute international threshold (Table 2). The exception is China – in this country, the international absolute poverty line (extreme poverty) is taken as the national one.Table 2 – National poverty lines in selected countries (according to the World Bank)

Source: World Bank.

The profile of Russian poverty has its own specifics. First of all, this is the phenomenon of "labor poverty" - 28.9% of the poor population in 2019 are employed in the economy, among which 0.7% are working pensioners. According to the results of a sample survey of Rosstat, more than half of the poor population of the country lives in rural areas; 52% of the poor population are people of working age.

Poverty manifests itself not only through a shortage of monetary income, but also in the absence/difficulty of access to basic medical, educational, communal, infrastructure services. For example, the proportion of children under 2 years of age vaccinated against whooping cough, diphtheria and tetanus in 2020 in Central African countries does not exceed 60%, in India – 85%, in Brazil – 77% (the global average is 83%).

According to WHO, in 2019, 2.2 billion people did not have access to clean drinking water, 4.2 billion did not have access to adequate sanitation. In the Russian Federation during the same period, the share of the population without access to central water supply is 8%; the share of the population deprived of electricity is 4%; and the share of the population living in unsanitary conditions is 10.7%.

In the countries classified by the World Bank as low-income countries, 71 children under the age of 5 died in 2020 (each per 1,000 newborns). In more than 50% of cases, children could be cured with timely qualified medical care. At the same time, in the same countries, about 45% of children die from factors related to malnutrition. According to the UN, the spread of coronavirus infection increases the monthly increase in children suffering from acute malnutrition by more than 550 thousand. The most critical situation with child mortality is in the countries of Africa – the Central African Republic, the Republic of the Congo, Mali, Nigeria, Chad.

As K. notes Schwab, "nothing has so clearly demonstrated the relationship of "wealth and health" in America as the COVID-19 pandemic, which hit more those who have less money." He also states about the "global trend according to which diseases such as COVID-19 affect the poor more strongly."

In the Oxfam report "The Virus of Inequality", based on the expert opinions of 295 leading world economists (including J. Sachs, G. Zukman) from 79 countries of the world, it was noted that the Covid-19 pandemic has caused the problem of inequality and poverty to worsen: the rich have become richer, the poor even poorer. The report provides the following data:  the share of the poor population is recovering to the pre-pandemic level 14 times slower than the capital of the richest people on the planet.

The spread of coronavirus infection has also had a strong impact on the availability of health and education services. In 2020, more than 180 countries temporarily closed their schools, resulting in about 1.7 billion children and young people not attending school when the closure was at its peak. The pandemic has deprived children in the poorest countries of almost four months of schooling, compared with six weeks for children in high-income countries. Every third country faced with a pandemic did not have such social guarantees as sick pay.

To date, more than half a billion cases of COVID-19 have been recorded in the world, of which almost 7 million are fatal. The USA, Brazil, India, Russia, Mexico are the leaders in the number of deaths from coronavirus infection.

The All–Russian population survey conducted within the framework of the coronaFORM project shows that it is the poor and especially the poorest citizens who most often report that their lifestyle has changed significantly due to the pandemic (57 and 73% of respondents in these groups), while only 40% of people with average financial situation estimate the scale of changes this way, and among the "wealthy" – 34% of respondents. 84% of the population, who, according to subjective estimates, consider themselves among the poorest segments of the population, indicates that their financial situation worsened during the pandemic. At the same time, only 26% of the population with a good and very good financial situation (according to their own estimates) notes a drop in income during this period.

In addition, a third of the poor and almost half of the very poor (33 and 47%) report that there are many people (more than three) in their environment who have lost their jobs or their main source of income due to the pandemic. In general, 22% of respondents answer this way in the sample. Two–thirds of the poor and very poor (66 and 68%) say that the fear of losing their job and/or main source of income is widespread in their environment - against 48% of the sample as a whole. 

In the perception of Russians, a family lives in poverty if the average income of one member does not exceed 12.5 thousand rubles, a study by the Levada Center showed. 40% of respondents reported that their income is below this subjective limit.

In the view of Russians, a family lives in poverty if the income of one family member is below 12.5 thousand rubles, follows from a study by the Levada Center. The subjective poverty line is 11.6% higher than the poverty threshold set by the authorities — the subsistence minimum, which in the second quarter of 2019 amounted to 11.2 thousand rubles.

To maintain a normal standard of living, a Russian family needs about 38.1 thousand rubles per person, according to the survey results. The authors of the study also asked respondents to name the amount of their family's average per capita income over the past month, and it turned out to be 2.3 times lower than the estimate of normal income — 16.8 thousand rubles. Only 7% of Respondents receive a normal income in the perception of Russians, it follows from the results of the survey.

It is obvious that the spread of the COVID-19 coronavirus pandemic has worsened the situation of the poorest segments of the population, increasing their deprivation in relation to the availability of medical, educational services and the labor market.

According to Russian scientists, in order to consistently solve the problem of poverty, a program of its elimination is necessary, which has the status of a federal regulatory legal act ^[18].

T. Piketty offers radical methods to reduce the problem of socio-economic inequality ^[19]. The most natural way to avoid economic collapse, in his opinion, is the development of social federalism. It is based on the idea of a just society – one where access to the widest range of benefits is provided to all members of society, and income inequality is explained only by different life aspirations. The ideologist also proposes the return of the progressive inheritance and income tax to the role it played in the twentieth century in developed countries, when rates reached 70-90% on the highest incomes. Inheritance and income taxes should be supplemented by a progressive wealth tax. This is a key tool for the fair treatment of capital: it is more difficult to manipulate it than income tax, especially for very rich people, whose taxable income often makes up a small part of their wealth, while the actual income is accumulated in family holdings. At the same time, there is no need to immediately tax the largest fortunes at rates from 60 to 90%: rates of 10-20% will achieve the same result within a few years, while 90% of the least well-off people are guaranteed a significant tax reduction. Progressive taxes on large fortunes can become a source of financing for a universal capital investment fund for every young adult (say, at the age of 25) for various social needs. The principle of a progressive tax can be extended not only to property and finance, but also to carbon dioxide emissions. The key goal of the new social order is not the distribution of income, but of opportunities, reducing restrictions on access to basic goods and services for the population of the lower deciles.Foreign experience in the fight against poverty demonstrates the effectiveness of mechanisms of shared responsibility for the eradication of poverty and poverty, combining social and individual responsibility.

One example of such a mechanism can be a social contract, which is fundamentally different in its essence from targeted financial assistance to the poor. The social contract involves assistance from the defense of state and municipal authorities in overcoming difficult life situations through training, employment, retraining or retraining of a citizen deprived of a source of income or part of it. The application and development of the social contract mechanism is effective not only from the point of view of overcoming the problem of poverty, but also from the position of eliminating "market failures".Progressive taxation coupled with the introduction of an income tax-free minimum can activate the redistributive and stimulating function of public finances, smoothing polarization in society and easing the situation of the extremely poor.