Social inequality and child poverty – Blog No. 37.


In dealing with the matters of poverty and social inequality contained in this post, I am stepping outside the areas in which I can claim any special expertise. Though I lack deep understanding of the problems, they are nevertheless problems that worry me – just as they do, or should do, others. I am writing this in the hope of increasing others’ awareness of and understanding of the problem – and of their anxiety levels regarding it.

I spent some formative years of my business life in York. While there, I became good friends with an elderly Quaker couple, Alex Ison and his wife, Noni, who both took an active interest in our start-up company’s endeavours. Noni was one of the last members of the Rowntree family – famous for their chocolate manufacture (Kit-Kat, Aero, Rolo, etc.) which has since been subsumed into Nestlé’s mega-corporation.

Seebohm Rowntree

Noni’s uncle, Seebohm Rowntree, was the son of one of the two brothers, who had founded the company. He became interested in the social conditions of his workforce and after ground-breaking research, published a work on poverty among the working people of York. ‘Poverty: a study of town life’ profoundly influenced the whole science of sociology and the policies of many national governments.

The other three-quarters

Successive British governments acted upon Seebohm’s finding that as many as 28% of the urban population lived below ‘the poverty line.’ Most significant, was Seebohm’s demonstration that the poor found themselves in that position not through their own fault, but due to a society that provided a level of security and paid wages below that required for its members to lead full and healthy lives. It was to this work that much of the future development of the British welfare state could be traced.

Seebohm’s ideas march on. Taking an extract from the final page of a recent London School of Economics paper on Seebohm’s relevance today “ Poverty and progress for the next generation,” “…suggests that, if the political will is there, there is no reason why policies cannot be as effective today in further reducing poverty as they were in the past. Rowntree’s own conclusion from a century ago remains apposite:

That in this land of abounding wealth, during a time of perhaps unexampled prosperity, probably more than one fourth of the population are living in poverty, is a fact which may well cause great searchings of heart. There is surely need for a greater concentration of thought by the nation upon the wellbeing of its own people, for no civilization can be sound or stable which has at its base this mass of stunted human life. The suffering may be all but voiceless, and we may long remain ignorant of its extent and severity, but when once we realize it we see that social questions of profound importance await solution.”

There are two basic definitions of poverty. ‘Absolute’ poverty is not to have access to sufficient means to acquire the food, clothing, health care and shelter required to lead any form of decent life outside one of constant and dire necessity. ‘Relative’ poverty is not to have sufficient means to participate fully in society. When most members of a society consider as ‘normal’ the giving of birthday presents, having access to the internet, or taking an annual holiday away from home, those of its members, who can not afford to, are living in relative poverty. Such disadvantaged members of a society are unable to fully contribute to its human resource potential and, as such, their condition works to the disadvantage of society as a whole. While the absolute poverty line remains more or less static, as a society grows richer, so too does this measure of relative poverty demand access to further means, if individuals within it are to remain above the poverty line.

There are many countries in the world in which absolute poverty is a problem – and it is one that is likely to grow as climate change takes its grip. This effect will be multiplied, as cyber developments in manufacturing technology favour advanced economies and reduce the demand for low-end manufacturing work. Effectively,this route, which in the past, has provided the traditional boot-laces by which under-developed nations have been able to pull themselves into prosperity, is going to become much harder to follow: the rich nations will get richer and the poor nations will remain in poverty. As things stand, there seems small chance that an internationally agreed plan for assistance will be developed and implemented, which will prove radically more effective than the current ad hoc basis on which global inequality is approached.

The food insecurity, lack of access to education and health care, which are endemic to many countries today, have multiple causes and multiple studies have been published on the subject.  Here are some of the more significant in no particular ranking of importance. Some, or all, the following non-exhaustive list of factors will be present in varying degrees in all the afflicted countries.

poverty 3rd world
Life in the middle of the tracks

1. Colonialism. The history of colonialism, as outlined in Jared Diamond’s ‘Guns’ Germs and Steel’,_Germs,_and_Steel left much of the global population either deceased, or with their descendants doomed to live in states with governmental institutions designed to exploit, rather than nurture their economies. Diamond’s book can be read alongside a more recent work, ‘Why Nations Fail,’ by Daron Acemoglu & James Robinson. This gives case studies of how the colonial process of institutional impoverishment leads to economic impoverishment. This process continues long after the original exploitative colonial powers have withdrawn. The governmental institutions, built up by the colonial powers to facilitate and maximise the exploitation of the colonised people and the extraction of their assets, are typically continued by the new indigenous elites that step into the shoes of the departing colonial powers in order to pocket the proceeds for themselves.

2. Proxy wars. The powerful nations of the Earth, though competition between them might be intense, avoid direct military conflict with each other as the costs would be too high. Instead, they fight their wars for control over the globe’s markets and resources through their proxies, to whom they provide internal assistance in gaining and holding political power, advanced weaponry, training, intelligence and diplomatic support. The economic disruption and loss of life in third-party states rarely arouses sufficient public disgust to threaten the hold on power of the political elites instigating such actions. There are far too many case-studies available to be discussed in detail here (Korean War, Vietnam, Afghanistan etc.) The Iran-Iraq war, in which, with the active encouragement and support of his US sponsors, Saddam Hussein attacked Iran, is one of the most obvious cases in point and one from which successor tragedies have followed in Syria, Yemen, Libya and so on.

3. Deliberate impoverishment – colonialism exercised through economic rather than military aggression. For many countries, much of their poverty results from policies implemented by at least one wealthy nation to deliberately impoverish them and ensure their future subjection through indebtedness. It was several years ago, when reading John Perkins’s book ‘Confessions of an Economic Hit Man’ that I first became aware of this factor contributing to global poverty. The above Wikipedia hyperlink gives the arguments for doubting the book’s veracity – most of which come from those organs of American Empire devoted to its defence. On balance, and though there seem to be some areas of inaccuracy (for instance in the detail, but not the gist, of the Nixon/Saudi petrodollar deal) I came to the conclusion that, especially in regard to the operations in which he was actually involved, Perkins is telling the despicable truth.

John Maynard Keynes

4. The modern-day global financial architecture. The major, and missed, opportunity to save the world from the present scenario of rich nations becoming richer, while poor nations become poorer, was in 1944 at Bretton Woods, where today’s failing global financial structure was put in place. At this conference of the future victors of WWII, had Maynard Keynes’s proposal triumphed over the USA’s determination to maximise its wartime advantage, today’s world would be a very different and far better place. If you read only one hyperlink in this posting, this would be the one to choose. To me, it illustrates that, given the power of human thought, today’s unjust world does not necessarily have to be so.

5. Losing control of primary production. The present World Bank and IMF regimes seem designed to keep nations in their poverty trap. When a nation gets into financial difficulty, it turns to the Bretton Woods financial institutions for relief. Typically it is allowed to increase its indebtedness on condition that it enables the assets it would require to fund its recovery and repay its debts, to be sold on the open market. The unhappy state allows a short-term, one-off capital injection (of which a portion is often diverted into the overseas accounts of a corrupted elite) to replace all hope of longer-term income flows. Getting into debt to global bankers is not the only road to perdition. The selling off of the economic assets of countries adhering to free-trade ideologies, unmoderated by due caution on the part of ruling governments, can also take place on a piecemeal and cumulative basis and doesn’t necessarily have to involve the agency of the IMF or World Bank.

Once a country sells its primary means of production to overseas entities, which control the down-stream processing and export market, the primary producer is trapped in that it can no longer control the price for its products. The new owners will ensure that the minimum financial advantage from the production chain is retained in the primary producing country, while the maximum advantage goes overseas to be deployed elsewhere.

To illustrate this process in motion, look at the modern-day tragedy that is the Ukraine. As soon as the USA had destabilised the legitimate government, in the process still further weakening an already weak economy, the new Ukrainian government had to approach the IMF for loans. One of the conditions for the loans was that the Ukraine should open itself up to foreign corporations willing to buy its primary agricultural assets. So blatant was the process, that Hunter Biden, the son of the Vice-President of the USA, the country largely responsible for the Ukraine’s plight, unashamedly accepted a directorship of Burisma, a USA dominated, Ukrainian company that has fracking rights throughout the Ukraine.

Ukrainian lolly scramble

Another example of members of the American ruling elite’s exploitation of the insights granted to those in high-office, is ex-President Bush’s taking advantage of Paraguayan poverty

New Zealanders should bear this thought in mind when they read of one mainly Chinese owned group of NZ companies, Synlait being welcomed onto the New Zealand stock exchange, allowed to buy dairy farms and establish ownership of a local processing plant for milk powder. It then uses its overseas networks to establish a mail-order business for its infant formula direct from NZ into China. Through this, it can substantially undercut the prices charged to Chinese end-users by other New Zealand owned manufacturers, who have to go through conventional export channels. If successful, Synlait may enter spectacular growth and be well-positioned for a rapid increase of its holdings of New Zealand dairy farms. Another example of this perilous process sees Chinese and Indian forestry companies buying forests in New Zealand and exporting raw logs for processing by far cheaper labour overseas.

In some countries, such as the Scandinavian welfare states and in the sparsely populated and oil rich states of the Arabian Peninsula (and in Gaddafi’s Libya, until the Western world could no longer tolerate its existence) absolute poverty is virtually non-existent.

However, both absolute and relative poverty remain a matter of concern in all those modern western societies in which the false Thatcherite-Reaganite ideology, of ‘trickle down’ has taken hold – New Zealand included. The gap between the best-off and the worst-off in these societies has accelerated ever since and, as things stand, certainly in New Zealand, the speed of divergence seems set to continue. trickle down

In wealthy countries, such as the USA, the culture of the wealthy leads them to ignore the welfare of those less fortunate and the concept of the welfare state, or even of a marginally more even redistribution of wealth, is political anathema.

Children are left to starve in a nation which, while facing no neighbours threatening it with aggression, spends in excess of $600 billion a year on its armed forces. U.S._Distribution_of_Wealth,_2007

There is a major problem with huge inequalities of wealth. It gives extremely wealthy corporates and individuals the ability to buy, through lobby groups, ownership of corporate media and the funding of electoral campaigns, legislation designed to yet further increase their wealth at the expense of those who lack such power. Consequently, in the USA, out of a population of 300 million, 28 million live below the absolute poverty line and a further 60 million or so, below the relative poverty level.

In New Zealand and Australia absolute poverty still remains uncommon, or out of sight. However, the tendency towards increasing inequality along the American model is all too evident. The percentage of New Zealand children disadvantaged through deliberate or failed government, policies is disgraceful Who cares if the All Blacks are global champions, while 260,000, or 24%, of New Zealand kids live in poverty? In New Zealand, with an apathetic electorate sold by a Pied-Piper leadership on the ideas of no capital gains tax and no death duties, a constant recycling of wealth is off the table and social inequality is running down-hill with no brakes.

NZ poverty
Present day Wellington street scene

A recent example of this trend in action is of a New Zealand government, with its multi-millionaire Prime Minister at the helm, selling chunks of state owned utilities to the private market. A significant portion of the earnings from those assets, which used to go into the national budget, will now go overseas. At the same time, assets which used to be owned in common by all the people of New Zealand, have now passed out of the asset pool of all citizens including the less well-off and into the hands of an elite and relatively wealthy minority. It can be anticipated by those arranging the sale, that the beneficiaries will give their future votes to a party which, when in power, looked after their interest so well. Max Rashbrooke’s book ‘Inequality’ makes alarming reading for New Zealanders who love their country.

I can think of no more graphic illustration of this situation than the one at this hyperlink. I would love to have published the artist’s ‘tower of inequality’ in this blog, but it remains in the copyright of the very deserving of your attention owners of the site. It sums up all I have written above

Today’s ‘international rules based system,’ for which the New Zealand government ardently proclaims its support, is not only incapable of containing acts of aggression between its players, but is also clearly incapable of effectively deflecting the rapid approach of a climatic disaster.  Within a few decades, or less, New Zealand will start to feel the externally generated, geo-political impacts of rapid climate change. Not only will  New Zealand’s agricultural production be impacted, but overseas, there will be  huge movements of desperate refugees, displaced by climate change, by resource wars and failed economies. The impact of these events will inevitably be felt  on New Zealand’s shores and will place the coherence of  its society under extreme pressures.

National survival could well depend on whether or not  New Zealand enters this fast approaching time of peril as a united and mutually supportive society. If domestic politics continue along the current path, it is more likely that the country will enter the danger zone raddled with the resentments and divisions caused by the injustice of gross inequalities.  New Zealand’s politicians, with their three-year electoral term, would no doubt, prefer to ignore the seemingly more nebulous consequences of climate change and the almost certain failure of  international attempts to prevent it. Instead, while doing their best to contribute to the international effort, they have also to prepare the nation to face the consequences of its failure.  Rectifying the existing and growing injustices and inequalities within society should be a major focus of these preparations. That will not happen, without the electorate breathing heavily down the necks of its elected representatives!

Oxfam report on global inequality

The OECD publishes many reports on this theme – the latest, which contains no good news, was published last week.

Something to add? Please leave a comment in the box below

4 thoughts on “Social inequality and child poverty – Blog No. 37.

  1. Keith Woodford says:

    You reference to my website a comment about Synlait proposing to buy cheap milk powder overseas and then repackaging it as NZ product. That would seem to be a mis-interpretation of anything I wrote there.

    A key outcome of the Synlait/New Hope JV is that Chinese mums and dads will now be able to get imported infant formula at much cheaper prices. I see that as a good thing. Until now these mums and dads have been getting ripped off by the Chinese middle men within inefficient supply chains. Some of the manufacturers of international infant formula have also been making exorbitant profits. There is nothing to stop other companies copying the Synlait strategy.
    Synlait is a publicly listed company on the NZX and anyone can buy Synlait shares. It is correct that a Chinese firm is the largest (but now a minority) shareholder. It is also correct that Synlait no longer has any farms itself but about 9% of its milk supply does come from Chinese owned Purata Farms. The other 91% comes from about 160 New Zealand-owned.farms.
    Keith Woodford

    • khakis5_wp says:

      Thank you for your comment Keith – none of which I disagree with and like you, I welcome the idea that Chinese parents should get the best possible value for money when they buy infant formula. I used the Synlait case as an example of the potential perils of foreign ownership of the means of production of an economy based on primary production – to me it i provides a case study that well illustrates the point i was trying to make. The Synlait group have the intention of buying up more NZ dairy farms and the Synlait group appear to be endeavoring to become the price-setters for NZ milk powder in that key market. Though you say “there is nothing to stop other companies copying the Synlait strategy,” I know from my own experiences in trying to export into the Chinese market, that, without a major Chinese-based interest in their operation, they would be facing a major up-hill battle in any attempt to compete with Synlait on the mail order playing ground.

      I deliberately avoided linking anything you wrote in your your article with Synlait’s possible import of overseas milk-powder and its repackaging in this country, which I was careful to label as ‘a rumour.’ (However, I have to say that it was a rumour that came to me from a fairly well-placed source.)

      • khakis5_wp says:

        Following up on my reply Keith, I have deleted the comment about the rumoured repackaging operation. It added nothing to the point I am trying to make and I would not want any reader to misunderstand and assume you to be connected with the rumour in any way. Such a re-packaging operation, were it to be conducted, would in no way be illegal or underhand. At no time, have I considered or have I implied that, given the current regulatory environment, there is anything at all dodgy in the Synlait Group’s perfectly legitimate operations.

        • Keith Woodford says:

          Perhaps it would be helpful if I clarify that New Zealand milk is low in lactose relative to fat and protein. This is a consequence of the breeding criteria we have used for many years. It means that to produce standard milk powder there is a need to add lactose. This lactose is imported. This is something that all of the dairy companies do when they are making milk powder. This means that although the milk powder is manufactured in New Zealand it does contain some imported components. Similarly, some of the infant formula components will also be imported.
          Keith Woodford

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