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The costs of poverty

September 8, 2016

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Type: Corporate Finance, Latest Blogs, Trending

It is often the way that when there is a change of leader in a country that person will reel off a list of things which they want to address (- with the inference being, explicit or otherwise, that the previous lot didn’t make enough effort to sort these things out / or even made them worse).  So it was when Theresa May was ‘elevated to the purple’ (as they used to say of the Roman emperors).

 

Now I am not suggesting, of course, that our new Prime Minister will, in an attempt to emulate the glory that was Rome,  institute gladiatorial combat (well, not outside of the Cabinet anyway).  But there is a (possibly tenuous) parallel here.  Roman emperors knew that the people must be looked after. They must be both distracted and fed.  To neglect either could uncomfortably raise the temperature for whosoever was emperor at the time.

 

There is a theory of leadership which states that the leader can, ultimately, only go in a direction which the people are willing to take –  the artistry is in making it look like it was the leader’s decision to head this way in the first place.

 

So leaders must have very close regard for the things which are of concern to the people.  Arguably we have seen this most recently manifest itself in Ms May’s decision during the leadership campaign to make cutting inequality a central pledge of her ‘ticket’. The idea that the economy has, for too long, worked for the few as opposed to the many.  By the way, there is an idea that this distortion of an elite taking too great a share of the economic pie is anathema to traditional conservative political thought (of the likes of Edmund Burke et al).  This traditionalist line of thinking is against any concentrations of political or economic power – whether it is in private or public hands is irrelevant.

 

But back to inequality.  Whether this was a soundbite by Ms May remains to be seen.  Many hope not, because inequality costs not only those who suffer under its, sometimes crushing weight, but it also costs the wider society in which it occurs.   According to recent research from the progressive Joseph Rowntree Foundation (“JRF”) it costs the UK some £78bn per annum to be precise. It is also rapidly rising up the agenda of politicians from across the spectrum.

 

In case you are wondering, the biggest element of the £78bn cost is some £29bn arising from treating health conditions associated with inequality and poverty; education and children’s services are some £18bn and police and criminal justice some £9bn. A further £9bn arises from benefits and lost tax revenue costs.

 

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Now I haven’t looked at the research and analytical methodology of the report in any detail so there may be some scope to quibble and challenge some, or perhaps all, of the individual components of the £78bn. But by the same token, the report acknowledges that it has not projected forward the societal costs of children being brought up in poverty and themselves falling into a generational poverty trap. Shades of Nietzsche’s concept of ‘eternal recurrence’ perhaps.  But to focus upon these questions is, arguably, to miss the point somewhat.

 

As one of the researchers of the JRF report, Professor Donald Hirsch of Loughborough University noted “It is hard to even to estimate the full cost of poverty, not least its full scarring effect on those who experience it.  What our figures show is that there are very large, tangible effects on the public purse.”

 

Inequality is a political-economy issue. It is one which is growing and hence as it becomes increasingly mainstream, whether you regard it as a modern day evil or simply a lot of ‘do-gooder bleating’ it is not going to go away.  Its ramifications, its costs, and any policies which are put in place to address it will potentially impact both businesses and private individuals.

 

Some will endeavour to claim that the answer to the poverty question is simple –  they will misquote Adam Smith and start talking about the magical, efficacious and benign impact of the ‘hidden hand’ in an open and deregulated market economy.  What is less commonly heard is the flipside of this where Smith noted that “..No society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable….”.

 

In our times, thankfully, Smith’s reference to the “..far greater part..”  arguably no longer applies; but Smith would, I suspect, still believe his warning carries weight and relevance for us today.

 

Let us finish with another of Smith’s bon mots “..To feel much for others and little for ourselves; to restrain our selfishness and exercise our benevolent affections, constitute the perfection of human nature…”

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