Vicious circle of poverty

What is vicious circle of poverty?The basic idea underlying the concept of the vicious circle of poverty can be aptly summed up in trite proposition,” A COUNTRY IS POOR BECAUSE IT POOR”. According to the definition given by Ragnar Nurkse, the vicious circle of poverty “implies a circular constellation of forces tending to act and react upon one another in such a way as to keep a poor country in a state of poverty”.

2. Supply and demand analysis from the point view of vcp.

Below given circle or cycle is for underdeveloped countries. Underdeveloped countries are invariably caught in the vicious circles of economics underdevelopment or poverty. The basic vicious circles of economic underdevelopment in the form of the self-feeding circular mechanisms operating in an underdeveloped economy. The upper half and the lower half of the figure represent the basic vicious circles that stem from the demand side and the supply side respectively.

The lower half of the figure a circular mechanism. An underdeveloped economy suffers from a low level of per capital income. The low level of income leads to a low rate of savings. The low savings rate implies a low rate of capital formation which in turn, means insufficient or negligible growth of real capital stock and perpetuations of low availability of capital per worker. This low level of real capital per worker leads to low output per worker, which in turn, leads to low level of per capital income. This completes the circle from the supply side.

Similarly the vicious circle viewed from the demand side which is depicted in the upper half of figure, involves a circular mechanism. An

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Vicious circle of poverty

underdeveloped economy suffers from lack of industrialization. This implies lack of employment opportunities in the non-agriculture sector which leads to a heavy concentration of population in agricultural. Overpopulation in agricultures means adverse man-land ratios which leads to low productivity in agriculture. The low agriculture productivity implies low agriculture output in relation to total population that depends on it. This further implies that a larger part of the agriculture output gets used up in meeting the subsistence requirements of the agriculture population. Very little surplus is, therefore, generated by the agriculture sector. This in turn, means that there is very little effective demand for non-agriculture products. This obviously limits the scope for diversification of economy activity and leads to a low ledge of industrialization which in turn, perpetuates economic underdevelopment.

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Vicious circle of poverty

VICIOUS CIRCLES OF ECONOMIC UNDERDEVELOPMENT (figure1.1)

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LOW AGRICULTURAL SURPLUSLOW PRODUCTIVITY IN

AGRICULTURE

LOW DEMAND FOR INDUSTRIAL PRODUCTS

OVER POPULATION IN AGRICULTURE

LACK OF INDUSTRIALIZA-TION

ECONOMIC UNDERDEVELOPMENT

LOW SAVINGSLOW PRODUCTIVITY

LOW CAOITAL FORMULATIONLOW CAPITAL PER WORKER

Vicious circle of poverty

CONCULSION: The lower half of the figure. Here low productivity is the results not only of low capital per worker but also of primitive and traditional methods of production in agriculture, backward technology in other sectors, lack of skilled labor, low efficiency of labor due to poor health and nutrition standard and so on. These additional forces constitute the peripheral vicious circles that reinforce the basic circular mechanism depicted in the figure.

Upper half of the figure, overpopulation in agriculture result, not only from lack of industrialization but also from high rates of population growth. Again low agriculture productivity is the consequence not only of overcrowding in agricultural but also of unscientific farming, lack of irrigation facilities and a defective agrarian system. In the same way, lack of industrialization is due not only to deficiency but also to lack of capable entrepreneurship and the necessary and other facilities.

3. DRAWBACK OF VICIOUS CIRCLE OF POVERTY? Prevalence of primitive and traditional methods of production and

general technologies backwards Low productivity in most sectors of the economy Rudimentary education, high degree of illiteracy among people,

and poor quality of human capital. Dearth of innovative entrepreneurship and poor economics

organization Inadequacy of efficient communication and transport facilities and

lack of economic infrastructure and social overheads. Low degree of urbanization

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Vicious circle of poverty

Extreme inequality and wealth, and feudal or semi-feudal structure of the society.

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