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)

LOW AGRICULTURAL
LOW PRODUCTIVITY IN SURPLUS
AGRICULTURE

OVER POPULATION IN LOW DEMAND FOR

AGRICULTURE INDUSTRIAL PRODUCTS

LACK OF INDUSTRIALIZA-
TION

ECONOMIC UNDERDEVELOPMENT

LOW PRODUCTIVITY LOW SAVINGS

LOW CAPITAL PER WORKER LOW CAOITAL FORMULATION

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

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