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Professor Christoph Butterwegge, a political scientist and poverty researcher at the University of Cologne, seems to be angry with his fellow citizens. What is bothering him is that the federal government has recently released its annual “Poverty and Wealth Report”, revealing a relative poverty rate of 13% – yet “most observers couldn’t care less”.

Why don’t they care? According to Butterwegge, when using the word “poverty”, most people think of the middle ages and of Sub-Saharan Africa. So when a report like this one confronts them with high numbers, they don’t take it seriously.

This statement is not altogether accurate; the figures from the Poverty and Wealth Report usually do receive extensive coverage and are taken up by pressure groups. But they do not provoke mass protests, so if that is what Butterwegge has in mind, then he is right: most people apparently do not take these figures at face value.

This makes the situation similar to the British one. Sefton reports that in the British Social Attitudes survey (BSA), interviewees were faced with several definitions of poverty and asked to pick the one they deemed most appropriate. In 2006, only 22% of the respondents subscribed to a relative definition. There seems to be a big difference in how poverty researchers and the general public understand poverty.

For Butterwegge, this is because “rich people, who have a lot of money and media influence, support, finance, or even launch attempts to blame the victims.” The consequences are devastating because “the type of poverty that exists in rich countries can be much more depressing and demoralising than the poverty in poor countries.” And why is that? Because “the poor in this country receive less empathy and solidarity than the poor in a place where hardly anybody owns a great fortune.”

Speaking of great fortunes, he cannot help picking out two of the wealthiest individuals in Germany, the brothers Karl and Theo Albrecht, who own the discount chain ALDI. This is a big own goal, if you think about it.

How did the Albrecht brothers amass their fairytale fortunes? The answer is: by making the poor better off in both relative and absolute terms. ALDI represents one of the purest example of a no-frills discounter. Their stores and products are stripped of almost everything but their core functions. ALDI’s expansion strategy was to search for products that were too expensive for low-earners, and offer low-budget versions.

Thanks to no-frills discount stores, the consumption pattern of low-earners can resemble that of average earners quite closely. If you were not computer-savvy, you would not spot the difference between an ALDI computer and the latest technical marvel. Such developments might well be a much greater “equaliser” of daily life experiences than changes to the distribution of nominal incomes. And if the pioneers in such a process become multibillionaires, why should it bother us?

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Head of Health and Welfare

Dr Kristian Niemietz joined the IEA in 2008 as Poverty Research Fellow, becoming its Senior Research Fellow in 2013 and Head of Health and Welfare in 2015. Kristian is also a Fellow of the Age Endeavour Fellowship. He studied Economics at the Humboldt Universität zu Berlin and the Universidad de Salamanca, graduating in 2007 as Diplom-Volkswirt (≈MSc in Economics). During his studies, he interned at the Central Bank of Bolivia (2004), the National Statistics Office of Paraguay (2005), and at the IEA (2006). In 2013, he completed a PhD in Political Economy at King’s College London. Kristian previously worked as a Research Fellow at the Berlin-based Institute for Free Enterprise (IUF), and at King's College London, where he taught Economics throughout his postgraduate studies. He is a regular contributor to various journals in the UK, Germany and Switzerland.

10 thoughts on “How entrepreneurship reduces relative poverty”

  1. Posted 09/09/2009 at 11:02 | Permalink

    “The poor in this country (Germany)receive less empathy and solidarity than the poor in a place where hardly anybody owns a great fortune”

    It isn’t at all clear to me that the poor in less developed economies get more “empathy”, whatever that means, than the poor in rich economies. What is clear is that the poor in a country like Germany or the UK receive very considerable amounts of money redistributed by the welfare state, unlike their counterparts in sub-Saharan Africa, say.

  2. Posted 09/09/2009 at 11:02 | Permalink

    “The poor in this country (Germany)receive less empathy and solidarity than the poor in a place where hardly anybody owns a great fortune”

    It isn’t at all clear to me that the poor in less developed economies get more “empathy”, whatever that means, than the poor in rich economies. What is clear is that the poor in a country like Germany or the UK receive very considerable amounts of money redistributed by the welfare state, unlike their counterparts in sub-Saharan Africa, say.

  3. Posted 09/09/2009 at 12:26 | Permalink

    I don’t buy the “empathy” argument either. It sounds more like a romanticised image of the poor, but close-knit indigenous community which offers real solidarity, as opposed to the morally corrupted Western consumer societies.
    My own observation is quite different if not reverse. Whenever I met people who were really crazy about always having the most expensive fashion brand etc, they usually came from poor countries. They valued these things because they didn’t take them for granted.

  4. Posted 09/09/2009 at 12:26 | Permalink

    I don’t buy the “empathy” argument either. It sounds more like a romanticised image of the poor, but close-knit indigenous community which offers real solidarity, as opposed to the morally corrupted Western consumer societies.
    My own observation is quite different if not reverse. Whenever I met people who were really crazy about always having the most expensive fashion brand etc, they usually came from poor countries. They valued these things because they didn’t take them for granted.

  5. Posted 09/09/2009 at 16:12 | Permalink

    Even if he was correct – and he may be, then where does his reasoning take him? We should be nicer people but redistribute less money. I am all for that.

  6. Posted 09/09/2009 at 16:12 | Permalink

    Even if he was correct – and he may be, then where does his reasoning take him? We should be nicer people but redistribute less money. I am all for that.

  7. Posted 09/09/2009 at 16:58 | Permalink

    “as opposed to the morally corrupted Western consumer societies”
    corrupted no doubt by rootless cosmopolitans.

  8. Posted 09/09/2009 at 16:58 | Permalink

    “as opposed to the morally corrupted Western consumer societies”
    corrupted no doubt by rootless cosmopolitans.

  9. Posted 09/09/2009 at 18:56 | Permalink

    He isn’t fully explicit, but it sounds like he’s saying if some people are wealthy, this makes the rest of us less nice. (Maybe because the sight of wealthy people makes us greedier, so it would be similar to Layard’s ideas.)

  10. Posted 09/09/2009 at 18:56 | Permalink

    He isn’t fully explicit, but it sounds like he’s saying if some people are wealthy, this makes the rest of us less nice. (Maybe because the sight of wealthy people makes us greedier, so it would be similar to Layard’s ideas.)

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