Economic Theory

On the socialist origins of the concept of “relative poverty”


The ‘purely relative’ definition of poverty is one that is based entirely on the usual or average living standards in a particular country at a particular time. Purely relative poverty lines used by the EU and OECD are set at a percentage of national mean or median income. Socialist Peter Townsend, writing in 1962, was the first to suggest measuring poverty this way, but I have discovered that Wilhelm Schulz established the term ‘relative poverty’ (by which he meant purely relative poverty) in a passage Karl Marx later cited. My new paper in Economic Affairs looks at the political implications of how poverty is defined and measured, and it presents the first ever statistical analysis of public attitudes towards poverty definition to focus on political orientation.

The purely relative definition tethers the meaning of poverty to inequality. This carries the implication that capitalism’s usually impressive economic growth does not reduce poverty, whereas large-scale redistribution can be seen to eradicate the problem even if the economy is shrinking. The fallacy that Adam Smith supported the purely relative definition has long given it a veneer of political neutrality. Smith’s comment, in Wealth of Nations, that labourers’ needs differ according to social context has often been cited (including by Townsend in 1962) in defence of the purely relative definition. Yet nothing Smith wrote implied support for a purely relative definition (see my recent detailed discussion in Journal of Social Policy). Smith, along with poverty researchers before Townsend’s time such as Seebohm Rowntree, understood poverty as more narrowly (or partly) relative – so from their perspective poverty can be reduced not only by redistribution but also by economic growth.

It has long been wrongly believed that Townsend was the first to call poverty ‘relative’. Karl Marx quoted the following Wilhelm Schulz passage in support of his argument against Smith’s view that capitalism’s economic growth improves workers’ lives:

“…because total production rises – and in the same measure as it rises – needs, desires and claims also multiply and thus relative poverty can increase whilst absolute poverty diminishes…in a state that is forging ahead, which in the course of a decade, say, increased by a third its total production in proportion to the population, the worker who is getting as much at the end of ten years as at the beginning has not remained as well off, but has become poorer by a third.” (Wilhelm Schulz, 1843)

The most quintessentially Marxist element of the Schulz/Townsend view of poverty – that a general rise in real incomes counts for nothing – is what has attracted so much opposition, both from the general public and from economists. My article sheds new light on Townsend’s socialist writing, which railed against the postwar cross-party consensus that the pursuit of economic growth should take precedence over reducing economic inequality. I conclude that Government Minister John Moore’s 1989 speech – which is much maligned in mainstream social policy literature – was accurate in its assertion that Townsend and others were pursuing the “political goal of equality” and ignoring “the actual living standards of real people”.

My analysis of British Social Attitudes Survey data starts with new findings about the unpopularity of Townsend’s poverty definition, and its accompanying conventional measure with the poverty line set at 60% of national median income. If people accepted this measure they would: (1) agree that poverty is purely relative (2) agree there is ‘quite a lot’ of poverty in the UK, as opposed to ‘very little’, and (3) agree that the poverty rate stayed ‘about the same’ in the decade to 2018/19. In fact, in both 2018 and 2019 only 3% agreed with all three of these propositions. Given that this figure would be approximately 8.33% if respondents had chosen their answers randomly, the 3% figure suggests a chasm of difference in how left-wing/mainstream social policy authors and the British public view the meaning of poverty.

Considering that anti-poverty campaigners’ and social policy academics often imply that those who reject Townsend’s poverty definition are misguided or ignorant, it is remarkable that those who supported a narrower poverty definition than Townsend’s had higher educational qualifications on average. Logistic regression analysis included several predictors of attitudes towards the purely relative definition highlighted by poverty authors, alongside left-wing political orientation. The latter was the strongest and most consistent predictor of agreement with a purely relative definition. Indeed, in the most recent data (the 2019 survey) only 15% of Conservative voters agreed with it, compared with 30% of Labour voters.

Given my paper’s key points, I support the idea of publishing ‘purely absolute’ poverty figures (using a poverty line based on absolute purchasing power per capita) alongside ‘purely relative’ figures. People would then be left to decide for themselves about the true extent of UK poverty.

 

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Recommended reading:

Dunn, A. (2022) “Equality Street: Ideology and attitudes towards the purely relative definition of poverty”, Economic Affairs, 42(1): 13-29.

Dunn, A. (2021) “Necessities Laid Bare: An Examination of Possible Justifications for Peter Townsend’s Purely Relative Definition of Poverty”, Journal of Social Policy, 1-19

Niemietz, K. (2011) A new understanding of poverty. Poverty measurement and policy implications, London: Institute of Economic Affairs.

Niemietz, K. (2010) “Measuring poverty: Context-specific but not relative”, Journal of Public Policy, 30(3): 241-262.


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