For richer or poorer

PUBLISHED : Wednesday, 22 February, 2012, 12:00am
UPDATED : Wednesday, 22 February, 2012, 12:00am


Poverty, a definition or two

There are two definitions of poverty: absolute poverty and relative poverty.
People in absolute poverty don't have the basic necessities to survive. For example, they cannot get clean water, food or shelter.

People in relative poverty are poor compared with others living in the same city. In this case, they might find it difficult to get three meals a day, but they are not starving to death.

In a developed city such as Hong Kong, absolute poverty no longer exists. All Hongkongers have access to clean water, sufficient food and electricity. The problem is, all of those items cost money. Hong Kong's poor have to choose between spending wages on a meal or on electricity so they can study by light.

Here are three important necessities that depend on money:


We all know that good nutrition is important to good health. If people can't afford good food, their health will suffer. If their country does not have good public health services, they will not get medical treatment, and again their health will suffer.


People need somewhere safe to stay at night and when disasters strike. In some countries, people live in tents and flimsy shacks. Those types of accommodation could crumble in bad weather, putting dwellers' lives in danger.


Education is the way out of poverty. But many people cannot afford to go to school. Unlike Hong Kong, education is not required in all countries. And it may not be paid or subsidised by the government.

Capitalism and the wealth gap

In a capitalist society, everyone must pay. This means better opportunities for the wealthy, and less for the poor. Capitalism, therefore, becomes a vicious cycle. While the ideal of capitalism is that if you work hard you will be rewarded, in many cases this is not what happens. There are many obstacles to success.

During the World Economic Forum in Davos, Switzerland, last month, capitalism was a hot topic, especially given the global economic crisis. Some leaders believe capitalism is widening the wealth gap.

Let's look at an example of how capitalism worsens the wealth gap:

Exporting jobs: In search of bigger profits, corporations have moved their factories to places where labour is cheaper. These are mainly low-skill jobs. This means people in the company's home country lose their incomes.

So despite people working hard in the US capitalist system, some jobs no longer exist. For the country with the factories, the influx of jobs creates wealth and the economy booms.

We see this on the mainland:

Apple uses Shenzhen?s Foxconn factories to make its products. Last quarter, the computer maker reported its highest profits ever, US$13 billion. But workers hardly see that money. Foxconn employees reportedly get low pay and work long hours. In 2010, at least 13 committed suicide because of difficulties working there.

The 2008 global financial crisis: When people talk about the latest financial crisis, they use a lot of words we don't often hear. This is what they mean:

Bailout: It usually means to rescue someone from a bad situation. In this instance, though, it is when governments use taxpayers' money to save businesses and banks from going bankrupt. This means the people's money, which should be used to fund education, health care and other public services, is given to wealthy businessmen. What results is reduced government services and even cuts to workers' pay and pensions. Some even lose their jobs, as we see in indebted Greece.

Bankrupt: When a company has so much debt it cannot repay it, it can declare bankruptcy. This means it goes out of business and only has to pay a portion of what it owes. The people in charge of that company are not allowed to start another business for a period of time.

Risk: The chance a lender takes that a borrower might not pay back the loan.

Trust: When one company buys debt from another, it trusts that the debt will be repaid.

Toxic debt: Debt that will not be repaid.

The financial turmoil begins: A few years ago, the rules that govern banks changed. Looser restrictions meant banks were able to package risky loans and sell them to other companies and investors. These loans were to people whom the bank knew could not pay them back; the banks could then charge those borrowers' high fees. No one noticed for a long time. But as the economy grew, interest rates on the loans increased. Many loan takers were unable to pay back the increased debt. They lost their homes and stopped paying their loans. When they did, the world of finance toppled.

To bail or not to bail: In 2008, when huge American companies were about to go bankrupt, US President George W. Bush announced that the government would give them enough money to save them from collapsing. Some economists argue that the intervention violated capitalism. But if millions of people had lost their jobs, they cannot buy goods, which is bad for the economy. Many more companies would have gone out of business causing a vicious spiral of poverty.

The Gini coefficient

A society cannot exist peacefully if some of its people are very wealthy while others are very poor. The Gini coefficient measures the inequality of wealth within a society. It ranges from one (the least equal) to zero (the most equal).

Organisations such as the United Nations, World Bank and America's CIA release their own Gini reports.

Hong Kong's Gini coefficient in 2007 was 0.535, which is among the worst of the developed economies. The city ranks below many developed countries, such as Singapore.

Sweden and Denmark are among the best.

Poverty line

The World Bank revised its international poverty line in 2008 to US$1.25 a day from US$1 a day.

A person earning less than US$1.25 a day is considered as living in poverty.

In Hong Kong, the poverty line is set at HK$3,000 a month for a single person.