development economics equality growth poverty

Has economic growth lifted people out of poverty in the UK?

Whenever I talk about economic growth and why we might want to stop chasing it, the first reply is that to give up on growth is to give up on the poor. “We as a global society need more and more growth,” says Thomas L Friedman, “because without growth there is no human development and those in poverty will never escape it.”

I disagree. Poor countries need to grow, definitely, but those that are already rich ought to slow down and free up some biocapacity. Will that condemn the underprivileged in Britain to remaining poor? I’d like to turn the question round and ask how well economic growth is serving them at the moment.

Here’s Britain’s GDP since 1960.

With growth like that, absolute poverty has been swept away. The number of people without a roof over their heads and food on the table is very small. But bear in mind that poverty is relative. If you earn £12,000 in a country where the average person earns £5,000 a year, you’re very wealthy. Earn that in modern Britain, and you’re officially on a low income. A low income is defined as 60% or less of the median income at the time. Here’s the percentage of people living in low income households in the UK over the last 30 years:

There’s lots of analysis of this chart here, but there’s a couple of things that are immediately striking.

  • The first is that despite all our growth, there are more people on low incomes than there were before the big economic boom. With over 1 in 5 people living in relative poverty, we have more a higher proportion of low income households than almost every country in Europe. (We come 23rd, right behind Romania.)
  • The second is that although we were making very slow progress, the percentage has begun to creep up again. The 2008/09 figures aren’t in yet, but I suspect the recession will make it four years in a row of rising poverty levels.
  • Third, the economy isn’t really doing anything for those at the very bottom. Take a look at the purple section – the number of the really poor, those living with less than 40% of the average income, is slowly rising.
  • Reading some politics into it, you might notice that poverty grew for 10 out of the 12 years of the Thatcher government, and the Conservatives only managed to finally wrestle poverty levels into a plateau before losing to Labour in 1997. Labour has, until recently, lowered the percentage a little. Lord knows I have no love for the Labour party, but their track record is a whole lot better when it comes to poverty, and I am yet to be convinced that Cameron’s party is sufficiently reformed.

To summarise, the economy today is five times larger than it was when I was born, but the number of people living in poverty has grown from around 14% of the population to 22%. Poverty is relative, and growth is not equally distributed, so growth is no solution to poverty.

This is both good news and bad news. The bad news is that most politicians haven’t spotted it, and are still pursuing endless growth and hoping in vain that it will solve poverty. The good news is that the chief objection to slowing or stopping economic growth is actually a red herring. Poverty has always been about the distribution of the wealth, not the size of the economy. We can legitimately question endless economic growth without abandoning the poor.

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20 comments

  1. Thanks for making my day! To find these words of sanity truly inspires hope. More and more people are realizing economic growth is not, and cannot be, a necessary component of efforts to meet the needs of people everywhere. Meeting basic needs ought to be our goal. Economic growth is not effective (thanks for the analysis) and not sustainable.

    Dave Gardner
    Producing the documentary
    Hooked on Growth: Our Misguided Quest for Prosperity
    http://www.growthbusters.com

  2. Poverty is not relative. Standard of living is standard of living. 50% of people will always be below the median. And anyways the poorest people definitely seem to be always the worst effected when growth is reversed. So even if more growth isn’t good, less is definitely bad.

    1. Matthew, I’d like to see us step out of the box and think more creatively about this. Your statement could almost be compared to an addict concluding that less crack is definitely bad because it temporarily hurts to cut back.

      I think less growth does create problems, but that is only because we have such a screwed-up system. We’ll need to endure a little adjustment pain (like an addict does when s/he gets unhooked), but in the long term the benefits will be substantial.

      Think about it, anyway!

      Dave Gardner
      Producing the documentary
      Hooked on Growth: Our Misguided Quest for Prosperity
      http://www.growthbusters.com

    2. Yes Matthew, it is relative: the official government definition of poverty in the UK is 60% or less of the median household income.

      And sure, 50% of people will be below the median, but the key question is by how much?

      As for growth, if the only people who benefit are the ones who don’t need it, why carry on? The challenge is to find ways of slowing growth without it hurting the poorest.

  3. The conclusion of this article is that growth has not created equality, after all a definition of poverty that claims that anyone is poor if they earn below a certain % of median income is in reality a measure of equality. Well so what? Sure there may be the same or a higher number of people in relative poverty, but those have an absolutely higher amount of wealth and standard of living. Surely that is what matters, a ‘poor’ person in the UK today has a higher standard of living than a middle class person did 70 years ago. The poor in this country have benefited from growth even if they are poor, in fact they have benefitted because they are poor, they have been lifted from a standard of living that was fairly harsh to one that is fairly good. You accept that growth has abolished absolute poverty but then seem to ignore this a fairly trivial and focus on the issue of relative poverty. But it is relative poverty that is trivial, after all if taken to its logical conclusion relative poverty claims that in a country where everyone has a billion pounds and I only have 40 million (assuming that they have the purchasing power of pounds today) I am ‘poor’ a fairly absurd assertion. Continued growth is not just a matter of improving the living standard of the poorest, even if they remain relatively poor, but in a world of growing populations is essential if we are to maintain our standard of living.

    1. I’m responding to the government’s constant claim that growth is needed to lift people out of poverty. The government’s definition of poverty is the relative one. I’m merely pointing out the flaw in their claim.

        1. No, poverty is relative. The government doesn’t need to change the definition, it needs to take equality seriously. Growth that isn’t shared doesn’t do anything for the poor.

          1. Poverty is not just relative. Poverty has different definitions, absolute or relative. You feel relative poverty is the important one to focus on, but that does not mean you can assert it is the only meaning of the word ‘poverty’.

            You are not ‘merely pointing out the flaws’ in the government’s claim, you are making a value judgement. Fine to do so but that was not obvious in you comment.

  4. The post makes it totally clear that we’re talking about relative poverty. The government agrees that relative poverty matters, which is why that’s the official definition. I’m not trying to be evasive in any way.

    Of course absolute poverty is more important than relative poverty, but the latter still stings. Poverty isn’t just about meeting basic needs, it’s also about being able to participate in society. When you’ve got children from poor households who are ostracised at school because they’re wearing hand-me-down uniforms, that matters. When they get back from their holidays and all their peers have been abroad and they haven’t been anywhere, that matters too. It’s not enough to say ‘you’ve got food and a home, you’re not poor.’

    1. But then Dominic’s point is worthy of a reply. There will always be relative poverty no matter how rich a society, since it is mathematical concept. In a society of billionaires, am I in poverty with only 40 million pounds?

      1. A society of billionaires is a rather silly hypothetical. It’s silly because the lifestyle you can buy for yourself for a billion is really no different to the lifestyle you can buy for 40 million. There are limits to how much any single individual can actually spend, as people like Warren Buffett or Bill Gates will tell you.

        So let’s pull it back down. Let’s say we’re talking about a society of millionaires while you have £40,000. Are you in poverty? Certainly not in absolute poverty, but you are in relative poverty, and yes, that’s a moving target.

        The point is that, as I already mentioned, poverty in a developed country is about social exclusion more than it is about survival. That’s a luxury, no doubt about it, but it’s an entirely valid definition. Which is why the government, of both parties, tracks relative poverty. Most developed countries do the same. You may disagree, but it’s the mainstream definition and I agree with it. Perhaps I should write a separate post explaining why relative poverty is a legitimate and sensible thing to measure.

        This post isn’t about how we define poverty. It’s about the fact that we repeatedly justify ongoing growth by saying it’s essential for the poorest in society, when actually the benefits of growth mainly go to the richest.

        1. My point is linguistic. Just saying poverty when you mean relative poverty is confusing and makes for a muddled argument. Politicians say just ‘poverty’ rather then ‘absolute’ or ‘relative’ poverty because they wish to confuse the argument to benefit their own viewpoint. Since I assume you aren’t trying to pull the wool over our eyes, it is best to say what you mean, which means not using the word poverty, unless you prefix it with relative or absolute, especially as on this blog there has been discussion of developing world poverty (absolute) and developed world poverty (relative).

          1. I understand your point, I just don’t agree and I think you’re working with a simplistic understanding of poverty. For one thing, the post is very clear that I’m talking about relatives and not absolutes, so I’m entirely confident that I am saying what I mean.

            More importantly, relative poverty is completely within the definition of poverty, both in a legal sense and in the dictionary. The word poverty includes deficiency, insufficiency, inferiority, to be a person of small means. To be poor does not necessarily mean you have nothing – that’s destitution.

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