What is the meaning of ‘vicious circle of poverty’?

Vicious circle of poverty

In economics, the cycle of poverty is the “set of factors or events by which poverty, once started, is likely to continue unless there is outside intervention.” The cycle of poverty has been defined as a phenomenon where poor families become trapped in poverty for at least three generations. These families have either limited or no resources.

There are many disadvantages that collectively work in a circular process making it virtually impossible for individuals to break the cycle. This occurs when poor people do not have the resources necessary to get out of poverty, such as financial capital, education, or connections.

In other words, poverty-stricken individuals experience disadvantages as a result of their poverty, which in turn increases their poverty. This would mean that the poor remain poor throughout their lives.

This cycle has also been referred to as a “pattern” of behaviours and situations which cannot easily be changed. The poverty cycle is usually called “development trap” when it is applied to countries.

Dr. Ruby K. Payne distinguishes between situational poverty, which can generally be traced to a specific incident within the lifetimes of the person or family members in poverty, and generational poverty, which is a cycle that passes from generation to generation, and goes on to argue that generational poverty has its own distinct culture and belief patterns.

Economic growth can be seen as a virtuous circle. It might start with an exogenous factor like technological innovation. As people get familiar with the new technology, there could be learning curve effects and economies of scale. This could lead to reduced costs and improved production efficiencies.

In a competitive market structure, this will probably result in lower average prices. As prices decrease, consumption could increase and aggregate output also. Increased levels of output lead to more learning and scale effects and a new cycle starts.

However, pollution, natural resource depletion and other externalities associated with uncontrolled economic growth can turn the virtuous cycle into a vicious cycle below.

Many developing countries are caught up in vicious cycle of poverty. Low level of income prevents savings, retards capital growth, hinders productivity growth, and keeps income low. Successful development may require taking steps to break up the chain at many points.

Other points in poverty are also self- reinforcing. Poverty is accompanied by low levels of education, literacy and skill; these in turn prevent the adaptation to new and improved technologies and lead to rapid population growth. The vicious cycle of poverty is depicted as below:

Overcoming the barriers of poverty often requires a concentrated effort on many fronts and a ‘big-push’ is required to break the ‘vicious cycle’ into ‘virtuous circle’.

If the country has stepped to invest more, improve health and education, develop labour skills, and curb population growth, she can break vicious cycle of poverty and stimulate a virtuous circle of rapid economic growth.