The vicious circle of poverty on the supply side of capital operates in this manner poverty in the under – developed countries means that the per capital income in such countries is low. Since per capital income is low , their capacity to save is low . When people cannot make even the two ends meet with their low income the question of saving does not arise. That is why the rate of savings in the under- developed countries is extremely low. The rate of savings being low. The rate of , investment in turn is bound to be low. Since the rate of investment is low, the rate of capital formation is low and hence there is great shortage of capital in the under-developed countries. Since the amount of capital per man is of vital importance in determining productivity, the level of productivity per worker is extremely low in the under-developed countries. The productivity per worker being low, the real income per capita is low and there is poverty. This is how the vicious circle is complete on the supply side. Owing to poverty or low per capita income saving is less and when saving is less the rate of investment is low. The rate of investment being low, t he amount of capital per worker is small and when capital per worker is small, productivity per worker is small .Since productivity is low , the income per capita is low which means that the country is poor. In this way , we see that the cause of a country’s poverty is poverty itself and as Nurkse says “Under- developed countries are poor because they are poor”
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 'virtuouscircle'.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.