The Economics of Poverty

this is the Democratic Republic of the Congo this Central African nation is the poorest country in the world with a nominal GDP per person of just 500 US dollars seventy-one percent of the country's population lives in absolute poverty with no access to clean drinking water education medical attention and even very scarce access to food this is the highest rate of absolute poverty in the world these devastating conditions were unfortunately not always the case for this country prior to 1960 the Congo was a colony of Belgium and was actually making progress to becoming a developing economy the Belgian Congo in the 1950s was the second most industrialized nation in Africa falling just behind South Africa now it must be recognized that this country had many of the same social issues that South Africa had during this time as well but the country was becoming richer and investments into industries and infrastructure meant that quality of life was improving for everyone what is more is that the Democratic Republic of the Congo sits on top of a treasure chest of natural resources like precious metals diamonds oil and natural gas so where did this all go so wrong this country had a lot going for it and while it is hard to say there was no reason to believe that the Democratic Republic of the Congo could not have developed like so many other economies did during the 1960s and onwards the truth is though that there is a very simple economic reason why this country has fallen so far behind but to really look at this properly we must first look at poverty itself in social studies there is a widely used model called the Maslow's hierarchy of needs at the bottom of the hierarchy of needs is the needs for things like food water and shelter needs that people in absolute poverty don't necessarily get met above that is the need for safety and above that are more social needs and so on and so on until we get to the very top of the hierarchy where we get self-actualization needs which are very nice to have but probably should not really be called needs at all when someone lives in absolute poverty it officially means that they live on less than two dollars and 12 cents a day this is the type of poverty where even the most basic human needs in even the lowest cost of living areas are not met this is the type of poverty we are talking about in the Democratic Republic of the Congo a quick side note is that abject poverty the type of poverty you are more likely to hear about in the news is the type of poverty caused by having financial means well under the cost of living in a certain area this is the type of poverty that affects low income earners in the United States where the poverty line for an individual is a yearly income of eleven thousand US dollars or less now this is a real issue and poverty in the United States should not be ignored but for reference this same $11,000 income in a Democratic Republic of the Congo would make you an esteemed member of the 1% okay so understanding poverty in relation to human needs is interesting albeit very depressing but what does that have to do with the economy of the DRC well just like people economies have fundamental needs that are pretty easy to rank in terms of importance the most fundamental needs of an economy are stability and confidence in the same way that a briefcase filled with millions of dollars is pretty useless to a person stranded on a desert island without water the piles of natural resources in the Democratic Republic of the Congo I'm not very meaningful given that there is very little stability and confidence in the country itself at the most fundamental level this is what that looks like this is a diamond mine in Canada it is a huge industrial facility that utilizes modern machinery and technology to extract these resources very efficiently mines like this employ thousands of workers in very high-paying jobs and generate huge profit for the companies running these operations which they should given the hundreds of millions of dollars in investments that goes into building facilities like these conversely this is a diamond mine in the Democratic Republic of the Congo no rational investor would ever put the same amount of money into a mine here because there is very little confidence that their investments would not be claimed by corruption and so much instability that having a mines stolen by any number of the civil conflicts is a very real possibility because of this lack of investment workers are reduced to using hand tools and very very basic machinery this means that despite the abundance of resources they are not extracted with the same efficiency and did not generate nearly as much money as a properly developed industrial mine this issue is made even worse by the fact that the only groups that are willing and able to run and confidently hold these mines are operating military powers who have often stooped to using child labor to extract these resources vais did a fantastic documentary on this and I'll leave a link to that in the description below but needless to say the revenue from the sale of these crudely extracted resources is not going to build schools and infrastructure but rather guns and tanks furthering the horrendous violence plaguing this nation so is there any solution to this situation foreign aid is a big deal in countries like the Democratic Republic of the Congo many foreign aid organizations ranging from UN's UNICEF to Doctors Without Borders and even the Bill and Melinda Gates Foundation have major operations in this country so could this foreign aid be the kickstart the Congolese economy needs to get back on track well no unfortunately foreign aid is a lot like life support it will keep everything ticking along but it really isn't meant to cure anything among the most donated goods are clothing and food normally donated from wealthy countries this is a fantastic initiative that means that the Congolese people will get clothing and nutrition that they need to live in the harsh conditions of their country but it also means that any business that wants to sell clothes or food has to compete with a competitor charging zero dollars now I hope that anyone watching this channel has a basic understanding of economics enough to know that competing with a zero cost business in a country as poor as the DRC is just not possible as any politician will tell you small business is the backbone of any economy and on one hand this foreign aid has devastating impacts on local business owners looking to ply their trade on the other hand though is a very tough call to make to pull back this aid knowing that it could mean tens of thousands of men women and children are starving so what is the solution then well fortunately we know exactly what the solution is stability and confidence needs to be restored to the country unfortunately we have no idea how to really do that war and corruption has more or less become a way of life for many groups in the DRC and as we have seen this can be a really hard cycle to break there is good news though just earlier this week in July of 2019 54 countries of Africa signed on to launch the African free trade zone which means that all countries in Africa will be able to trade freely amongst one another without any restrictions this is a very similar model to the European Union the importance of this deal cannot be understated and it could optimistically be the catalyst for massive development all over Africa it can't be forgotten that Europe a century ago did so love themselves some Wars as well but the creation of the European Union has brought the longest period of peace in the region's history if this success can be replicated here in Africa there is every possibility that it will become the economic superpower it was destined to be and in so doing so lifts hundreds of millions of people out of poverty hi guys I hope you enjoyed the video as always I have left my email in the video description or if you would rather I do my very best to reply to all comments and I'd like to thank you guys as well for keeping the discussions in previous videos extremely civil and OnPoint it's really nice to see especially for YouTube comments sections otherwise if you did enjoy please considering liking and subscribing I'd really appreciate it thanks guys you you you

Channel: Economics Explained

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Keywords: the economy of poverty, the economics of poverty, the economy of poverty explained, the economics of poverty explained, poverty economics explained, economics explained poverty, poverty economy explained, poverty economy, poverty economy economics explained, economics, poverty economics, how poverty economy works, the worlds poorest economy, why does poverty exist, how to end poverty economics explained, the economics of poverty and why it exists, economics explained

Id: SSGb7DOSPVE

Length: 10min 21sec (621 seconds)

Published: Tue Jul 23 2019