Poverty and Social Exclusion – Two Sides of the Same Coin?

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Tone Fløtten Poverty and Social Exclusion –

Two Sides of the Same Coin?

P.O.Box 2947 Tøyen N-0608 Oslo

www.fafo.no/english/

This dissertation is based on comparable level of living studies from Norway and Estonia. Theoretical definitions of poverty and social exclusion are discussed and several indicators are employed in the

empirical analyses of the relationship between poverty, material hardship and social exclusion. Four different forms of social exclusion are explored:

exclusion from citizenship rights, exclusion from the labour market, exclusion from social arenas and personal networks, and exclusion from civil society.

Fafo-report 487 ISBN 82-7422-491-4 ISSN 0801-6143

Poverty and Social Exclusion – Two Sides of the Same Coin?Tone Fløtten

Poverty and Social Exclusion – Two Sides of the Same Coin?

A Comparative Study of Norway and Estonia

Doctoral Dissertation

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Tone Fløtten

Poverty and Social Exclusion – Two Sides of the Same Coin?

A Comparative Study of Norway and Estonia

Doctoral Dissertation

Fafo-report 487

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ISBN 82-7422-491-4 ISSN 0801-6143

Cover page: Fafo Information Office Printed in Norway by: Allkopi AS

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Preface

When I was granted a three year scholarship from the Norwegian Research Council to write a thesis on poverty and social exclusion in Norway and Estonia, poverty was a neglected subject in the Norwegian public debate. In addition many questioned the relevance of studying the situation in “far away” Estonia. Much has changed since then. This work is completed in a situation where poverty is frequently discussed as a major political challenge of welfare. During the same period Estonia has become a close neighbouring country. The public interest in my research subject has been a valuable source of inspiration.

This thesis has been long underway. The work had barely started when I gave birth in 1997. After parental leave I returned to work in the autumn 1998, just in time to take part in the preparation for “Norbalt II” - the second level of living study of the Baltic countries. In 2000 I went to the US and spent a year as visit- ing scholar at the Institute of Industrial relations, University of California, Berke- ley. The main part of the work with the thesis took place in the years between 1998 and 2002. From 2003 other projects and administrative duties at Fafo meant that the thesis became delayed, but in the autumn 2004 Fafo generously gave me the opportunity to finish the writing. Information from articles, books and statistics published after November 2004 is not included in the thesis.

Writing a thesis is a lonely task, and without the help and support from friends, family and colleagues, the work would have been unendurable. I owe a debt of gratitude to many persons.

First and foremost I am deeply indebted to my two supervisors Steinar Stjernø and Espen Dahl. Espen’s crucial role goes back to the very beginning of this work.

He has been tremendously supportive and offered insightful advice and criticisms.

Our cooperation has resulted in ties of friendship reaching far beyond the academic discussions. Steinar took on the job as supervisor after I had worked with the thesis for a while. With his stimulating feedback, he has, in his calm and encouraging manner, played an essential role in bringing this work to an end. Together my two supervisors have provided the most qualified guidance anyone could have hoped for, and they have both been incredibly engaged and inspiring.

Next, I would like to express my gratitude to Fafo for generously supporting me throughout these years. Without the resources of the institute, the supple- mentary financing and the patience and support of good colleagues, this thesis

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would not have seen the light of day. Three directors of Fafo, Dag Odnes, Arild Steen and Jon Hippe, have all shown great tolerance with my progress and accepted several optimistic forecasts about the date of completion. At Fafo I have also been offered the best working environment possible. The friendly atmosphere and the intellectual generosity of Fafo are unequalled. My regards of thankfulness go to all my colleagues, but particularly I would like to thank Arne Grønningssæter, Heidi Gautun, Thomas Lorentzen, Hanne Kavli, Torunn Kvinge and Guri Tyldum for stimulating academic discussions, and for great comradeship.

Previous colleagues at Fafo and colleagues in Estonia and Latvia, as Aadne Aasland, Liv Tørres, Ivar Lødemel, Dagmar Kutsar, Avo Trumm and Feliciana Rajevska, have been important sources of knowledge and partners for inspiring debates. Most of all I am grateful for the years of close collaboration with my dear colleague at Fami, Axel West Pedersen. He has been a precious source of intellectual challenge and encouragements.

Thanks also to Bente Bakken and Jon Lahlum for efficiently preparing the manuscript. John G. Taylor has done a great job proof-reading the manuscript and he has helped me to improve various editorial aspects. Yet, he bears no responsib- ilities for the last minute changes I made.

Furthermore, I am grateful for the opportunity Trond Petersen gave me to visit University of Berkeley for a year. The research visit provided a possibility to engage 100% in this work, and the stay was a positive experience for my family and myself.

The moral support from my family and close friends has been vital to me. No one mentioned – no one forgotten, so thanks to them all!

Last, but definitely not least, the completion of this work would not have been possible without the never ending support and encouragement from my husband, Øyvind, and from my two children, Kaia and Kasper. I owe them my thanks for following me to California for a year, for tolerating long periods of total distraction, for being immensely patient while waiting for me to finish the thesis, and for constantly reminding me that there are many things in life that are more important than research. Hopefully, I can now start to make up for this, and I look forward to spending more time with them!

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Chapter 1: Introduction

The aim of this thesis is twofold. First, by exploring the relationship between poverty, material hardship and social exclusion, the multidimensionality of social disadvantage will be illuminated. Second, analyses of comparative micro-data will serve as basis for a discussion on how individual and structural conditions contribute to our understanding of the magnitude and distribution of these problems in modern welfare states.

During the last twenty years we have witnessed a growing awareness of the poverty problem all over Europe. Although the eradication of poverty is an important goal in most welfare states, no nation, no matter how affluent, can claim to have reached this goal. Despite generally high living standards and despite extensive measures introduced to secure all inhabitants decent material welfare, some people live their lives in severe hardship, under conditions far from the living conditions enjoyed by the majority in society. In addition to our concerns regarding material problems following poverty, we are also concerned that being poor will generate other types of problems. Most prevalent in contemporary Europe is the apprehension that economic poverty goes hand in hand with social exclusion.

The concept of social exclusion draws our attention to the instability in social bonds and the risk of exclusion from common activities and lifestyles. Social development has generated the fear that so-called “two-thirds societies” will emerge – societies where parts of the population are subject to permanently poor living conditions, economic problems, loneliness and weak social ties.

Public and political discussions of poverty and social exclusion have been accompanied (and inspired) by a considerable research activity. On the one hand, researchers have dealt with the methodological question as how to define and measure these complex phenomena. On the other hand, efforts have been made to explain why poverty and social exclusion exist even in wealthy countries, and why some people more so than others seem to experience higher risks of falling into poverty and/or becoming socially excluded. Theories emphasizing both individual and structural explanations have been developed. So far no agreement has been reached, neither on the definition nor an explanation of the problems.

Within international research literature several studies have demonstrated a relatively weak relationship between income poverty and material deprivation (Ringen 1987, 1988, Halleröd 1996, Mayer and Jencks 1988, Muffels 1993, Nolan

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and Whelan 1996, Whelan et al. 2002, Eurostat 2002). Few studies have examined the internal relationship between income poverty and different forms of social exclusion. These phenomena are most often examined in separate studies, the problems are aggregated in an index, or poverty is simply considered as just one aspect of social exclusion.¹ It is generally acknowledged that in order to obtain a comprehensive understanding of social disadvantage in modern welfare states, analyses must be extended from a restricted economic perspective to a perspective that includes other forms of disadvantages. This does not, however, imply that the concept of poverty should merely be replaced by the concept of social exclusion.

Rather, we need to investigate the relationship between economic shortage and other forms of material and social disadvantage. This will be the approach in this thesis, and the problems will be dealt with as analytically separate phenomena.

First, an exploration of the extent to which poverty, material hardship and social exclusion coincide will be undertaken: Are poverty, material hardship and social exclusion closely interwoven problems that people tend to experience simultane- ously, or do these problems occur independently of one another?

Second, both methodological challenges associated with empirical analyses and theoretical challenges associated with the explanation of why poverty and social exclusion exist will be discussed: To what extent do the prevalence/occurrence of poverty, material hardship and social exclusion depend upon definitions chosen to explore the phenomena? How are the problems distributed within a population and what may explain the pattern of distribution?

Third, an analysis of the relationship between poverty and social exclusion in a single country can cast light on the nature of the phenomena, but it cannot be taken for granted that problems of poverty and social exclusion, and the relationship between them, manifest themselves the same way in different contexts. To further broaden the perspective and enhance the ability to understand poverty and social exclusion, a comparative element has therefore been added. The cases chosen for study are Norway and Estonia. Analyses of micro-level data enables exploration of the magnitude and distribution of the problems at a micro level and of how individual factors affect a person’s risk of being poor and/or excluded. In addition, analyses of micro-level data from two countries enable a reflection on national similarities and differences at an individual level. These data also permit reflections on macro-level explanations as, for instance, the importance of welfare policies, the labour market situation, demographic factors and the national economy.

1 Important exceptions here are for example a Eurostat report (Eurostat 2002), where the relationship between income poverty and social relations are discussed, and articles as the one written by Gallie, Paugam and Jacobs (2003) analysing the relationship between poverty, unemployment and social isolation.

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Discussions of such structural characteristics will be included to illuminate how institutional factors may influence and explain the structure of social disadvantage.

In short, the purpose of the study is to explore and explain poverty, material hardship and social exclusion, and the inter-relationship between these social problems in two different national contexts.

In this introductory chapter the discussion and analyses of poverty and social exclusion in Norway and Estonia will be placed within a societal and theoretical framework. First, a brief overview of the historical background and previous research on the subject will be presented in order to clarify the research-tradition within which the thesis will be placed. Second, it is argued that poverty and exclusion should be viewed as separate phenomena. Third, major theoretical contributions on explanations of poverty and social exclusion are briefly presented, and the relevance of these explanations for the present thesis is spelt out. Based on this a research model that can serve as framework for the study and a set of research questions are presented.

1.1 Background

In spite of geographical closeness, Norwegian and Estonian history diverges in the case of poverty.² After the Second World War living conditions of Norwegians improved steadily, and in the last decades of the century the poverty problem was considered more or less solved. Poverty was no longer regarded a social problem, although it was recognized that it would always exist as private problem for some parts of the population (Christophersen 1978). In 1979 the Norwegian Prime Minister, Oddvar Nordli, even stated that the Nordic countries had eradicated poverty and social need (Nestor 1982).³ To a certain extent, Nordli had a point.

Poverty in terms of hunger and extreme need has not been a visible problem in Norway for a long time. A period of strong economic growth formed the basis for the development of the Nordic welfare states and the general level of living rose because of economic growth, full employment and universal access to a wide range of comparatively generous welfare benefits as well as to a variety of public, tax- financed social services. The combination of this comprehensive welfare policy and a solidaristic wage structure led to a sharp reduction in poverty (Freeman 1997).

2 Similarities and differences between Norway and Estonia are further described in Appendix 1.

3 A Swedish book from the same period was somewhat more cautious in its conclusions and stated that there were remaining pockets of poverty in the midst of the general welfare (Inghes and Inghes 1970 as referred to in Börjeson 2002).

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Until the 1990s there were few reactions to this public image of Norway as a welfare society free of poverty problems.⁴

During the period 1918–1940 Estonia was an independent republic, and in many ways the national economy resembled that of many other European countries, enjoying a period of increasing welfare (Lugus and Vartia 1993, Kutsar and Trumm 1993). After the Soviet annexation (1940) the standard of living dropped rapidly during the first twenty years due to confiscation of property and savings, low salaries, growing prices etc., and almost everyone in Estonia could be labelled

“poor” (Kutsar and Trumm 1993). By the 1960s the situation changed. Estonia went through a period of economic growth, and poverty decreased. But considerable differences in the standard of living compared to the situation in neighbouring countries such as the Nordic countries remained (ibid.).

According to public reports, poverty was not a problem in Estonia when the country was under the Soviet system. The goal of socialist ideology was to create an equal and just society, and the existence of poverty would be inconsistent with successful socialism. Even though it was recognized that the USSR inherited a range of social problems, including poverty from the Stalinist era, party propagandists liked to claim that from the 1960s there was no poverty in the USSR (McAuley 1996).

While for many years poverty was a “non-subject” in both Norway and Estonia, poverty and social exclusion are of great concern today. Several ministries have presented official Norwegian reports and white papers dealing with economic inequality and low income (NOU 1996:13, St.meld. no. 50 (1998-1999)) and an action plan against poverty was launched in 2002 (St.meld. no. 6 (2002-2003)).

The poverty issue even became the single most important social political subject during the national election campaign in 2001. Also today there is substantial public awareness of the problem, and the media is preoccupied with the topic.

In Estonia the transition from a centrally planned state to market economy had a massive impact on the living conditions and economic situation of the population. Considerable progress has been made since the Baltic countries abandoned the Soviet system, but the process has also had negative consequences.

One is increasing poverty, another that due to the development the situation for parts of the population changed from active involvement to risk of social exclusion

4 Important exceptions are Aubert’s article from 1970 (Aubert 1970), a book on Norwegian poverty published in the mid-1980s (Stjernø 1985), a number of studies focusing on social assistance recipients (see Langeng and Hove (1996) for a review), and contributions by Myklebust 1973, Rød- seth 1975, Noack 1979, Guttormsen og Høigård 1978, Nestor 1982.

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and alienation.⁵ This development is problematic and calls for close monitoring, and as Siim Kallas (prime minister 2002–2003) said in his pre-election speech in the parliament:

“Despite the growing number of new cars and luxury houses in Estonia there are large groups of people who have not found their place in life, and their discontent is growing” (quoted in The Baltic Times Online, #03(291), January 24-30 2002).

Increasing poverty rates, risk of social exclusion and deteriorating living conditions have been of great concern to politicians, authorities and researchers. Poverty analyses have been presented and the Estonian Ministry of Social Affairs has produced an outline of an approach to poverty alleviation (Kutsar and Trumm (eds.) 1999). Also, as an applicant to the European Union, Estonia associated itself with EU policies in this area. A Joint Memorandum on Social Inclusion was presented in 2003⁶ and Estonia’s National Action Plan for Social Inclusion was presented in 2004 (Sotsiaal Ministerium 2004).

1.2 Previous research

In many European countries as well as in the US, poverty research constitutes an important branch of social science.⁷ With few exceptions this has not been the case in Norway, although Eilert Sundt, the founding father of Norwegian sociology, was undoubtedly a poverty researcher.⁸ Despite his pioneer work, poverty research in the traditional sense never became a dominant topic in Norwegian social science.

At the beginning of the 20^th century the poverty problem became absorbed by the new social policy, and unemployment has been said to replace poverty as the central variable in social statistical studies (Lie and Roll-Hansen 2001).

5 Many authors have described the cost of transition in the Baltic countries. See, for example, Ve- nesaar and Hachey Jr. 1995, Grøgaard (ed.) 1996, Aasland (ed.) 1996, Kutsar 1997, Kutsar and Trumm (eds.) 1999, Gassmann 2000, Grøgaard (ed.) 1996, Aasland et al. (eds.) 1997.

6 http://europa.eu.int/comm/employment_social/social_inclusion/docs/est_jim_en.pdf

7 A more detailed review of previous research on poverty in the two countries is to be found in Chapter 5.

8 In the second half of the 19^th century, Sundt conducted social and statistical studies of the poor, and as a member of the poverty commission (Fattigkommisjonen) he strove for better public docu- mentation of the extent of poverty.

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In light of the development of the Norwegian welfare state and the general rise in prosperity, it is understandable that poverty research occupied a minor position within the social sciences. Political attention – and research – was more oriented towards questions of distribution of income, the functioning of welfare arrangements and the development of living conditions for the whole population. We could say that while contemporary researchers from central Europe have concen- trated on specific studies of personal economy and poverty, Norwegian (and Nordic) welfare researchers have focused on the distribution of resources in general and the welfare of the whole population. The main goal of Nordic welfare policies has not been to guarantee a certain minimum standard of living (or income) for the poorest part of the population, but to strive for equality. Poverty was simply one aspect of inequality that could be solved without any special measures. Poverty would disappear as inequality was reduced (Halleröd et al. 1996:327). Following from this, the dominant view was that studies of income inequality and living conditions would provide better expressions of the level of welfare in the population than would studies of poverty.

Then again, it would be unfair to ignore the multitude of studies dealing with disadvantaged groups within Norwegian social science. There has been a rich tradition for studying convicts, criminals, people with severe psychological disorders and others falling outside mainstream society. In other words, there has indeed been a research tradition focusing on deviance and social problems. The reason why this area of research is not considered as poverty research is that only occasionally did it take up poverty issues per se, and in that way it differed from the poverty research tradition, for example as known from the UK.

Estonian poverty research was no more wide-ranging than corresponding Norwegian research in the period following the Second World War up to the restoration of independence in 1991. As long as poverty was not recognized as a social phenomenon, there was no basis for such research. Publication relating to the analysis of social problems was more or less impossible, especially in the Brezhnev-period; there were no experienced poverty analysts and various euphem- isms were used instead of the word “poverty” (McAuley 1996:355).⁹ However, alongside the discouragement of political recognition and public discussion of poverty, there was research on the social minima. Already in 1956/1957 calculations of a normative consumer budget had been made, and this was used in the planning process (Atkinson and Micklewright 1992).

9 McAuley (1996) mentions two exceptions to this assessment: the work of N.M. Rimashevskaia and work done by the Research Institute of the State Committee on Labor and Wages. Atkinson and Micklewright (1992) accentuate the book by Sarkisyan and Kutznetsova from 1967 (Sarisky- an and Kutznetsova 1967).

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Many reports on poverty have been written since Estonia regained independence.¹⁰ Likewise, an increasing amount of poverty research has been undertaken in Norway since the mid-1990s.¹¹ In neither of these countries has an official poverty line existed, and common to studies in both countries are extensive discussions on how poverty may be defined and measured. As will be elaborated in Chapter 2, international discussions on poverty definitions are of both a theoretical and a methodological nature. In theoretical discussions the main concern is whether poverty should be viewed as an absolute or a relative phenomenon, while methodological discussions concern what are the most appropriate indicator(s) of poverty, regardless of whether poverty is viewed absolutely or relatively.

In Norway, previous research is consistent concerning the perception of poverty;

all studies deal with poverty as a relative phenomenon. In Estonia the situation is more nuanced. Some studies have dealt with relative poverty, but since Estonia has defined an official subsistence minimum, an absolute definition has also been employed (Kutsar and Trumm (eds.) 1999).

On the methodological side, the picture is more heterogeneous. Some studies point in direction of more traditional poverty research, focusing on income and economic welfare alone. But studies from both countries attempt to combine traditional poverty studies with the Nordic tradition of level of living studies. One such example is Stein Ringen’s pioneer work on constructing combined measures of poverty (Ringen 1985, 1987, 1988); other examples are recent Estonian and Norwegian research exploring the relationship between low income and other forms of poor material living conditions (Andersen et al. 1995, Einasto 1997, Fløtten 1999, Fløtten et al. 2001, Fløtten 2003). These studies incorporate the view that in order to obtain a comprehensive picture of people’s material situation, we must look at both income and other indicators of material living conditions.

The need of advancing from a position where the only thing that matters is people’s income has been further developed within studies of social exclusion. One of the arguments in favour of a social exclusion perspective over a poverty perspective is precisely that a range of factors must be included in the analyses of the social situation of people. The concept of social exclusion is no less vague and imprecise than the concept of poverty, and discussions of the definition of social exclusion resemble methodological discussions of the poverty concept. Central questions are: What are the indicators of social exclusion, and when can we say

10 See Atkinson and Micklewright 1992, Kutsar and Trumm 1993, 1995, 1999, UNDP 1995, 1997, 1998, Fløtten 1996, Einasto 1997, Grootaert and Braithwaite 1998, Milanovic 1998

11 See Gulbrandsen 1991, Lunde and Poppe 1991, Andersen et al. 1995, Aaberge et al. 1996, Fløtten 1999, Fløtten et al. 2001, Epland 2001, Tidsskrift for velferdsforskning 6(2) 2003.

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that social exclusion occurs? There are scarcely any empirical studies from Norway and Estonia where social exclusion is the main theme, and it is therefore impossible to identify an Estonian or Norwegian tradition of social exclusion research.

1.3 The importance of multidimensionality

The present study builds upon previous poverty research in the sense that poverty is perceived a relative phenomenon (see Chapter 2). The concept is used to describe a situation where people lack financial resources, and the main measure used is an income poverty measure. Acknowledging the importance and high quality of traditional poverty research, the point of commencement is, however, a multidimensional approach. Income poverty cannot serve as the only indicator of social disadvantage if the problem of disadvantage in contemporary welfare societies is to be fully understood. The level of living is relatively high in both Estonia and Norway and welfare arrangements are constructed to minimize the risk of income poverty. Even if income poverty exists in both countries, material shortcomings are not the only (and maybe not even the major) concern. A widespread concern is that traits associated with modern societies will produce increased social isolation.

It is a popular assumption that people are less concerned with the situation of others, that solidarity is on decrease and support for extensive welfare arrangements is declining. Furthermore, changes in the demographic composition of the population generate more single person households, which again increase the risk of loneliness and isolation. Civil society is assumed to play a less important role in people’s lives than it used to. Competition in the labour market is fiercer, and more people are at risk of exclusion from work. It will not be judged whether these characteristics are facts or myths; they are nevertheless important explanations of why there is a general concern all over Europe that an increasing proportion of the population is facing a risk of social exclusion; a concern that in many instances exceeds the concern of income poverty.¹²

The introduction of the concept of social exclusion was considered by many as an eye-opener in order to understand modern poverty. Today, the concept is frequently used in sociological studies, among politicians and by the public. Given the importance of the concept it would be erroneous not to include social indicators in the study of disadvantage, and measures of social exclusion will therefore be included in this study.

12 An illustrative example of this is the preparation of action plans to promote social inclusion within the EU, not action plans to fight poverty.

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It is challenging to find a definition of social exclusion appropriate for comparative studies. In Chapter 3 it is argued that the concept of social exclusion brings about little new if it is measured simply by using indicators of poverty or unemployment. Rather, the concept must be understood as a multidimensional phenomenon, and the definition must therefore encompass more than one dimension. In other studies the concept has been used to describe an assembly of social problems (Silver 1994). It has been defined and operationalised by both macro variables, such as school dropout rates, unemployment rates and crime rates, and by micro-variables such as lack of economic resources and weak social network.

Through a discussion of the term the variety of meanings social exclusion can take on will be described, but it will also be argued that it is useful to limit the concept. More specifically, the analyses in the thesis will be limited to exclusion from four different arenas; exclusion from citizenship rights, exclusion from the labour market, exclusion from social contacts, and exclusion from civil society.

Another line of argument in the thesis concerns the question of the relationship between different forms of social disadvantage. In many studies on poverty or social exclusion, researchers have focused on income alone, or on one or more aspects of social exclusion alone. There are few studies where the relationship between poverty and social exclusion has been explored, but there are many assumptions on how the two phenomena interact. Some view social exclusion and poverty as the same phenomenon; others see poverty simply as one form of social exclusion (i.e. economic exclusion). In addition, social exclusion is often considered a more or less inevitable consequence of living in poverty and once a person is socially excluded, the prospects of getting out of poverty are small.

The relationship between poverty and exclusion will be illuminated in this study. Given the differences in general prosperity between Norway and Estonia, the analysis will contribute in clarifying how contextual factors may have an impact on the relationship between economic shortage and social inclusion. Both the poverty rate in a country, and factors as welfare policy, situation in the labour market, demographic composition and characteristics of the civil society influences the extent to which detachment from society is inescapably interwoven with income poverty. It is imaginable that being poor in a country where relatively few people are poor would induce exclusion more so than being poor in a country where poverty is widespread.

To understand this relationship, poverty and social exclusion must be seen as separate phenomena, not aggregated into an index of multiple disadvantages. As argued in Chapter 3, social problems do not necessarily accumulate in such a way as to justify a simplified index of an individual’s social situation. By analysing the relationship between different measures of poverty and social exclusion, the ambition is to empirically illustrate the importance of keeping different dimensions

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apart in order to obtain a comprehensive picture of the material and social conditions of a population. What is seen as different dimensions of poverty and social exclusion are exactly that; different dimensions that must be seen in relation to one another, and that cannot be aggregated to constitute one single separate measure of multiple disadvantage. When aggregated indexes are constructed, there is a risk of loosing important information, as disadvantages in one area do not necessarily go hand in hand with disadvantages in another. For example, severe economic hardship may for some individuals occur relatively independent of their social situation. Likewise, some individuals may be socially isolated even though their economic situation is satisfactory. By looking at accumulated social problems we would risk losing sight of both those who are materially disadvantaged and those who are socially excluded, as their combined outcome on this index would seem undramatic. It is also possible that the composition of multiple disadvantages at an individual level vary in different settings, for different groups or at different times. If the analyses rely on aggregated indexes alone, it will not be possible to grasp this diversity.

1.4 How may poverty and social exclusion be explained?

A discussion of poverty and social exclusion cannot be detached from the discussion of explanations of the phenomena. It must be explained why poverty and social exclusion occur even in wealthy nations, why it is more prevalent in one society than in another, why some groups in a population experience higher risks of being affected by these social problems than others, and why some individuals experience a higher risk of poverty and/or social exclusion than others. This discussion is extensive and inconclusive. The subject occupies researchers, both theoretically and empirically, and politicians want conclusions and advice.

The design of this study is not aimed at testing any particular hypothesis concerning the causes of poverty and exclusion (see Chapter 4), but the empirical data analysed enables a discussion of the relevance of different explanations of these phenomena. Comparative analyses at a macro level can be useful to discuss differences between societies. If we in addition want to know why some groups/

people are worse off than others, the macro data must be supplemented by micro data, as will be done here.

The factors given weight in explanations of poverty and exclusions have varied over time. In early poverty research the occurrence of poverty in England was explained as a life course phenomenon, as studies showed that the risk of falling

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into poverty varied over the life course (Rowntree 1901). Today, there are many different theories that attempt to explain the occurrence and distribution of social disadvantage. At one end of the continuum we find those who explain poverty and exclusion by structural factors, as characteristics of welfare and labour market policy, characteristics of modern, individualistic societies or functioning of capitalist economies. At the other end we find those who believe that individuals themselves are the cause of their own misery. Some people are said to lack ability or motivation to self-support; they constitute an underclass which reproduces poverty and social exclusion. The popularity of this latter argument is easily discerned in current politics in both Estonia and Norway as means to prevent poverty and exclusion are often directed towards enabling individuals to enter the labour market rather than providing them with sufficient financial resources to live decent lives external to the labour market. At the same time there is also a public critique in both countries directed towards the inefficiency of welfare and labour market policy, for example that social transfers provided are insufficient to keep people out of poverty, and that not enough jobs are created.

It is important to make individuals self-sufficient and enable them to support themselves and there are, of course, examples of people who for some reasons

“choose” to live on welfare allowances instead of supporting themselves through paid work,¹³ but the idea that poverty and social exclusion can be explained by a single cause may be questioned. Through the empirical analyses in this thesis the diversity and heterogeneity of these phenomena will be demonstrated, and the relevance of different theoretical explanations will be discussed. A brief presentation of the most popular individual and structural explanations follows illustrating the research model used in the empirical analyses.

Individual explanations of poverty and social exclusion

When analysing poverty and exclusion, emphasis is often put on actions and characteristics of individuals. Individuals become and remain poor because of certain individual characteristics. In some cases instigating factors are ascribed characteristics, such as gender and race; in others achieved characteristics, as education, occupation and marital status are triggers. People are treated like categories that share some attributes, which place them in similar positions in the social structure. Alternatively the attributes these people held, conflict with other people’s preferences (for instance aversion to work with foreigners).

13 Assessing the degree of free will in the choice between being dependent of welfare or self-suppor- ted through paid work requires extensive knowledge of people’s abilities, capacities, possibilities and options, knowledge frequently not available to the researcher.

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Research that has focused on individual attributes to explain poverty and exclusion has dealt especially with two factors: individual’s cognitive ability and individual’s attitudes and behaviour (that constitute a specific culture). The most striking example of the first is the debate about the book The Bell Curve (Herrnstein and Murray 1994). In brief, the authors of The Bell Curve conclude that innate intelligence is the most important factor affecting success and failure in life. Further, they claim that intelligence is inherited, and unevenly distributed throughout the population. Hence, inequality can be explained by differences in cognitive abilities.

The belief that cognitive ability and intelligence are determinants for (economic) success in life has occurred in different forms. Even though the focus has not necessarily been on poverty, many scholars have stressed the connection between human capital and pattern of stratification. The meritocracy-thesis of Daniel Bell may serve as another example. According to Bell one of the characteristics of post- industrial society will be that it “(…) awards place less on the basis of inheritance or property (…) than on education and skill” (Bell 1973:688). New elites based on skills will emerge, given the importance of knowledge and planning for all organized activities in the modern society.¹⁴

An alternative individual explanation is that poverty and exclusion are caused by limited human capital. People become poor because they lack education, training, job skills or language skills (Jennings 1999). They are not necessarily less intelligent than others, but their personal skills make them less attractive in the labour market and thereby less economically mobile. Numerous empirical studies have demonstrated that people with low education, limited work experience and unstable relations to the labour market, are more likely to be poor than others.

The concept of a poverty culture adds a moral aspect to the explanations. The concept is linked to the works of Oscar Lewis. In his studies of the poor in Mexico, New York and Puerto Rico, one of his findings was the existence of an almost universal culture among the poor; a culture characterized by a particular set of quite stable attitudes and actions (Lewis 1968). As a result of the transference of these attitudes and actions from generation to generation, poor people become trapped in their own poverty. Even if the original causes of their poverty were removed, they would remain poor. Poor people develop a specific culture, contributing to maintain and reproduce their disadvantageous position in society as poor and excluded.

The shaping of the poverty culture takes place primarily within families, but also in local communities or in other social relations. Poor people are deviants who

14 Bell, however, simply discusses the emergence of the new elite in a theoretical manner; he does not intend to empirically test the claim that some people actually lag behind solely because of low intellectual capital.

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not only lack the formal qualifications of the majority, but also moral qualities and values of most people. Cultural determinists suppose that individuals are locked in poverty because of unique and maladaptive cultures (Marks 1991:448). In its most negative form, the notion of a poverty culture may be interpreted as if being situated in the bottom layer of society is a result of laziness and incompetence.

This is in fact a line of reasoning well known from political rhetoric.¹⁵

Today, the culture of poverty-explanation is mirrored in the notion of a dependency culture, and the two concepts are often used as synonyms. However, even if concepts as learned helplessness, welfare dependency or dependency cultures bear close resemblance to the notion of a poverty culture, the concepts are not totally overlapping. The main difference is a stronger focus on individual weak- nesses and aspirations in the concept of dependency culture. In Levitas’ (1998) distinction between three different discourses of explanations of poverty and exclusion, the cultural explanation is labelled a “moral underclass discourse”, underlining the moral perspective embedded in the notion of a dependency culture.

The theory of a dependency culture was introduced in an analysis of the impact of social security in the 1980s (Murray 1984).

“(…) the government believes that the payment of certain types of social security encourages people to become dependent on benefit and lowers their desire to find work or behave in a responsible manner” (McGlone 1990:17, quoted in Dean & Taylor-Gooby 1992:3).

This theory is quite similar to the theory of a poverty culture in that it concerns motivation for work. It is claimed that the values of significant others influence the choices people make, as do status-aspirations, social esteem and the social environment. The notion of welfare dependency has had extensive influence on the political agenda. In most discussions of welfare expenses the argument that allowances must be kept low are accompanied by the allegation that higher levels of (public) welfare will create welfare dependency.

Structural explanations of poverty and social exclusion

Contrary to the individualists, structuralists point to the structural factors as the real cause of poverty and exclusion. For example, some argue that the general level of economic prosperity in a nation can explain the presence and development of poverty. On the one hand, it is stated that economic growth is good for the poor

15 The same arguments are found in the discussions of the underclass.

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(Dollar and Kraay 2001). On the other hand, inequality (or poverty) is viewed as an inevitable consequence of growth (Okun 1975).

In some cases the structural factors maintaining or producing poverty and exclusion are said to be “beyond any (collective) actor’s effective control, that is, as impersonal, objective and unavoidable” (van Oorschot and Halman 2000:8).

Societal development gives unintended and unwanted consequences uncontrollable by local or national authorities. In other cases poverty and exclusion are considered the outcome of processes “induced and controlled by actions of certain groups and parties in society, and who therefore could be blamed for it” (ibid.:8). The importance of the organization of the economy is stressed, and solutions of the poverty problem are to be found on the political agenda.

Modern progress

Poverty and exclusions may be explained as inevitable consequences of (uncontrollable) modern progress. Individuals face higher risk of unemployment and it is a rise in the numbers who have experienced social disruption (Giddens 1998, Beck and Beck-Gernsheim 2001). The most common example of such an uncontrollable force is the globalisation of the economy. According to globalisation-pessimists globalisation is said to reduce local and/or national governments possibility to rule, that it will lead to unemployment and which in turn will lead to lower income from taxes. At the same time countries with lower the company taxation will attract foreign investment. The wages will be lower, the labour standards will be worse, and the welfare benefits will be lower. The consequence will be more poverty.

Globalization of the economy is, however, not the only unintended, stolid consequence of modern progress. Bauman (1998) claims that consumer societies generate higher poverty rates even though this was not the aim of consumption, while Beck (1992) emphasizes that environmental changes may have a profound impact on our welfare.

Furthermore a stable family situation is considered important to avoid poverty and exclusion as the family is assumed to support its members in need. In a situation where a growing number of marriages are breaking up, and the proportion of single persons increases, one could expect problems as poverty and social exclusion to increase as well (Esping-Andersen 2001).

When it comes to the impact of technological development on trends in poverty and exclusion, the assumption is that technological development brings about rapid changes in the labour market, changes to which unskilled, low educated workers are less able to adapt (Gottschalk and Smeeding 1997, Taylor-Gooby 2004). In addition low-income groups have less accessibility to technical equipment such as the personal computer, and hence, are left behind in the technological race. Lack

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of technical competence reduces employability, and increased poverty and exclusion are possible results.

A final trend that must be commented is the growing individualization. If we place confidence in the hypothesis that people become more and more individualistic, that social bonds are weakening, and, is consequentially less likely to encourage public support for the poor through welfare arrangements, the link between poverty and individualism becomes obvious. Today the majority of the population in western societies is able to fulfil their material needs through the market, or through generous welfare arrangements, and where the general level of living has improved markedly the recent decades. A possible consequence of this development is that the fulfilled majority is less sympathetic towards a needy minority and that implementing poverty or inequality relieving policy is more difficult (see discussion in Beck and Beck-Gernsheim 2002:46ff ).

The emergence of an underclass

In both the US and Europe, the study of the poor has been linked to the concept of an underclass. Some individuals or groups are presumed to experience an irreversible downward career (Leisering and Walker 1998:12). The underclass consists of those at the bottom of the hierarchy in society (Auletta 1982). They are not simply poor, but “effectively excluded from the mainstream of economic production” (Spicker 1993:83). The underclass is the hardcore of the poor, locked into poverty, unemployment and deprivation for longer periods. Typical members are ethnic minorities, inner-city poor, single parents, school dropouts, frail elderly persons and long-term unemployed. The ambiguity in the discussion of the underclass – some underlining the social conditions leading to the creation of an underclass (Wilson 1978), others focusing on individual traits (Murray 1996) – makes is difficult to label the underclass explanation as either an individual or a structural explanation. Here, however, it is labelled a structural explanation, as many of its proponents underline the structural reasons for the emergence of the underclass, and the fact that this alleged class is emerging in modern society is definitely a question of structure.

Social injustice

Not all structuralists see poverty and exclusion as unintended and stolid consequences of a changing society. On the contrary, many see it as the results of social injustice. Two main assumptions are that 1) poverty and inequality are a consequence of inefficient welfare states and shortages of the public policy, and that 2)

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poor people have limited opportunities in society due to the interests of groups of non-poor.

First, poverty and social exclusion are not seen as phenomena resulting from nature; they are shaped by public policy. This idea is the main message in many important writings concerning the relationship between poverty, inequality and living conditions on the one hand and the shaping of welfare policy on the other (Fischer et al. 1996, Gustafsson and Lindblom 1991, Esping Andersen 1993, Headey et al. 1997, Kangas and Palme 1998). In fact, one of the main subjects within comparative welfare state research is the analysis of the extent to which different forms of welfare policy contribute to increasing or decreasing poverty and economic inequality. Policies for social security, housing, education, inclusion in the labour market and sufficient remuneration are all important in this matter, and welfare policies are to be understood in this broad manner in the following.

The central line of argument is that certain types of welfare policy are more efficient in relieving poverty than other types. Furthermore, social exclusion can be seen as “the denial (or non-realization) of the civil, political and social rights of citizenship” (Walker and Walker 1987:8). If turning to the work of Ruth Levitas (1998), what she identifies as central assumptions within “the redistributionist discourse” fit into the explanation of poverty that underlines the responsibility of the welfare state: Exclusion is a consequence of poverty and inequality, and to alleviate the problems redistributive means must be implemented, especially increased levels of social benefits. The importance of public policy and the responsibility of the state are also crucial in explaining the emergence of social exclusion in what Hilary Silver (1994) calls “the solidarity paradigm of social exclusion”. The key argument is that exclusion is a result of weakened social ties, and that the state is responsible for promoting inclusion and preventing exclusion.

The Scandinavian welfare states are often accentuated as especially effective in preventing poverty and inequality. As mentioned, the combination of generous, universal welfare benefits, covering a wide range of “risks”, an extensive labour market policy promoting full employment, and a solidaristic wage structure are the vital factors.¹⁶ Because of these policies, Scandinavian countries are among those countries with lowest Gini-coefficients and lowest (relative) poverty rates in the Western world. On the other hand, countries characterized by selective welfare policies and high degrees of marked liberalism, as for instance the US, are burdened with high poverty rates.

16 The past twenty years the Scandinavian countries have had somewhat diverging development (see Freeman 1997), but even so, the main elements of welfare and labour market policy of these countries are still assumed to be efficient when it comes to keep inequality and poverty at low levels.

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Second, contrary to “blame the policy”-explanations, poverty and social exclusion are also seen as outcomes of processes induced and controlled by actions of certain groups. The poor are “victims of a fundamental injustice that exists in the way in which groups in society operate and interact with each other” (van Oorshot and Halman 2000:8). This explanation resembles what Silver (1994) call a “monop- oly paradigm”, where exclusion is viewed as a consequence of the formation of group monopolies. “The social order is coercive, imposed through a set of hier- archical power relations (…) (and) exclusion arises from the interplay of class, status, and political power and serves the interests of the included” (Silver 1994:543).

The most “straightforward” action to create poverty and exclusion would be pure discrimination. Powerful groups whose members have common interests exclude weaker groups in their strive to maximize these interests (Jordan 1996:222).

Such groups can, for instance be mainstream households, the middle class, political parties, interest groups or unions. Sometimes the discrimination is intended and open, sometimes even legal, other times it is unintended and overt and, hence, more difficult to confront. The feminization of poverty thesis may serve as an example where the analysis, at least occasionally, is based on the understanding of patriarchy or male dominance (Spicker 1993:80).

Another kind of inequality-producing process results from the way members of the mainstream society perceive, and consequently act towards, poor people.

Poverty is a stigma, or a negative trait, and the stigmatic character of poverty gives rise to a vicious circle (Waxman 1983). Poor people are exposed to negative evaluations, which in turn limit their opportunities in society. As a reaction to this poor people adopt strategies to cope with their limited opportunities, which in turn reinforce their negative image and their limited opportunities (van Oorschot and Halman 2000:5). This is, moreover, an explanation of how cultures of poverty may occur, which instead of blaming the poor for their deviant attitudes and behaviour, blames the powerful and/or advantaged groups in society for the constraints they impose on the less influential and disadvantaged.

1.5 The relevance of structural and individual explanations in this thesis

Even though it is common to separate theoretical explanations of poverty into structuralistic and individualistic explanations, such a division is not the most productive. Many of the explanations characterized as individualistic explanations do implicitly contain structural premises. A couple of examples can illustrate this:

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Oscar Lewis’ study on reproduction of poverty is one of the classical documents on poverty cultures. Lewis revealed an almost universal culture of poverty, characterized by a stable attitudes and actions. On the one hand, Lewis’ work has been taken into account of a view where poor people are considered deviants, with moral and attitudes different from those held by the majority in society. On the other hand, the culture Lewis is revealing can be viewed as a structural phenomenon.

Lewis himself said that the culture of poverty was not exclusively an adaptation to a set of objective conditions in society.

“Low wages, chronic unemployment and underemployment lead to low income, lack of property ownership, absence of savings, absence of food reserves in the home, and a chronic shortage of cash. These conditions reduce the possibility of effective participation in the larger economic system” (Lewis 1968:50).

Following from this, it is tempting to claim that poverty is just as much a result of supra-individual factors as of a deviant personality.

The notion of a dependency culture can be met by the same kind of argument.

The dependency culture is interpreted in light of people’s motivation for work.

In an individualist tradition it is claimed that the values of significant others are important influences on the choices people make, as are status-aspirations, social esteem and the social environment. However, the claim that “people respond to financial incentives in a simple economistic calculus of cash benefit against the effort” (Dean and Taylor Gooby 1992:3) implies that there is a direct relation between people’s incentives to work and the size and availability of social security for unemployed people. Even if work is available, many people will prefer welfare to self-support, and this goes especially for those who have already been on welfare.

This idea introduces a structural element to the cultural understanding, as generosity of the public transfers is supposed to affect people’s behaviour.

A structural element is also important within human capital–explanations of poverty. Individuals may become poor or excluded because their human capital does not fulfil the demands of the labour market, but it can be argued that this mismatch is explained by inefficiency of the educational system or of the labour market in itself.

Structural explanations also have their shortcomings. Where structuralists see structural causes of poverty, as for example in the theory of the dependency culture, individualists focus on individual traits. It is difficult to totally omit individual explanations in the modern, individualized society. To a much greater extent than before people are able to design their own lives, even if this self-construction takes place within certain structures. These individual choices are reflected in the income

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and consumption pattern of people. Some choose to spend their money on a luxury dwelling leading to economic problems. Some choose to spend time with their family instead of working full time, with the consequences this may have for their economic situation and risk of becoming poor. Some choose to spend money on travel and leisure-time activities instead of buying a decent dwelling. Some choose to spend much time with one friend instead of building an extensive social network. Some choose not to participate in civil or political activities; some choose to spend time with family instead of friends. Such individual choices will affect the picture of poverty and social exclusion, but it is not possible to identify individual choices by the type of data available here. Furthermore, there will be individual experiences that affect the choices people take and which we will not be able to depict in quantitative analyses. All in all, these arguments indicate that there may not be watertight compartments between the structuralistic and individualistic explanations. Within the so-called individualistic explanations there will be implicit structural components, and vice versa.

Even though there may be overlap between structural and individual explanations, the choice of theory is important for political reasons. Which political measures a government choose as a means to alleviate poverty will depend on how poverty is explained. If poverty is supposed to be an individual problem, focus will be on altering the individual (improve skills, more education etc), while structural explanations call for structural solutions (a new welfare policy, more generous social security benefits, easier access for unskilled to the labour market etc.)

General arguments for why it is important to discuss the relationship between individual and structural explanations of social disadvantage are relevant for this project. No study has explored all relevant factors empirically, and neither is that possible here. Nevertheless, the study will be a contribution to this discussion as the factors will be included in the discussion of the analyses of poverty and exclusion in Norway and Estonia. Neither does the design of this project allow a testing of whether individual or structural explanations are superior in explaining poverty and exclusion. But it is possible to discuss the importance of structural and individual factors, and the data used allows for including several indicators of both a structural and an individual kind. The following model may serve as a guide to understand the structure of the empirical analyses:

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Solid arrows in the model indicate relationships that will be directly studied in the analyses. Dashed lines indicate themes discussed theoretically, but not studied directly empirically, while thin lines indicate relationships that will be touched upon in the empirical analyses, but where data do not allow us to draw firm conclusions.

In addition to the variables/factors presented in the model, we must not forget that all the arrows are also affected by individual history, actions and choices as well as the relationship between these factors and the social settings people live their lives within. It is not possible to make this the subject of the study, or to draw conclusions on the relative contribution of actions and previous choices on the output. It must nevertheless be kept in mind that such factors play an important role in the analyses of social disadvantage, although they are often incorpor- ated only implicitly.

Figure 1: Research model. The numbers in the model refer to the research questions.

Structural variables - Welfare policy

- Functioning of the labour market - Macro economy

- Culture and history

Individual characteristics - Age

- Gender - Education

- Family size and type - Place of residence - Ethnicity

- Health

Poverty (Low income)

Social exclusion

Position in the labour market Poor material living conditions

5 1

1

3

2 4

4

4 4

5 4

4

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Five research questions

By employing micro level data from countries where research on poverty and social exclusion has been rather limited, the aspiration is to shed light on the extent and spread of poverty and social exclusion; how poverty and social exclusion come about in both a very prosperous and a less prosperous country; to what extent different forms of material and social problems seems to go hand in hand; and how this varies between the countries. The analyses may be synthesized in the following five research questions:

1. How extensive are the problems of poverty and material shortage in the two countries, and to what extent is the picture of the problems affected by definitions employed?

The first task is to describe the occurrence of poverty and material hardship in Norway and Estonia. An overview of the present situation, and of the development in the period of study (1979-1998 in Norway, 1994-1999 in Estonia) is presented.

Poverty is measured by income, but additional indicators of poor material well- being are included, such as housing conditions, access to vital consumer durables, self evaluation of personal economic situation and receipt of social assistance. The empirical results form the basis for a discussion of the relevance of a relative definition of poverty in this comparative study. The use of a relative definition does not necessarily imply higher rates of poverty in Estonia than in Norway, or higher poverty rates in Norway in the late 1970s than in the late 1990s. In the theoretical discussions on poverty measures, the relative poverty definition has been widely criticized for its inherent tendency to reveal poverty in all settings at all times. A country with generally high living standard may come up with the same amount of poverty as a country with low living standards. Consequently, it is theoretically possible that the proportion of poor people is more or less the same in Norway as Estonia. Such a finding would activate a dilemma. On one hand the critique of the relative definition will force us to conclude that these poverty numbers are more a technical than a substantial finding. The relative definition misjudges or underestimates the absolute dimension of poverty. On the other hand, if we accept that poverty is a relative phenomenon, the finding is substantial as well. The number of people who are poor in Estonia relates to the general income level of that country, while the amount of poor people in Norway relates to the income level here.

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2. What characterizes the relationship between income poverty and material shortages?

By combining measures of poverty with measures of material shortage, it becomes possible to look behind relative numbers and describe possible differences in real living conditions for poor people in different countries. If the critics of the relative poverty definition are right, poverty would be expected to be closer associated with economic hardship in Estonia than in Norway.

3. Are there national differences in the incidence of social exclusion?

There are broad national variations in poverty numbers, but will equally large variations in social exclusion be found? Empirical, comparative studies of social exclusion are rare, at least if social exclusion is defined in a broad sense and not restricted to unemployment rates or as a synonym for poverty. An important question is whether individual’s inclusion in society is different across nations.

Social scientists discuss whether a new individualised society is emerging, a “me- first” society where social bonds are weakened, or whether the new individualism is not a threat to social solidarity and social cohesion (for discussion, see Giddens 1998, Beck and Beck-Gernsheim 2002). It is not given that Estonia and Norway are at the same stage in a process of increased individualisation. At the same time, factors such as unemployment level, residential patterns, and ideological currents may also affect the risk of becoming socially excluded. By analysing differences in social exclusion within Norway and Estonia it is possible to obtain knowledge of possible national differences in the occurrence and distribution of social exclusion.

4. How can the distribution of poverty, material hardship and social exclusion be explained?

As described, it is common to explain the presence of poverty by differences in individual characteristics as well as to point to structural variables. By employing data from level of living surveys, a description is first given of the extent and risk of poverty and material hardship and the manner in which this varies according to individual characteristics as age, gender, educational level, family size and type, place of residence, ethnicity and health. Data does not allow for study of differences in cognitive abilities, but if individualists are right, we would expect to find that factors as educational level and health influence the risk of becoming poor and/or experiencing material hardship. This analysis also allows for a discussion of Rowntree’s theory of poverty cycles. According to this theory, people are more at risk of becoming poor in some stages of life than in others. Variables such as age and family phase can be used to see if his theory is still relevant in the countries under study.

The single factor that is supposed to be the most important in preventing poverty and material hardship is a person’s position in the labour market. The extent

Poverty and Social Exclusion – Two Sides of the Same Coin?

Tone Fløtten Poverty and Social Exclusion –

Two Sides of the Same Coin?

Poverty and Social Exclusion – Two Sides of the Same Coin?

A Comparative Study of Norway and Estonia

Doctoral Dissertation

Tone Fløtten

Poverty and Social Exclusion – Two Sides of the Same Coin?

A Comparative Study of Norway and Estonia

Doctoral Dissertation

Contents

Preface

Chapter 1: Introduction

1.1 Background

1.2 Previous research

1.3 The importance of multidimensionality

1.4 How may poverty and social exclusion be explained?

1.5 The relevance of structural and individual explanations in this thesis