Poverty Changes

£14,000 is quite a large amount of money. Enough for 70,000 Freddos, a decade’s worth of holidays, two new Nissan Pixo’s, several thousand potatoes or a gold standard racing pigeon. However, if you’re trying to live off just that amount in modern Britain, it quickly seems quite a lot smaller. Half of that could easily disappear on rent, whilst the average British family will spend a further £4,000 on food (significantly greater than the European average, for one reason or another). Then we must factor in tax, work-related expenses, various repair bills, a TV license, utility & heating bills, petrol money and other transport expenses, and it quickly becomes apparent that trying to live on this amount will require some careful budgeting. Still, not to worry too much though; it’s certainly possible to keep the body and soul of a medium sized family together on £14k a year, if not absolutely comfortably, and in any case 70% of British families have an annual income in excess of this amount. It might not be a vast amount to live on, but it should be about enough.

However, there’s a reason I quoted £14,000 specifically in the figure above, because I recently saw another statistic saying that if one’s income is above 14 grand a year, you are one of the top 4% richest people on planet Earth. Or, to put it another way, if you were on that income, and were then to select somebody totally at random from our species, then 24 times out of 25 you would be richer than them.

Now, this slightly shocking fact, as well as being a timely reminder as to the prevalence of poverty amongst fellow members of our species, to me raises an interesting question; if £14,000 is only just about enough to let one’s life operate properly in modern Britain, how on earth does the vast majority of the world manage to survive at all on significantly less than this? More than 70% of the Chinese population (in 2008, admittedly; the rate of Chinese poverty is decreasing at a staggering rate thanks to its booming economy) live on less than $5 a day, and 35 years ago more than 80% were considered to be in absolute poverty. How does this work? How does most of the rest of the world physically survive?

The obvious starting point is the one stating that much of it barely does. Despite the last few decades of massive improvement in the living standards and poverty levels in the world in general,  the World Bank estimates that some 20% of the world’s populace is living below the absolute poverty line of surviving on less than $1.50 per person per day, or £365 a year (down from around 45% in the early 1980s- Bob Geldof’s message has packed a powerful punch). This is the generally accepted marker for being less than what a person can physically keep body and soul together on, and having such a huge proportion of people living below this marker tends to drag down the global average. Poverty is something that the last quarter of the century has seen a definitive effort on the part of humanity to reduce, but it’s still a truly vast issue across the globe.

However, the main contributing factor to me behind how a seemingly meagre amount of money in the first world would be considered bountiful wealth in the third is simply down to how economics works. We in the west are currently enjoying the fruits of two centuries of free-market capitalism, which has fundamentally changed the way our civilisation functions. When we as a race first came up with the concept of civilisation, of pooling and exchanging skills and resources for the betterment of the collective, this was largely confined to the local community, or at least to the small-scale. Farmers provided for those living in the surrounding twenty miles or so, as did brewers, hunters, and all other such ‘small businessmen’, as they would be called today. The concept of a country provided security from invasion and legal support on a larger scale, but that was about it; any international trade was generally conducted between kings and noblemen, and was very much small scale.

However, since the days of the British Empire and the Industrial Revolution, business has got steadily bigger and bigger. It started out with international trade between the colonies, and the rich untapped resources the European imperial powers found there, moved on to the industrial scale manufacture of goods, and then the high-intensity sale of consumer products to the general population. Now we have vast multinational companies organising long, exhaustive chains of supply, manufacture and retail, and our society has become firmly rooted in this intense selling international economy. Without constantly selling vast quantities of stuff to one another, the western world as we know it simply would not exist.

This process causes many side effects, but one is of particular interest; everything becomes more expensive. To summarise very simply, the basic principle of capitalism involves workers putting in work and skill to increase the value of something; that something then gets sold, and the worker then gets some of the difference between cost of materials and cost of sale as a reward for their effort. For this to work, then one’s reward for putting in your effort must be enough to purchase the stuff needed to keep you alive; capitalism rests on the principle of our bodies being X% efficient at turning the food we eat into the energy we can use to work. If business is successful, then the workers of a company (here the term ‘workers’ covers everyone from factory floor to management) will gain money in the long term, enabling them to spend more money. This means that the market increases in size, and people can either sell more goods or start selling them for a higher price, so goods become worth more, so the people making those goods start getting more money, and so on.

The net result of this is that in an ‘expensive’ economy, everyone has a relatively high income and high expenditure, because all goods, taxes, land, utilities etc. cost quite a lot; but, for all practical purposes, this results in a remarkably similar situation to a ‘cheap’ economy, where the full force of western capitalism hasn’t quite taken hold yet- for, whilst the people residing there have less money, the stuff that is there costs less having not been through the corporation wringer. So, why would we find it tricky to live on less money than the top 4% of the world’s population? Blame the Industrial Revolution.

Pineapples (TM)

If the last few decades of consumerism have taught us anything, it is just how much faith people are able of setting store in a brand. In everything from motorbikes to washing powder, we do not simply test and judge effectiveness of competing products objectively (although, especially when considering expensive items such as cars, this is sometimes impractical); we must compare them to what we think of the brand and the label, what reputation this product has and what it is particularly good at, which we think most suits our social standing and how others will judge our use of it. And good thing too, from many companies’ perspective, otherwise the amount of business they do would be slashed. There are many companies whose success can be almost entirely put down to the effect of their branding and the impact their marketing has had on the psyche of western culture, but perhaps the most spectacular example concerns Apple.

In some ways, to typecast Apple as a brand-built company is a harsh one; their products are doubtless good ones, and they have shown a staggering gift for bringing existed ideas together into forms that, if not quite new, are always the first to be a practical, genuine market presence. It is also true that Apple products are often better than their competitors in very specific fields; in computing, for example, OS X is better at dealing with media than other operating systems, whilst Windows has traditionally been far stronger when it comes to word processing, gaming and absolutely everything else (although Windows 8 looks very likely to change all of that- I am not looking forward to it). However, it is almost universally agreed (among non-Apple whores anyway) that once the rest of the market gets hold of it Apple’s version of a product is almost never the definitive best, from a purely analytical perspective (the iPod is a possible exception, solely due to the existence of iTunes redefining the music industry before everyone else and remaining competitive to this day) and that every Apple product is ridiculously overpriced for what it is. Seriously, who genuinely thinks that top-end Macs are a good investment?

Still, Apple make high-end, high-quality products with a few things they do really, really well that are basically capable of doing everything else. They should have a small market share, perhaps among the creative or the indie, and a somewhat larger one in the MP3 player sector. They should be a status symbol for those who can afford them, a nice company with a good history but that nowadays has to face up to a lot of competitors. As it is, the Apple way of doing business has proven successful enough to make them the biggest private company in the world. Bigger than every other technology company, bigger than every hedge fund or finance company, bigger than any oil company, worth more than every single one (excluding state owned companies such as Saudi Aramco, which is estimated to be worth around 3 trillion dollars by dealing in Saudi oil exports). How has a technology company come to be worth $400 billion? How?

One undoubted feature is Apple’s uncanny knack of getting there first- the Apple II was the first real personal computer and provided the genes for Windows-powered PC’s to take the world, whilst the iPod was the first MP3 player that was genuinely enjoyable to use, the iPhone the first smartphone (after just four years, somewhere in the region of 30% of the world’s phones are now smartphones) and the iPad the first tablet computer. Being in the technology business has made this kind of innovation especially rewarding for them; every company is constantly terrified of being left behind, so whenever a new innovation comes along they will knock something together as soon as possible just to jump on the bandwagon. However, technology is a difficult business to get right, meaning that these products are usually rubbish and make the Apple version shine by comparison. This also means that if Apple comes up with the idea first, they have had a couple of years of working time to make sure they get it right, whilst everyone else’s first efforts have had only a few scance months; it takes a while for any serious competitors to develop, by which time Apple have already made a few hundred million off it and have moved on to something else; innovation matters in this business.

But the real reason for Apple’s success can be put down to the aura the company have built around themselves and their products. From their earliest infancy Apple fans have been self-dubbed as the independent, the free thinkers, the creative, those who love to be different and stand out from the crowd of grey, calculating Windows-users (which sounds disturbingly like a conspiracy theory or a dystopian vision of the future when it is articulated like that). Whilst Windows has its problems, Apple has decided on what is important and has made something perfect in this regard (their view, not mine), and being willing to pay for it is just part of the induction into the wonderful world of being an Apple customer (still their view). It’s a compelling world view, and one that thousands of people have subscribed to, simply because it is so comforting; it sells us the idea that we are special, individual, and not just one of the millions of customers responsible for Apple’s phenomenal size and success as a company. But the secret to the success of this vision is not just the view itself; it is the method and the longevity of its delivery. This is an image that has been present in their advertising campaign from its earliest infancy, and is now so ingrained that it doesn’t have to be articulated any more; it’s just present in the subtle hints, the colour scheme, the way the Apple store is structured and the very existence of Apple-dedicated shops generally. Apple have delivered the masterclass in successful branding; and that’s all the conclusion you’re going to get for today.