Analiza CIM no. 12/2011
Poverty is like punishment for a crime you didn’t commit.
The vast majority of the contemporary development thought has evolved in the last couple of decades. The mainstream view used to suggest that economic growth can only be achieved in the climate of macroeconomic stability through the accumulation of productive assets. This neoclassical approach has been lately put to question on numerous occasions and the reality has failed to produce empirical evidence to support the conjectures of the most widely-propagated models.
It has been implied that perhaps a more significant stress ought to be put on the issue of effective institutional reforms design and their implementation. Globally established agenda of redistribution seems to have undergone a considerable refocus of priority areas and, as a result, current modus operandi shifted its focal point from concentration on direct transfers of money to ensuring an improvement in the accountability of the officials societies elect, delivering necessary public services, supplying credit and efficiently securing the property rights.
Obviously, plenty of working definitions of the phenomenon of “poverty” can be found, one of them being lack of access to basic resources necessary to achieve a tolerable life. These would typically include food, water, access to education and healthcare, as well as shelter. The more quantifiable approach, however, is required in order to successfully assess the progress of the global efforts in the alleviation of poverty. Only then will we be able to formulate recommendation for further steps.
Global poverty quantitifcation issue
When undertaking the ambitious task of devising efficient mechanisms and policies designed to combat global poverty, one finds themselves in the presence of a significant obstacle. In the past such obstruction often manifested itself in the form of lack of quantifiable data. For instance, in order to obtain a reliable measure of poverty, easily comparable cross-country household surveys of income distribution are required. Before the 1990s such data was available only for 22 countries. However, the Research Department of the World Bank has made during the past 30 years significant improvements in the field of gathering the above mentioned data. In 2001 comparable data existed for 89% of the population of the developing countries (low- and middle-income economies).
A relatively small attempt at producing an eligible income distribution comparison of 10 countries in 1970 evolved into an ambitious project. The programme, launched in 1968 as the cooperation between the United Nations and the International Comparisons Unit of the University of Pennsylvania, managed to attract financial contributions of the Ford Foundation and the World Bank. Consecutive rounds of survey were conducted in 1975, 1980, 1985, 1990 and 1993. By that time the programme was known as the International Comparison Project (ICP) and for the first time it covered every single region of the World including 118 developing countries .
Basing their study on this project, Chen Shaohua and Martin Ravallion designed the poverty line of $1.08 per day (commonly referred to as the “dollar-a-day” line). They used the Purchasing Power Parity exchange rates extracted from the price and consumption basket of the 1993 ICP round. This poverty threshold was defined as the minimum amount of income required to achieve an adequate standard of living in a given country. The concept of international poverty line was revised by the World Bank in 2008. Using the PPP of 2005, a figure of $1.25 per day was engineered. The methodology of this calculation bases on finding the minimum expenditure on resources necessary to lead a tolerable life by an adult person throughout a year. Using this data, average daily expenditure can be computed.
Since one can apply this poverty line to any developed country and arrive at the conclusion that virtually no individual of said country is poor, a dramatic deduction can be made. The gap of income distribution between the developing countries and the ones that are already developed is of massive proportions.
Frame of reference
Various countries employ different standards for the purpose of the national poverty line calculation, hence the difference between what developed countries deem “tolerable life” and what it means in the Third World. For instance, the figure for the poverty threshold of a person under 65 years of age in the USA equaled to $11,161 per year in 2009 (which is roughly 30.57 dollars a day). In India the national poverty line is calculated differently for rural and urban areas. Urban dwellers are considered to be in poverty when living on less than 538.60 rupees per month, whereas inhabitants of rural areas are expected to survive on 356.35 rupees per month (which approximates to 0.4 and $0.25 per day, respectively). A clear difference between the standard used by the officials of India and that of the World Bank can be observed. This breakdown provides us with the necessary framework distinction. An American citizen considered poor with the expenditure of over $30 per day, surely spends the bulk of their income on non-food consumption. In contrast, according to the data provided during India’s 50th National Sample Survey round which was conducted between 1993 and 1994, we learn that households surviving on less than 1 dollar per day, spend ca. 73% of their income on food. More than a half of children living in these households would be considered undernourished if international standards where to be applied.
India is not, however, the infamous leader of the poverty ranking. The total population of Burundi, Liberia and Tanzania living below the 1.25 dollar-a-day line is greater than three quarters (81.3%, 83.7% and 88.5%, respectively). In more than 20 countries the number of population suffering from poverty is bigger than a half. To put these figures into perspective, the number of people living on less than $1.25 per day in European developing countries is below 2%.
The question that presents itself is whether the world attempts to improve the global situation and whether it is producing expected results.
Millennium Development Goals
In 2000 one of the most challenging economic agendas to ever undertake by the international community was put together. The world leaders assembled at the Millennium Summit at the United Nations headquarters with the aim to discuss the future of the global poverty. An ambitious project was launched.
The Millennium Development Goals include ensuring that all the children in the World are capable of completing a full course of primary schooling; eliminating gender inequality in primary and secondary education; reducing under-age-five mortality by two-thirds, the maternal mortality ratio by three quarters, and the number of people lacking access to safe drinking water by a half (compared to the levels from 1990); achieving universal access to reproductive health; halting and then reversing the spread of HIV/AIDS, malaria and other major diseases; and ensuring environmental sustainability. Lastly, the agenda assumes halving the global population living under the poverty line by 2015 (from ca. 30% of the developing countries population).
In order to assess the success rate of the project, one has to comprehend the difference between the headcount index of poverty and the poverty in absolute numbers. The accomplishment rate of cutting the global poverty in half in comparison to its level from 1990 can be viewed in two different ways. On the one hand, the headcount index of poverty between 1990 and 1998 declined from 29.3% to 24.2% (a drop of more than 5 percentage points), which is quite the achievement. On the other hand, however, the decrease of poverty in absolute numbers in the same period of time was not as impressive. The number of people living below $1.08 per day was barely reduced from 1.3 billion to 1.2 billion. What is even more staggering, if we look at the World Development Report 2000/2001 and take 1987 as the base year, then the absolute number of people considered poor had actually increased by 17 million in 1998.
Perhaps even more useful information can be acquired from the fact that poverty trends and their magnitudes vary region to region. Between 1990 and 1998 the rate of poverty in East Asia decreased from 27.5% to 15.3% (a drop of nearly 200 million people in absolute terms), which is attributed to major poverty reductions in China. This remarkable achievement suggested that after only 8 years the region was nearing the fulfillment of the Millennium Development Goals. This poverty decrease is considered to be the largest poverty drop ever witnessed. In contrast to this astonishing accomplishment the figures of poverty in sub-Saharan Africa remained fairly constant during the same period of time, changing by only 1 percentage point (from 47.6% to 46.3%). What is even more tragic, the absolute number of people below the poverty line had actually raised by 50 million. Also a slight increase of the poor can be observed in the case of South Asia (despite a modest decrease in the poverty headcount index). The situation in Eastern Europe and Central Asia worsened in general, while the rates of poverty in Latin America and the Caribbean showed stagnation. In light of these statistics, we arrive at the conclusion that virtually all of the progress in the department of poverty reduction between 1990 and 1998 was made by the Chinese. Since, as it appears, a regional poverty reduction is highly possible, perhaps putting stress on institutional reforms is valid.
In some communities circulates a loudly voiced suggestion that the debt repayments from the Third World countries should be cancelled. Though it does have a politically effective ring to it, one cannot ignore the fact this course of action would only generate $1 billion per year (taking into account the poorest economies as debtors). To give this matter a more legible perspective, the cost of directly transferring one dollar per day to every single person in the world living below the poverty line would account to more than $500 billion annually (figures from 2008). The humanitarian aid target set by the United Nations is that developed countries ought to provide 0.7% of their GDP in aid. Most of the developed countries do not meet the required target, however, even if they did, a quick calculation will tell us that 0.7% of the GDP of the countries comprising the G7 group would yield only $142 billion yearly, a number which is more than three times too small.
These afflicting figures constitute a valuable lesson. It appears that even though humanitarian aid and debt relief may have some influence on achieving the goal of diminishing the global poverty, the main responsibility remains at the hands of domestic governments. Significant help could be delivered to the developing countries in the form of economic research manpower. In order to devise effective policies and mechanisms needed to succeed in the process of world poverty reduction, extensive economic and social research has to be made at the national level of each country suffering. Only through the application of efficient antipoverty tools and the implementation of specific institutional reforms can we hope to improve the welfare of the global society.