Global poverty

Targets and Measures, Poverty and Sharing

In his latest Annual Letter, Bill Gates points to the power of measurement. Change, he reminds us, is often incremental; and so, unless we have a good yardstick, it is difficult to know if the small move we made was in the right direction. Not surprisingly, in the world of technology, new ways to measure energy creation and a micrometer able to gauge miniscule distances, played a vital role in promoting progress. Gates is right in stressing this and that is the reason why even in social and economic ventures, it is important to develop measures that track how we are doing.

Interestingly, the publication of Gates’ letter coincides with the ongoing initiative within the World Bank Group to define targets and measures of well-being that the Bank as a multilateral agency will promote and pursue. We hope to soon be in a position to place our measures and targets in public space. This blog is meant to give readers a flavor of the issues involved and to welcome their suggestions.

Let me begin by advising readers that, when reading Bill Gates, it is important to keep in mind that there is more to learn from successful people’s lives than lines. Gates’ Annual Letter on measurement is an important take away, but we must not forget what his life amply demonstrates--that to focus solely on measurement is to risk missing out on some essential features of life which may be nebulous and not quite measureable but nonetheless important.

Not so long ago, those countries designated as “low-income countries” (LICs) in the World Bank’s World Development Indicators accounted for the bulk of the world’s poor, such as by the $1.25 a day standard. Today many very poor people live instead in what are called “middle-income countries” (MICs). The change seems dramatic. Almost all (94%) of those below $1.25 a day in 1990 lived in LICs. By 2008 the proportion was down to 26%, with the rest in MICs. Andy Sumner attracted much attention to this aspect of how the global profile of poverty has changed in his paper “Where do the Poor Live?.” Amanda Glassman, Denizhan Duran and Sumner dub this emergence of large poverty counts in MICs as the “new bottom billion.”

There has been much discussion about the implications of this change for overseas development assistance (ODA) and development policy more broadly. In particular, there have been calls for concentrating ODA on the LICs, assuming that the MICs can now look after their own poor.

But we need to look more closely at this “LIC-MIC” distinction, to understand why we have seen this change in the global poverty profile, and what relevance it might have for development policy.

Attention to the issues of relative poverty and inequality is intensifying amidst today's fragile global economy. While pre-crisis economic growth generally reduced the incidence of absolute poverty, concerns remain about relative deprivation and social exclusion, which don't necessarily decline just because someone moves out of extreme poverty. Given this, it may be time to devise a reasonable global measure of relative poverty, alongside prevailing absolute measures.

Martin Ravallion elucidated on this during a July 10 lecture at Sydney's UTS Business School, titled "A Fresh Look at Poverty: More Relatively-Poor People in a Less Absolutely-Poor World".

There is a question we often get asked when presenting our new book, Living through Crises. The question is about how the coping behavior described in the book differs from what poor people do to deal with the day-to-day shocks of living in chronic poverty. Based on qualitative, bottom-up research in 17 developing and transition countries, the book describes impacts of the food, fuel and financial crises on the lives of ordinary people and what people do to cope. It talks about the hardships and stresses from living through a period of deep crises; meals that gradually become fewer and less nutritious; people seeking more jobs and working longer hours to make ends meet; how the burden of coping often looks different for women, men, and youth; erratic school attendance and lower quality of care, nutrition and education for infants and children; and the stresses and tensions in family and community life wrought by economic hardships. The book also chronicles the sources of support people could rely upon, often family, friends and informal community groups with the state, NGOs and financial institutions playing small roles at best and being directly unhelpful at worst. The work described in the book helped inform the Global Monitoring Report 2012 and other Bank products.

Like all fields of socio-economic measurement, there is scope for debate on how best to assess development progress. There is often much to be learnt from such debate.

But the debates are not always politically neutral. Some observers chose only to look critically at data and methods when the results diverge from their political priors. And some try to undermine evidence that does not fit their priors by questioning the motives of those producing that evidence. A generous interpretation might construe this as some “postmodern” approach to data, but on closer inspection it often looks more like a debating ploy to make up for weak substantive arguments.

In an article on a Brookings website, Laurence Chandy and Homi Kharas chide the World Bank for three so-called “contradictions” in its global poverty numbers, including the Bank’s latest update. Let me look more closely at these “contradictions” in turn.

First, Chandy and Kharas chide the Bank’s team for assuming that North Korea has the same poverty rate as China. I wish Chandy and Kharas good luck in trying to measure poverty in a place like North Korea, with almost no credible data of any sort to work with. I could offer a guess that 80% of North Korea’s population is poor today—roughly the same as China before it embarked on its reform effort in 1978. This would add slightly less than 1 percentage point to our estimate of the “$1.25 a day” poverty rate for East Asia in 2008.

Kathmandu, Nepal. Photo: © Simone D. McCourtie / World Bank Over the last ten years or so, interest in multidimensional poverty analysis has really taken off - not only among academics, but also in the broader policy debate. No one seems to dispute that deprivations exist in multiple domains, and are often correlated. Looking at deprivations in health, education and other dimensions of well-being can complement the fundamental measurement of income and consumption-based poverty, illustrated by the World Bank poverty update announced yesterday. But agreement at this conceptual level clashes with often vociferous disagreement about how best to measure these deprivations.

A quiet revolution is needed to help pull people out of poverty in many developing countries, since it will be well nigh impossible to replicate export-led success stories like we’ve seen in parts of Asia. Also, even though policies, politics, and corruption are knotty issues that often block progress, there is scope for tweaking institutions at the margins in ways that will improve the status of poor people. These were some of the takeaways I gleaned from the Development Economics lecture yesterday by Esther Duflo, MIT Economics Profession and co-founder of the JPAL Poverty Lab.

Duflo’s lecture was a refreshing mix of pragmatism and idealism. Clearly full of passion for her job and blessed with extraordinary energy, this young economist travels tirelessly to learn what’s happening at the coal face of development and she approaches her task with rigor as well as a sense of mission.

In his Inquiry into the Nature And Causes of the Wealth of Nations Adam Smith pointed to the social-inclusion role of a linen shirt in 18th century Europe:

“A linen shirt … is, strictly speaking, not a necessary of life. The Greeks and Romans lived, I suppose, very comfortably though they had no linen. But in the present times, through the greater part of Europe, a creditable day-labourer would be ashamed to appear in public without a linen shirt, the want of which would be supposed to denote that disgraceful degree of poverty which, it is presumed, nobody can well fall into without extreme bad conduct.”

This passage has often been used to justify the view that poverty is not absolute but relative—that certain socially-specific expenditures are essential for social inclusion, on top of basic needs for nutrition and physical survival.

The way this idea is implemented in practice is to set a “relative poverty line” that is a constant proportion of average income for the country and date in question. That is how poverty is measured in most of Western Europe. By contrast, poverty measures in developing countries have almost invariably used absolute lines, which aim to have a fixed real value over time. The World Bank’s international “$1 a day” poverty lines also aim to be absolute lines across countries, using purchasing power parities from the International Comparison Program.

Global poverty

Targets and Measures, Poverty and Sharing

Should we care equally about poor people wherever they may live?

Global poverty, absolute poverty, relative poverty: A fresh look

Coping with large shocks: What makes it different?

Politically-filtered views on progress against poverty

Contradictions in Global Poverty Numbers?

Multidimensional poverty analysis: Looking for a middle ground

Esther Duflo’s refreshing perspective on fighting poverty

What Does Adam Smith’s Linen Shirt Have to do with Global Poverty?

Global poverty

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