Last week, Oxfam released a powerful report on inequality, “Working for the Many: Public services fight inequality.” The report makes a persuasive case for the need to bring more attention to the issue of inequality in policy discussions. Indeed, at the recent World Economic Forum Annual Meeting, World Bank President Jim Yong Kim stated that “at Davos, income inequality should be front and center” as an important item on the global agenda. I was recently a discussant in a session on the Oxfam report at a Spring Meetings event alongside Max Lawson of Oxfam Great Britain and David Coady of the IMF's Fiscal Affairs Department. The case Oxfam makes that inequality is harmful to the global economy is well articulated and their prescription for a solution is highly focused: increase the amount of progressive taxation to fund free and universal health and education. In the following slides, I provide a few examples of where we might want to broaden our thinking on the issue of inequality. In particular, I offer a couple of illustrations where a singular focus on inequality would lead us to undervalue some very important progress that has been made in the fight to eliminate poverty. In contrast, by ‘twinning’ the goals of eliminating extreme poverty and boosting shared prosperity, the policies we design may be more likely to ensure that everyone shares in growth and prosperity.
This paper reviews the empirical evidence on the existence of poverty traps, understood as self-reinforcing mechanisms through which poor individuals or countries remain poor. Poverty traps, understood as self-reinforcing mechanisms through which poor individuals or countries remain poor, have captured the interest of many development policy makers, because poverty traps provide a theoretically coherent explanation for persistent poverty. They also suggest that temporary policy interventions may have long-term effects on poverty. However, a review of the reduced-form empirical evidence suggests that truly stagnant incomes of the sort predicted by standard models of poverty traps are in fact quite rare. Read the entire paper here.
Good stewardship of land – whether fertile fields or tracts on the edges of growing cities – can drive sustainable and equitable development. Done well, good land governance can enable farmers, community leaders, city planners, remote sensing scientists, researchers and relief organizations to successfully deal with climate change, urbanization, gender equality, and food security. But the complexity of land administration, and its attendant institutional and political hurdles, often hamper progress and reinforce deep-seated inequalities and inertia instead of fostering growth and shared prosperity.
This is what makes the Annual World Bank Conference on Land and Poverty happening this week at the World Bank so important. Over 1,000 experts from 115 countries have gathered here for the event and are exploring a wide range of problems and potential solutions.
As a poverty economist, I know how difficult it is to forecast poverty numbers for even the next year. But, since the World Bank Group (WBG) announced the goal of ending extreme poverty by 2030, I have been projecting poverty numbers of some countries and regions for nearly two decades into the future. I could not help but ask myself “What am I doing this for?”
Forecasting versus Benchmarking
I looked for answers by reading recent papers on similar topics. Most seemed to be competing to prove that their projections were the most plausible. Some seemed better than others, but they were not convincing enough to erase my doubt. Before giving up the search, I reread Ravallion (2012, 2013) , and at last got an answer. In both papers Ravallion projected future poverty under the assumption that the developing world maintains its current pace of growth and poverty reduction. Although his methodology ensures that his projection predicts future poverty accurately if this assumption holds, it is still uncertain whether this assumption will hold and, consequently, whether his projection will prevail.
Martin Ravallion's NBER working paper titled 'The Idea of Antipoverty Policy' is now accessible online and provides a long view on how the narrative around poverty evolved from the 1800s til now.
America's war on poverty turned 50 this week and Nick Kristof has a column titled 'Progress in the War on Poverty.'
A Free Exchange post draws from a paper by the WB's Quy-Toan Do, Jishnu Das and others in the JED. Their research analyzes the tendency of academic research to focus excessively on the US and to under-study the developing world.
Much confusion has arisen in policy debates in India about whether or not growth has helped the poor; if yes, how much and over which time period; and whether growth is leaving certain social and religious groups behind. There remains deep skepticism on the part of NGOs and journalists that growth has been good for groups that were disadvantaged over long periods of time in the past.
Arvind Panagariya and I decided to investigate these claims – see here and here. We ask simple questions relating to the evolution of poverty in the post-reform era in India. How have poverty levels changed over the last few decades? We scrutinize changes across 6 different dimensions: (1) over time, (2) across states, (3) across rural and urban regions, (4) across social groups, (5) across religious groups, and (6) using different poverty lines. We find no basis whatsoever for claims that growth in India has left disadvantaged communities behind.
Social scientists have for long acknowledged that people evaluate their own wellbeing not only on the basis of what they have but also on the basis of what they have relatively to what other people have. Adam Smith (1776) wrote that "By necessaries I understand not only the commodities which are indispensably necessary for the support of life, but whatever the custom of the country renders it indecent for creditable people, even of the lowest order, to be without".1 And Marx (1847) wrote that "A house may be large or small; as long as the neighboring houses are likewise small, it satisfies all social requirement for a residence. But let there arise next to the little house a palace, and the little house shrinks to a hut”.2
Despite the old age of these ideas, it is only during the second half of the twentieth century that scholars have tried to provide more analytical substance to the concept of relative deprivation. Duesemberry (1949)3 proposed a relative income hypothesis based on the idea that people determine their savings behavior not on their absolute incomes but on their relative position on the income scale. Runciman (1966)4 built an entire theory of social justice around the concept of relative deprivation defined as the sense of frustration that people experience when they observe other people having something they desire and within their reach but unattainable. While popular, these new theories struggled to become mainstream and it is only recently and thanks to studies on happiness that the concepts of relative deprivation have acquired new life.
Who are the bottom 40 percent of society? Where do they live? What do they do? What other characteristics do they have?
These are just some of the questions we are hoping to answer as part of the World Bank Group’s new mission critical – to end extreme and chronic poverty by 2030 and boost shared prosperity. The renewed effort against poverty is needed as more than one billion people in the developing world continue to live in abject poverty (i.e. on less than $1.25 a day).
The Millennium Development Goals (MDGs) put the fight against poverty at the center of the international development agenda. And progress has been noteworthy - so much so that it is now fueling more ambitious goals on poverty reduction. But this also brings new demands for better data to measure progress.
UN Secretary General Ban Ki-moon recently called the MDGs “the most successful global anti-poverty push in history.” With their mutually reinforcing linkages, they committed the world to reducing extreme poverty to historically low levels, while also improving education, health, nutrition, and other development prospects for hundreds of millions of the world’s poorest people. There is no doubt that since their announcement in 2000, the MDGs have raised the profile of poverty reduction in national development strategies, aid discussions and allocation, and the international development discourse. Systematic cross-country monitoring of simple to understand targets proved to be an effective tool in raising this profile.