Who’s poor and who isn’t – the flawed $1.25 formula
The $1.25 a day poverty line is neither realistic nor is it any use to governments of less industrialised countries. It is time this ‘global poverty line’ is rejected.
Once again a major international thinktank has released a ‘big picture’ prognosis about global poverty. Once again the $1.25 a day line has been used to confirm that in developing countries, poverty is on the retreat and that the current model of economics is working for the poor by yanking them over that troublesome dollar line.
This time, the thinktank is the Brookings Institution, USA. Here’s their bottomline. Most of the poverty reduction we have seen in the last decade has happened because of the economic growth in China and India, where, until the end of the 20th century, a large number of the world’s poor lived. That growth in Asia not being matched by similar growth in Africa is the reason, Brookings has explained, for Nigeria heading towards being home to the largest population of poor by 2015, more so even than India. Poverty will be an African problem, according to Brookings.
As many other high-profile thinktanks have done over the years, Brookings has proferred its poverty prognostications [pdf] based on a few givens in the world of macroeconomics. One is that $1.25 a day, the World Bank’s revision of its own dollar-a-day definition which is now of some vintage, is the most reliable way to set a global poverty line. Two is that economic growth has brought many people in developing countries out of poverty and will continue to do so. Three is that the kind of growth that we have witnessed (and participated in) in China is the best anti-poverty solution to be found.
Based on these ‘givens’, which I shall turn to in a moment, the world’s development specialists and macroeconomists who measure poverty have lately been waxing enthusiastic about the prospect of providing all poor people in the world cash supplements, which they are sure will bring them out of poverty. The cost, they say, is relatively quite small, at about $66 billion. This cash transfer, to each and every poor person, will cost less now than it would have done only five years ago, they have said.
Well, yes and no. All programmes, even ones that distribute cash to people, cost money to run. If you have to distribute on a regular basis enough money to enough poor people at the rate of more than $1.25 a day, that distribution itself is going to be huge and enormously complicated, and of course quie expensive too. Faced with this question, they do have a ready answer, which goes something like this: recent advances in biometric identification technologies—such as fingerprint and iris scanning—have greatly expanded the promise of implementing large-scale welfare programs in poor countries. No doubt, the technology is there and it has been proven to work. However we who work in the field know well that a gizmo in the hand is not exactly worth a meal on the table, so to speak.
That’s the nuts-and-bolts part of the proposal to buy our way out of poverty. A far more troublesome set of questions concerns the ‘givens’ this whole idea is based on. Let’s look again at $1.25 a day to start with. In most developing countries, this is in mid-2011 equivalent to about a litre of petrol. It will buy about three kilos of rice in some countries, pay for two autorickshaw commutes in others, or buy 10-15 litres of water in some cities (this year on World Water Day the UN said that “Someone living in an informal settlement in Nairobi pays 5 to 7 times more for a litre of water than an average North American citizen”).
That daily line also works out to $37.50 (EUR 26.25) a month. What can an individual buy with that much for a month? Can she buy shelter which does not leak when it rains, can she buy baby food for her children and medicines for her aging parents? Can she pay for schoolfees? Can she afford even a kilowatt hour of electric power a day with that money? Can she stock her kitchen with the cereal, fresh vegetable and lentils her family needs? Never mind $1.25 a day – can she do this on $2 a day in Cairo, Mumbai, Rio de Janeiro or Nairobi?
I can’t see a ‘yes’ answer to any of those questions, anywhere. Next, on what basis do the thinktanks and multilateral lending banks (World Bank, IMF) continue to say that economic growth removes poverty? They use variations of the GDP-divided-by-population formula, and ask th macroeconomists to make the appropriate adjustments for income categories and rural-urban distribution. The trouble is, the real world of poverty doesn’t function the way these models and formulae do. Economic growth has meant the continuing and deepening inequality of income. The ‘richer’ a country gets based on GDP, the more unequal the distribution of the money amongst its people. That’s the very reason the ‘advanced’ economies of Western Europe and North America put in place social safety nets (whose very much poorer cousins are the cash transfer programmes in vogue nowadays).
The truth is plainer and far more visible. There is no let-up in poverty, not in the numbers of poor, and not in how far under the poverty line they are. Any other view may be well-intentioned but misguided. [Thanks to From Poverty To Power, the blog by Duncan Green of Oxfam, for mentioning the Brookings report.]