Living with Poverty
Attempts to define or measure poverty cannot do justice to the reality of its experience. Far from crushing the human spirit, the extreme poverty of the developing world instead draws out many of its finest qualities.
Managing very small amounts of money through an unpredictable annual cycle of household fortunes requires exhaustive ingenuity. Family loyalties survive the desperate search for livelihoods, displaying stoicism in the face of exclusion, dignity amongst deprivation.
Evidence of this defiance lies in the controversial images of poverty used by development agencies to raise awareness of their work. We are torn between horror at the inhuman environment and awe at the beauty of the protagonists, especially children.
Extreme poverty strikes when household resources prove insufficient to secure the essentials of dignified living. The consequences of persistent poverty include insufficient food, children out of school, diminution of household back-up resources and exclusion from valuable social networks.
Facts and Trends
Based on World Bank figures which are used for official global poverty statistics, the number of people living below the international poverty line of $1.25 per day fell from 1.82 billion to 1.37 billion between 1990 and 2005.
China accounted for 475 million of the reduction, implying that poverty has increased elsewhere over this period. In India and sub-Saharan Africa, the increase was 21 million and 91 million people, respectively. One third of global poverty is in India and just over a quarter in sub-Saharan Africa.
Expressing poverty as a percentage yields more favorable results due to rising population. For example, extreme poverty in sub-Saharan Africa fell slightly from 58% to 51% between 1990 and 2005.
The wealth of our new millennium has tended to increase inequality rather than reduce poverty. UNDP has reported that, in 2005, the richest 500 people in the world earned more than the poorest 416 million.
The trend of migration from poor farming regions has raised the incidence of urban poverty, especially in the slum zones of the world’s major cities. Nevertheless, poverty remains inextricably linked with the disappointing progress in agriculture in developing countries.
Rural poverty rates are more than double those in cities, often embracing a substantial proportion of the rural population. The most persistent poverty is found amongst ethnic minorities experiencing discrimination, tribal and indigenous people, and nomadic pastoralists on marginal land.
These 2005 figures are based on the latest available data and take no account of the economic turbulence of recent years. 2007/08 saw an uncontrolled rollercoaster of food and energy prices as a prelude to the banking collapse and global recession. The latter half of 2010 has seen a further spike in world food prices.
All key revenue sectors for developing country economies proved vulnerable to the impact of these shocks. Foreign direct investment and exports collapsed, overseas remittances were squeezed, and foreign aid budgets have come under pressure.
How these setbacks will impact global poverty figures remains uncertain. The World Bank’s Global Economic Prospects 2010 estimated that the poverty count for 2010 would be 64 million higher than if there had been no financial crisis. Poor households spending a large proportion of their incomes on food and fuel are invariably the most severely affected.All key revenue sectors for developing country economies proved vulnerable to the impact of these shocks. Foreign direct investment and exports collapsed, overseas remittances were squeezed, and foreign aid budgets have come under pressure.
Meanwhile, the richer countries have indulged in an orgy of spending on bank rescues and economic “recovery”. By contrast, the World Bank has observed that 43 of the 48 poorest countries lacked the financial status necessary to raise funds to execute a fiscal stimulus.
The G20 crisis meeting in April 2009 made a gesture to global poverty by increasing the financial resources of the IMF. Annual concessional lending to low income countries was scheduled to rise to $4 billion in 2010, about the same amount as US subsidies for scrapping old cars.
Measuring National Poverty
The time lag in global poverty statistics stems partly from the prohibitive cost, skills and logistics involved in conducting household income and expenditure surveys in the developing world. Delays may be aggravated through controversy over the basis of calculating poverty, often inevitable where it dictates the distribution of aid or social welfare.
Poor countries typically determine their national poverty line as the value of a basket of basic food and essential non-food items. Some governments work with separate urban and rural poverty lines, recognizing that costs are higher in cities.
Most developing countries adopt a hardline interpretation of “essential”, restricting non-food items to a minimum. Some even insist on the most stringent measure, the food poverty line, which reduces the basket to food items only.
Household surveys analyze consumption as well as income, recognizing that goods may be exchanged by barter and that many families grow their own food. Statistics will highlight the incidence of households whose income is just above or below the poverty line. A high incidence forewarns that a small change in economic fortune or in redistribution can make a large impact on poverty figures.
Collating data by household rather than individual means that inequality within the household will not be reflected in the statistics. Another criticism of income-based poverty assessment is its exclusion of important criteria such as access to education, health, water, and housing. A new Multidimensional Poverty Index, launched by the UN Development Program in 2010, is the most recent attempt to supplement our understanding of poverty.
Measuring Global Poverty
As each national poverty line reflects a different view of essential food and goods, an alternative method is needed to aggregate global poverty on a consistent basis.
The World Bank calculates an international poverty line by reference to the average of the national poverty lines in 10-20 of the world’s poorest countries. This exercise was last completed using 2005 data, resulting in an international poverty line of $1.25 per day. Global poverty is then evaluated by reference to “data from 675 household surveys across 116 developing countries.” This data is compared to the $1.25 benchmark, not by standard currency exchange rates, but by purchasing power parity (PPP) rates which smooth out the different buying power of the dollar in each country.
The World Bank figure of $1.25 per day was intended to be a bottom marker. Unfortunately, the two countries with the largest populations in the world, India, and China, have both adopted national poverty lines which are even lower.
India’s tough approach, currently under review, is based on the food poverty line which gives a national poverty rate of 28%, compared to 42% on the international basis. In China, the gap is believed to be even wider, potentially tripling its national poverty numbers to over 150 million. These inconsistent measures are the source of much confusion.
A second-tier international poverty line of $2 per day is derived from the average of national poverty lines in all lower- and middle-income countries. The Bank reports that 2.6 billion people live below this benchmark, a figure which has changed little since 1981. Indeed, a slightly higher benchmark of $2.50 per day captures more than half of the world’s population.