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YOU DON’T STOP BEING POOR WHEN YOU EARN OVER 1.90 DOLLARS A DAY

Date: 12/11/2018

Author(s): Borja Santos Porras

Publication: Read more



“736 million people in the world are living below the extreme poverty threshold.” This was the official figure for global poverty published by the World Bank in 2015. However, on the 20th of September this year, the United Nations and Oxford University increased this multidimensional figure to 1.3 billion. On October 17th—the International Day for the Eradication of Poverty—the World Bank declared that 2.1 billion people worldwide are considered poor in relation to their respective societies, and that 3.4 billion are struggling to cover their basic needs. What happened? How are poverty indexes being transformed on a global scale? What purpose do these indexes serve, and why choose one over another?

In 1990, a group of researchers at the World Bank led by Martin Ravallion established a poverty threshold. Those with an income below this limit would thereafter be described as living in extreme poverty and, at that time, the threshold was set at approximately one dollar a day per person. So as to enable international comparison, purchasing power parity (PPP) was always taken into account (i.e. what one dollar can buy in local prices). This poverty line has been revised several times since, until it was adjusted to 1.9 dollars a day in 2011.

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According to this scale, reducing poverty was one of the UN’s Millennium Development Goals’ greatest successes. From 1990 to 2015, those living in extreme poverty reduced from 36% to 10% of the global population, despite the fact that the rate of reduction had slowed considerably over the latter three years. From these figures we can conclude that in 2015 there were 736 million people living on a daily income of less than 1.90 dollars. And, of that number, more than 85% were living in Sub-Saharan Africa and South Asia.

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Source: Banco Mundial, PovcalNet.

Note: Adjusted in terms of purchasing power parity.

 

Although the international poverty threshold has been continually updated in line with inflation, this only represents the minimum needed to cover basic needs in low-income countries. For this very reason, the World Bank updated the indexes in the latest edition of its recently introduced biannual report on poverty and prosperity. On the one hand, we have the societal poverty line which adapts to any given country with respect to its development. It combines the fixed value of extreme poverty with the relative dimension of well-being, which differs from country to country depending on its national consumption. For example, to be able to enter the labor market or for other basic needs, a person will need more financial resources in some countries than others. According to this model, 2.1 billion people are living in poverty, relative to their respective societies. On the other hand, the index is adjusted according to the countries’ national income. In addition to the 1.9 dollars-a-day poverty threshold for low-income economies, the World Bank sets a minimum of 3.2 dollars a day for middle- to low-income economies, and 5.5 dollars for middle- to high-income economies. It transpires that 3.4 billion people—almost half the worldwide population—live on incomes below these thresholds and, therefore, struggle to cover their most basic needs.

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Source: ‘Poverty and shared prosperity 2018: Piecing together the poverty puzzle’, World Bank.

Taking income distribution into account, be it on a global level or in a specific area, is of fundamental importance. This allows us to, firstly, determine the level of social cohesion and, secondly, to concentrate our efforts on those living in extreme poverty. It’s also incredibly important on a political level, since the fight against poverty should be an aim of any government.

One of the problems in establishing these thresholds is that a couple of European or American cents more or less can alter the reported status of large populations, pulling them in and out of poverty even when their situation has not fundamentally changed. In 2015 in Mexico, a change in the official measures of income meant that 10 million people were no longer officially living in poverty. In Spain, and according to the 2017 Arope report, all those living in households with an income below 739.70 euros per consumer unit were considered poor in 2009. In 2017, however, only those with an income of less than 684 euros were included in this category. Therefore, anyone with an income between 684 and 739 euros per month technically rose out of poverty, despite having experienced no real improvement in their income.

Another one of the challenges of this poverty index is its one-dimensional nature, since it only considers the income (or cost of buying certain goods and services) required to cover people’s basic needs. For many individuals and organizations, poverty has several dimensions. Amayrta Sen, winner of the 1998 Nobel Prize in Economics, was one of the first to argue that human development depends on an expansion of a person’s “capability”, allowing each individual—depending on their own personal traits and circumstances—to have sufficient “freedom and capability” to satisfy their basic needs, such as by education, health, justice, access to the labor market and participation in democracy. In this way, income ceases to be the main focus and instead becomes an instrument for improving a person’s “capability”. Following this idea, the United Nations Development Program published the Human Development Index in 1990, which featured other indicators (in addition to income) for measuring fundamental dimensions of human development, like living a long, healthy life and being able to acquire the knowledge and capabilities necessary for a decent life.

On the 20th September, the United Nations took one more step in this direction and adopted the Multidimensional Poverty Index (MPI) created by the Oxford Poverty and Human Development Initiative. The MPI calculates poverty by factoring in 10 indicators that measure the deficiencies suffered by people across three key areas or dimensions: health, education and living standards (such as access to drinking water, sanitation, nutrition, and so on). Of the 104 countries studied, 1.3 billion people are considered “multidimensionally” poor. 83% of these people are concentrated in Sub-Saharan Africa and South Asia. The index reveals some worrisome facts, such as 50% of the children of the countries studied are multidimensionally poor (in Niger or South Sudan this figure reaches 90%).

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Source: The Oxford Poverty and Human Development Initiative (OPHI).

For the United Nations and other organizations, while this methodology may complicate our understanding of poverty, the breakdown is essential for an analysis of the various deficiencies, ensuring that no child is forgotten. The World Bank has also begun to include access to education and public services (electricity, water and sanitation). In the most recent report on evaluating poverty, they unrolled the Human Capital Project, which focuses on measuring human capital and investments in health and education with the additional objective of improving productivity.

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Source: ‘Poverty and shared prosperity 2018: Piecing together the poverty puzzle’, World Bank.

A more comprehensive development of the poverty measures also corresponds with the demands of the Sustainable Development Goals whose first objective emphasizes the importance of a multidimensional focus, allowing us to eradicate poverty in all its forms. However, there is a risk that the differing figures calculated by each of the measures will cause confusion and, consequently, a lack of trust in the data. That’s why it is so crucial that the public properly understands each of the poverty indexes, so as to grasp the urgency and gravity of the high rate of global child poverty, the concentration of extreme poverty in Sub-Saharan Africa and the relationship between poverty and inequality.