Fighting poverty is what economic development is all about.  Let’s explore some of the issues together.

First of all, what is poverty?  We often think of poverty as having a very low income.  For example, the World Bank measures “income poverty”, and considers that if you are living on less than $1.25 a day, you are living in extreme poverty (they used to have the bar at $1.00 a day).

But following the thinking of economists like Nobel Prize-winning Amartya Sen, we now understand that poverty has many “dimensions”.  Poor people can suffer from many “deprivations” in addition to low income, such as hunger, poor education, bad health (including high child mortality), lack of access to clean drinking water, no political freedom, to name just a few.

The development challenge is to address these deprivations and to provide poor people with the “capabilities” to live a decent life – income, food, health, drinking water, etc.  According to Amartya Sen, development is freedom, freedom of choice, or the control of one’s life.  Mahatma Gandhi once said that development is all about the “realization of human potential”.

This may all seem obvious, but just a few decades ago, economists believed that economic growth was the key to economic development.  They thought that the benefits of economic growth would “trickle down” to poor people.  One big problem, however, it didn’t always work out like that.  Many countries have seen growth without development, especially for women who suffer more than men of poverty.  Women suffer more from health and education deprivations, and from lack of freedom.  Women are at the centre of the development drama. 

How can we measure poverty?  Essentially, there are two ways.

The World Bank does excellent work measuring “income poverty”.  It estimates that in 2005 there were 1.4 billion people (out of a world population of 7 billion) who are living on less than $1.25 a day.  This is a great improvement since the year 1981 when the figure was 1.9 billion people – all the more so given that the world population has increased since that time.

But this dramatic improvement in the world poverty count is due to East Asia and especially China.  In East Asia, the $1.25 poverty count has fallen from 1.1 billion to 0.3 billion, and in China it has fallen from 0.8 billion to 0.2 billion.  In Sub-Saharan Africa the $1.25 count has gone up from 0.2 to 0.4 billion, while in South Asia it has gone up from 0.5 to 0.6 billion.

Looking at percentages also provides us with many insights.  The percentage of the developing world’s population living on less than $1.25 a day has fallen from 52% in 1981 to 26% in 2005.  But again, this is mainly due to East Asia where the poverty rate has fallen from 79% to 18% (China went from 84% to 16%).  Sub-Saharan Africa remained about 50% over this period, while South Asia fell much less, from 59% to 40%.

Let’s now have a look at the statistics for people living below $2.50 a day.  While many such people – that is, those living between $1.25 and $2.50 a day – have escaped extreme poverty, many of them are still living on the edge, and are vulnerable to the slightest shock like a food or energy price hike, or a financial crisis.

Indeed, the number of people living under $2.50 a day has increased from 2.7 billion in 1981 to 3.1 billion in 2005.  In other words, about half of the world’s population lives on less than $2.50 a day.  And the percentage of the world’s population living under $2.50 a day has only fallen from 75% to 58% over this time.  Many people have jumped up only one or two rungs on the ladder of development.

Even in East Asia, some 52% of the population lives on less than $2.50 a day, a big fall from 95% in 1981, but still this represents a lot of people on the edge.  In South Asia, 84% of people live on less than $2.50 a day, not much down from 93% in 1981, while in Sub-Saharan Africa 80% live on less than $2.50, a figure that is basically unchanged from 1981 to 2005.

Another interesting question is where do the poor people live?  In reality, the majority of the world’s poor people (living on less than $1.25 a day) do not live in poor countries, or “low income countries”, defined by the World Bank to have an annual GDP per capita of less than $996.  Three-quarters of the world’s people live in lower middle income countries, those with an annual GDP per capita in the $996-$3945 range, countries India, China, Nigeria, Indonesia and Philippines.  These are countries that have many rich people, but who often do not do much to help their poor fellow citizens.

Let’s turn now to multidimensional poverty.  The United Nations Development Program (UNDP) measures multidimensional poverty through its Human Development Index, which is a weighted average of income, health and education.  It is estimated that there are 1.7 billion people who are multi-dimensionally poor, more than the 1.4 billion who live on less than $1.25 a day.  Half of the world’s multi-dimensionally poor people live in South Asia, where 844 million or 55% of the population is put in this category.  Africa has 458 million who are estimated to be multi-dimensionally poor, some 65% of Africa’s population.

The UNDP classifies countries into the following groups – “very high human development”, “high human development”, “medium human development” and “low human development”.  This list of 42 countries with low human development is as follows: Kenya, Bangladesh, Ghana, Cameroon, Burma, Yemen, Benin, Madagascar, Mauritania, Papua New Guinea, Nepal, Togo, Comoros, Lesotho, Nigeria, Uganda, Senegal, Haiti, Angola, Djibouti, Tanzania, Cote d'Ivoire, Zambia, Gambia, Rwanda, Sudan, Afghanistan, Guinea, Ethiopia, Sierra Leone, Central African Republic, Mali, Burkina, Faso, Liberia, Chad, Guinea-Bissau, Mozambique, Burundi, Niger, Democratic Republic of Congo and Zimbabwe.

But many of the countries with the largest number of poor people are classified as having “medium human development”, countries like China, Philippines, Indonesia and India.  How does this add up?  One reason is that these very countries have big gaps between rich and poor people.  That is, they might have on average a medium level of human development, but this average hides big gaps between rich and poor people.

Why should we be worried by poverty?  Obviously, there are strong moral and ethical arguments for trying to save people from poverty.  But there are other reasons.  As Japan has seen particularly, when poor countries develop quickly, they provide export markets for our products.  Japan has benefited enormously from the development of China and other Asian economies.    And as the US and Europe have seen, when there neighbors like Mexico and Africa have development problems, there can be massive pressures to accept migrants.  Poorly developed countries, which could be “failed states”, can also export infectious diseases and instability, and be havens for criminal activities.

What are we doing to solve poverty?  One major initiative was the United Nations Summit in 2000, where leaders of the world agreed on establishing the Millennium Development Goals.  Most of the goals are to be achieved by the year 2015, goals concerning extreme poverty and hunger, universal primary education, gender equality, child mortality, maternal health, HIV/AIDS, malaria and other diseases, environmental sustainability.  Unfortunately, we are not on track to achieve most of these goals, except the goal of halving extreme poverty.  And this goal will be achieved thanks to East Asia, not the world as a whole. 

Another key element of these MDGs was a global partnership between rich and poor countries.  While some progress has been made, rich country promises to increase official development assistance, and open markets have not been adequately delivered.

In summary, we have made much progress in our fight against poverty, but there is still a lot of work to do, especially for those poor people who are still living "on the edge".  

It is also worth highlighting the issue of poverty in advanced countries, which is often discussed by organizations like the OECD.  This is a very different discussion from poverty in developing countries, which is based on the concept of "absolute poverty".  Discussions of poverty in advanced countries usually focus on "relative poverty", a standard measure of which is the share of people whose income is less than half the average income of their country.  These people would most likely have enough income to feed, clothe and shelter themselves, although the homeless population is growing in all advanced countries.  On this basis, 10.6% of the OECD population is living in relative poverty, with the highest rates recorded in Mexico, Turkey, US, Japan, Ireland and Poland.  

References:

Measuring poverty’s many dimensions

http://www.mrglobalization.com/development/288-measuring-povertys-many-dimensions  

Where do the poor live?

http://www.mrglobalization.com/development/287-where-do-the-poor-live   

Development as freedom

http://www.mrglobalization.com/development/185-development-as-freedom  

OECD.  Growing Unequal? Income Distribution and Poverty in OECD Countries

www.oecd.org/els/social/inequality