Halving poverty

OECD Observer

Will this be a long inning? Georges Bartoli/MAXPPP

Can poverty be cut by half by 2015? According to a recent study, the chances are not all that great for many countries. 

In 1998 the Nobel Prize for economics was awarded to Amartya Kunar Sen, the Cambridge economist of Indian origin, who showed that famine can happen even when the granaries are full. By that he meant that there could be “poorer people amongst the poor” and the main problem is that of allocations and entitlements. Amartya Kunar Sen’s influence in development economics is reflected in the United Nations Development Programme (UNDP) in the formulation of an alternative concept of development – sustainable human development, which takes account of more than just GDP.

As we enter the new millennium, “globalisation” has become a buzz word. Some see this as a positive trend, others as a threat. Yet it is no secret that globalisation leaves some people by the wayside. In developing countries, despite the considerable advances made over the past fifty years, entire sections of the population are still living in the most abject poverty. And in many wealthy countries, begging, unemployment and homeless people are now commonplace. Poverty is among the main concerns of governments the world over. The OECD Development Assistance Committee selected a core set of development goals and set targets to measure success. What are now known as "the international development goals" were organised under three themes: economic well-being, social development and environmental sustainability. The goal set for economic well-being was stated as: "the proportion of people living in extreme poverty in developing countries should be reduced by at least one-half by 2015". This noble objective was dubbed “Strategy 21”. Can the target really be achieved?

In a recent publication entitled Waging the Global War on Poverty, Lionel Demery and Michael Walton argue that while many countries will succeed in halving their poverty rates by 2015, many others will not – notably most of the countries in sub-Saharan Africa. (A recent conference on Africa gave a more optimistic message – see article on Emerging Africa.) With the notable exception of east Asia, the number of people living in extreme poverty – considered here as living on less than a dollar a day – has increased in practically every developing country. In the early 1990s, the number stood at some 1.3 billion, which is nearly 20% of the population of the developing world.

Again according to the yardstick of a dollar a day, sub-Saharan Africa and southern Asia have the highest percentage of poor, with 40% of the population living in absolute poverty. The choice of the criterion used to define poverty differs from one country to another. In middle-income countries, for example, the poverty line is frequently closer to two dollars a day. In fact, the figures are always to some extent related to societal norms. In most OECD countries, “necessities” deemed to be essential to normal living include an inside toilet, a refrigerator, a washing machine and home insurance. In most African and Asian countries, however, these are considered to be items of affluence. Also, apart from inadequate consumption, these countries suffer from other symptoms of poverty, such as ill-health, illiteracy, lack of access to basic services, insecurity, powerlessness, social and physical isolation and vulnerability to violence. Lastly, care has to be taken in analysing the findings given – for example, that, of the 42% of Kenyans living below the poverty line in 1992, the majority derived their livelihood from the underground economy.

Initial income distribution and the way it evolves over time are decisive factors if the object is to reduce poverty by half by 2015. According to one estimate, the ratio of income per person between the richest and poorest country has increased from eleven in 1870 to fifty-two in 1985. In terms of wage incomes, the ratio of earnings of engineers in Frankfurt, Germany, was fifty-six times that of female unskilled textile workers in Nairobi, Kenya, in 1994 – and that, after allowing for differences in purchasing power. Other equally revealing figures include the fact that, in South Africa, the top 10% of households account for almost 50% of total consumer spending, while the bottom 10% account for just over 1%.

Within countries, the picture is scarcely more encouraging. In Brazil, income distribution has been extraordinarily unequal for decades, though in India and Indonesia it is relatively equal. There are now signs of wider inequality in such countries as China, Hong Kong, Malaysia and Thailand.

The authors emphasise that, in general, the higher the initial poverty rate, and the greater the initial inequality, the higher will be the per capita growth required to cut poverty incidence in half by 2015. Take two middle-income countries, Brazil and Tunisia. Brazil has a slightly higher income but is much more unequal. It would require 3% growth to reduce the proportion of the population living on two dollars a day by half. In Tunisia, which has more equal income distribution and a lower initial poverty rate, the rate of growth would only have to be 1.3%. In India, whose income is much lower than that of Brazil but is much more equally distributed, annual per capita growth would have to be 1.4% to reach the target of one dollar per day, but 5% for two dollars a day.

For all these results, the authors have taken 1990 as the base year, a starting point which was not specified by Strategy 21, but which gives a generous quarter century in which to achieve the poverty reduction targets. The authors’ next step was to compare, for 36 countries, the growth rates required to halve poverty over 25 years with recent recorded growth rates. The results are not encouraging. Apart from most of the east Asian countries, the majority of developing countries have been recording inadequate growth.

To take account of policy influences, another scenario was built which was based on the economic policies of 1990. Only half of the 36 countries reviewed reached the growth rate required to achieve the Strategy 21 poverty reduction goal. And whereas the big three Asian countries – China, India and Indonesia – would cut poverty by half, Brazil was unlikely to do so.

Messrs Demery and Walton then assume that governments will improve their economic policies during the projection period, with the policy variable switching from “poor” to “good” for all countries. Under this assumption, 28 of the 36 countries meet the target, including a number of African countries such as Kenya, Tanzania and Zimbabwe. The message is clear: halving poverty by 2015 also depends on how well economies are managed. Alarmingly, however, Brazil and several African countries such as Uganda and Zambia would still not reach the target. Good policies are important, but for poverty to be greatly reduced, they are clearly not enough.

Bibliography

Demery, Lionel and Walton, Michael, “Are Poverty and Social Goals for the 21st Century Attainable?” in Waging the Global War on Poverty: Strategies and Case Studies, Development Centre Seminar, 1999.

©OECD Observer No 220, April 2000




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