Can The World Be Richer Together?

Can The World Be Richer Together?

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This article is the first of a two-part series which discusses whether the human race can achieve something which seemed impossible till recently: Making Poverty History. This article will analyse why the World Bank’s current to global poverty is detrimental to the original goal of helping the poor. The next article will suggest the infusion of new ideas into an age-old fight against poverty.

It was 2010 and a time to celebrate. The World Bank had succeeded in its target of halving poverty, set in 1990, five years before the deadline. No mean feat. In the ecstasy of the celebrations and worldwide praise that abounded, the World Bank went ahead and set its next target: Eradicating Extreme Poverty by 2030, much to the admiration of the already awe-inspired global audience. However, reality seems to have struck hard. Even in the best case scenario, which includes an assumption that the lower and middle income countries will continue to grow at the same pace as they have done in the last couple of decades (Spoiler Alert: They will not), 6-7% of the world’s population will still remain extremely poor. The euphoria of 2010 is no more as observers have realized that Sub-Saharan Africa, where most of the world’s poor live, will not grow as fast as China and India, who are primarily (almost solely) responsible for the halving of global poverty since the 90’s.

Now, once you set a parameter of meeting your goals, especially after a historic achievement in 2010, you tend to tweak rules and manipulate figures in order to get as close as possible to the target. Given the fact the World Bank has almost a monopoly over measuring global poverty and releasing figures, this is exactly what seems to be happening.

A huge focus on ‘eradicating’ poverty has led to the World Bank going on to define poverty and draw a line called the International Poverty Line, beyond which everyone is considered to be out of absolute poverty. This has in turn led to the World Bank defining a certain amount of income—of $1.90 a day on a per capita basis under PPP terms—as the Poverty line (PL).

There are strong reasons to believe that $1.90 a day is too low a threshold for poverty around the world. This figure was initially arrived at by taking an average of the poverty lines of 15 poorest countries in the world. This would make the poorest person in America to be considered rich enough. By imposing a one-line-fits-all measure of poverty on the world, the World Bank ignored that even absolute poverty is subjective around the world due to regional inequality, and giving people a minimum amount of income cannot actually be the sole focus in the fight against poverty. This approach ignores Adam Smith’s famous recognition of poverty: the inability to stand in public without shame.

Further, the World Bank has changed the numeric value of the Poverty Line from $1.25 (2005 prices) to $1.90 (2011 prices) in 2015 . The issue with this is that half of the world’s population lived in countries where, according to national price indices, $1.90 bought less than what $1.25 would buy in 2005, as pointed out by Sanjay Reddy of the New School for Social Research in New York. In fact, Mr. Reddy has himself come up with a new measure of poverty called the Global Consumption and Income Project (GCIP) which puts global poverty five percentage points higher than the World Bank’s current estimate. He believes that World Bank’s approach of collecting income data is insufficient as it does not take into account that people may save for old age and dowry with rising incomes, none of which improve the current standard of living.

Moreover, criticism, especially by Angus Deaton and Amartya Sen, also abounds on how the PL should not be decided by finding the minimum income required to consume a certain amount of calories. The PL does not take into account savings, nor does it answer how a girl not being sent to school just because she is a girl despite meeting minimum income standards is not another kind of poverty.

Having a monolinear view of poverty is not the only problem. Assumptions that follow data collection are equally big problems. To meet its agenda, World Bank assumes that between the intervals of two data collection surveys which take place at a frequency of 3.5 to 10 years, growth rate has been uniform. Growth rate, especially in Sub-Saharan Africa, where war and droughts are not rare, are never uniform in developing countries as many of their fortunes depend on a single natural resource’s volatile sales price.

Another problematic assumption on which data is extrapolated is that economic growth benefited all sections equally, despite most economists agreeing with the Kuznets’ Curve, which states that inequality increases during the initial stage of development. The third dicey assumption is that population growth rate is considered uniform across developing countries. Except, most Asian countries have fertility rates below 3 while in Africa it’s above 5. Therefore, same levels of growth in Asia and Africa will lead to less per capita development in the latter. Finally, the World Bank uses PPP (Purchasing Power Parity) rates. The goods in the PPP basket were never selected to measure poverty in the first place. Thus, conversion of local consumption patterns into dollarized PPP rates becomes a faux indicator due to an inappropriate exchange rate.

Despite the evidence against it, World Bank is not going to upgrade the poverty line or change dubious data collection methods. Doing that would lead to more people (millions, if not billions) being considered poor and that will be extremely embarrassing for the Bank which has supposedly led the fight against world poverty. What is worse is that the poverty line of $1.90 is used for academic research worldwide, and it is difficult to estimate the amount of inaccurate research material being produced on the basis of a faulty Poverty Line. Thus, as long as the World Bank believes that ‘escaping the Poverty Line’ or data collection gimmicks are the answer to the humiliation that is poverty, we cannot make any material progress on ending bitter impoverishment in the world.

 

 

 

 

 

 

Can The World Be Richer Together? Part II

Can The World Be Richer Together? Part II

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