Should We Celebrate a Decline in Global Poverty?

Adam Parsons – Originally published by Share The World’s Resources

The World Bank’s latest data suggests a decline in global poverty throughout every region of the developing world, as well as the fulfillment of the Millennium Development Goal (MDG) on halving poverty well ahead of schedule. But is this really the ‘good news’ that we are led to believe?

You may be forgiven for missing the good news recently reported by the World Bank: that the number of people living in extreme poverty has declined in almost every region of the developing world. According to the latest global poverty estimates, both the percentage of people living on less than $1.25 a day and the number of poor declined between 2005 and 2008, the first time that an across-the-board reduction has been reported since the World Bank began monitoring poverty. Not only that, but preliminary estimates indicate that the share of people living in extreme poverty declined between 2008 and 2010, even despite the global financial crises and surging food prices. By 2010, it appears that the $1.25 a day poverty rate fell to less than half the 1990 rate, which means that the United Nation’s first Millennium Development Goal (MDG) for cutting extreme poverty in half has already been achieved, five years ahead of schedule. This is surely a cause for celebration – or is it?

To answer this question, we first have to understand why the World Bank’s poverty statistics are so important, which is not only for what they tell us about the number of poor people in the world. The World Bank is the monopoly provider of global poverty figures, and it is no secret that they are often used to support the view that liberalisation and globalisation have helped to reduce poverty worldwide. In other words, a reduction in global poverty can usefully defend the Bank’s neoliberal policies that favour economic growth and free markets as the overruling means to combating poverty. Since around 2000 when the Millennium Development Goals were first conceived, the World Bank has consistently painted an upbeat picture of the global poverty situation. This is not a conspiracy, as some people might suggest, but simply an ideological justification for the current arrangements of the global economy and the status quo. So long as the MDGs remain in sight and global poverty is on a downward trend, then the Bank’s continued defence of neoliberal policies can be vindicated.

Controversy over global poverty measurement is nothing new, and peaked around 2003 when economists from both the right and left challenged the Bank’s income-based calculations. On the one-hand, devoted free-marketeers (most notably, Xavier Sala‐i‐Martin of Colombia University and Maxim Pinkovskiy of MIT) have argued that the Bank’s estimates are significantly overstated, in which case the effects of globalisation can be seen as far more beneficent than even the Bank itself presumes. On the other hand, high-profile economists that lend their voice to the global justice movement (in particular, the economist-philosopher duo Sanjay Reddy and Thomas Pogge) have argued that the Bank uses such faulty methodology that their statistics are unreliable and possibly under-estimated by up to 40 percent. Although the chief economists responsible for the Bank’s poverty statistics have responded to these criticisms and modified their measurements over the years, many of the issues lay unresolved and cast a wholly different light on the reality of global poverty. With few critical blogs or articles being written about the Bank’s latest figures, it is worthwhile to again revisit some of the main issues.

The World Bank’s positive spin

Taking the Bank’s latest figures at face value, we might still question whether it is altogether good news for the fight against global poverty. As the report’s authors admitted, progress was mainly due to China’s rapid economic rise. But excluding China, the number of people living in extreme poverty in the developing world was about the same in 2008 as in 1981, at around 1.1 billion. Sub-Saharan Africa is hailed in the report for reducing extreme poverty to below half the population for the first time, reversing the long-run increase since 1981. To put this in context, however, the number of poor in sub-Saharan Africa almost doubled from 205 million in 1981 to 395 million in 2005. The extreme poverty rate in the region still remains at 47.5 percent – by far the highest rate in the world.

The Bank also admits that there was only a slight drop in the number of people living below $2 a day since the early 1980s, which remains at 2.47 billion people. A marked ‘bunching’ effect is noted just above the $1.25 a day yardstick, with millions of people caught in the poverty trap even if they are no longer classified as the extreme poor. This is the current reality of global poverty as reported by the World Bank: almost a quarter of the developing world (22 percent) cannot meet their basic needs for survival, while not far from half of the population (43 percent) is trying to survive on less than $2 a day. We may judge for ourselves whether this is “a fall to cheer” and “drops of good news”, as reported in the Economist.

Many critics have pointed out that the Bank’s poverty line, once fixed at $1 a day and now modified to $1.25 a day, is outrageously low by any standards. Living on this amount of money in the United States would be unthinkable, but according to the ‘purchasing power parity’ adjustment that the Bank uses – based on the differences in the prices of household consumption goods and services in different countries – this is effectively what this means. Contrary to popular perception, the world poverty measure is based on what $1.25 a day would buy in the United States, not in another country like Ethiopia or Peru.

Although there is nothing to prevent the World Bank from choosing a different level of income to define the extreme poor, it is essential to use a distressingly low poverty line if they want to give a positive spin to their global statistics. As we can see above, using $2 a day as the marker of extreme poverty would reveal a far less sanguine outlook. If a more realistic marker of $2.50 a day is used, twice as high as the current level, then the Bank’s own data showed a slight increase in the number of poor between 1990 and 2005 (according to their previous update released in 2008). The simple point to observe is that the dollar a day measure is fixed arbitrarily and far too low, and is not a reliable indication that life is improving for a majority of the world’s poor.

Miscalculating the world’s poor

However, setting the poverty line at a higher level would not be enough to make the Bank’s calculations more accurate or meaningful. Measurement controversies continue to cast doubt on actual progress in fighting poverty, even though this debate is now widely overlooked in the media. Criticism centres on the Bank’s use of the ‘purchasing power parity’ (PPP) adjustment, which many economists argue is a flawed method for comparing households across countries or currencies. As Reddy and Pogge have consistently shown, these adjustments typically overstate the ability of the poor to purchase basic necessities. The way the World Bank counts the poor therefore grossly underestimates their actual number, and produces extremely unreliable data. This is not helped when the Bank recalculates its PPP exchange rates by using a later base year, wreaking havoc to their poverty estimates each time. Furthermore, income poverty is only one aspect of deprivation, and other factors such as under-nutrition, access to health services and a reasonable living environment or decent working conditions are not accounted for in the dollar a day approach.

If a wider definition of poverty is used that includes deprivation, social exclusion and other measures such as those adopted in the World Summit for Social Development in 1995, then the situation today may be much worse than suggested by a monetary poverty-line approach. For example, if you use national poverty lines based on the needs and means of each country, as Social Watch attempt to do in their Basic Capabilities Index, then the actual number of people living in poverty could represent the majority of the developing world population, and not only the ‘bottom billion’. Reddy and Pogge have long stressed the need for an alternative methodology, based on a ‘capabilities approach’ to defining poverty that relates to the possession of local resources sufficient to achieve basic human needs. Along similar lines, the economist David Woodward has proposed a Rights-Based Poverty Line that is based on an agreed set of indicators which reflect economic and social rights – such as health, nutrition and education – along with an agreed minimum level of each indicator that is considered morally acceptable. Such alternative measures may present a less simplistic picture of poverty than the headline-grabbing numbers generated by the dollar a day approach, but one that is more realistic and a better tool for policy-making.

The ‘minimal’ development goals

We may also question the good news about reaching the first Millennium Development Goal well before the 2015 deadline. Only a couple of years ago, the MDGs on poverty and hunger seemed to be retreating even further out of sight, with the World Bank itself estimating that 50 million more people will be pushed into poverty as a result of the worst economic crisis since the 1930s – equivalent to almost 100 people for every minute of 2009, as Oxfam reported. The Bank does say that its new poverty estimates for 2010 are partial, with very little data for some regions where extreme poverty is most prevalent, particularly in sub-Saharan Africa. As we know, the main reason for achieving the MDG poverty target is down to the successes in a few countries, primarily China, Vietnam, Brazil, and to a lesser extent India. Many countries are well off track to meet MDG-1, again most notably in sub-Saharan Africa.

But even if the MDG on halving poverty is officially achieved (which was never intended to ‘eradicate extreme poverty’ completely, or even by half as Thomas Pogge has argued), we should ask if this is really a major success story. At the current rate of progress, the World Bank admits that this will still leave around 1 billion people in absolute poverty in 2015, equivalent to far more than three times the entire population of the United States. By setting the MDG poverty target to a universal poverty line of $1.25, we imply that it is morally acceptable for people to live at this level of income, so long as they don’t fall below it. David Woodward has described the appalling living conditions this would lead to for someone trying to get by on the same amount of money in a rich country like Britain, equivalent to 35 people living on a single minimum wage without benefits of any kind. In the poorest countries, where welfare payments or free healthcare and education are often a dream, the reality is that millions of people will remain in a life-threatening condition of poverty even if MDG-1 is successfully achieved. In the meantime, at least 40,000 people will continue to die each day from preventable poverty-related causes. Is this a sufficiently ambitious and laudable goal for humanity to uphold and celebrate?

There are many other reasons to question the efficacy of the Bank’s poverty data and the virtues of the MDGs, but even a cursory analysis is sufficient to see through the political spin that surrounds global poverty reduction. The use of statistics to bolster weak arguments has a long history, of course, and other data that relates to the world’s poor can be held under similar scrutiny, in particular UN-Habitat’s controversial figures on slums and the MDGs on water and sanitation. This is not to deny the undoubted sincerity of poverty statisticians, or the notable success of the World Bank’s dollar a day benchmark and the United Nation’s MDGs in raising the profile of extreme poverty. The latest news of 663 million people moving out of poverty since 1990 is also a significant achievement that should be commemorated and not dismissed. But to properly appraise the sheer extent of severe poverty around the world, we should also judge such tenuous improvements according to what is really possible to achieve today.

No matter what the global statistics tell us, the fact remains that hundreds of millions of people remain caught in a state of abject deprivation, many of them in overcrowded and unbearable slum conditions throughout the cities of the Global South. For these people, who still constitute the vast majority of the world population, the distant promises of globalisation mean almost nothing in their daily struggle to survive. The problem is not a lack of global resources, as demonstrated by the trillions of dollars spent bailing out the world’s financial institutions following the economic crash of 2008. It would require only a fraction of the world’s income and assets to eradicate extreme poverty practically overnight, should the political will exist among governments to organise the necessary redistribution of power and resources to the world’s poor. This is where the real problem lies: in the continuing defence and propagation of neoliberal policies that preserve the interests of the already wealthy, at the expense of greater economic sharing that would mark the beginning of a fairer world.


Adam Parsons is the editor at Share The World’s Resources. He can be contacted at adam(at)stwr.org.

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