Poverty: Vulnerable to change

The arithmetic is daunting. To end “extreme poverty” by 2030, the world needs to help 7,500 people move up the economic ladder every hour for the next 15 years, according to one calculation. Put another way, that is 181,729 people — roughly the population of Amarillo, Texas — every day.

But that is exactly what world leaders will commit to do at the UN on Friday as part of a three-day summit held under the watchful eye of Pope Francis. The gathering will put a formal seal on a plan — prosaically known as the global goals for sustainable development — to rescue humanity. The 17 goals, ranging from ending hunger to combating climate change, are intended to update the expiring Millennium Development Goals agreed in 2000.

At the heart of the plan is a pledge to “eradicate extreme poverty” — currently measured as people living on less than $1.25 a day — within 15 years. But that ambition, while laudable, looks virtually impossible to achieve.

World Bank economists question if it can be met amid signs of slowing growth in emerging markets, which has lifted millions out of poverty and raised living standards in recent years. The organisation is also about to reset its measure of poverty — to about $1.90 a day — casting millions more into the statistical bracket, placing the target even further out of reach.

The remarkable reduction in poverty over the past 25 years and the new global middle class it has helped create has been the economic story of our time. But both the goal to finish the job and the challenges it faces illustrate the uncertainty that hangs over the next chapter.

Walk the line

The more than halving of the number of people living in extreme poverty in recent decades has been fuelled above all else by rapid growth in places like China and Brazil. And that growth is unlikely to be replicated over the next 15 years.

The IMF expects the world’s emerging and developing economies to grow by 4.2 per cent in 2015, down from an average of 6 per cent over the past 15 years. For those economies it is forecasting average growth of just 5 per cent over the next five years, a prediction that looks vulnerable to global economic shocks.

Even repeating the economic performance of the past 15 years between now and 2030 would still leave 6-7 per cent of the global population living in extreme poverty, admits Jim Yong Kim, the World Bank’s president.

“Growth is the most important factor in ending extreme poverty,” he says. “And in terms of growth there are a lot of things that are worrisome.”

Although the world has begun to focus on broader issues such as inequality and the impact of booming economies on climate change, boosting growth remains the most effective tool for those trying to end extreme poverty.

Poverty data, based on household consumption surveys, are notoriously slow to produce. Kaushik Basu, the World Bank’s chief economist, says the “piecemeal” economic evidence so far indicates that the slowing growth of recent years in emerging economies has yet to have an effect on poverty rates.

But that is about to change, he argues, with countries like Brazil and Nigeria facing new economic struggles due to collapsing prices for oil and other commodity exports they depend on. This will almost certainly lead to a rise in poverty levels, he says, with knock-on effects for the global economy.

If the future lies in a new consuming middle class emerging in developing economies, as many multinational corporations hope, then those people have to rise out of poverty — and stay out.

The use of global poverty lines has always invited what experts call a level of “false precision”. But they are used to guide policy and have been at the very least a crude tool to measure improvements in global poverty rates.

“There’s an absurdity . . . in any hard line,” says Jamie Drummond, the co-founder of One, a campaigning group. “The notion that someone on $1.26 [a day] is fine is obviously nuts.”

The biggest gains in the fight against poverty in recent decades have come in Asian economies like China and Vietnam, which followed the rise of South Korea and Japan before them.

According to World Bank data, one in three of the world’s poor lived in East Asia in 1999; today that figure is 8 per cent. In 1999 there were more than 450m people living on $1.25 a day or less in China and they alone made up a quarter of the world’s poor. By 2011, the latest year for which data are available, that number had fallen to 84m.

More than 80 per cent of the 1bn people struggling to get by on $1.25 a day or less do so in sub-Saharan Africa and South Asia.

India alone is still home to more than 280m of those people. But Africa, even after a relative boom in some of its corners, remains an even bigger challenge. Little of its economic development in recent years has come from the sort of job-rich manufacturing that had an immense impact on poverty in China. Moreover, a new age of increasing mechanisation looms, posing yet another threat to the sort of low-skilled manufacturing jobs many African economies are staking their futures on.

The reality is that many of the people who have risen out of poverty in recent years remain vulnerable to slipping back into it. In Africa the percentage of the population living on less than $1.25 a day has fallen below 50 per cent in recent years. But almost 90 per cent of people still survive on $5 a day or less.

Conflict and climate factors
More daunting perhaps for those looking to eliminate poverty is the fact that 400m of the global poor now live in conflict-torn or fragile states like Somalia or the Democratic Republic of Congo, a number that has changed very little over the past 25 years.

By 2030, people living in such fragile states are expected to account for 90 per cent of the world’s poor, a forecast that predates the violence in Syria and Iraq and the migration crisis in Europe that has followed.

Those predictions also do not take into account the potential impact of climate change, drought and other natural disasters. Most of the world’s poor still depend on agriculture.

The renewed focus on poverty comes amid a growing debate within the World Bank about how to measure it. The debate has significant implications for the target being agreed at the UN this week. The revised poverty level is the result of new purchasing power parity data for 2011 that were only released last year. A new line of about $1.90 would be the bank’s biggest revision since it first introduced its $1-a-day measure in 1990.

Separately it has created a new commission led by economist and poverty expert Sir Anthony Atkinson to establish a robust way to handle future adjustments and look at potential alternative measures. Parts of the UN, for example, have adopted a “poverty index” to measure things such as access to education and healthcare that ignores income in favour of a broader reading of “living standards”.

Such measures of poverty are controversial because they are open to a wide range of interpretations. Should deprivation be measured by years of schooling? Or by pupils’ results or even success or failure in the labour market?

But the bank’s global poverty line has long generated its own controversies. Even its own economists agree it is imprecise and based on infrequent data from household surveys that vary widely in quality.

Beyond that it is also adjusted according to purchasing power parity indices that take years to assemble, often leaving the numbers out of date. The latest shift in the line, for example, is due to the new PPP measures for 2011 that have taken more than a year for the bank and its experts to digest since their release.
In the past, those adjustments have also come with wild swings in the numbers of poor in the world. When the World Bank last tweaked its poverty line from $1.08 to $1.25 a day in 2008 it announced that it had found 400m more people — or the equivalent of a third of the population of China — than it previously expected living in extreme poverty.
When independent researchers in 2014 applied that same $1.25 poverty line to the existing World Bank data using the 2011 PPP update they calculated a halving in the number of people in the world living in extreme poverty from 1.2bn to less than 600m.
Mr Basu argues that the bank’s latest revision is designed to avoid such wide swings in the global headcount but admits that, if he had his time over, he would have designed the measure differently.

“No matter how it was chosen . . . I want to hold it constant because that is the yardstick over time,” he says.

Vested interests
The moves have yielded new questions about whether the bank is massaging the numbers in its own interest.

“There’s always been a credibility problem around global poverty numbers and it’s not clear that things are going to get better in the foreseeable future,” says Laurence Chandy, a fellow at the Brookings Institution in Washington and member of the new Atkinson commission’s advisory panel.

Dr Kim has vowed to improve the poverty statistics and especially the paucity of data in the developing world. But s uch discussions of arithmetic obscure the bigger issue: too many people in the world remain stuck in poverty, however you measure it. Ultimately that is what world leaders want to address but an already difficult task is about to get even harder.

 

Shawn Donnan, FT

More than 1bn people still live on less than $1.25 a day and the drive to reduce the world’s poor looks difficult to maintain