Poverty Alleviation at $1/day (by Wojciech Gryc)

With the signing of the United Nations (UN) Millennium Declaration and the unanimous adoption of the Millennium Development Goals (MDGs) in 2000, the international community has adopted the goal of halving extreme poverty by 2015. Civil society, in an effort to hold governments accountable, has adopted these goals and promoted them in the global "Make Poverty History" campaign taking place throughout 2005. While many would agree that poverty is a major problem, the idea of the extreme poverty line being an income of $1/day or less is often taken for granted. As organizations and individuals mobilize to help those in poverty, one of the biggest problems facing the world is the inadequacy of actually using $1/day as a target for poverty alleviation.

The MDGs’ first goal focuses on reducing the number of those in poverty by half from 1990 levels, with poverty defined as having an income of $1/day or less at 1993 Purchasing Power Parity (PPP). This is an extremely narrow definition of poverty, which avoids focusing on inequality and social factors of poverty, and assumes that $1/day is a statistically relevant figure that can be measured accurately around the world.

The tools used to measure poverty have shortcomings that undermine any sort of success with incomes of $1/day. The income goals are based on poverty figures in 1990, many of which are inaccurate or in some cases nonexistent. For example, Peru had no household surveys to measure poverty until the late 1990s, while the year was one which saw unusually high poverty rates in Argentina. Poverty rates in China, a nation with 30% of its population under the extreme poverty line in 1990, experienced a significant rise in poverty between 1987-1990. With this in mind, any improvements to poverty levels in China and Argentina may simply be short-term recoveries and bear no long-term benefits to citizens. China also suffers from imprecise estimates for its currency's PPP, making it difficult to calculate how many people were under the poverty line in 1990. With such discrepancies, any measurements of absolute poverty are imprecise, and may be wholly inadequate for poverty alleviation estimates.

Problems also occur when calculating PPP and a level for absolute poverty. While the $1/day target was one researched in-depth by social scientists, the target was set at 1985 PPP. The MDGs, however, use 1993 PPP as their target of $1/day. Accounting for the price fluctuations between 1985 and 1993 would require the UN to use $1.08/day at 1993 PPP. Some also argue that the statistics used for creating PPP are biased. While a state’s PPP was calculated using the Penn World Tables in 1985, the World Bank moved to the International Comparisons Project in the late 1990s. The change in data sets lowered the poverty line in 77 out of 92 countries studied.

The new PPP figures are unrepresentative of the poor in that they include prices for services and luxury items alongside food. This is problematic, as poor people tend to pay exceedingly high prices for food and water, but the middle and upper classes of developing nations pay prices much closer to that of the developed world’s for services and luxury items. The use of these luxury items moves a country’s PPP closer to that of developed nations, and biases the data against those under the poverty line.

With so much controversy underlying the $1/day target set in the MDGs, both in terms of data collection and the actual income target, other indicators for extreme poverty may be more useful. Critics of the $1/day method have suggested using indicators like the "Cost of Basic Needs" (CBN) or "Food Energy Method" (FEM), which account for the cost of minimal required amounts of food and minimal daily caloric intakes, respectively. These methods consider the price discrepancies between goods for poor people and luxury items, and also account of the physical needs of those under the poverty line. The $1/day at 1993 PPP indicator does not do this.

While income plays an important role in the ability of an individual to purchase food and other necessities, it ignores the importance of social and psychological well-being. Amartya Sen’s capabilities approach to development and human rights argues that even with the ability to purchase goods, one must be able to use them adequately and achieve the potential the goods were designed for. The concept of relative poverty and social exclusion takes a similar approach to poverty, arguing that development and the reduction of poverty must focus on the provision of social services like education, healthcare, economic stability, and ensuring people are valued by society. "Making poverty history" by simply increasing incomes does not guarantee an improvement in people’s lives – education, literacy, and adequate social programs do.

While there is no perfect method for measuring poverty, more reliable alternatives to the UN’s $1/day at 1993 PPP do exist. Halving the number of people living on less than $1/day is a noble cause, but it must be approached with a rigorous and analytical attitude to ensure that achieving such a goal will actually help the hundreds of millions of poor people around the world. Unfortunately, analysis suggests that the use of the 1993 PPP is unrealistic, as it underestimates the poverty line. This is a major problem, as there are thousands of non-governmental organizations (NGOs) and governments working to meet the $1/day target without considering the problems above. Helping the poor is incredibly important, but one cannot help by manipulating data – doing so would waste the efforts of the thousands of NGOs and governments fighting to reduce poverty.

Sources

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