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Two Goals for Fighting Poverty

Martin Ravallion's picture
Martin Ravallion
May 2013

This is the first in a series of blogs that debate how a post-2015 framework ought to measure poverty - find out more.

Martin Ravallion is the Edmond D. Villani Professor of Economics at Georgetown University, Washington DC, USA. Prior to taking up the Villani Chair in December 2012 he was director of the World Bank’s research department.

It is widely agreed that eliminating extreme poverty in the world should take priority in thinking about our development goals going forward. The '$1 a day' poverty line is a simple metric for monitoring progress toward that goal. It was chosen in 1990 as a typical line for low-income countries (as explained in Dollar a day revisited). By this measure, poverty in the world as a whole is judged by a common standard anchored to the national lines found in the poorest countries. On updated data, the current value of this international line is $1.25 a day at 2005 purchasing-power parity. Today about 1.2 billion people in the world live in households with consumption per person below this frugal line. Thankfully, the world has made progress in bringing this count down; 1.9 billion people lived below $1.25 a day in 1990.

Notice that I say 'consumption' not income. A standard measure of household consumption is preferable as a measure of current economic welfare than income, and is typically measured more accurately than income. Fortunately, two-thirds of developing countries now have consumption-based poverty measures, although some regions, such as Latin America, are lagging in this respect.

But many people are asking whether this frugal line adequately embraces current standards for defining poverty. Naturally richer countries tend to use higher lines. The underlying nutritional requirements are similar, but the food bundles are more expensive and the allowances made for non-food needs are more generous in less poor countries. So $1.25 a day can be thought of as a conservative line; it would surely not be reasonable to judge poverty in the world as a whole by lower standards than are typical of the world’s poorest countries. Higher standards can also be applied. For example, $2 a day has also been popular, which is about the average line for developing countries (the US poverty line is $13 per person per day in 2005).

However, any absolute line you choose will not (by its very construction) adjust over time or across countries for differences in the costs of avoiding social exclusion and relative deprivation. And we have learnt that these costs are real for many people, and not confined to the relatively well-off. When such 'social effects' on welfare are present, where and when you live matters to whether you should be considered poor at any given level of real consumption, as conventionally measured. Costs of avoiding social exclusion and relative deprivation are almost certainly higher in richer countries.

It is not then surprising that the consumption level that is deemed necessary to not be considered poor is higher in richer countries, and changing over time in rapidly developing countries. For example, China recently doubled its own national line, from a low value of $0.90 a day to $1.80 a day (other recent examples include Colombia, India, Mexico, Peru and Vietnam). Furthermore, when today’s rich countries were poor their poverty lines were very much lower than today. For example, my calculations suggest that the line for London in the 1890s developed by Charles Booth — who is generally credited with inventing the modern idea of a 'poverty line' — was not very different from the budget of a typical Indian in the 1990s living at or near India’s official poverty line. Naturally England’s poverty line is far higher today.

How then should we measure relative poverty at the global level? In research with Shaohua Chen at the World Bank, I have proposed a new measure of poverty that is calibrated to how poverty lines vary across countries; we dubbed this 'weakly relative poverty'. In essence, to be deemed 'not poor' one must be neither absolutely poor by the $1.25 a day global standard, based on poverty lines in the poorest countries, nor poor by the standards typical of the country you actually live in, given its average consumption level. This can be thought of as a measure of 'total poverty', combining absolute poverty with purely relative poverty. In a paper to be published soon in Global policy, Shaohua and I calculate that 2.9 billion people were poor in the world as a whole in 2008 by this combined measure; all but 200 million of them are in the developing world.  And the total count has risen since 1990.

This new approach differs in an important way from prevailing measures of relative poverty. The standard 'strongly relative lines' used in Western Europe set the line at a constant proportion (typically around half) of the mean or median. Then a growth process that increases all consumption levels by the same proportion (leaving inequality unchanged) will do nothing to reduce the measured incidence of poverty, even though there may well be large absolute gains to poor people. By the same token, strongly relative poverty lines are far too low to be credible in poor countries. Our new measures avoid this peculiar property of past relative measures by allowing for a minimum cost of social inclusion in poor countries.

These new weakly relative measures are not intended as an alternative to the $1.25 a day line. Both measures are needed. Indeed, the incidence of absolute poverty by this standard can be interpreted as a lower bound to the true poverty measure — for which the poverty line is intended to be the cost of a common level of welfare in different places and dates — while the relative measure is the upper bound  (the bounds reflect the uncertainty about how much differences in national lines reflect social effects on welfare, as distinct from differences in the social norms used to define poverty. This argument is developed more fully here).

This new way of thinking about our poverty goals will influence how we prioritise policies. I have argued elsewhere that if we can succeed in containing rising inequality, a continuation of the growth rates in the developing world since 2000 would put us on a track to lifting 1 billion people out of absolute poverty by 2025-30 — bringing the poverty rate in the developing world as a whole (though not of course all countries) down to around 3 per cent.  That would be a great achievement. However, lifting people out of relative poverty will require greater success in reducing inequality within and between countries, which will probably require higher growth rates in the poorest countries. Otherwise the best we might realistically hope for is to prevent further increases in the count of those who are both absolutely and relatively poor.

That does not, however, imply that we need a separate goal for inequality. The fact that something is instrumentally important to our development goals does not mean we need to create a new goal for that thing (by the same logic we do not need to add a new goal for economic growth, even though it too is instrumentally important to progress against poverty). We need to keep a clear focus on what are 'ends' and what are 'means' (as I argue in a recent post). 

In summary, I would suggest we think about monitoring two poverty goals going forward: absolute poverty by the $1.25 a day standard and relative poverty by the standards typical of the country one lives in. With these two indicators, we will have a more complete and relevant accounting of how much progress we are making against poverty.

Postscript: Do you want to do your own measurement and monitoring of poverty in the world? You can do no better than to learn to use the World Bank’s excellent PovcalNet web site, recently updated and re-vamped. This provides analytic tools and access to a huge data base drawing on some 1,000 household surveys.