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Extreme Poverty Worldwide and Some Economic Approaches

Measurements of poverty indicators are usually highly controversial, and many obstacles may arise over providing an exact and objective estimate of people living in extreme poverty. Many nations and organizations working in this regard such as the World Bank and the United Nations (UN) have different approaches in qualifying and quantifying extreme poverty, and this creates ambiguities in providing objective estimates of extreme poverty.

Among the most popular approaches in development thought is the basic needs approach, which looks towards the fulfilment of certain basic needs such as qualities and quantities of food and shelter among people in extreme poverty as indicators of extreme poverty. This approach requires a lot of site-specific research and as such is best suited to analyzing local trends in extreme poverty. This fits in well with the UN’s Sustainable Development Goals (SDGs)-based approach based on raising capacities in economies as per human development indicators such as health and literacy.

India’s Poverty Line: Changing Perspectives

The World Bank’s Approach

Another popular approach, mainly among certain nations and organizations such as the World Bank, is to provide an income slab below which people are said to be in a condition of extreme poverty. This approach is very useful in quantifying extreme poverty across regions and also as based on various demographic statistics in relation to basic income.

In this regard, according to a report by the World Bank in 2016, globally about 900 million people in round figures live in extreme poverty as based on their income slabs. Extreme poverty for the World Bank comprises of people who live on an income of less than $1.90 per day, representing the international extreme poverty line. This method measures the purchasing power parity (PPP) of people and is a unit that is not constant and exhibits spatial and temporal variations. Other than a reduction in the number of people living in extreme poverty, the World Bank also has the stated goal of encouraging shared prosperity, which involves increasing the rate of per capita real income of the poorest 40 per cent in each country of operation (World Bank, 2016).Fig: Nation-wide distribution of poverty
Source: World Bank

The World Bank established the Commission on Global Poverty in 2015 for monitoring global extreme poverty in terms of the two goals. The institution of the Commission by the World Bank represents the ambiguitiestill present in the formulation of estimates for poverty indicators. The Commission is tasked with formulating plans for how the World Bank should monitor extreme poverty in the near future, with the target of 2030. Also, more importantly, the Commission is tasked with formulating the poverty indicators that should guide its policies. The PPP model adopted by the World Bank is highly debatable, and there is no clear agreement on its stipulates, including the income slab fixed for determining extreme poverty, whose conditions can exhibit variance for reason of being site-specific.

The United Nations’ Approach

The UN claims that since the 1990s, about 1 billion people globally have been brought out of extreme poverty. The UN also claims that in the same period, the numbers of malnourished people have reduced almost by half in the developing countries (M. Kituyi, 2016). However, with the UN’s focus being the achievement of the SDGs, which involves the measurement and development of other criteria than income such as access to water, health, literacy, etc, there can arise many inconsistencies in quality of life apart from a simple reduction in income-based extreme poverty.

Fig: World Hunger Map in terms of percentage of total national population (Darker is Poorer) Source: Food & Agriculture Organization, UN

The first goal mentioned among the SDGs for the UN is poverty eradication, which the UN sees as a multifaceted concept, involving a complex mixture of causes that can draw from various categories such as society, environment, etc. In terms of extreme poverty, the UN estimates that globally about 830 million people lived below the international extreme poverty line income of $ 1.90 per day as of 2016. In 1990, about 1.9 billion people globally lived on less than $ 1.25 per day, representing about one third of global population at the time. By 2015, this number had fallen by a proportion of 12 per cent, with about 836 million people in extreme poverty in 2015. (UN, 2016).

Extreme poverty thus has been declining globally, and the leading countries responsible for the reduction in the overall volumes of extreme poverty in this period according to the UN were China and India. Extreme poverty however, is present at its highest concentration in the world in Sub-Saharan Africa and South Asia. The UN estimates that 80 per cent of the people in these regions still live on less than $ 1.25 per day. The UN observed in 2015 that about 60 per cent of the world’s people living in extreme poverty reside in just five countries, namely, India, China, Bangladesh, Nigeria and the Democratic Republic of Congo (UN, 2016). The thing that could make poverty persist cumulatively in the near future is high poverty levels in countries with huge young populations such as those in all of these five aforementioned countries.

Poverty Alleviation: Economic Views

Economic views on poverty alleviation differ, with the dominant argument being the growth argument as providing benefits for the poor, in terms of job creation and increased per-capita income. This is criticized as leading to the marginalization of select sectors and increased income inequality. Proponents of the growth argument frequently seek to move towards poverty alleviation in absolute terms, often accompanied by disenchantment with structural adjustment programs. Their critics however, often point towards an increase in numbers of extreme poverty in developing or underdeveloped regions and also point towards an increase in total relative poverty.

The growth argument is frequently at odds with the welfare school. This is well illustrated in the argument between Bhagwati and Panagariya against Sen and Dreze that occurred a few years ago over the growth approach which aims at the spread of the market leading to job creation aiming at an increased per-capita income and the welfare-intensive capacitation approach which looks at building capacities through welfare reforms. Such an approach involving sustainable development is adopted by the UN, whereas an income-intensive approach places the World Bank closer to the growth argument than a singularly welfare-intensive approach.

The fulcrum at which economists often tend to situate poverty alleviation is the sphere of employment and its overall effects on society. This leads to poverty being evaluated in terms of the market and free trade, as a tangible frame of reference for economists. As free trade is based on comparative advantage, this places the poor in an unfavourable balance of trade and they usually have to negotiate this in terms of their labour power.

Most of the people globally who live in conditions of extreme poverty come from developing or underdeveloped economies whose labour is frequently imported from their country by economic entities from more developed countries or regions as their labour functions at a lesser expense than those from the more developed world. However, this interaction can be disadvantageous for the less developed countries or regions because of the interaction between productivity growth and output growth.

The forces of globalization combined with the import of labour services by entities belonging to the more developed regions from less developed regions can advance the needs for labour’s productivity growth as compared to the distributive benefits of the growth of output in the less developed economy. This discourages the creation of employment due to production becoming less distributive and labour-intensive, and also by making certain domestic sectors more expendable such as agriculture, traditional crafts, etc, reducing the prospects for traditional fail-safe forms of livelihoods. The formal economy thus places a strain on the labour force to learn and imbibe more productive production techniques.

A detour in production towards traditional forms of production post the influx of more productive globalized techniques leads to what some might call a rise in income-inequality, and what others might call communities of people who earn, yet are substantially poor. In a globalized world, such a detour has the effect of stunting the socio-economic capabilities of a developing country or region (E. Lee & M. Vivarelli, 2006). States in these countries are compelled to create a more skilled labour force through education and training policies. A shortage of skilled labour constitutes an output shortage and reduced wages leading to an adverse scenario of domestic unemployment and increased income-inequality.

If it is to succeed at working in a positive manner for people in conditions of extreme poverty in a globalized or globalizing economy, the state must correctly implement basic economic policy through additional measures such as improving infrastructure, ensuring political stability, carrying out land reform, providing social safety nets, addressing market failures such as impeded access to credit, etc. However, social protection in most poor countries in helping jobless people find new jobs is not very effective and the poor mostly shift in and out of odd jobs or indulge in crime. The constraints are usually domestic such as inadequate access to credit, sluggish functioning of institutions, poor infrastructure, etc. The poor are deprived of opportunities due to various reasons such as corruption, unaccountability, unstable or weak states and inequality of opportunity.

In this, the growth argument would argue basically for an enhanced and more streamlined infrastructure to be provided such that the labour force is skilled in meeting the productivity requirements of the economy. The welfare argument would instead focus on the worker instead of the economic system as a productive instrument in totality, arguing for more sustainable overall social and institutional conditions for labour productivity and quality of life to increase. While the growth argument will tend to focus more on specific factors of the economic system as an instrument for employment creation, the welfare argument will tend to focus more on moving towards a sustainable economic society.

Growth in India: An Examination of Inclusiveness

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