Population Matters

Progress in Reducing Severe Poverty?

March 20th, 2012

The World Bank a few weeks ago reported that both the number of people living in extreme poverty and the poverty rate itself declined in every region of the developing world during 2005-2008. The data released by the World Bank’s Development Research Group showed that “22% of the developing world’s population – or 1.29 billion people – lived on $1.25 or less a day in 2008, down from 43% in 1990 and 52% in 1981.”

The new estimate is certainly reason for celebration, but some caveats are needed.  While the estimate of the number of people below the severe poverty line ($1.25 a day) has fallen, the number of people living just above the line has soared.  According to the Bank, 1.18 billion people lived on between $1.25 and $2.00 per day in 2008 compared to only 648 million in 1981.  The total number of people living on $2.00 a day has changed very little over the past few decades:  2.47 billion in 2008 compared to 2.59 billion in 1981.

Arbitrary definitions of poverty based on reported income and the purchasing power of the local currency fail sometimes to give a complete picture of poverty.  For example, over 2.6 billion people in the developing world still lack flush toilets and other forms of improved sanitation, and yet at least 130 million of those 2.6 billion would not be considered poor even under the “$2 a day” definition used by the World Bank.

Even more disturbing is the lack of confidence that many experts have in the World Bank methodology.  Obtaining reliable estimates of poverty at the country level is notoriously difficult.  Countries can go for several years between household surveys.  In the interim periods, the World Bank is forced to make estimates based, in large part, on data collected from neighboring countries.  Current data is particularly lacking in sub-Saharan Africa, where many of the world’s poorest live.

In reviewing the World Bank numbers, two experts at The Brookings Institution cautioned that:

Calculating poverty numbers requires making many assumptions and the World Bank should be commended for making its methodology (and data) available in a transparent fashion. But one should not take the bank’s final figures at face value; there are too many discrepancies with common sense.

The researchers noted, for example, that using the Bank’s methodology one has to assume that “North Korea has roughly the same poverty rate as China.” A dubious assumption.

But even assuming that the poverty estimates produced by the World Bank are relatively good approximations, there is still another shortcoming that everyone should be aware of when reviewing the progress that we are making in reducing severe poverty.   Some of the reduction in poverty may not be sustainable.  If a farmer, for example, pumps water at an unsustainable rate from a local aquifer in order to boost crop yields, the income gain he sees may be temporary.

That’s why, with many of the Millennium Development Goals due to expire in 2015, a growing number of development experts are calling for the design and implementation of “Sustainable Development Goals” to help ensure that the progress we are making in improving human welfare is actually sustainable.

Any sign that we are making progress in reducing severe poverty is good news, but the questions being raised regarding the latest World Bank estimates suggest that we need to: 1)  devote more resources into measuring poverty and evaluating living standards in the developing world; and 2)  do a better job of determining whether the gains we are making today are coming at the expense of tomorrow.

Posted by Robert J. Walker, President

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