Wed Feb 28th, 2007 at 02:55:01 AM EST
A recent diary was asking the question: Do we need to get poorer? The debate focused mainly on the meaning of "poor" and "poorer".
I will not restart it, but it made me think we need to have a better understanding of what "poor" means and a better knowledge of the levels and dynamics of poverty in the framework of globalisation.
Furthermore, the dominant narrative conveyed by the Congregation for the Propagation of the Economic Faith (almost all the economic and mainstream media as well as most of the economists) asserts that growth is the solution and that eventually, the rising tide will lift all boats. So, the question is: is it true? And what level of growth is required to reduce poverty within the current global economic framework?
Promoted by Colman
There are many ways to define poverty, and many countries have their own definitions and methods designed to fit their internal policies. For example, during the 60's, the United States has defined poverty thresholds to develop social programs. These thresholds establish the necessary income to meet the basic needs of a family and are updated yearly. This kind of measure is custom-made and cannot easily be used for other countries. Others poverty indicators have been developed to allow comparisons worldwide.
There are two main poverty indicators used by the UNDP in its report on human development: One for the developing countries, the Human Poverty Index 1 (HPI-1), and one for the "developed countries" (OECD countries, Central and Eastern Europe and the CIS); Both are based on the Human Development Index (HDI), invented by the economists Amartya Sen (Nobel Prize) and Sudhir Anand.
The HDI measures the average achievements in a country in three basic dimensions of human development:
- A long and healthy life, as measured by life expectancy at birth.
- Knowledge, as measured by the adult literacy rate (with two-thirds weight) and the combined primary, secondary and tertiary education gross enrolment ratio (with one-third weight).
- A decent standard of living, as measured by GDP per capita in purchasing power parity(PPP) terms in US dollars.
The HPI-1 measures deprivations in three basic dimensions of human development:
- vulnerability to death at a relatively early age, as measured by the probability at birth of not surviving to age 40.
- exclusion from the world of reading and communications, as measured by the adult illiteracy rate.
- lack of access to overall economic provisioning, as measured by the unweighted average of two indicators: the percentage of the population without sustainable access to an improved water source and the percentage of children under weight for age.
The HPI-2 measures deprivations in four dimensions: the same 3 dimensions as the HPI-1 and social exclusion.
- vulnerability to death at a relatively early age, as measured by the probability at birth of not surviving to age 60.
- exclusion from the world of reading and communications, as measured by the percentage of adults (aged 16-65) lacking functional literacy skills.
- standard of living, as measured by the percentage of people living below the income poverty line (50% of the median adjusted household disposable income).
- social exclusion, as measured by the rate of long-term unemployment (12 months or more).
Here are the UNDP indicators calculation methods
. The complete data published in the UNDP Human Development Report 2006
- page 281 for the list of tables,
- page 283 for Human Development Indicator
- page 292 for Human Poverty Indicators
- page 335 for Inequality Indicators.
This chart shows that, over a period of 30 years, the HDI has improved in the different regions of the world except for Africa (click on charts to get a bigger image):
HDI evolution chart
We must notice that the progress has been very slow and that the gap between developed countries and developing countries is not narrowing.
HDI and GDP per capita table
Poverty is also measured with a two thresholds indicator: the percentages of people earning respectively less than US$1 a day and less than US$2 a day (in purchasing power parity). Here are the figures:
World working poors figures
Will growth reduce poverty?
While the percentage of working poor in total employment has declined in the past ten years, the number of working people living on US$2 a day has continued to grow in absolute numbers, reaching 1.37 billion in 2006. So, will the employment generated by growth help to further reduce the gap and lift people out of poverty?
Well, probably not, according to the last ILO brief on global employment trends:
Strong global GDP growth in 2006 led to a stabilization of labour markets worldwide, with more people in work1 than in 2005. At the same time the total of 195.2 million unemployed was slightly higher than a year earlier, an all time high. The global unemployment rate changed little from a year earlier, and stood at 6.3 per cent in 2006 (see figure 1). This confirmed the trend of the past several years in which robust economic growth has failed to translate into significant reductions in unemployment or poverty among those in work.
The pattern looks set to continue in 2007, with a forecast growth rate of 4.9 per cent2 likely to ensure that unemployment remains at about last year's level. The persistence of joblessness at this rate is of concern, given that it will be difficult to sustain such strong economic growth indefinitely.
World unemployment figures
World unemployment chart
World labour market indicators
According to the ILO paper : Estimating growth requirements for reducing working poverty: Can the world halve working poverty by 2015?, the reduction of poverty by half in 2015 (one of the millennium goals) mighted be attained for extreme poverty (working people whose income is less than US$ 1 a day, which is mere survival) nevertheless leaving around 500 millions of themstill under this threshold, but it will far from being attained for the people whose income is less than US$ 2 a day, of whom the number is still growing, even with high growth rates.
World poverty reduction chart
So what should be the annual GDP growth rates required in order to attain this objectives (reducing poverty by half in 2015?
Required growth rates, World
10,4% for the developing countries whereas the 1995-2005 trend is between 5% and 5,4%
and if you exclude the faster growing East Asia, the required annual growth rate is 12,2%, whereas the 1995-2005 trend is between 3,8% and 4,3%!
If we take a closer look at Africa, the picture is much worse:
Africa poverty reduction chart
Not only poverty has not been reduced, but the required annual growth rate to reduce it by half (from 87% of the working population) is 42,3%!
Required growth rates, Africa
So should we stick to the belief that stimulating growth is the only way to solve development problems and reduce poverty, or should we start thinking of other ways?