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The global tide lifts only the yachts (with charts!)

by Melanchthon 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


Measuring poverty

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 Scroll to:
-    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?

Display:
This diary shocked the hell out of me.  We hear a lot about globalization increasing the disparity between the rich and the poor, but we also hear that globalization is reducing the number of poor people in the world.  Your point that about the people whose income is less than US$ 2 a day, of whom the number is still growing, even with high growth rates definitely tempers even that more modest claim for globalization.

Regarding the persistence of the global unemployment rate despite continued strong global GDP growth, is there any possibility that this is due to a unique -- and hopefully temporary -- situation characterized by millions of people precipitously moving from nominally "employed" status in relatively undeveloped regions to "unemployed" status in boom areas of rapidly developing countries, especially China and India?

According to this article,

In 1980, the global workforce consisted of workers in the advanced countries, parts of Africa and most of Latin America. Approximately 960 million persons worked in these economies.

Population growth -- largely in poorer countries -- increased the number employed in these economies to about 1.46 billion workers by 2000.

Could it be that we are demanding too much of globalization by expecting it to reduce the global unemployment rate in the face of this this sudden, and exceptional, explosion in the labor force, which was not, in and of itself, caused by globalization?  (Which does beg the question: What are all the factors behind this enormous growth in the number of workers globally?)

Perhaps the thing to remark is not that steady growth has not reduced the global unemployment rate, but rather that it has been able to keep it stable despite the huge numbers of people who have been pouring into the world labor pool.

If so, can we imagine a point in the future, hopefully not too far off, where these giant migrations settle down and the global economy settles into a "steady state" where consistent growth does translate to decreasing numbers of unemployed?

(This is not a plea for continued growth at all costs: I am aware of its other severe drawbacks, in particular, the environmental kind as well increasing political tensions over scarce natural resources.  I am just inquiring about one possible explanation for the unchanged global unemployment rate despite global growth.)

Truth unfolds in time through a communal process.

by marco on Tue Feb 27th, 2007 at 07:38:56 PM EST
About the persistence of global unemployment rate, your explanation:
millions of people precipitously moving from nominally "employed" status in relatively undeveloped regions to "unemployed" status in boom areas of rapidly developing countries
is probably true. However, I think demographic growth is the main cause.

World employment and working poors figures  

The main focus of my diary is not on unemployment, but on poverty. The figures show that globalisation has partly succeeded in reducing extreme poverty, but not more. The very high level of inequality has a consequence: the biggest part of the wealth created goes to the top richest percentiles, and the lower percentiles remain in deep poverty with little prospect for improvement.

An example: in China, Shanghai has an HDI almost the same as European countries, whereas countryside areas are at the same level as some of the poorest African countries.

Inequality in China:

What is interesting in Freeman's article is that he shows the asymmetry in the capital/labour relationship created by the entry of the millions of workers from the former communist countries on the global market, and thus the necessity to find global social answers.

"Dieu se rit des hommes qui se plaignent des conséquences alors qu'ils en chérissent les causes" Jacques-Bénigne Bossuet

by Melanchthon on Wed Feb 28th, 2007 at 11:05:38 AM EST
[ Parent ]
This morning I couldn't download the images over my crummy wireless connection, but now that I have looked at the charts, I had a couple of questions, in particular about the first HDI chart:

  1.  What are the most likely reasons that the curve for human development in Sub-Saharan Africa has remained so disappointingly flat in stark contrast to the upward trajectories in the other regions?

  2.  What is the likelihood that the HDI of regions other than Sub-Saharan Africa would have increased as much as they did over the last 30 years if global economic growth had been significantly lower?

  3.  For people in countries other than the OECD and Sub-Saharan Africa, what is more important: the fact that they are still behind the OECD in HDI, the fact that they have been steadily if slowly narrowing the HDI gap with the OECD countries, or the fact that the quality of their lives (at least as measured by the HDI) has markedly improved over the last 30 years?


Truth unfolds in time through a communal process.
by marco on Wed Feb 28th, 2007 at 07:03:43 AM EST
I don't have all the answers. Some can be found by reading the reports I link to. To answer to the points you raise:

1 - I think AIDS and the number of armed conflicts in Many parts of Africa explain for a great part the flatness of Africa's HDI curve. The life expectancy at birth is a key factor of the HDI, and child mortality has been dramatically increasing during the last 20 years.

2 - I have no answer to your question, but a look at the detailed analysis in the UNDP report (read page 263 to 273) shows that there is no tight correlation between GDP per capita and HDI. Compared to another country, a country may have a higher GDP per capita and a lower HDI. That shows that policies count.

3 - If I wanted to be provocative, I would answer that for many people in countries other than the OECD and Sub-Saharan Africa, what is more important is the fact  that they have managed to survive.  

"Dieu se rit des hommes qui se plaignent des conséquences alors qu'ils en chérissent les causes" Jacques-Bénigne Bossuet

by Melanchthon on Wed Feb 28th, 2007 at 11:23:31 AM EST
[ Parent ]
2 - I have no answer to your question, but a look at the detailed analysis in the UNDP report (read page 263 to 273) shows that there is no tight correlation between GDP per capita and HDI. Compared to another country, a country may have a higher GDP per capita and a lower HDI. That shows that policies count.

Also, your chart

Inequality in China:

shows well that not only within a region (e.g. East Asia, Latin America, etc.) there must be enormous HDI diversity, but within a country as well, and no doubt within regions within countries as well.

Truth unfolds in time through a communal process.

by marco on Wed Feb 28th, 2007 at 06:00:25 PM EST
[ Parent ]
That's right. As I said above, the main problem is the level of inequality in the countries. The Gini Index is a good indicator.

Here is a map showing the evolution of the inequality index since WWII. For developing countries, either it has remained very high, like in Mexico and Brazil, or it has been dramatically increasing, like in China and India. For developed countries, whereas most of the European countries, Canada and Australia remained at a relatively low level, the UK and the United States have seen a dramatic increase in inequalities.

Furthermore, if you look at the list of Gini Index by country, you will notice that the Gini Index of the United States has increased from 40,8 to 45 between 2000 and 2004...

"Dieu se rit des hommes qui se plaignent des conséquences alors qu'ils en chérissent les causes" Jacques-Bénigne Bossuet

by Melanchthon on Wed Feb 28th, 2007 at 07:05:28 PM EST
[ Parent ]
the main problem is the level of inequality in the countries.

For all the vast improvement it represents over GDP as a measure of the well-being of a country, HDI seems to suffer one of GDP's critical defects: it erases the often extreme differences in "texture" within a country.

Can a measure based on HDI and Gini be formulated such that overall human development for a country takes into consideration the level of inequality within that country.

Determining median income is hard enough for a country, I gather, so determining a "median HDI" would be unfeasible, right?

HDI/Gini must be far too simplistic to be a useful measure for anything, but something along those lines: Where even if HDI is very high in a country, if the Gini index is also very high, then that country is not doing as great as the HDI itself would indicate.

Truth unfolds in time through a communal process.

by marco on Wed Feb 28th, 2007 at 07:37:51 PM EST
[ Parent ]
I accidentally posted the above comment too quickly.

Of course, by HDI/Gini I meant HDI ÷ Gini.

Again, no doubt too simplistic, but the point is to find some formula that takes advantage of the notion of human development, but modulates it by taking into account the level of inequality.

Truth unfolds in time through a communal process.

by marco on Thu Mar 1st, 2007 at 01:54:45 AM EST
[ Parent ]
1 - I think AIDS and the number of armed conflicts in Many parts of Africa explain for a great part the flatness of Africa's HDI curve.

I think you may be quite right:

War Deaths 2002


Truth unfolds in time through a communal process.

by marco on Thu Mar 1st, 2007 at 04:10:35 AM EST
[ Parent ]
Actually globalization is very good at lifting yacht and under 1$ income... everywhere... I am surprised that even in some part of Africa..

But of course.. it is a disaster if you want to eliminate accute poverty ...to raise it above 2$ a day... impossible..

¡Nevertheless I would like to remember that not everybody live in a de facto capitalist system. A lot of agriculture areas in Africaa nd Asia have cultures and modus-vivendi completely different thant those in city -capitalistic societies.

The fact that globalization in cities is good for survival is shown by the fact that people emigrate from towns to big cities.

But capiltaism in big cities can not erradicate accute proverty .. and more improtantly it does not contribute to the increase in wealth.being of non-capitlistic rural communities.. a very easy thing if they are kept out of capitalism and receive some smart help.... sanitation anybody????

But that would mean accepting that capitalism is not the answer to everything... no way.

A pleasure


I therefore claim to show, not how men think in myths, but how myths operate in men's minds without their being aware of the fact. Levi-Strauss, Claude

by kcurie on Wed Feb 28th, 2007 at 10:10:49 AM EST
You are raising a very important issue: how can we think a global economy that includes a greater diversity of economic models, capitalism (well-tamed) being only one of them?

And how can we make them coexist without financial capitalism being the overarching dominant model as it is the case today?

A shared pleasure

"Dieu se rit des hommes qui se plaignent des conséquences alors qu'ils en chérissent les causes" Jacques-Bénigne Bossuet

by Melanchthon on Wed Feb 28th, 2007 at 11:30:59 AM EST
[ Parent ]
It is reallya mazing how simple that would be.. Thsoe economic models need very few things to have a better standard of life than we ahve... of course taking into account their perspective of the world.

it is actually lack of sanitation and in some cases water together with the sufferign normally assocaited with lack of painkillers at the alte stages before dying.

Other than that... well that's it... Of course if you look at things form our perspective children not going at school is something awful or lack of commodities is somehting awful or lack of this or that... Also we look at their lack of security in the food as soemthin bad... but populations and food go ahnd in hand and they really ahve lifes.. jsut differently.

On the other lack our lack of complex family structures and relations do not make us think we are poor.

Maybe we can disucss abou painkillers.. but sanitation and clean water is basically all the things I can come up they need to keep on thriving.

A pleasure


I therefore claim to show, not how men think in myths, but how myths operate in men's minds without their being aware of the fact. Levi-Strauss, Claude

by kcurie on Wed Feb 28th, 2007 at 04:23:32 PM EST
[ Parent ]
is not necessarily better than living with $1 per day in the countryside, in a village with local solidarities.

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Wed Feb 28th, 2007 at 11:47:49 AM EST
Yes this point is not stressed often enough: and apart from the solidarity networks you mention, I have the impression (but do correct me if I'm wrong) that three things are also missing in comparing rural to urban poverty: barter, self-sustaining agriculture and use of common resources (dead wood / water from wells and streams / hunting etc). None of these, I think register in the income or poverty estimations, so the people involved show zero income when in fact the real value of all of the above is non-negligible.

Add to this also the added value to the poor from public services - see for example the increased cost of health care after the collapse of the public system in China:

according to the government's own estimates, in less than a generation a rural population that once enjoyed universal, if rudimentary, coverage is now 79 percent uninsured.

Does this collapse register anywhere in the calculations for the evolution of poverty in China?

So we have two trends here over the past decades: urbanization as the rural populations of the world diminish and the reduction of public services. If I have understood the way GDP, income and poverty are measured, these trends would both serve to present a decline in poverty where there isn't really one.

The road of excess leads to the palace of wisdom - William Blake

by talos (mihalis at gmail dot com) on Wed Feb 28th, 2007 at 08:36:09 PM EST
[ Parent ]
Melanchthon - I just got to glancing over this now, but this is a real interesting, thought provoking and informative article...thanks for putting it together. I especially appreciate learning about where Africa lays in the scheme of things...there is so much potential there, but so many obstacles too...

"Once in awhile we get shown the light, in the strangest of places, if we look at it right" - Hunter/Garcia
by whataboutbob on Thu Mar 1st, 2007 at 05:35:54 AM EST


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