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Due to the highly controversial nature of poverty studies, some of the problems
arising when establishing international measures are the same
as those that are faced when countries establish national poverty lines. The World Bank has
advocated making these comparisons according to consumption or
income, and in particular, has established a threshold of one
dollar per day per person, based on 1985 purchasing power parity.
Although it might be useful to resort to income based measures,
these on their own are insufficient, as concepts of poverty are becoming more complex
and multidimensional. There is now a wide consensus regarding
the fact that access to health and education is just as important as income
and that in the future, the consensus will probably include empowerment
and participation in citizen life.
Introduction
The purpose
of this article is to highlight some problems that appear when
comparing poverty rates among countries
and particularly when trying to establish a common basis on which
to make these comparisons. Many of these problems have been widely
addressed by experts on the subject. In particular, we will examine
whether the threshold proposed by the World
Bank
of a purchasing power parity (PPP) of one 1985 US
dollar-the most commonly disseminated international poverty line
at present-is a suitable indicator of poverty
in various countries.
This discussion
has been arranged into four sections. Section I will discuss the
pertinence of establishing an international poverty line. Section
II will go on to analyse the context in which it is advisable
to make comparisons of well-being among countries and the discussion
around the multiple dimensions of poverty will be reviewed. Section
III examines how far it is possible to address poverty incidence
using a single measure and questions the limits of the income
space to evaluate people's
well-being.
Since several national studies show that this is not the case,
Section IV suggests that an effort should be made to choose a
wide array of indicators to rank countries with respect to many
different criteria and dismisses the idea of uni-dimensionality.
In particular, the data-gathering efforts of Social Watch could
be used to strengthen efforts in this direction.
I.
Why establish an international poverty line?
Setting
national poverty lines plays an important role in formulating
economic
and social policies. In this respect, Atkinson (1993) proposed considering the existence
of poverty lines as institutions and reported on the relevant
role they play in the assessment of the social performance of
a country through time. But is it valid to extend this reasoning
to an international scale and consequently, is the establishment
of a world poverty line going to help assess efforts made to reduce
poverty, as proposed for example by the Millennium Development
Goals? Without entering into a discussion of the relevance
of a particular goal regarding poverty reduction, problems arising
when establishing a single, international poverty line will be
reviewed. Due to the highly controversial nature of poverty studies,
some of these problems are the same as those that are faced when
countries establish national poverty lines.
Comparison
of poverty among countries can serve many purposes, from assessing
the living conditions of people in different regions or countries
to the allocation of resources from international financial aid.
However, the concentration of efforts to identify the poor often
is made without much discussion about the concepts implicit in
comparing individual well-being, since most studies focus either
on contributing to policy controversies or on the actual design
of policies.
Explicit
or not, making international comparisons of deprivation among
countries requires the establishment of various criteria as a
starting point. In particular, it requires deciding whether it
is necessary and possible to establish a common poverty line
against which all countries can be compared, and determining
its characteristics.
Kanbur
(2001) has argued very
convincingly that this idea of counting the world's poor on the
basis of a common line could be seen as "the finance ministry approach", which reflects
the concern of many institutions about designing policies to struggle
against poverty. However, this concern is not perceived in the
same way by civil society and leads to confrontations because
the perspectives and time horizons for comparison vary. From the
standpoint of international bodies, and particularly international
financial institutions, establishing international rankings is relevant.
However, classifications made on the basis of a single poverty
threshold necessarily simplify reality and disregard many factors
that are important when seen from a national point of view or
from a civil society perspective.
In this
respect, the World Bank (WB) has advocated making these comparisons according
to consumption or income, and in particular, has established a
threshold of one dollar per day per person, based on 1985 purchasing
power parity. Supporting this point of view, Ravallion (2002) wrote that the use of national
lines to make international comparisons leads to treating differently
people or households who have similar real rates of consumption.
He also recognises that this extreme line of poverty of the WB is conservative,
as people who are considered poor by national standards are not
considered so when using this poverty line. Even when the use
of comparative poverty lines is agreed upon, should these be absolute
or relative? In this respect, the question is if an international
measure of poverty should consider absolute lack of income or
should also consider inequality of income. Ravallion provides
evidence that the WB has prepared relative poverty measures that
still rely on a common international poverty line.
Furthermore, Ravallion also indicates that when analysing regions
or countries, the WB experts do not use these international estimates,
but rely on national poverty lines, something which can be noticed
in the country reports prepared by this institution.
One of the criticisms of the WB poverty line is that it does
not correspond to a capabilities or basic needs basket (see for example, Pogge
and Reddy, 2002).
But even setting an international basic food basket would be
a very difficult task, especially considering the diversity among
regions in meeting their caloric and nutritional needs. Any criteria
of this sort would certainly lead to establishing baskets of
different monetary values in different countries. Turning the
food basket into a poverty line would also generate new problems
as the relative prices of non-food goods vary significantly from
one country to another.
In Latin
America,
the Economic Commission for Latin America and the Caribbean
(ECLAC) chose a middle
of the way path, as its poverty estimates are made on the basis
of national basic food baskets, which are established on the basis
of expenditure surveys or come from standard baskets according
to the country, and are then multiplied by a common Orshansky
coefficient to obtain regional poverty lines (ECLAC, 2000). This methodology attempting to
harmonise national habits with international comparability criteria
has also been questioned regionally because of the apparently
arbitrary setting of the Engel coefficient at 0.5, although this
value arises from previous research by the organisation.
The WB
threshold would probably appear low in middle-income regions where
poverty
and income inequality are high, as is the case in Latin America,
labelled as the most unequal region in the world, particularly
in regard to its per capita GDP. Although it is probable that
the proportion of people living under this threshold in Latin
America is smaller than in vast zones of Asia and Africa, there are nevertheless
problems of severe malnutrition in the region and the cost of
the basic food baskets established by many countries exceeds the
WB threshold. Although an extremely low threshold will identify
regions and countries where deprivation is extreme, it will often
overlook other places with less acute, but still problematic,
poverty. To recognise these less extreme cases we must use additional
measures or indexes.
Furthermore,
the establishment of a common threshold in terms of income or
expenditure disregards the vast differences from country to country
of the cost of and access to various services. Thus, if access
to public health, housing and education varies from country to
country, unsatisfied needs will also vary considerably. Gardiner
et al. (1995), in their comparative
study of relatively similar countries in the European
Union,
particularly the United Kingdom and France, show the serious problems
arising in attempts to compare income and analyse the impacts
of the different health and housing systems on these comparisons.
Their results show that estimating these costs correctly led to
different rankings among the European countries they considered.
This observation must be kept in mind when performing comparisons
solely according to income or expenditure.
The
assessment of poverty in many countries has evolved toward a
broader conception of poverty than the mere lack of income, including
the comprehensive-but sometimes vague-idea of social exclusion.
The efforts made by the United Nations Development Programme
(UNDP), crystallised
in the Human Development Index, also point to broadening the
dimensions used to evaluate the performance of the different
countries (see
for example, UNDP, 2002). As concepts of poverty widen and become
more complex, why is there still an interest in simplifying indexes
and rankings? Although it is true that there is a strong link
between social exclusion and poverty, the concept of social exclusion
can be valid among groups whose income is not significantly different.
In order
to obtain more illuminating comparisons, it
might be useful to evaluate simultaneously international poverty
rankings and the evolution of poverty measured by national thresholds.
Criteria for measuring poverty vary from region to region. While
in all the countries of the Americas absolute poverty lines are
used, in Europe poverty is measured more often through relative
poverty lines that arise from the idea that after having accomplished
a reasonable satisfaction of basic needs, the main concern is
with gaining access to the society's resources.
Income
and consumption are difficult variables to measure, particularly
in developing countries and the WB has contributed to the development
of corrective measurement instruments and methodologies. The
quality of income data varies significantly from country to country
as household surveys use different criteria, cover different
areas, and include different sources of income. The populations
of different countries also have different propensions towards
under-reporting.
Furthermore, using current income alone is a very important source
of error, particularly among the poor, whose income is very erratic;
in many countries, all or nearly all of poor people's income
is in kind. Although it is therefore recommended that consumption
be used as a more reliable indicator, in practice in many countries
income is still used, because the countries do not gather periodic
data on consumption.
Besides,
there is an ongoing debate on the accuracy of the WB methodology
used to set the international poverty lines. Pogge and Reddy (2002) question various
aspects of these estimates and, in particular, question the way
purchasing power parity (PPP) indicators are
used. These authors criticise the fact that in the construction
of these indexes, the WB uses the price of all the consumer goods,
not only those consumed by the poor. This is derived from the
fact that relative prices vary considerably from country to country,
particularly the prices of tradable and non-tradable goods. While
the former do not vary significantly from country to country,
the latter do. According to Pogge and Reddy (2002), PPP is estimated weighing the prices incorporated
into the index by average consumption. Thus, international comparisons
should be based on goods and services consumed by the
poor and not on any other type of goods. As a result of this methodological
option, and due to recent changes in the estimation procedure,
poverty rates are significantly underestimated and poverty trends
are misleading. These authors consider that it would be possible
to make more accurate international comparisons of poverty by
correcting the estimation of PPP. A greater effort is needed in
this direction.
In
his reply to Pogge and Reddy, Ravallion (2002) acknowledges that
PPP estimations present serious problems and that they should
try to reflect consumption in lower income households in the
distribution, but he does not consider that Reddy and Pogge's
methodological proposals would lead to obtaining better estimates
of poverty. In particular, he considers that the PPP calculation
methodology proposed by Reddy and Pogge has serious problems.
II. The
multiple dimensions of poverty
Kanbur (2001) points out that,
in contrast to twenty-five years ago, there is now a wide consensus
regarding the fact that access to health and education is just as important
as income and that in the future, the consensus will probably
include empowerment and participation in citizen life.
For
this reason, the income method needs to be complemented by other
dimensions, addressing the quality of life of households or individuals,
given that not all individuals have the same rate of converting
income into what Sen (1992) has called
functionings. This concept refers to the insufficiency of equalising
opportunities alone as a mechanism to achieve equity and eradicate
poverty. Thus functionings are individual's abilities to take
advantage of opportunities in different areas (being well nourished, access to health
services, housing, etc.).
From this
approach, it appears that the relationship between income and
capabilities is parametrically variable among communities, families
and even among individuals in the same family. This is based on
two elements. In the first place, it varies according to differences
in ages, gender, social roles,
geographical
location
of the household, and other variables over which the individual
may or may not have control. Secondly, there may be individual
difficulties in converting income into functionings; it is probable
that people with different needs and abilities require different
amounts of income to achieve the same goals, and inequality may
be more intense than what is perceived by looking at the space
at income alone.
These
considerations point to the fact that the identification of the
poor exclusively by the income method leaves out dimensions that
may be very relevant when defining the individual's access to
available resources, especially when attempting to make international
comparisons.
"If we go on to analyse
poverty, the identification of a minimum combination of basic
capabilities may be a good way of setting out the problem of
assessing and measuring poverty. It may lead to very different
results from those obtained when concentrating on the inadequacy
of income as a criterion to identify the poor. The conversion
of income into basic capabilities may vary greatly among individuals
and also among the various societies, so that the possibility
of achieving minimally acceptable levels of basic capability
may be associated with different levels of minimally adequate
income. The standpoint of poverty concentrated on income, based
on the specification of income in a 'poverty line' that does
not vary among individuals, may be very mistaken in the identification
and assessment of poverty." (Sen, 1996, p. 68)
However,
this does not mean discarding the idea of establishing an income
threshold. In fact:
"As income is not desired
for itself, any notion of poverty based on income must refer
directly or indirectly to those basic purposes that promote income
in its function as a means [to an end]. In fact, in studies on
poverty referring to developing countries, the income in the
'poverty line' is frequently derived in an explicit way from
reference to nutrition standards. Once it is recognised that
the relationship between income and capabilities varies among
communities and individuals in the same community, it will be
considered that minimally acceptable levels of capabilities are
variable: they will depend on personal and social characteristics.
However, while minimum capabilities can be achieved by means
of strengthening the level of income (given the other personal
and social characteristics on which capabilities depend) it will
be possible (for the specified social and personal characteristics)
to identify a minimum adequate income to achieve minimally acceptable
levels of capability. Once this correspondence has been established,
it will not matter whether poverty is defined in terms of a failure
of basic capability or as a failure in obtaining the corresponding
minimally adequate income." (Sen, 1995, p. 69)
Furthermore,
in his work comparing India and China, Sen
makes clear how two countries having very similar GDP have very
wide differences in terms of basic capabilities for survival and
education, a fact that also alerts us to the limitations of uni-dimensional
comparisons.
III.
Why use income?
The analysis
of poverty and inequality made by economists
has mainly focused on income and consumption and paid scant attention
to other ideas about poverty until very late in the twentieth
century. In her analysis of the origins of poverty studies, Ruggeri-Laderchi
(2000) suggests that this
lack of conceptualisation is typical of poverty studies prepared
by economists since the birth of this field of study in Great
Britain in the nineteenth century. According to her interpretation,
the lack of interest in alternative definitions of poverty is
related to the positivist vision predominating in the first poverty
analyses, in particular in the studies by Rowntree and Booth,
who were more concerned with estimating poverty and finding mechanisms
to reduce it than with questioning ideas about the nature of poverty.
For many
users and producers of poverty studies, income incorporates other
dimensions of welfare, or at least it is considered that the lack
of income is sufficiently correlated with deprivation in other
dimensions to enable it to serve as a good summary. Furthermore,
in regions where poverty and
inequality are at extreme levels and worsening, it may be understandable
that imperfect approaches such as poverty lines based on consumption
and comparisons of welfare based on income are considered by many
as sufficiently good shortcuts to deal with the most acute problems.
However,
empirical studies carried out by Ruggeri-Laderchi for Peru and
Chile make it evident that the other dimensions of poverty are
not consistent with income in all cases. The same conclusion
can be drawn from the myriad of studies that map basic needs
and income poverty or even from the UNDP's Human Development
Index.
Consideration
should also be given to the fact that economists find income a
very attractive variable because it is conceptually easier to
relate to a standard analysis of economic change, making it possible
to link evolution of poverty and inequality with the rest of the
economy, in particular with the evolution
of the labour market. This possibility makes easier the derivation
of policy conclusions from poverty analysis (Rius and Vigorito, 2000).
Additionally,
the disciplinary imperative of quantifiability is satisfied by
income, which can be treated as a continuous variable. This difference
between income and other variables that can be used to quantify
poverty is very important. The sophistication of techniques available
to apply to basic income indicators also helps to give the impression
of objectivity that seems so essential to legitimise economic
analysis in many areas (Rius
and Vigorito, 2000).
IV.
Toward multidimensional poverty assessments
The
preceding paragraphs emphasise the need to consider the multiplicity
of spaces where the needs of the world's population manifest
themselves when trying to assess poverty levels. Although it
might be useful to resort to income based measures, these on
their own are insufficient, as concepts of poverty are becoming
more complex and multidimensional, as Kanbur (2001) maintains. In turn, the studies showing
that the classification of countries differs according to different
types of needs measured, also argue for the use of a multiplicity
of indicators to assess comparative performance. Very often these
results contradict the wishes of policy-makers, for whom uni-dimensional
classifications are simpler and therefore more attractive.
Although
the attempt at making international comparisons in the space of
income should not be abandoned, classifications of countries cannot
consider income exclusively. Including other indicators gives
a truer picture than using a single, universal measure of absolute
poverty. The efforts made by Social Watch in collecting and publishing
information should, in conjunction with other sources of international
data, help to generate richer classifications, resulting in the
systematisation and production of new, more valuable, indicators.
Thus, the dimensions of access to drinking
water
and sanitation, malnutrition, life expectancy at birth, and distribution
of income, considered together, offer a good starting point for
describing the evolution and current level of living conditions
in developing
countries.
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