Will the real bottom billion please stand up?

Count the poor. They are the ones dressed like Waldo

A few years ago, Paul Collier used the term the bottom billion, to describe those living in poor, mostly African countries which had dim prospects for future growth. Thanks to the successful of the titular book, the term became ubiquitous in the development lingo, although it eventually morphed into a descriptor for the poorest billion in the world, regardless of location.

What’s the difference? Using Collier’s definition, if you live in Malawi, you’re one of the bottom billion, whether or not you are actually poor yourself. If you earn less than $1.25 a day (the latest poverty line), but live in the US, then you’re poor, but are not actually part of the bottom billion.

If every country in the world had zero income inequality, then all of the poorest people would, by definition, live in the countries that comprise the bottom billion. This obviously isn’t that case, and so there is room to determine how divergent these two classifications are:

Last month Andy Sumner, from the IDS, released a paper claiming that 75% of the world’s poor (using that $1.25 definition) actually live in middle-income countries (roughly, those with an average daily income between $2.7 and $33). Sumner uses this as a springboard: if we only care about helping the poor (and not where they happen to be living), then we need to focus more on, and perhaps provide more aid to middle-income countries. Lee Crawfurd and Lawrence Haddad made similar points recently while the UK and India were considering the end of their aid relationship.

Sumner made his case directly to Collier last week in an short discussion hosted by IDS (you can listen to it here). Collier’s counter-argument is as follows: if we focus solely on chasing static poverty (who is poor right now), then we are going to end up directing aid towards people who are equally poor, but might face different probabilities of escaping poverty.

For example, a Chinese and Malawian farmer might both have incomes below the $1.25 threshold and so will be classified as poor, but the Chinese farmer lives in a country with a higher growth rate, so might be more likely to escape in the future. The Malawian farmer lives in a country with more dire prospects, so we might expect him to remain poor for longer, barring an intervention. Since the average income in Malawi is lower than that of China, Malawi can’t eliminate its poverty purely through direct distribution (China could, even if that might not be the best way to do it).

Collier argues that we (the donors, the international community, etc) should focus more on getting these countries growing and, as Duncan Greene puts it “abandon 75% of the world’s poor to their domestic political processes.”

Which `side’ you take depends on how optimistic you feel about different outcomes. Collier is assuming that the 3/4 of the poor that live in middle-income countries will be lifted out of poverty by economic growth (either directly, or through redistributive policies), but that the poor in the countries which comprise the bottom billion are stuck where they are. Both Sumner and Greene are, I think, quite doubtful of this assertion.

I am more sympathetic to Collier’s view – although I am not entirely convinced that the bottom billion’s future lies in the hands of the West. Still, I agree that we should make sure that the `war on poverty’ is forward looking and avoid playing a glorified game of whac-a-mole, trying to address poverty wherever we see it.

5 thoughts on “Will the real bottom billion please stand up?

  1. Jim

    November 1, 2010 at 12:53pm

    Interesting post Matt.
    I would add one thought: as you rightly point out, this is a debate conducted explicitly with the donors in mind, rather than simply an identification exercise. As such the political considerations are important, since India recently announced the centre would not be accepting any further DFID development assistance from April 2011.

    I would contend that while a person living below the poverty line in the affluent west (or indeed India) might be no less poor than someone in the bottom billion, do we really believe our marginal tax dollar is going to have as much impact on their (and their children’s) live? Especially if the objective is economic transformation (or reversal of economic divergence) rather than pushing the marginal citizen above the poverty line. Particularly if that dollar is no longer welcomed/sought by the democratic representatives of the impoverished?

    I would argue your/Paul’s position isn’t contingent on your degrees of optimism about growth, but could also rest on an objective assessment of where the marginal dollar is better spent. I suspect the answer is Malawi.

    As an aside, Alex Exans recently took the same arguments as his starting point and reached the entirely opposite conclusions; that ‘India’ not ‘SSA’ is exactly where DFID money should be heading (i.e. target poor people, not poor countries): http://www.globaldashboard.org/2010/10/12/10-key-issues-for-international-development/

  2. Ranil Dissanayake

    November 1, 2010 at 4:55pm

    Jim – interesting thoughts. I’d take this all a step further.

    It could well be that the marginal dollar has the greatest impact in middle income countries rather than in the very poor or the very rich. In the very rich, it’s likely that money isn’t the constraining factor at all. Given the amount spent on job creation, reskilling, social safety nets of various kinds, an extra dollar would need to be *very* well targeted to have an impact, and indeed could probably be sourced internally.

    In a very poor country, there’s signficant a priori cause to suggest that the extra dollar is ‘good money after bad’ in the sense that bad governance, corruption, horribly weak institutions and feedback mechanisms and high likelihood of interceded factors and weak economic and social institutions or undynamic socio-political and economic structures rendering aid interventions unsuccessful.

    In middle income countries you are most likely to find institutions that are just finding their feet, transformative socio-economic structures, incipient capitalism and better capacity to use extra cash; coupled with continuing resource constraints. Even in middle income countries, the taxable base of the economy in practical terms (i.e. accounting for “informal” or unenumerated activities) may not be so large as to power all the required activities to reduce poverty. As such aid may work best there.

    Now, against my training as an economist, even in such circumstances, I would say intervention is *STILL* most needed in very poor countries, because you should be dedicating your efforts where the problems are most intractible. This might not always translate into spending being higher there, but these places should be the to addressed, because they are the places with the least capacity to develop through their own internal processes.

  3. Lee Crawfurd

    November 1, 2010 at 9:16pm

    Ranil – the other option for the poorest countries with the most intractable problems is to think about what else apart from aid might help.

    Why not focus aid where it has high anti-poverty returns (middle-income countries) and focus trade policy, open immigration policy, security assistance, technology transfer and open intellectual property regimes, on those countries where aid has low anti-poverty returns.

  4. Matt

    November 2, 2010 at 12:11am

    All great comments, I’ll add one more which might muddy the waters a bit:

    As far as I can tell, Sumner only uses the general poverty headcount (those under $1.25) and the MPI. Neither of these measures accounts for the distribution of income above our below the poverty line. Using this methods 500 people earning $1.24 dollars a day in India are equivalent to 500 people earning $0.30 in Malawi.

    If our social welfare function is defined over the depth of poverty, aid allocations might be quite different (my prior is that poverty is more severe in SSA, but I could be mistaken).

  5. Ranil Dissanayake

    November 2, 2010 at 7:07am

    Lee –

    I don’t have a problem with that approach. As I said, more attention on such places might not translate into spending being higher there, but they do deserve more attention and support, however that support comes.

Comments are closed.