Global Policy Forum

Eradicating Poverty... By Lowering the Bar


Roberto Bissio, director of Social Watch, criticizes the current understanding of poverty in an article for Third World Network. He compares the approaches of World Bank President Jim Yong Kim and his predecessor Robert McNamara and notes their striking similarities despite the 40 years between the speeches he cites. According to Bissio, the past decades have nevertheless witnessed a regression in poverty eradication policies. He criticizes the definition of extreme poverty in absolute terms and stresses the need for more ambitious and equitable goals in fighting poverty.

19 June, 2013 | Roberto Bissio

Eradicating Poverty... By Lowering the Bar

From the RIO+20 Outcome Document (The Future We Want), Paragraphs 105 and 107:

105. We recognize that, three years from the 2015 target date of the Millennium Development Goals, while there has been progress in reducing poverty in some regions, this progress has been uneven and the number of people living in poverty in some countries continues to increase, with women and children constituting the majority of the most affected groups, especially in the least developed countries and particularly in Africa.

107. We recognize that promoting universal access to social services can make an important contribution to consolidating and achieving development gains. Social protection systems that address and reduce inequality and social exclusion are essential for eradicating poverty and advancing the achievement of the Millennium Development Goals. In this regard, we strongly encourage initiatives aimed at enhancing social protection for all people.

In a highly publicized speech, World Bank President Jim Yong Kim (a Korean born American health specialist) announced in April that the new "highly ambitious" target of his institution will be "ending extreme poverty in the world by 2030."

This would require three factors: "an acceleration of the growth rates", "efforts to enhance inclusiveness and curb inequality" and "it will require that potential shocks – such as climatic disasters or new food, fuel, or financial crises – be averted or mitigated." This would be a "historic opportunity in front of us" and the announcement was made at Georgetown University, an institution "engaged in preparing the leaders of the future”. Those future leaders were reassured by Kim that "we are at an auspicious moment in history" and that developing countries have “a chance -- for the first time ever -- to end extreme poverty within a generation."

Historical optimism is healthy, especially when it comes to inspire youth, but to claim novelty when there is none is like tripping twice over the same stone. In 1973, forty years ago, then World Bank President Robert McNamara, former president of Ford Motor Company and former defense secretary to Presidents John Kennedy and Lyndon Johnson delivered in Nairobi, Kenya, a solemn speech in which he proposed to the Board of Governors of the Bank a "new strategy". The "ambitious objective" (sic) of McNamara was "to eradicate absolute poverty by the end of this century" (ie 2000). This goal is possible, McNamara explained, because "if the courageous decisions are made, then the pace of development can accelerate."

Kim adds ethical arguments to his economic analysis: "Is there anyone here today who would not want to erase this stain from our collective conscience?"

McNamara had said the same in 1973: "Should we not make the moral precept our guide to action? The extremes of privilege and deprivation are simply no longer acceptable."

Four decades apart, the discourses of Nairobi and Georgetown are very similar. It has been argued that the World Bank will now pay more attention to inequalities and Kim said that, because of unequal distribution, "even if rapid economic expansion in the developing world continues, this doesn’t mean that everyone will automatically benefit from the development process."

But McNamara had already noticed in 1973 that, “despite a decade of unprecedented increase in the gross national product of the developing countries, the poorest segments of their population have received relatively little benefit (because) rapid growth has been accompanied by greater maldistribution of income in many developing countries."

Kim argues today that, “ending extreme poverty is not enough. We must also work to boost the incomes of the poorest 40 percent of the population in each country."

Along the same lines, McNamara said four decades ago that, “the growth of GNP is essentially an index of the welfare of the upper income groups. It is quite insensitive to what happens to the poorest 40%, who collectively receive only 10-15% of the total national income ... "

While 40 years ago the World Bank president criticized as "shortsighted" the "politically priviledged elites” that “are rarely enthusiastic" over fighting poverty, the present World Bank President hails that "US President Barack Obama and UK Prime Minister David Cameron endorsed the vision of ending extreme poverty globally."

"I cannot believe, said Robert McNamara, that the people and governments of the rich nations will turn away in cynicism and indifference." The task that the richer nations would not turn away from, was clearly described forty years ago: "If the governments of the developing world -who must measure the risks of reform against the risks of revolution- are prepared to exercise the requisite political will to assault the problem of poverty in the countryside, then the governments of the wealthy nations must display equal courage. They must be prepared to help them by removing discriminatory trade barriers and by substantially expanding Official Development Assistance."

Yet, in the following decades a development friendly trade system never materialized and ODA never surpassed, in global terms, half the benchmark (also promised in 1973), of 0.7% of the GDP of developed nations.

Thus, Kim presently only promises that poverty eradication is a goal “which our partners – our 188 member countries – will achieve, with the support of the entire global development community." But no detail is given as to what developed countries ought to do.

Absolutists vs. relativists

Considering the past experience, why is the Bank now so confident in reaffirming the old promise?
When McNamara introduced the concept of "absolute" poverty, he set the line at 30 cents of a US dollar a day and he emphasized that, "eradicating poverty means in practice the elimination of malnutrition and illiteracy, the reduction of infant mortality, and the raising of life-expectancy standards to those of the developed nations."

Adjusted for inflation, those 30 cents would amount to $ 1.60 in today's dollars, but the new line is set at $ 1.25. And this will certainly not provide education and health, but will only be enough to keep a person from starving, which is the new definition of "extreme poverty".

According to the World Bank's own projections, if current growth rates are maintained and inequality does not get worse, there would be a 90 percent chance of achieving this goal by 2015. Similarly, trhe final report of the High Level Panel on a post-2015 development agenda acknowledges in its technical notes that “continuing on current growth trends, about 5% of people will be in extreme poverty by 2030.” Since the error margin of those estimates is much higher than 5%, the “zero poverty in our generation” promise is not really a commitment but just a prediction of what is bound to happen anyhow and in itself does not require any action from governments or the international community.
Why are the bells not ringing? Where are the fireworks celebrating that humanity is (or will soon be) finally free from want?

In fact, the World Bank has also claimed that Goal One of the MDGs (reducing by half the proportion of people in extreme poverty) was met in 2010, five years in advance of the 2015 deadline!
Yet, that optimistic statistical conclusion in fact hides much more complex realities. Between 1990 (which is the starting date of Goal One) and 2010 total world exports multiplied almost five times, growing from a total value of USD 781 billion in 1990 to USD 3.7 trillion in 2010. Over the same period, the world’s average inhabitant more than doubled her income, from USD 4,080 a year in 1990 to USD 9,120 in 2010.

Yet, that growth in trade and wealth is not reflected with a similar momentum in the evolution of social indicators. The Basic Capabilities Index computed by Social Watch averages infant mortality rates, the number of births attended by trained personnel and enrollment rates in primary school, all of which are key components of the MDGs. This BCI moved up only 7 points between 1990 and 2010, which is very little progress. And over this period, progress was faster in the first decade than the second – increasing over four percentage points between 1990 and 2000 and of barely three percentage points between 2000 and 2010. This trend is the opposite for trade and income, both of which grew faster after the year 2000 than in the decade before. And this slowing trend of social indicators can only get worse as the impact of the global financial, economic food and energy crisis is gradually being registered in internationally comparable statistics.

Increased inequalities between and within countries is the obvious explanation of this mismatch between a growing economy (in the past decade) and slow social progress.

Speaking in Washington in a conference on “ending poverty in a generation”, Christine Lagarde, managing director of the International Monetary Fund, said that “income inequality has increased in most advanced and developing countries, though it started to decline after 2000 in some regions, Latin America in particular.” And she observed that “the Arab Spring and the Occupy movement, though very different, were motivated in part by discontent with these trends”.

While expressing support to “President (of the World Bank Jim Yong) Kim for staking this high ground, and the courage of his commitment to end poverty by 2030”, Madame Lagarde considered it necessary to emphasize “that even in middle income countries and high income countries there is a high proportion of people in need of support”.

The message of the IMF seems to be that, yes, the ethically correct thing to do is to eradicate poverty … but the real economy is suffering from the impoverishment in rich and middle income countries due to growing inequalities. Eradicating extreme poverty, in this context, would not produce an impact in global economy. Yet, the real experience of countries like Brazil that have seriously initiated poverty eradication programs is that they are beneficial for the local economy, as a demand is created where there was none. The lack of meaningful impact on the global economy of the poverty eradication target only derives from that target being set too low.

Similarly, public opinion is not rejoicing around the world for having achieved Goal One of the MDGs in advance or for the perspective of eradicating absolute poverty, because the poverty measured by the Bank under a fixed line, that does not move as people rise above it, is not the poverty that the public perceives.

It is a meaningless victory to achieve in 2030 the absolute income that would have been a major achievement in 1973. In absolute terms, the average income of Angola today is the equivalent of the absolute income of a British citizen when the United Kingdom was the major power of the world at the beginning of the 20th century … which is a meaningless statistic. History is part of the picture and this was well known already two centuries ago.

Adam Smith, the founder of modern economics, wrote in the eighteenth century: "By necessaries I understand, not only the commodities which are indispensably necessary for the support of life, but whatever the custom of the country renders it indecent for creditable people, even of the lowest order, to be without ...”  Smith included a pair of leather shoes and a linen shirt among those goods that "the rules of decency" had made essential, even when in ancient times the rich paraded happily in toga and sandals.

Smith argues that poverty is relative, but neoclassical economists who proclaim themselves as his followers are now supporters of an "absolute" poverty line. According to Martin Ravallion, who crunched for more than a quarter century the poverty estimates of the World Bank, "those who argue that globalization is good for the poor tend to be overtly 'absolutist'."

But ordinary people are 'relativistic'. Since 1949, the Gallup Poll has been asking Americans. "What is the smallest amount of money a family of four (husband, wife, and two children) needs each week to get along in this community?" The average amount goes up systematically, year after year, in proportion to national income.

That means that if the $1 per day line was correct in 1990, this line should now be located far above the two dollars, as the world per capita income has more than doubled between 1990 and 2010. Those who live on less than two dollars a day are currently more than half of the world's population. To eradicate this poverty is still possible, because the average global income now equals about $ 30 per day per person. But wealth is very unequally distributed, as the Bank already knew decades ago, and to fight against relative poverty does require major changes in societies.

Gordon Fisher, a leading statistical expert from the US Department of Health, has analyzed the evolution of the poverty lines in a dozen countries and his conclusion is that they all moved historically in proportion to income. In 1938, Carroll Daugherty explained that "a standard budget worked out in the [1890's], for example, would have no place for electric appliances, automobiles, spinach, radios, and many other things which found a place on the 1938 comfort model. The budget of 1950 will undoubtedly make the present one look as antiquated as the hobble skirt."

Paradoxically, the advocates of globalization celebrate the speed of technological change it brings, on the one hand, and on the other insist to count as "not poor any more" those who exceed a fixed line of minimum consumption, which is less and less in relation to total consumption.

Fisher observes that  “before about 1965, the people who developed (and studied) poverty lines were largely advocates of the disadvantaged rather than theoretical social scientists; they included social workers, employees of state bureaus of labor statistics, labor union representatives, home economists, and employees of federal social agencies, with economists being only one of a number of elements in the mix. However, that situation changed with the beginning of the War on Poverty in 1964. Poverty studies became a distinct field as such, and economists began to get involved in poverty line studies in large numbers. People who had been involved in poverty line studies during the earlier period gradually retired and/or died. As the earlier groups were gradually replaced by economists, it appears that the history and traditions of the earlier groups tended not to be transmitted to the newcomers. As a result, much of the knowledge about the income elasticity of the poverty line was lost to those who are now studying poverty lines.”

Thus, the well sounding goal of “poverty eradication in a generation” is not only ignoring the multidimensionality of poverty, something which the United Nations has always understood in its normative resolutions and in its development practice, but has also been a way of deviating attention from growing inequalities, which are not only ethically but also economically unsound and produces a pacifying effect on the perceived need to introduce changes in global redistribution towards the future.

Roberto Bissio (2013): Eradicating Poverty ... By Lowering the Bar. Third World Network Briefing Paper. Third World Network, Penang/Geneva.

