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Tegucigalpa

It takes more than just money to escape poverty

The World Bank Group
18 Oct 2018, 06:49 GMT+10

Members of Wayuu community in the colombian region ofGuajira.Jessica Belmont/WorldBank

The other day I asked my five-year-old daughter if she knew what being poor was. She hesitated at first but soon she was on a roll. She mentioned that being poor was not having enough to eat, not living in a "germ-free" house, and - my favorites - not having gummy bears or a blanket. All this within the first couple of minutes of possibly her first time ever thinking about what being poor meant. The idea of poverty is very intuitive - even for a five-year-old - but equally hard to put boundaries around. It is common to say that poverty doesn't mean the same thing in different contexts or that it goes beyond monetary dimensions. But what do we mean by that?

In 'Piecing Together the Poverty Puzzle' this question is tackled head on, bringing much clarity to the debate as well as - importantly - new numbers that help inform policies to end poverty. Among the many contributions of this latest report there are two that I would like to highlight here. First, the report expands on the justification for benchmarking poverty not only against the International Poverty Line (currently at $1.90/day) but also against two additional lines of $3.2 and $5.5 a day. In Latin America and the Caribbean these lines of $3.2 and $5.5 were already commonly used to track progress. The report also shows that how countries typically define basic needs increases with income. Based on this finding, a new measure referred to in the report as the societal measure of global poverty is also presented. Second, the report also introduces a new multi-dimensional poverty measure. Why these new measures? Why isn't the International Poverty Line enough? These questions are worth exploring, as the report does in detail.

In short, the need for these new poverty measures is to complement - not replace - existing ones. First and foremost, country dialogue is always best anchored in the official poverty measures of that country. What the new measures allow for is a more comprehensive benchmarking internationally. The higher poverty lines recognize that as countries grow richer they tend to have higher official poverty lines, implicitly recognizing that they change how they define basic needs. Thus, we need higher standards for a growing world.

Using these complementary poverty measures is important to get a fuller picture of poverty trends worldwide. For example, while only around one in ten people worldwide live below the International Poverty Line nearly half of the world's population still live with less than $5.50 a day. This underscores the message that despite the progress that has been achieved there is no room for complacency. Similarly, a new measure referred to in the report as the societal measure of global poverty also helps paint a fuller picture. Under this new societal measure of global poverty, the decline in poverty has been slower than under absolute measures of poverty like the International Poverty Line or the higher lines of $3.2 and $5.5 a day. Again, this doesn't contradict what we already know - the diverse trends are to some extent driven by the difference using a relative and an absolute measure of poverty - but complements the picture of poverty trends worldwide.

The report also recognizes that, in addition to the monetary deprivation, there are many non-monetary aspects of welfare, like access to education, health, or water and sanitation. Not all the goods and services that matter for people's wellbeing are obtained or available through markets. Crime and insecurity negatively affect the population's wellbeing, as families in Latin America and the Caribbean know well. All those dimensions help piece together the poverty puzzle. The global community endorsed this view when it set for itself to "End Poverty in All its Forms Everywhere" as the first Sustainable Development Goal. In fact, many Latin American countries have been at the forefront of this discussion, having officially endorsed measures of multidimensional poverty long ago.

Introducing a multidimensional poverty measure that captures both monetary deprivation but also the access to basic services reveals a world in which poverty is a more entrenched problem. As the report puts it, globally the share of poor according to a multidimensional definition that includes consumption, education, and access to basic infrastructure is approximately 50 percent higher than when relying solely on monetary poverty. One notable finding for Latin America is that the population that lacks adequate sanitation is several times higher than those who are monetarily poor. The rural poor are also particularly worse off in Latin America, reflecting low education and sanitation. The exercise of compiling these new estimates of multidimensional poverty also showed how few countries have data for estimating all dimensions of poverty. More and better welfare data remains in our collective to-do list.

It is also worth clarifying what these measures are not. As it turns out there are often some basic misunderstandings about measuring poverty, and not just in the minds of a five-year-old. The rationale for these new poverty indicators is not about accounting for different price levels or consumption baskets. The cost of the same good ranges widely in different countries. What is a basic necessity in one country isn't in another one. These facts matter for poverty measurement but they are already taken care of in the International Poverty Line. The use of purchasing power parities from the International Comparison Program takes care of price differentials. The use of a monetary standard like $1.90/day has the great advantage that it is not prescriptive about what items should be included in the basket of basic needs. Thus, simply put, neither price levels or different consumption baskets provide the reason for going beyond our standard monetary measures of poverty.

These measures are not about abandoning monetary measures of poverty. Income or consumption are essential for well-being as they capture how much food, clothing, shelter, and other necessities a family can purchase. In fact, the multidimensional poverty measure introduced in the report includes income among its dimensions to recognize the importance of monetary deprivations. After all, many essential goods and services are bought in the marketplace.

Measuring poverty in all its forms everywhere is not an easy thing. Over thirty years ago the late Tony Atkinson - an authority on poverty an inequality - wrote that we should recognize the "diversity of judgments affecting all aspects of measuring poverty" when setting about the task of coming up with poverty. No single measure is bound to satisfy all such diverse views - including my five-year-old daughter's take on the importance of gummy bears and blankets as basic needs. It follows that if we are to end poverty in all its forms we can do much worse than having an array of complementary measures to better track progress towards our shared goal.

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