Poverty and Shared Prosperity 2016: Part 3

Time to get back to the World Bank’s Poverty and Shared Prosperity report.

This time we’re on Chapter 2 of the report: Global Poverty.

Global extreme poverty has been declining at an average overall rate of 1.1% a year. Both the share of those in extreme poverty and the total headcounts of those in poverty have been rapidly decreasing since 1990.

Digging into the finer details, the “poverty gap” is examined. This is a measure of how far below the $1.90 US dollars per person per day individuals are within a country. The average poverty gap worldwide is 3.2%, but in Sub-Saharan Africa it is 15.9%.

It is worth noting that the progress made has also been accomplished at the same time as major demographic shifts, such as high birth rates that are straining the resources of developing countries. Despite such progress, Sub-Saharan Africa has continued to show the weakest results–its relatively slow poverty reductions have caused it to lag behind other regions which have shown much more rapid progress. There are concerns that, if Sub-Saharan African countries do not begin to catch up, the current trends will taper off as other regions successfully eliminate extreme poverty.

The report notes repeatedly that 2012-13 saw dramatic, unprecedented reductions in poverty around the globe. Poverty estimates for China and Indonesia along with strong economic performance in India make up the bulk of this reduction.

Interestingly, most of the extreme poor do not live in low-income countries, but rather low-to-middle-income countries. Additionally, there is some elaboration on the structural differences in poverty between Sub-Saharan Africa and Asia. While poverty ratios are comparatively low in China and India, in absolute terms they have many more extreme poor than countries in Sub-Saharan Africa do, entirely because China and India have such large populations to begin with. Conversely, countries in Sub-Saharan Africa may not have the largest numbers of extreme poor, but they bear the highest poverty ratios.

India is cited as the country with the largest number of extreme poor in raw terms: 224 million people living below the $1.90 a day threshold. Nigeria is a distant second with 86 million.

Sub-Saharan African countries look as though they will prove the most challenging to ultimately bring out of extreme poverty, in large part because they have a much worse starting point–in other words, they have the most progress to make, and are the least prepared to make that progress in their current circumstances. Even where there is good news here, it comes with caveats: while some in this region are moving out of extreme poverty, it tends to be those who are already close to the threshold. Those nearest the bottom show the least progress and are, in essence, being left behind.

Some numbers are offered in terms of how much it would likely cost to bring all of the world’s extreme poor out of poverty: about 0.2% of gross world product in 2013, or “10.0 percent more than all the official development assistance that year. It is also about 50 percent of the tax revenue estimated to be annually lost through tax avoidance.” So this is not an outrageous or infeasible cost–it is perfectly affordable, if it is made a priority.

On the other hand, virtually nothing is said of why countries in Sub-Saharan Africa remain poor. I hope future chapters delve into this more and focus on factors beyond mere indicators of economic activity.

Previous generalizations about the makeup of the global poor are restated (young, rural, uneducated, agrarian) but now provided with the caveat that these factors vary widely across regions and within countries. Urban living and education are both strongly correlated with better economic outcomes.

Limitations are admitted here: the surveys used to inform the report only contain consumption data for the entirety of households, rather than among the members of a household, which means gender-oriented data–which would likely show stark disparities between men and women in terms of incomes and consumption–are unavailable within the auspices of this report. Such data would be beneficial for addressing the needs of women who are likely to make up a disproportionate number of the global poor.

Some interesting details on how the data was gathered (and what its various limitations are) is provided in an annex to this chapter. Nothing in it was particularly Earth-shattering, though it offers a very good peek at how fraught gathering this kind of information can be. There are plenty of reasons why data may be inadequate, unreliable, late, or otherwise unfit for its intended purpose.

Let’s tackle Chapter 3 while we’re at it: Shared Prosperity. How has prosperity been shared among the bottom 40% of the countries still suffering extreme poverty?

The good news here is that, overall, the world has recovered from the financial crisis that began in 2008. There are no doubt pockets where economic fortunes remain dim, where growth has been sluggish, but in the aggregate, the world’s poor are in a better position today than they were before the crash. This is good news by any definition. On the other hand, the bottom 40% among industrialized countries saw a net contraction of 1% of their income.

Data gaps are reiterated, too: the data used to generate this report only represents 75% of the world’s population. The other quarter are left out due to insufficient or unreliable data. It’s quite possible there are a lot more extremely poor people than has been estimated, given that poor data collection is most likely in countries with high poverty and weak economic prospects. There is certainly more work to do in that regard.

Since this chapter is about shared prosperity, let’s define the shared prosperity premium again: it is the growth rate of the bottom 40% minus the growth rate of the top 60%. Equally shared prosperity would net a zero result, then. But a positive number would indicate that the poorest saw greater increases, which is exactly what we want to see in terms of poverty reduction. Income growth among the poorest must ultimately outpace the other 60% in order to eliminate extreme poverty. Among the monitored sample of 83 countries, there was a positive shared prosperity premium in 49 of them. To put real numbers to that, 3.5 billion people lived in countries with a positive shared prosperity premium–about half the world’s population!

India seemed to do especially badly in this formulation, though, dragging down the average shared prosperity premium across its entire region, into negative territory. If not for India, the South Asia region would boast a positive premium, as well.

Next, poverty distributions are discussed in some detail. Imagine a country has well over 40% of its population living in poverty. Can such a country be reasonably compared to another where only 10% of its pouplation live in poverty? Shared prosperity premiums might be similar but would have starkly different implications in one country over the other. The report brings this up in order to delineate another limitation of its statistics. At this point I wonder how useful any of the statistics are if their implications are so highly variable from one country to the next.

There is cause for further pessimism, as well, since global economic outlooks keep being revised downward. Economic sluggishness is an obvious enemy of povery reduction. Here, the World Bank beats the drum that growth, rather than income redistribution, is the key to poverty amelioration. Injecting my own opinion here: while growth is clearly important, limitless growth itself is unsustainable, especially in the face of impending demographic shifts that will see global population stabilize and then decline toward the end of this century. I realize the World Bank’s report doesn’t look that far ahead, but if poverty reduction is achieved by 2030 without any attention paid to sustaining those reductions well into the future, I’m not sure it will have accomplished much.

The report does admit, however, that more redistribution will likely become necessary if growth remains slow. It is certainly something to see the World Bank essentially endorse socialism! The results of some 10- and 20-year economic simulations are shown, and cutting to the chase on those:

Based on these simulations, the goal of eliminating extreme poverty by 2030 cannot be achieved unless prosperity is shared more quickly, growth rates are greater than the 10- and 20-year historical averages used in the simulations, or both. Nonetheless, this is entirely possible, particularly because these findings are simulations, not predictions.

I’ll pick up with Chapter 4 tomorrow!

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James runs this blog and likes to write about society, culture, politics, science, technology, social justice, and pretty much anything else. Rumor has it people read his posts sometimes.

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Poverty and Shared Prosperity 2016: Part 3

by James time to read: 6 min
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