What is Poverty? (6): Absolute or Relative Deprivation?

Is poverty a lack of basic resources, or instead the unequal distribution of resources? Is it the absolute income or wealth of people that matters, or the fact that other people are richer and can afford more luxuries? Intuitively, one would go with the former of those options: people are poor when they are starving or homeless or when they lack some other basic necessity. People can have enough of all basic necessities and still be a lot worse of than some group of ultra-rich. One the other hand, what counts as a basic necessity is not always obvious, and people may form their ideas about necessities in light of the lifestyle of the average member of their society at the current moment in history.

This is another way of expressing the difference between absolute and relative poverty. In the US, it’s common to defend and use an absolute definition of poverty (as does the World Bank), whereas in Europe the focus is on relative poverty. The difference is an important one, because the use of one or the other definition of poverty determines who counts as poor or not. Hence, it also determines who gets government assistance.

Now, something strange is going on here. Intuitively most people favor an absolute definition of poverty – that’s what my own intuition and an unscientific sample of friends tells me –  and yet, if you ask people what one needs to get by in life, the amounts they give you are far above commonly used absolute poverty thresholds. In fact, these amounts are closer to median income. And as median income rises, the amounts supposedly necessary in order to get by also rise. This tells us that people actually use a relative notion of poverty. And this is true even for the country that is supposedly most naturally in favor of an absolute notion of poverty, namely the US.

I made a similar point here. More posts in this series are here.

Why Do We Need Human Rights? (35): Why Do We Need Democracy?

Democracy is a human right. In the past, I’ve  listed a number of reasons why we should prefer democracy over other forms of government (here and here for example). I’ve now come across another reason, one that may not be convincing or relevant to everyone, but still it’s mildly interesting:

All things — including wealth — being equal, earthquakes kill more people in dictatorships than in democracies, write NYU political scientists Alastair Smith and Alejandro Quiroz Flores. The reason that democratically elected leaders prepare their countries for disaster better is because they fear they’ll be voted out of office if their governments are caught unprepared. (Dictators obviously tend to worry less about election outcomes.) A recent World Bank study backs up this argument, with an added wrinkle: institutionalized autocracies, like China’s, tend to outperform non-institutionalized or corrupt autocracies as well as young democracies when it comes to preventing earthquake deaths. Still, another study finds that politicians in democratic elections benefit even more from doling out disaster relief after a catastrophe than they do from preparing for disasters yet to come. (source)

More on democracy and human rights here, here and here.

Measuring Poverty (11): The Subjective Approach

Usually, we measure poverty on the basis of objective numbers about income or consumption. Income or consumption levels are put on a continuum from lowest to highest and somewhere along the continuum we put a threshold that indicates the difference between poor and non-poor. For example, the Indian government uses a consumption threshold of 2,400 calories a day in rural areas and 2,100 in urban areas. The World Bank uses an income threshold of one dollar a day (corrected for purchasing power).

There are numerous disadvantages to these objective approaches. One is the inevitably arbitrary positioning of the threshold. One dollar a day, even after correction for purchasing power, means different things to different people in different areas, circumstances, groups etc. Calorie intake also means different things to different people, depending on people’s way of life etc. Moreover, income levels are notoriously difficult to measure (poor people in particular have a lot of informal income, e.g. “income” coming from all sorts of assistance from relatives etc.). Consumption as well is a difficult measure: it doesn’t necessarily have to mean just calorie intake for example. Poverty can mean a lack of non-food consumption. And if you focus on calorie levels after all, you’ll miss the issue of the quality of the food.

Also the third most common approach to poverty measurement suffers from some disadvantages. This approach, also called the multidimensional approach, tries to assess to what extent people suffer from a series of different types of deprivation: do they have access to water, to electricity, are they literate, malnourished etc. Rather than purely quantitative these measurements can be qualitative: a binary yes/no is often enough. Unfortunately, also this measurement system has some drawbacks: it fails to distinguish between deprivation and choice; there’s necessarily a level of arbitrariness in the determination of the “basic needs” or forms of deprivation that are measured; and these needs are often overly general, obscuring some very specific needs for some people in some areas or groups.

That’s why people have been searching for alternative measures of poverty. One such alternative is the use of surveys that ask people about poverty. You could ask people what they believe is “the smallest amount of money a family needs each week to get along in this community”, “what is the level of income below which families can’t make ends meet” etc. That would remove some of the arbitrariness of the cutoff line between poor and non-poor, and putting that decision in the hands of the people rather than the scientists.

Or you could also present people with evocative descriptions of different family situations, of types of families according to their level of income or consumption or according to the type of deprivation. People would then have to decide for every family situation what they believe the standard of living is and which situation can be described as “poverty”. That would specify what poverty means to people. And what it means to people is much more important than what it means to researchers and statisticians.

A disadvantage of this subjective approach is the wellknown effect that people’s income levels affect their judgments about income adequacy. In short, relatively rich people overestimate the level of income inadequacy. A solution to this problem could be to ask only poor respondents about poverty, on the reasonable assumption that poor people are the best experts on poverty. But that’s a circular reasoning: you already think you know what poverty is before you start asking about it. Since you focus only on the poor, you’ve already decided what poverty is.

An advantage of the subjective approach is that researchers don’t have to list basic needs or types of deprivation in order to assess what poverty is; people tell you what poverty is. There’s also no need for researchers to specify regionally or socially undifferentiated and general cutoff levels of income or consumption below which people are considered to be poor.

The Causes of Poverty (6): Foreign Debt

Much of the foreign or external debt of developing countries is unpayable, and exacts a heavy toll. Cancellation of debt can free resources because poor countries have to pay a lot servicing their debt (not so much repaying their debt but paying interest rates on the money they owe). If they don’t have to pay this servicing anymore, the same money can then be used to expand health and education services, improve infrastructure etc.

“Can”, because there is no guarantee that the often corrupt governments of these countries will do so. They can use the money available because of debt write-offs for other purposes. That is why debt cancellation is often conditional. The main lenders of money, the international institutions such as the World Bank and the IMF (“multilateral creditors” which lend money at relatively low commercial rates), and the Paris Club, an informal group of rich lender nations (“bilateral creditors”), impose conditions such as good governance before agreeing to cancellation. They argue that only countries which have met these conditions can guarantee that the money will be spent on development. They also worry that debt relief might be seen as a perverse reward for countries that lack financial discipline.

Others charge that conditionality violates the sovereignty of borrower countries and imposes programs that may create problems for the local economies and for the legitimacy of the governments. They also claim that countries can only establish good governance and fight corruption when they have the money to do so. Any relief must therefore be unconditional. The truth is probably in the middle somewhere, which means that some conditions should be imposed but not too strictly.

The Heavily Indebted Poor Countries (HIPC) initiative was launched in 1996 by the World Bank and IMF to provide relief to poor countries from excessive debt burdens. HIPC identified about 40 countries, most of them in sub-Saharan Africa, as potentially eligible to receive debt relief. Countries deemed eligible have to meet HIPC targets for good governance, curb corruption and fraud, open up their economies and liberalize their international trade. Although it has provided debt relief which is worth billions of $ to many countries, it has still not produced a lasting solution to the debt crisis. Even HIPC countries are still spending more on debt than healthcare, for example.

Although today all parties agree on the necessity of debt cancellation (but not on the method of cancellation), it’s not useless to recall the origins of much of this debt. Poor countries suffer from so-called “odious debt”, the consequence of past or current regimes borrowing money not for the development of their country but for the conduct of wars for example.

In international law, odious debt is a legal theory which holds that debt incurred by a regime for purposes that do not serve the interest of the nation should not be enforceable. Such debts are thus considered by this doctrine to be personal debts of the regime that incurred them and not debts of the state. (Wikipedia)

And even the debt that was initially incurred for beneficial purposes was often diverted by corrupt and undemocratic regimes, institutions and individuals. So, these two facts put together makes it very difficult to maintain that this debt should be serviced.