Poverty today: Sayonara or hasta luego? Part 1

Andrea Ottina
This is the first of a series of three articles on the theme of poverty. The first article will briefly outline how poverty stands in the world today. The second will clarify some the current strategies which are currently being tested to tackle this human condition, whereas, the last article will focus on the field of expertise of the author, i.e. microfinance.

There is no doubt that poverty is declining. Head of governments, policymakers, economists and journalists together with the most renowned international organisations seem to agree on this instance. The world has seen a plethora of global strategies and policies aimed at curbing the number of poor people. For decades, heads of governments, leaders, activists and diplomats have gathered trying to find an answer to the nagging question of how to eradicate such a terrible human condition. However, it would not be surprising to recognize that the most remarkable accomplishment in poverty reduction strategies has been performed by a country with little or no external help. China, the world’s second largest GDP not only managed to have an outstanding economic performance and growth but it was also able to lift 680 million people (more than 75% of the entire current population of Sub-Saharan Africa) out of poverty between 1981 and 2010. China’s achievement can be attributed to neither international partnership nor aid. As such, serious doubts emerge to the correlation between policies formulated at the global level and effective measures against low income living conditions. People living in poverty are diminishing, but whom this merit can be attributed to, still remains questionable.

Millenium goals

In September 2000, UN personnel and representative from its member states gathered at the Millennium Summit in order to establish a global partnership to fulfil a series of time-bound targets. These targets would have later become known as the Millennium Development Goals (MDGs). Amongst others, the MDGs included cutting the 1990 extreme poverty rate in half by 2015. According to the World Bank (WB), an extreme poverty condition is defined as an individual living with less than 1.25 USD per day. This does not necessarily mean that people, who live on low incomes, receive 1.25 USD each day. In reality, their incomes are often extremely irregular. It simply means that the average monthly income multiplied by 12 months and divided by 365 days, equals to 1.25 USD. In 1990, there was a 43% of the world population living below this line. In 2011, this rate fell to 21%. Put it simply, the goal was met, and surprisingly, a lustrum earlier.

poverty

Magazines and newspapers are filled with articles of economists, politicians and policymakers congratulating themselves for such an astonishing accomplishment. It is a fine result indeed. Nevertheless, not as good as we might think and here is why. The 1990-2011 performance in reducing poverty seems remarkable at first sight. It is quite less remarkable when considering that in 2010 there were still 2.4 billion people living on less than 2 USD per day. In other words, if those living below the extreme poverty line of 1.25 USD are approximately 1.5 million people (i.e. 21%), there is still another million people living in significantly unfortunate conditions. More astonishingly, the figure of 2.4 billion people has slightly declined from the same figure in 1981 (i.e. 2.59 billion). In other words, only an additional 200 million people (or 2.8% of world population) live with more than 2 USD per day as compared to three decades before. Even a less remarkable achievement if considering that in the last two decades (1990-2010) the average world’s population growth rate has been estimated at 30%. Consequently, a question remains, is poverty really ending or is it simply transforming?

A fascinating answer to this question comes from a working paper published in 2008 by the Center for Global Development, titled ‘The Structural Transformation as a Pathway out of Poverty: Analytics, Empirics and Politics’ written by C. Peter Timmer and Selvin Akkus. In this exhaustive article the authors predominantly posit that every country through the course of its economic development experience substantial structural transformation. However, with economic development poverty reduction does not necessarily comes along. The reasons are manifold. When a country is pushing its economic development agenda, the main features that underpin its transformation are: a falling share in economic output and development, a rising share of urban economic activity in industry and modern services, migration of rural workers to urban settings, and a demographic transition in birth and death rates that often pilots to a surge in population before a new level of equilibrium is reached. There have been substantial attempts from the political elites of different countries to keep the lowest income sectors of society on track; however, despite these remarkable deeds, success has not always been within reach. In particular, during the initial stages of structural transformation, and thus economic development, there is a pattern of worsening income distribution between rural and urban economies. Such an instance can partly explain why for example today there are less people living with less than 1.25 USD per day, but there is approximately the same number of people living with less than 2 USD per day.

Pic I took in Liberia

I took this picture two years ago in Liberia

Governments and political elites are often challenged by their voters when there is a substantial decline in income distribution between rural and urban communities, with the former experiencing migration and social disadvantages. The policy approach that is often taken in these cases is that of agricultural protection and subsidies to farmers. This does not necessarily help the growing urban communities who are still forced to buy their food in markets. Conversely, it fosters the creation of price cartels and unreasonable political weight of farmers. As political awareness of farmers increase, their blackmailing of government’s policies follows, thus creating a negative spiral of privileges for this social group. Such an occurrence can be observed in developing economies as well as the most advanced ones. The former case is best represented by several Sub-Saharan economies with left-wing leaning governments. The latter case is represented by Japan, where the protection of the farming sector by its government has been one of the most prominent underlying rationales of the two lost decades in stagflation, and thus consequently of the country’s economic downturn. Overall, a vibrant rural economy stimulated by real productivity growth is favourable for dragging people out of poverty, as the opportunities for employment and the growth in purchase power create a virtuous cycle of development.

AfricaGrowth and economic development appear to be logically linked with a decrease in poverty. What remains prominent is the fact that despite there exist economies developing at very fast rates, the same economies have experienced a rising spur of poverty. For example, these are the cases of Zambia and Nigeria. The former has often been listed by the WB among the top five countries where to invest in Africa. It is the major exporter of copper worldwide, and yet, its growing population has seen an increase in poverty in rural communities. With a growth rate of 7.3% in 2012, primarily driven by its rising agricultural sector, it remains difficult to understand how the government is neglecting large sectors of its own electorate. The latter, Nigeria, is Africa’s second largest economy and the continent’s most populous country. Nevertheless, according to the National Bureau of Statistics, poverty has risen to an alarming rate of 61% in 2010, from 54.7% in 2007. To give a rough idea, in Nigeria alone there are more than 100 million people living below the WB’s extreme poverty line. This nation’s economic circumstances are sadly infamous. One of the largest oil producers in the world, where it accounts for 80% of state revenues, Nigeria has no refinery plant on its soil. As such, without the capacity of refining, the government is compelled to import fuel. Last year when the government decided to remove subsidies on fuel, prices rose at extremely high levels. As a consequence, major protests and clashes with police erupted nationwide. The country’s already highly unstable political stability was once again put at risk. The social discontent of this country reveals an extremely weak purchase power by its citizens, and an elevated potential for future crises. Hence, the economic pace does not necessarily trail the social development of the people.

If we still need to congratulate ourselves for the reduction of people living below the extreme poverty line, depends on how we look at the big picture. Several countries are experiencing a deepening of social and economic divisions amongst their populations, and the waves of protests worldwide exponentially increasing year by year seem to support such a statement. Brazil certainly represents the most recent case, but there exist several others crowding the list. When the rich become richer and the poor become poorer, there is no doubt that economic development bear its costs. Unfortunately, many developing countries have just begun to experience the negative impacts of their development paths. As such when attempting to reach a goal, it remains vital to consider the journey to this goal. As people say, it is not the destination; it is how you get there that really matters. Having achieved the MDG of poverty reduction alone, does not really bear major benefits, unless all the others such as education, health, gender equality and sustainability are also met. Unfortunately, as opposed to poverty the perspective of accomplishing the others remains grim. And as for poverty itself, the time has not yet come to say goodbye for good.

Andrea Ottina
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