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Poverty and Shared Prosperity 2016: Part 2


Here, I continue this week’s series on the World Bank’s Poverty and Shared Prosperity report.

With the overview out of the way, it’s time to get to the report in earnest with Chapter 1: Setting the Stage.

Knowing what the two goals set in 2013 are–namely, raising incomes and reducing income inequality in order to bring global extreme poverty down to 3% by 2030–next comes the matter of measuring them. As W. Edwards Deming said, “you get what you measure.” How things are measured is at least as important as what’s being measured.

The World Bank uses purchasing power parities and exchange rates as a starting point. These allow for consistent comparisons across countries. To define poverty, the World Bank relies on the poverty standards of some of the world’s poorest countries, which sets a baseline of $1.90 per person per day.

Difficulties quickly emerge, however. What may be an everyday item in one country could be a luxury in another. Some countries also have very poor or unreliable data collection practices. These are addressed by applying available regional data to produce approximations. The goal in all this is to produce a more or less accurate estimation of the global poor.

The report also notes that, while it assumes zero poverty in industrialized countries, there are countries for which this is clearly untrue, such as the United States. This choice is justified by the existence of welfare and other public assistance programs which bring the consumption of impoverished populations well above international poverty levels.

The World Bank then goes on to justify its focus on the bottom 40% of each country, noting the limitations of per capita growth rates in illustrating the overall economic health of a country. The Gini index is also insufficient in and of itself, because it describes only relative inequality, not the actual size of the income pie being shared.

The point is made that income and consumption together provide a picture that neither indicator alone can give. Consumption shows what goods and services are available to people, but do not suggest the available economic opportunities. Likewise, a high income tells us little unless we know what people can and do spend it on. The World Bank combines these factors and uses them essentially interchangeably, acknowledging difficulties in this process but accepting them as adequate to the task at hand.

The shared prosperity indicator comes up again. In essence, prosperity is considered more shared if the bottom 40% of a country’s population see their share of income increase at least as quickly as the top 60%. In countries that are failing to tackle poverty and inequality, lower incomes tend to grow more slowly than average, which obviously increases inequality.

It’s worth noting that both the United Nations and the G20 have initiatives in place that are aligned with the World Bank’s poverty-reduction goals, as well. They are slightly different in nature, but it’s important that each of these international institutions are committed to serving this goal.

As mentioned above, reliable data gathering is always a key concern. Household surveys are the main sources of information for the World Bank, but they vary slightly by country in terms of how those surveys are constructed and particularly in how they may be administered. The World Bank laments the inadequacy of the existing surveys while noting that the situation has improved over time. Given that this report assembles and analyzes data from 2013, it is mentioned that this is because of a 3-year lag from data collection to report publication, in part due to the difficulties inherent in gathering so much data from so many countries in a timely manner.

Particularly alarming is that 74 countries are listed as “data deprived,” meaning that basic poverty rate monitoring data is unavailable for those countries over a 10-year span. It may not be a coincidence that the regions with the highest extreme poverty, like Sub-Saharan Africa, also have the most data deprivation. One could argue the merits of whether data-driven approaches to combating poverty are appropriate or effective, but data collection itself is crucial to even get a complete picture of the poverty situation in a given country. A government cannot address what it does not know exists.

This report developed a special focus on inequality, identifying it as a major source of extreme poverty. The point is spelled out quite directly:

This report finds that the goal of eliminating extreme poverty will not be achieved by 2030 without significant shifts in within-country inequality. Ultimately, poverty reduction can occur through higher average growth, a narrowing in inequality, or a combination of the two. So, if poverty reduction is to be achieved in a context of slow growth, such as the current context, more equitable income or consumption distribution will be required.

It promises to offer tangible approaches that have worked in a number of countries (indeed, some of which were identified in yesterday’s post), and I look forward to seeing more details about those. As a preview of what’s to come, these are the questions the report promises to answer:

  * What is the latest evidence on the levels and evolution of global extreme poverty and shared prosperity?
  * Which countries and regions have been more successful in terms of progress toward these goals and which are lagging?
  * What does the global context of lower economic growth mean for the poorest people and countries?
  * How can narrowing inequality contribute to ending extreme poverty and improving the welfare of the least well off?
  * What does the evidence show concerning global and between- and within-country inequality trends?
  * What does the evidence tell us about how countries and interventions have successfully reduced inequality?

Chapter 2 will be tackled tomorrow!

Photo by Amir Farshad Ebrahimi