The Elusive Poverty Line

The $1 a day measure is a standard catch phrase for development and aid practicioners. It’s also a hotly debated issue – while some argue that it’s a useful measure that allows us to objectively assess levels of poverty in a country, others say that it’s meaningless, as a person living with twice the amount (or a 100% increase…) is still trying to make ends meet with only 2 bucks a day.

Grossly, that’s the concept.

I was just reading this interesting post on the CGD blog, about the World Bank’s re-evaluation of the poverty line to $1.25. I can just picture the half dozen World Bank experts, slaving over this report, analyzing data, running regressions….to come up with that brilliant conclusion: $1.25 is a MORE accurate delimitation for absolute poverty than just $1. They also had this insightful conclusion:

Second, Ravallion and co-authors suggest that differences in different countries’ choice of poverty line indicate that the definition of poverty is in fact subjective and depends on the social context.

Oh, is that so? I’m glad that we figured this out in 2008 – surely, no one previously had put forward THAT notion. So, finally, I suppose, this means that from now on the $1 a day measure is going to be used in a more nuanced way, by integrating qualitative analysis and contextual substance. A step in the right direction that should be acknowledged, in spite of the fact of the fact it’s a realization that comes into the game a few decades late.

While I understand that objective, quantitative indicators and economic measurements are necessary to the development and analysis of policy and its effects, that $1 day a day measure (sorry, $1.25 now) really doesn’t sit well with me. Particularly when I stumble across ideas such as these, ie. that people living on between $2 and $10 a day represent a “middle class” in developing countries. In the interest of full disclosure, I’ve only read the abstract of that paper, but regardless, while I see the rationale behind trying to understand

” the importance of relative prices in shaping consumption decisions or the power of norms/fashions in determining consumption”,

it seems to me that this type of discourse demeans (for lack of a better word) the experience of people struggling in the developing world.

Sure, people who live with $10/day ($3650/year) have infinitely more opportunities than those who live below the absolute poverty line – but they still do not have the type of opportunities available to a genuine middle class, like we have in the West. $3650 per year doesn’t allow for a lot of consumption choices, or choices in general, and definitely doesn’t allow people to save up for their retirement for instance. These people won’t get bank loans to get their kids to college, or a mortgage on their house, or have a credit card (or ten) that would deepen and broaden their horizons, their possibilities. I sure hope that a real middle class will emerge in the developing world – and here I’m thinking of the LDCs (least developed countries), since the BRICs (Brazil, Russia, India, China) of this world are already experiencing this.

For families struggling across the developing world, whether they have $1, $2 or $4 to spend every day makes probably makes a difference in the short run – you can buy more food, pay for your child’s school supplies, etc. However, in the long run, I believe these differences make only a marginal difference – and the lines between absolutely poor, relatively poor and “middle class” remain blurry.

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