The global underclass

First, the good news: The world is getting better at reducing poverty. Please hold your applause to the end, though. The bad news is that a large underclass has been created that has found it very difficult climbing the economic ladder in their respective countries.

So says a new report, The World's Most Deprived: Characteristics and Causes of Extreme Poverty and Hunger, from the International Food Policy Research Institute based in Washington DC.

Using household survey data from 20 developing countries from the years 1990 to 2004, the group broke down poverty into three categories: subjacent poor, those living on between 75 cents and $1 per day; medial poor, people living on a daily rate of between 50 and 75 cents; ultra poor, those living on less than 50 cents a day.

Researchers discovered this global underclass constitutes nearly one billion people, all living on less than $1 a day. Of that one billion, 162 million live on 50 cents a day. If the ultra poor were concentrated in a single nation, it would constitute the world's seventh most populous country.

While general poverty has been reduced, its decline fluctuates wildly between regions. East Asia and the Pacific saw a “substantial reduction” in the number of people living in poverty, including the ultra poor. In sub-Saharan Africa, however, poverty rates have only modestly decreased across the board, and the region is home to more than 7 out of 10 of the world’s ultra poor. It is the only area where the ultra poor outnumber the poor in other categories.

On a global scale, researchers found that poverty is slowly shifting to urban areas, but still remains a rural phenomenon, where poverty rates are twice as high and most profound. “The report shows that the poorest people typically belong to socially excluded groups, live in remote rural areas with little access to roads, markets, education, and health services, and have few assets,” researchers said in a press release.

In a story in Inter Press Service, the study’s researchers claim that aid strategies must stop focusing on economic growth and be redesigned to better service this underclass.

The key, they say, is access to microcredit. But people need training in literacy and numeracy to make the system work, which is why it remains beyond the reach of the ultra poor.

I give you one dollar, you buy what?
A debate on the efficacy of microcredit can wait until later. The report, however, does raise an interesting point: How useful is the one-dollar-a-day threshold?

"It's kind of a minimum living standard for survival," Shaohua Chen, a senior information officer at the World Bank told the New York Times. During the 1980s, the World Bank established the dollar-a-day ranking. By the bank's calculation, 23 percent of the world's population, or 1.2 billion people, live in poverty.

The problem is that one dollar buys different things in different places. According to the New York Times story, in 2003, $1 bought a half a pound of rice, half of pound of potatoes, and a third pound of ground beef in Vietnam. In Mexico, it was enough to buy a pound of rice, a pound of beans and half a loaf of bread. Four years later in Burkina Faso, one dollar buys two pounds of rice and the choice between a baguette or a morsel of meat.

The World Bank admits that most people can’t get by on a dollar a day, which is why researchers also calculate other living standards like public health and education rates.

If not $1, then what? It is still important to try to understand where lies the line of absolute poverty – the minimum amount people must spend in order to survive. To do this, one must take into account the cost of food and water, shelter, a little clothing. This list is still open to interpretation. Mostly because it doesn’t include monies spent on expenses like health care, transport or schooling. In the starkest of terms, transport and schooling may not be seen as optional expenses, but health care is oftentimes mandatory. On top of this, researchers must also take into account average wages for certain jobs.

Families also complicates matters. The $1 measure is fine for individuals, but for those living together, goods can be pooled together, bringing down necessary expense rates. That’s why at least a few development economists argue that the threshold should be increased for families, because they have to put aside money for small investments, such as education, health and perhaps even business – like buying food stock to sell.

Then, there are people who argue that poverty is a state of mind more than a state of the pocketbook. For example, we must answer the question of peoples’ ability to do what they want to do (under certain conditions, of course). The economists who follow this line argue that people in different parts of the globe may make the same amount of money, but one may feel much poorer than the other. (Anecdotally, it seems Indians can advance on less money because they have a strong manufacturing sector and their products – cars, cola, clothes, etc. – remain cheaper when you compare it to, say, West African goods.)

Thus, these economists claim that researchers must take into account the differences in costs for products people often strive to purchase, such as telephones and televisions.

Super Size Me
Then there is the Big Mac Index which incorporates Purchasing Power Parity by calculating the price a basket of goods costs in different countries. The index, created by the Economist, simply uses the Big Mac as the basket of goods.

Here’s how it works: In gross per capita income, Burkina Faso earns $400 per year, which is barely over a dollar a day. However, in Purchasing Power Parity, when other factors as prices and rents are taken into account, Burkina Faso rises to $1,170, which is still ranks among the world’s poorest countries.

The magazine points out that Purchasing Power Parity works best when comparing countries in similar stages of development. Thus, the Big Mac index should turn into the rice and sauce index.