Poverty and Inequality

Dr. Md. Zakir Hossain

Associate Professor

The concept of well-being and poverty

According to the World Bank (2000), “poverty is pronounced deprivation in well-being.”

One approach is to think of one’s well-being as the command over commodities in general, so people are better off if they have a greater command over resources. In this view, the main focus is on whether households or individuals have enough resources to meet their needs. Typically poverty is then measured by comparing an individual’s income or consumption with some defined threshold below which they are considered to be poor.

A second approach to well-being (and hence poverty) is to ask whether people are able to obtain a specific type of consumption good: do they have enough food? Or shelter? Or health care? Or education? In this view the analyst would need to go beyond the more traditional monetary measures of poverty: nutritional poverty might be measured by examining whether children are stunted or wasted; and educational poverty might be measured by asking whether someone is illiterate, or by the amount of formal schooling they have received.

The concept of well-being and poverty

The broadest approach to well-being (and poverty) is the one articulated by Amartya Sen (1987), who argues that well-being comes from a “capability” to function in society. Thus poverty arises when people lack key capabilities, and so have inadequate income or education, or poor health, or insecurity, or low self confidence, or a sense of powerlessness, or the absence of rights such as freedom of speech. Poverty is related to, but distinct from, inequality and vulnerability. Inequality focuses on the distribution of attributes, such as income or consumption, across the whole population. In the context of poverty analysis, inequality requires examination if one believes that the welfare of an individual depends on their economic position relative to others in society. Vulnerability is defined as the risk of falling into poverty in the future, even if the person is not necessarily poor now; it is often associated with the effects of “shocks” such as a drought, a drop in farm prices, or a financial crisis. Vulnerability is a key dimension of well-being since it affects individuals’ behavior (in terms of investment, production patterns, and coping strategies) and the perceptions of their own situations.

Why measure poverty?

There are four reasons to measure poverty.

First, to keep the poor on the agenda; if poverty were not measured, it would be easy to forget the poor.

Second, one needs to be able to identify the poor if one is to be able

to target interventions that aim to reduce or alleviate poverty.

Third, to monitor and evaluate projects and policy interventions that are geared towards the poor.

And finally, to evaluate the effectiveness of institutions whose goal

is to help the poor.

Absolute and relative poverty

Absolute poverty is perceived as subsistence below the minimum requirements for physical well-being, generally based on a quantitative proxy indicator such as income or calories, but sometimes taking into account a broader package of goods and services.

The relatively poor are those whose income or consumption level is below a particular fraction of the national average. Relative poverty encourages an analytical focus on income inequality trends.

As the ‘poverty lines’ defined by national statistical offices in developing countries generally refer to absolute poverty, a large part of CPRC quantitative research will focus primarily on absolute poverty. In countries where researchers distinguish between the ‘poor’ and the ‘ultrapoor’ by examining the depth of deprivation, then two (or more) absolute poverty lines may be used. At the same time, data and concepts drawn from other regions – in particular transition economies and the ‘developed’ countries of the North – will require researcher engagement with notions of relative poverty.

Absolute and relative poverty

Adopting a multi-dimensional understanding of poverty introduces further possibilities for relativity. The amount of education needed to avoid falling into poverty is likely to increase over time, other things being equal. Exposure to more varied or more industrial risks is likely to require increased health expenditure to maintain the same level of health.

As Sen (1999:89) notes, “relative deprivation in terms of incomes can

yield absolute deprivation in terms of capabilities”, depending on a person’s ability to convert income into well-being, which is in turn based on, for example, health status, age, gender, and differences in social or ecological environment

Subjective poverty assessments

The ‘subjective’ approach to understanding and measuring poverty argues that poverty and ill-being must be defined by ‘the poor’ or by communities with significant numbers of poor people.

The ideas behind these studies originated out of work by NGOs on participatory rural appraisal (Chambers 1994) which were developed into participatory poverty assessments (Robb 1999) that sought to understand the multi-dimensional, interlocking nature of poverty in ways useful to policy making.

The Voices of the Poor (VOTP) series (Narayan et al., 1999, 2000), based on work in a total of fifty-eight countries in the developing and transitional world, have provided a rich picture of both the differences and similarities of poor people’s experiences around the world. Through detailing and analysing the poor’s descriptions of material and psychological well- and ill-being; powerlessness, vulnerability and coping strategies; relationships with state and civil society institutions; and gender relations and social fragmentation at the household and community level

Very poor/Poorest............

The poorest are those who are on the bottom rung (or rungs), in all (or some), of any of these systems of characterising the poor.

Multidimensional deprivation

The emerging consensus seems to be that extreme poverty is best represented by some combination of low purchasing power, limited capabilities, a high degree of vulnerability and a sense of powerlessness’ (Islam, 2001: 9).

Commonly, the poorest experience several forms of disadvantage at the same time: these combinations keep them in poverty and block off opportunities for escape, sometimes across generations. Multiple deprivations interact and overlap cumulatively to deepen the poverty of the poorest to keep them in poverty over longer periods of time. Multiple deprivations, especially of key capabilities such as health and education, but also including low material

assets and social or political marginality, limit the claims that the poorest are able to make within economic, social and political spheres, and therefore combine to keep them poor.

Very poor/Poorest............

Multidimensional deprivation

Neither policymakers and poverty analysts, nor the poor themselves, give all forms of deprivation equal weighting. Clark and Qizilbash (2002) define a core dimension as a dimension of poverty that ‘is part of all admissible specifications of poverty’, and operationalise it as any dimension of poverty identified by at least 95 percent of Respondents.

In South Africa, 12 core dimensions were identified by people living in poor

communities: clean water, health, access to health care, housing, jobs, education, freedom, nutrition, safety, self-worth and respect, survival and religion.

Poverty depth or severity

This is the approach to identifying the poorest with which policymakers (and poverty analysts) will be most familiar. Severely poor, very poor, ultra-poor, hardcore poor, poorest of the poor, extremely poor, destitute, indigent … each refers to poverty depth, or the shortfall below an absolute poverty line, usually based on the expenditure required to ensure food consumption adequate for survival (food poverty line).

Those below the poverty line tend to spend a large proportion of their earnings on food, often without meeting minimum energy and nutrient requirements. This has a compounding effect on individual and household

physical and mental ill health, debt and inability to work or study. Low energy leaves people, notably children, particularly susceptible to disease. Even a relatively short period of deprivation in childhood can harm child nutrition, health, education and aspirations, with serious repercussions for the long-term wellbeing of both the child and her/his own children.

Poverty depth or severity

Incidence of severe poverty can also be measured as the proportion of people who fall below a certain percentage (i.e. 80 percent) of the ‘standard’ (i.e. food + non-food requirements) national or sub-national poverty line; an ‘international’ poverty line, such as US$1/day; a

certain percentage (i.e. 50 percent) of the average minimum wage; or in the bottom expenditure decile.

Poverty is multidimensional and, as such, the depth of poverty also can

be measured in terms of a range of (non-money-metric) indicators. Severe malnutrition among children is often used as a proxy for severe poverty, and Islam (2001) suggests that a similar approach can be used to assess severity on other capability indicators (e.g. education, health, housing, productive assets).

Poverty persistence

The Chronic Poverty Research Centre (CPRC) argues that the duration of periods spent in poverty is as important as poverty depth and multidimensionality for identifying the poorest and understanding their experience of poverty and, as such, is a third meta dimension of

poverty.

Chronic poverty is also known as persistent, long-lasting, long-term and, in its most extreme and intractable form, intergenerational poverty. While the distinguishing feature of chronic poverty is its extended duration, the exact length of time that needs to elapse is, as with the level chosen for a poverty line, somewhat arbitrary. Intuitively, the chronically poor are those who remain poor for all or much of their lives, pass on poverty to subsequent generations or die a preventable poverty-related death (Hulme and Shepherd, 2003).

Poverty persistence

There are three arguments that can be used to support this crude five year

criterion. Five years is perceived as a significant period of time, in an individuals lifecourse, in most cultures.

There is often a five-year gap between data collection points when panel data are created so that in practical terms the study of the duration of poverty will often be based on a five-year period (for example, see Carter &

May, 1999, for South Africa and Baulch & Masset, this issue, for Vietnam).

Finally, some empirical materials indicate that people who stay poor for five years or more have a high probability of remaining poor for the rest of

their lives (see Corcoran, 1995; Yaqub, 2000). If this is the case, the likelihood of IGT would also be high and the five-year criterion would

permit the identification of the most intense forms of chronic poverty