Global Poverty: Real and Virtual

by Lindy Davies

jeselGlancing at HuffPost over morning coffee (something that costs about $1.50 these days at most NYC bodegas), I noticed that a couple of bloggers, Jessica Prois and Eleanor Goldberg, are documenting their participation in the “Live Below the Line” campaign of the Global Poverty Project. The challenge they’ve taken on is to feed themselves on no more that $1.50 per day — the current global level of “extreme poverty” according to the World Bank — for five days, and thereby to raise money for a dozen worthy organizations that are fighting global poverty and doing other, like, really good things.

It’s easy to scorn such an effort, as in many of the comments to this post. But there’s really no reason to be like, “WTF?” These two young women are showing both empathy and gumption. I think they Rock. The campaign itself, however, strikes me as a tad problematic.

The campaign is well-presented. It’s introduced in a cool website with videos from Hugh Jackman and Jeffrey Sachs. Hugh’s is an especially snazzy one-minute meditation on the concept of lines, inviting us all to give a few seconds’ thought to the idea that a line exists, in our world today, below which live a billion and a half people who are really, really poor. Sachs, against the momentous backdrop of the UN General Assembly Hall, informs us that now, as never before in history, we can bring all of the world’s people above that line.

Hey, I’m for that! The campaign seems to have raised around a million dollars so far. That’s not bad — but it’s not going to get the job done. Yet must do something — mustn’t we

It’s that line that makes it seem like there’s a simple, crowd-sourceable thing we can do. We’re told that there is a scientifically-determined, universally unacceptable level of deprivation. Right, then — we’ve got something to shoot for. And really, the target is quite low. All we have to do to end extreme poverty is raise everyone’s income above a buck fifty a day? Dude! Let’s do it

The figure of $1.50 per day is derived from the World Bank’s official figure of $1.25, which was issued in 2005, itself a revision of the original figure of $1 per day, which was dreamed up (oh… sorry, I mean, exhaustively investigated and determined) in 1991 by econometricians Ravallion, Datt and de Walle. It was then used and popularized by the United Nations in its Millennium Development Goals, the most significant of which was to cut in half, by 2015, the number of the world’s people living in extreme poverty. A credible benchmark, of course, would be needed for such a campaign.

The main source of data used to determine the poverty line was personal consumption data reported by individual nations, and, where this data was lacking or suspect, extrapolations from other indicators of well-being. The 2005 report was updated using new and better data sources, but used the same methodology. In it, Ravallion et. al. describe their goals as “only to quantify the extent of absolute poverty in the developing world, interpreted as the inability to attain consumption levels which would be deemed adequate in only the poorest countries” and “to make a necessarily rough but methodologically consistent assessment of the magnitude and severity of absolute poverty, based on recent available data.”

Now, this is scientific work, so let’s note some things that are not wrong with these figures. It’s widely known that $1.50 US will buy a lot more in some places than others — so the poverty line is expressed in terms of Purchasing Power Parity (PPP), a calculation that accounts for the relative strength of different currencies. (Recent efforts also endeavor to adjust PPP ratios to reflect that poor people place greater value on food than, say, video games.) Inflation is also not a concern; the US dollar figure is in real terms ($1.25 as of 2005) and varying rates of inflation in different countries are factored into PPP calculations. In other words, the World Bank’s extreme poverty benchmark doesn’t reflect what Jessica and Eleanor could get for their buck fifty in Abidjan or Mumbai: it means what a buck fifty will buy where they live.

Eleanor has the four saltines today, but saves the Diet Coke til next week.

Eleanor has the four saltines today, but saves the Diet Coke til next week.

But it is not possible to live on a dollar fifty a day. It just isn’t. Jessica and Eleanor can’t do it, not even for five days. The $1.50/day poverty line encompasses not just food and drink, but all of a person’s expenses; the accompanying photos suggest that Jessica and Eleanor’s rent, clothing, Internet access and healthcare expenses were taken care of during this 5-day period. (Housing costs vary in different areas, of course, but if they were sharing, say, a studio apartment in Brooklyn, they’d still be spending at least $15 per day on rent..) Nevertheless, according to the World Bank some 1.5 billion people in the world today are doing it! They’re not well off; they’re not happy; they’re not saving for college— but they’re surviving. What are we to make of this?

I wouldn’t want to give the impression that the global poverty line is complete nonsense. Smart people have devised it, and it does describe an observable (albeit not terribly interesting) phenomenon. Ravallion and his gang observed an elasticity effect, noting that in each nation studied, there is a certain level of consumption below which people are just too poor for anything to make much difference, and above which increased consumption tends to correlate with real improvements in living standards. Fifteen of the world’s poorest nations were studied, and their poverty lines varied between a high of $1.87 per day in Ghana to a low of 85¢ per day in Malawi. These levels were averaged out in Ravallion et. al.’s 2005 paper to the global poverty line of $1.25. (The Global Poverty Project simply rounded it up to $1.50 to cover the last eight years of first-world inflation.)

Whatever the global poverty line actually is or means, though, it isn’t what the World Bank has been telling Jessica and Eleanor it means — because the simple fact remains that nobody, in any country, can live on the PPP value of US $1.50 per day.

So what might it really mean? I’m guessing that the answer lies in the original data. It seems reasonable to suspect that the consumption statistics reported by various national governments might not be fully reliable. To get a sense of this, let’s turn to the CIA World Factbook for some economic numbers for poor Malawi:

GDP (PPP)          $14.58 billion
Population         16.77 million
GDP per capita $900 ($2.47 per day)
GDP by sector
agriculture: 29.6%
industry: 16.9%
services: 53.5%
Labor force
agriculture: 90%
industry and services: 10%

That’ll do to go on with. Ninety per cent of Malawi’s labor force is in agriculture, but agriculture only contributes 29.6% of its GDP. That means that the per capita GDP of agricultural workers in Malawi is $285 — or 78¢ a day. (Now, I realize that GDP is a production figure, and we’ve been talking about consumption, but — come on. Does anyone really suppose that rural Malawians are consuming more than they produce!?)

Nobody in the world can live on $1.50 a day, and yet some 15.1 million agricultural workers in Malawi seem to be eking out a meager existence on much less. Not only that: Malawi exported some $860 million worth of stuff in 2012, the vast majority of which was agricultural products (say $800 million to be safe). That means that Malawi’s agricultural workers exported 18.6% of their output, leaving them with $232 per capita, or 64¢ per day. You wonder how they manage. One might protest that perhaps the farm workers consumed some of Malawi’s imports — but since their major imports include petroleum products, consumer goods and transportation equipment, I doubt that the rural poor get much benefit from them.

I’d also venture to suggest that the “labor force” number for Malawi is, shall we say, imprecise. Malawi’s median age is 17.3 years; 44.7% of its population (7.5 million people) are under 14. Without doubt a lot of these children work at growing food and should be considered part of the labor force. However, the World Factbook doesn’t define “labor force,” and lists Malawi’s as comprising 5.7 million people. It’s plain to see that there are no credible references telling us how many people in Malawi (and Malawi’s stats are representative of all the poor nations in Rapscallion’s study) are working — that is, are using their labor to produce goods and services. Maybe they are paid in cash for these things, or are paid in barter, or simply consume the stuff themselves. Rural Malawians are obviously getting more than 64¢ per day of food, clothing and shelter; we know this because they are not dying by the millions. This doesn’t mean they aren’t poor, that their lives are not precarious and tough — it simply means that most of what they consume comes to them via the “informal economy” — unregulated, untaxed and unreported.

Now, why is this important? To answer, we must pan the camera back from economic facts to Jessica and Eleanor, the Global Poverty Project, and the UN’s Millennium Goal of halving the number of extremely poor people by 2015. Are we on track for this? It would seem, indeed, to be quite an achievement if we could manage it. To track progress, we need a benchmark: that’s where the World Bank’s Global Poverty Line comes in. And since that line is so low — so really, ridiculously low, as Jessica and Eleanor have learned — why, even just a couple of million raised here and there through fashionable crowdfunding projects would be sufficient to gain real yardage!

Unfortunately, the World Bank’s Global Poverty Line is bull-phunqué. Across the developing world, people are leaving the nasty, brutal, short life of the countryside and moving to cities. (One in every 20 Malawians are moving to cities each year, and Malawi’s urbanization rates are slower than many.) In town, though much of the economy is still informal, there are more opportunities to work for cash wages. As more people move to cities, more will be paid measurable, trackable wages. This will mean that per-capita consumption statistics will rise. They might even rise as high as, say, $1.60 per day. And if that happens often enough, “number of people living in extreme poverty” will be cut in half. Hands will be shaken, ceremonies held, and the World Bank will be able to get back to real business.

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