Poverty: Painting a clearer picture of a complex problem

by Paramjeet Berwal

On October 17, the World Bank published its report ‘Piecing together the poverty puzzle’. It is, in the words of the President of World Bank Group, the bank’s “first exercise in multidimensional global poverty measurement to account for multiple and overlapping components of poverty”. The report is considered to be significant because it puts forth those facets of poverty that were previously not detailed by the bank in order to comprehend the nature and extent of global poverty. Though this is primarily a poverty report and not an inequality report, there are efforts being made all over the world to highlight the problem of poverty and economic inequality.

What others have to say about the changing approach

The World Inequality Lab, an endeavour by Fauncdo Alvaredo, Lucas Chancel, Thomas Piketty, Emmanuel Saez, and Gabriel Zucman, in its World Inequality Report 2018 (WIR2018) warned that the rising economic inequality, if not tackled, could “lead to various sorts of political, economic, and social catastrophes”.  In addition to this, Oxfam International’s 2018 Brief Paper “Reward Work, Not Wealth” categorically stated that 82% of all wealth created in 2017 went to the top 1% and the bottom 50% did not get anything out of it.

The Good…

Though the World bank’s report is an attempt to further explore the concept of poverty, it is important to come to terms with the fact that poverty cannot be erased only by producing more and more. The way this increased productivity is distributed is the most important issue, in principle and in practice.

The World Bank report highlights the bank’s goals of reducing extreme poverty to less than 3% of the world population by 2030, and promoting shared prosperity by enhancing the incomes of the bottom 40% of the population in each country. It also pointed out that the absolute count of the poor across the globe has gone down by 68 million between 2013 and 2015, with 2015 being the year in which the lowest levels of extreme poverty in recorded history were noticed.

The Bad…

However, the World Bank report then goes to admit that poverty in certain parts of the world is increasing and also the bottom 40%, in some countries, are not only not able to reap the benefit of economic progress but their living standard is declining. In fact, World Bank report is dismal regarding its 2030 target because the situation is getting worse in Sub-Saharan region where 27 of the world’s 28 poorest countries are. In order to achieve the target of the World Bank, either the average economic growth rate in all the countries of the world should be 6% and the income of the poorest 40% should increase 2% faster than the average or the world’s average economic growth should be around 8%.

The Nitty-Gritty

The way poverty is measured has always been bone of contention. Though the report introduces two new rates of monetary poverty lines viz. US$3.20 per day in lower income countries and US$5.50 per day in upper-middle-income, the new rates are merely to complement the existing International Poverty Line (IPL) which is set at US$1.90 per person per day measured in 2011 purchasing power parity (PPP). According to the notion of monetary poverty, a person is considered deprived if the household consumption or income per person per day falls below the IPL, currently set at US$1.90 in 2011 PPPs. The IPL was set at US$1.90 per person per day for the 15 poor countries during the days when 60% of the world population was living in low income countries. Now, according to Serajuddin, only 9% of the global population lives in low income countries.  Majority of world’s poor currently reside in middle income countries. It is pertinent to mention that the standards pertaining to international poverty line have been raised recognizing that poverty should be reflected in terms of one’s social context. The World Bank report points out that “even if minimum physical needs are met, people cannot be said to lead flourishing lives if they are not able to conduct themselves with dignity in the society in which they live”.  Therefore, another measure being introduced by the bank is that of Social Poverty Line (SPL). It is, according to the World Bank Report, a “combination of the absolute ILP and a poverty line that is relative to the median income level of each country”. The report further states that SPL “is equal in value to either the IPL or US$1.00 plus half of daily median consumption in the country, whichever is greater”.

According to the report, in 2015, 10% of the world population was living on less than US$1.90 per person per day while 26.3% of the global population were living on less than US$3.20 per person per day and 46% were living on less than US$5.50 per person per day. On the other hand, in 2015, 2.1 billion people (28% of the world population) were subject to societal poverty. In the same year, according to the bank, 736 million people (10% of the world population) were subjected to absolute extreme poverty i.e. living on less than US$1.90 a day. The report emphasizes that though the number of people living in absolute extreme poverty has declined since 1990, the number of people living in societal poverty has remained the same in the last 25 years. In fact, according to the report, more than 80% of people from South Asia and Sub-Saharan countries are living on less than US$5.50 a day. Another important aspect brought to light by the report is that economic growth is not sufficient to tackle societal poverty in high income countries. In the light of stagnating economic growth in the advanced economies, the societal poverty seems difficult to be tamed.

The report though hailing the achievements made in regard to reducing poverty identifies conflict ridden and rural areas, countries with weak institutions as problem areas when it comes to poverty reduction. Relying too much on monetary poverty is also identified as an issue and this why the bank goes beyond income and consumption as factors for gauging level of poverty in the world and seeks to usher in a multidimensional approach entailing non-monetary attributes; thus, complementing UNDP’s Multidimensional Poverty Index (Global MPI). The non-monetary indicators, alongside monetary poverty, that the bank considers, at the moment, are: Education, Access to basic infrastructure, Health and nutrition, Household security.

In view of the aforementioned, it is pertinent to mention that while the World Bank report recognizes the important of social context in terms of measuring economic poverty, the focus is not on the growing inequality. However, such endeavor on part of the bank is a remarkable step in recognizing what Nobel Laureates like Prof. Amartya Sen and Joseph Stiglitz and renowned economists like Kaushik Basu have been pointing out regarding the contemporary economic situation.


Paramjeet Berwal is a lawyer and an invited lecturer at the University of Georgia. 

economyInequalityInternational EconomypovertyWealthWorldWorld Bank