Dollar benchmark: The rise of the $1-a-day statistic

By Ruth AlexanderBBC News

It's shocking to learn how many people live on less than $1 day - and regular publication of the figures over the last two decades has helped fuel anti-poverty campaigns. But could the statistic actually have done more harm than good?

In the late 1980s, a group of economists at the World Bank in Washington DC noticed that a number of developing countries drew their poverty lines at an income of about $370 a year.
This reflected the basic amount that a person needed to live. Each country had a different sense of what the essentials were, but the figure of roughly $370 was common to all, so the World Bank team proposed it as a global poverty line.
Some time later one of these economists, Martin Ravallion, was having dinner with his wife and, as they chatted, he had what he described as a kind of "epiphany".
If you divide that $370 by 365 days, you get just over $1. And so the catchy "$1-a-day"' concept was born.
Simple, powerful and shocking.
"We intended to have some impact with it," Martin Ravallion recalls. "Make well-heeled people realise how poor many people in the world are."
But it's a lot more complicated, and controversial, than it at first appears.

More or Less: Behind the stats

For a start, Ravallion and his colleagues at the World Bank were not talking about what you could buy if you took an American dollar to a bank and converted it into Indian rupees or Nigeria naira.

A US dollar does go quite a long way in some developing countries.
Instead, the economists calculated a specially-adjusted dollar using something called Purchasing Power Parity, or PPP.
They looked at the price of hundreds of goods in developing countries. And then with reference to national accounts, household surveys and census data, they calculated how much money you would need in each country to buy a comparable basket of essential goods that would cost you $1 in the USA.
You were under the global poverty line if you couldn't afford that basket.
It's still a reality of life for 13% of people in China; 47.5% in Sub-Saharan Africa; 36% in South Asia; 14% in East Asia and the Pacific; 6.5% in Latin America and the Caribbean. Almost 1.3bn people in total.
And surprisingly perhaps, people who live on $1 a day do not spend all of it on that basket of food - on staying alive. They typically spend about 40 cents on other things, says Professor Abhijit Banerjee of MIT.

The first UN Millennium Development Goal focused on halving the number of people living on $1 a day

"Even though they could actually buy enough calories, the fact is they don't. If you look at the people especially in South Asia who live on $1 a day - huge malnutrition.
"They sacrifice calories to buy some entertainment, some pleasure.
"It's a balance between survivalist behaviour and pleasure-seeking behaviour. I think as human beings we need both."
The $1 figure is also an average.
"Poor families… may earn $10 a day and then nothing for two weeks," says Professor Jonathan Morduch of the Wagner School at New York University.
"One season they may earn a lot, one season they may earn very little."
The World Bank's first report on people living on $1 a day came out in 1993. Regular updates since then have played an important role in focusing attention on the world's poor.
But one major reason the number took off and gained a life of its own, was the adoption as the first UN Millennium Development goal to "halve, between 1990 and 2015, the proportion of people whose income is less than $1 a day".
This high-profile target was agreed by the UN General Assembly and embraced by most of the world's development institutions.
Ten days ago, the World Bank declared the goal had been met early.

Continue reading the main story

Dollar income levels

• The World Bank says using the $1.25 figure as a measure is judging the world by "what 'poverty' means in the world's poorest countries"
• Better-off countries have higher poverty lines
• The median poverty line among developing countries is $2 (ie if national poverty lines are put in order, it's the mid-point)
• The number of people living between $1.25 and $2 has almost doubled between 1981 and 2008

In 1990, 31% of the population of the developing world lived on less than $1 a day - close to 1.4 billion. In 2008, half that proportion did - 14%, or about 800 million.

However, once again, things are more complicated than they may at first appear.
Over the years since the Millennium Development Goal was set, the $1 a day poverty line has been recalibrated. The World Bank's global poverty line measure is now not $1, but $1.25 per day.
When the phrase was first coined in 1993, the purchasing power parity calculations were based on price and consumption data from the 1980s.
But by 2008, the World Bank economists had more and better data on price and consumption, enabling them to refine these calculations - and more developing countries had calculated poverty lines.
So the poverty line was re-set at $1.25, at 2005 PPP calculations. This represented an average of the poverty lines set in 10-to-20 developing countries.
The job of halving the proportion of people whose income is less than $1.25 a day has almost been done, but not quite.
In 1990, 1.9bn people - 43% of the developing world - lived on less than $1.25. In 2008, about 1.3bn, or 22% did.

Despite its success at driving home just how many people are living in extreme poverty, some critics think the $1-a-day benchmark has done more harm than good.
It's a "successful failure", according to Lant Pritchett, an ex-World Bank economist who is now Professor of the Practice of International Development at Harvard University's Kennedy School.
"It's a wildly successful PR device that I think has been a failure in terms of achieving the objectives of improving human well-being in the world," he says.
He argues that it has put a focus on philanthropy more than long-term development - applying a sticking plaster rather than solving the problem.
"Instead of promoting prosperous economies, it's about 'How do we identify and target and get transfers to the few people under this penurious line?' which just isn't the way, historically, anybody has ever eliminated poverty."
And even at $1.25 it is set too low he says - because someone earning $1.25 or $1.50 is still in dire poverty.

Martin Ravallion: The poorest must be the highest priority

Pritchett proposes an additional $10 poverty line be created.
But Ravallion rejects the criticism.
Progress on reducing the numbers living on less than $1.25 a day has mostly occurred thanks to economic growth, he says, rather than handouts.
And while he accepts that people who make it above the $1.25 poverty line remain vulnerable, and that there has been a "bunching up" of people just above the threshold, he says he has always argued that "we should look at multiple poverty lines", not just the $1.25 figure.
"We should look at the whole distribution. That's what I've said from day one," he says. "What I'm also saying is that our highest priority must be the poorest first."
It's is an argument that divides experts in the field.
Professor Banerjee agrees that the $1.25 a day figure plays a useful role, because there is a finite amount of aid that rich countries are prepared to give and it makes sense, he says, for it to be given to the poorest people.
But Professor Morduch says the figure is so low, it has encouraged the idea that people in this minimal income bracket must lead passive, helpless lives, when this is not the case.
In fact, he says, they are keen to save and need tools, such as bank accounts, to help them do so.
"The whole condition of living on $1 a day has much less to do with that average than with the ups and downs. So it's not surprising that households are very actively trying to save," he says.
"They are not living hand to mouth; they are thinking about the future."
Source: BBC

School dropout with a streak genius

BY SANGWANI MWAFULIRWA

While government might be moving at a retarded pygmy’s pace to search for alternative sources of electricity when signs are evident that Electricity Supply Corporation of Malawi will not cope up with demand, a form 1 dropout in Kasungu has proved that it is possible.

Using simple and straightforward concepts of science, William Kamkwamba of Mastala Village in the area of T/A Wimbe is generating electricity for his home using the ancient technology of a windmill.

William says after dropping out of school in 2002, because he could not raise schools fees, he had nothing to do and grew an interest in reading science books from Wimbe Teachers Development Centre (TDC). The books were donated by the Malawi Teacher Training Activity (MTTA) and were sourced from the International Book Bank.

He says one day while reading he came across two books, Using Energy and How it Works, which are about generation of electricity using a windmill.

On a trial and error basis, he managed to make a small windmill which generated electricity enough to light his dorm. Seeing its success he planned for a bigger one so that his parents could benefit and some well-wishers gave him money to get some of the materials he needed.

“When I was making all these, some people were mocking me that I was going mad but I had confidence in what I was doing because I knew if it was written in the books then it was true and possible. When I succeeded they were impressed,” explains William.

Where does poverty end?

BY Sangwani Mwafulirwa

Former South Africa’s president Nelson Mandela once
said: “Poverty is not natural. It is man-made and it
can be overcome and eradicated by the actions of human
beings”. SANGWANI MWAFULIRWA explores the parameters
of poverty based on the poverty threshold of the World
Bank.
Osbert Bamusi works as minibus conductor and gets
K6,000 for a month’s work. From this wage, he pays
rent for a single bedroom hut in the amorphous
neighbourhood of Zambia in Ndirande, buys food and
clothes and pays for other services like health.

His daily income – of K200 – is above the World Bank’s
poverty threshold of $1 (K140) a day. Could he be
described as living above the poverty line where 65
percent of Malawians or half of Africa or 1.2 billion
people of the world are described to be under?

Although more “normalised” in the developing
 world,
poverty also exists in big economies. The US Census
Bureau says by the end of 2005, there were 37 million
people — about 13 percent of the total population —
living in poverty. It also estimated that everyday
2,019 babies are born into poverty in the USA. 

Unicef estimates that 30,000 people die everyday
because they are too poor to stay alive.

The World Bank, born International Bank for
Reconstruction and Development, has used the one
dollar a day since 1990 as a threshold for measuring
poverty in Africa and Asia and US$2 a day for Latin
America and the Caribbean based on the purchasing
power parity. 

The purchasing power parity basically suggests that
prices of goods in countries tend to equate under
floating exchange rates and therefore people would be
able to purchase the same quantity of goods in any
country for a given sum of money. That is, the notion
that a dollar should buy the same item
 in all
countries.

The bank has published these figures for 15 years
which have been used for policy and other major
decision making like the Millennium Development Goals
and measuring global economy but it is surprising how
it fails to come up with a crosscutting benchmark.

However, this formula has come under attack for
focusing much on purchasing power while ignoring the
social dimension of poverty. It measures the ability
of the poor to buy goods and services the economy is
offering and forgets that the poor do not purchase
some services offered like washing and fitness
instructions.

The fault with the bank’s formula is that it is not
clearly defined what is included in the US$1 a day
except that “the ability of the income to satisfy the
most compelling of human desires”. It does explicitly
if some desires which are met without paying for them
like water from a borehole, vegetables from a bush
 and
game meat are included and how they are valued.

The World Bank Malawi Office fails to explain what the
US$1 a day could entail in a Malawian situation and if
it is really possible that a person can get all the
basic needs with that amount. There are some services
like washing, firewood and some foods like vegetables
and game which are not purchased, are they included in
the $1? Is it really possible that one can meet all
her basic needs with one dollar?

Basing on the World Bank benchmark, a family of six
would need not less than K25,200 in a month to live
above the poverty line. This makes interesting
revelations for graduates with this family size who
joins the civil service. With a monthly net income of
K22,000, definitely they are predestined to live below
the poverty line if there is no supplementary income.

The World Bank estimates are relatively close to
findings by the Centre for Social Concern
 (CFSC) which
monitors prices of goods on the local market from
which it derives the average monthly net income a
family of six would need, dubbed the basic needs
basket.

The average for the first five months of this year was
between K23,942 to K27,106. The basic needs basket
includes cost of milling, eggs, beans, dry fish,
rape/Chinese cabbage, tomatoes, onions, fresh milk,
Kazinga cooking oil, bread, sugar, kitchen salt, tea
leaves, potatoes/cassava, charcoal, paraffin Lifebuoy,
Sunlight, Vaseline Blue Seal, electricity, coast of
water, housing (2 bed-roomed) education and transport
to and from work.

Although there is a strong confidence interval between
the statistics, the question is: does poverty end
after attaining a living above US$1 a day? If a beggar
gets an average of K200 a day but sleeps under a
bridge, could he be described as living above the
poverty line?

The centre says the concept of
 US$1 a day was based on
studies conducted in low-income countries in the 1980
where it was found that the cost of a minimum basket
of basic goods and services was about an equivalent of
US$1 per day per person.

“The question is whether the benchmark of US$1-a-day
actually measures poverty or whether it simply
measures how many people are struggling to survive
everyday on less than US$1,” remarked CFSC in response
to a questionnaire.

CFSC says in principle, poverty should end after
attaining a living standard of more than US$1 a day
and Malawi could have moved half of its population out
of poverty by 2015 if it attains a living standard
above the benchmark, if poverty is defined to include
only income and basic elements.

“The assumption emphasises a strong link between
economic growth and poverty levels. However, poverty
has many dimensions including non-measurable
attributes such as the right to
 dignity,
non-discrimination and other,” says CFSC.

The centre says the concept of US$1 cannot be static
and applied uniformly to all societies because as a
country reaches higher levels of development, the
relevance of the concept is gradually eroded.

“Poverty estimates based on the US$1-a-day benchmark
are therefore likely to underestimate the number of
people living in poverty,” says CFSC.

With the omnipresence of poverty on a globalising
planet, it is necessary to have an internationally
defined role that if one moves from Ndirande to
Washington, ceteris paribus, they should be described
the same.

Using the US$1 day benchmark a family of four would
need close to US$120 (K16,800) for month and US$1,460
(K204,400) in a year while the same family size in the
US needs $18,850 annually, according to the US Census
Bureau report of 2005. This shows the failure of the
bank to come up with an international
 standard for
measuring poverty.

Definitely, if a US family spending $18,000 a year,
which is below the US poverty threshold, relocates to
Malawi without a decrease in their income, it would
not be classified as living below the poverty line.
Their income would be more than ten times above the
poverty threshold in Malawi. Would that mean the end
of their poverty? 

Similarly, there are Malawians living below the
poverty level in the US but they send money back home
to their families enough to afford them a life above
the $1-a-day benchmark. 

So where does poverty end? Is it after moving from a
developed country to a poor one or vice versa? 

Definitely, the bank should come up with a reference
basket of commodities containing all relevant
characteristics that meet the elementary consumption
needs of individuals and overcome geo-economics.

($1=K140).

Published in The Sunday Times June 25, 2006