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WDR 2000/1WDR 2000/1
What follows is a useful set of notes (with paraphrasing, quotes, and figures from What follows is a useful set of notes (with paraphrasing, quotes, and figures from
World Bank, World Bank, World Development Report, 2000/1, World Development Report, 2000/1, Attacking PovertyAttacking Poverty which articulates an influential global orientation toward policy which articulates an influential global orientation toward policy
making geared toward the reduction of povertymaking geared toward the reduction of poverty. . OVERVIEW 1 OVERVIEW 1 (italics added)(italics added)
► ““Poor people live without Poor people live without fundamental freedomsfundamental freedoms of action and choice of action and choice that the better-off take for granted.” that the better-off take for granted.” capabilities, rights?capabilities, rights?
► Poverty is multidimensional: it includes inadequate food, shelter, health, Poverty is multidimensional: it includes inadequate food, shelter, health, education; vulnerability to disease, dislocation, disaster; and often education; vulnerability to disease, dislocation, disaster; and often mistreatment by state and society.mistreatment by state and society.
► ““The experience of multiple deprivations is intense and painful.” The experience of multiple deprivations is intense and painful.” The The Voices of the PoorVoices of the Poor study, which informs this report, gives a first-hand study, which informs this report, gives a first-hand glimpse of povertyglimpse of poverty. . participatory approachparticipatory approach
► ““Of the world’s 6 billion people, 2.8 billion – almost half – live on less Of the world’s 6 billion people, 2.8 billion – almost half – live on less than $2 a day, and 1.2 billion – a fifth – live on less than $1 a day, with than $2 a day, and 1.2 billion – a fifth – live on less than $1 a day, with 44 percent living in South Asia.” 44 percent living in South Asia.” monetary povertymonetary poverty
► ““In rich countries,” less than 1 in 100 children die before age 5; while “in In rich countries,” less than 1 in 100 children die before age 5; while “in the poorest countries,” as many as 20% do. In rich countries, <5% the poorest countries,” as many as 20% do. In rich countries, <5% children < 5 yrs old are malnourished; in poor countries, as many as children < 5 yrs old are malnourished; in poor countries, as many as 50% 50% ten times the percentage. ten times the percentage. Inequality, comparison, as definition of povertyInequality, comparison, as definition of poverty
► Global wealth increasingGlobal wealth increasing• ““But the distribution of these global gains is extraordinarily But the distribution of these global gains is extraordinarily
unequal.unequal.• ””The average income in the richest 20 countries is 37 times the The average income in the richest 20 countries is 37 times the
average in the poorest 20 – a gap that has doubled in the last 40 average in the poorest 20 – a gap that has doubled in the last 40 years.”years.”
► Regions of the world differ greatly.Regions of the world differ greatly.o ““In East Asia the number of people living on less than $1 a day In East Asia the number of people living on less than $1 a day
fell from 420 million to around 280 million between 1987 and fell from 420 million to around 280 million between 1987 and 1998 – even after the setbacks of the financial crisis.1998 – even after the setbacks of the financial crisis.
o ““Yet in Latin America, South Asia, and Sub-Saharan Africa, the Yet in Latin America, South Asia, and Sub-Saharan Africa, the numbers of poor people have been rising.numbers of poor people have been rising.
o ““And in the countries of Europe and Central Asia in transition to And in the countries of Europe and Central Asia in transition to market economies [ie: former Soviet Block], the number of people market economies [ie: former Soviet Block], the number of people living on less than $1 a day rose more than twentyfold.”living on less than $1 a day rose more than twentyfold.”
WDReport 2000/1. OVERVIEW 2
WDReport 2000/1. WDReport 2000/1. OVERVIEW 3: OVERVIEW 3: International/Millennium Development Goals to reach by 2015International/Millennium Development Goals to reach by 2015
1)1) IncomeIncome Reduce by 50% the proportion of people living in Reduce by 50% the proportion of people living in
extreme income poverty, on < $1/dayextreme income poverty, on < $1/day
2)2) EducationEducation• Ensure universal primary educationEnsure universal primary education• Eliminate gender disparity in primary and secondary Eliminate gender disparity in primary and secondary
educationeducation
3)3) HealthHealth Reduce infant and child mortality by two thirds (ie in Reduce infant and child mortality by two thirds (ie in
2015 it will be 33% level in 2000)2015 it will be 33% level in 2000) Reduce maternal mortality by three-quarters (2015 Reduce maternal mortality by three-quarters (2015
level will be 25% 2000 level)level will be 25% 2000 level) Ensure universal access to reproductive health Ensure universal access to reproductive health
servicesservices
4)4) EnvironmentEnvironment Implement national strategies for sustainable Implement national strategies for sustainable
development in every country by 2005, so as to development in every country by 2005, so as to reverse the loss of environmental resources by 2015.reverse the loss of environmental resources by 2015.
WDReport 2000/1. WDReport 2000/1. OVERVIEW 4: OVERVIEW 4:
But how to reduce poverty in all dimensions? But how to reduce poverty in all dimensions? Answers have changed over time.Answers have changed over time.
1.1. 1950s and 1960s, “large investments in physical 1950s and 1960s, “large investments in physical capital and infrastructure”capital and infrastructure”
2.2. 1970s, “health and education”1970s, “health and education”3.3. 1980s, “improving economic management and 1980s, “improving economic management and
allowing greater play for market forces.”allowing greater play for market forces.”4.4. 1990 WDR promoted labor intensive growth through 1990 WDR promoted labor intensive growth through
economic openness and infrastructure and providing economic openness and infrastructure and providing basic servicesbasic services
5.5. 1990s, “governance and institutions moved toward 1990s, “governance and institutions moved toward center state – as did issues of vulnerability at the local center state – as did issues of vulnerability at the local and national levels.” and national levels.”
WDReport 2000/1. WDReport 2000/1. OVERVIEW 5:OVERVIEW 5:
► This report builds on cumulative This report builds on cumulative learninglearning
► Proposes a strategy for attacking Proposes a strategy for attacking poverty in three ways, bypoverty in three ways, by
1)1) Promoting OpportunityPromoting Opportunity
2)2) Facilitating EmpowermentFacilitating Empowerment
3)3) Enhancing SecurityEnhancing Security
WDReport 2000/1. WDReport 2000/1. OVERVIEW 6: Focus 1: OVERVIEW 6: Focus 1: Promoting OpportunityPromoting Opportunity
► For poor people, material opportunities mean jobs, credit, roads, For poor people, material opportunities mean jobs, credit, roads, electricity, markets for produce, schools, water, sanitation, health electricity, markets for produce, schools, water, sanitation, health services services note: capability + participatory approach note: capability + participatory approach
► ““Overall economic growth is crucial for generating opportunity.Overall economic growth is crucial for generating opportunity. ““So is the pattern or quality of growth. So is the pattern or quality of growth. (growth = money = PCGDP)(growth = money = PCGDP) ““Market reforms can be central in expanding opportunities for poor Market reforms can be central in expanding opportunities for poor
people, but reforms need to reflect local institutional and structural people, but reforms need to reflect local institutional and structural conditions. conditions.
““And mechanisms need to be in place to create new opportunities and And mechanisms need to be in place to create new opportunities and compensate the potential losers in transitions. compensate the potential losers in transitions. (exclusion)(exclusion)
► ““In societies with high inequalityIn societies with high inequality, greater equity is particularly , greater equity is particularly important for rapid progress in reducing poverty. important for rapid progress in reducing poverty. ““This requires action by the state to support the buildup of human, This requires action by the state to support the buildup of human,
land, and infrastructure assets that poor people own or to which they land, and infrastructure assets that poor people own or to which they have access.”have access.”
[NOTE: high and increasing inequality AMONG national economies in [NOTE: high and increasing inequality AMONG national economies in global economic growth systemglobal economic growth system is NOT part of is NOT part of this this discussion.]discussion.]
WDReport 2000/1. WDReport 2000/1. OVERVIEW 7: OVERVIEW 7: Promoting Opportunity 2Promoting Opportunity 2
► Core policies and institutions for creating Core policies and institutions for creating more opportunity involve complementary more opportunity involve complementary actions actions
to stimulate economic growth, to stimulate economic growth, make markets work for poor people, make markets work for poor people, and build their assets – and build their assets – including addressing deep-seated inequalities including addressing deep-seated inequalities
in the distribution of such endowments as in the distribution of such endowments as education”education”
WDReport 2000/1. WDReport 2000/1. OVERVIEW 8: Promoting Opportunity 3OVERVIEW 8: Promoting Opportunity 3
► Growth requires encouraging effective private investment.Growth requires encouraging effective private investment. Investment and technological innovation are the main drivers of growth in jobs and labor Investment and technological innovation are the main drivers of growth in jobs and labor
incomesincomes
► Fostering investment requires reducing risk for private investors: Fostering investment requires reducing risk for private investors: with stable fiscal and monetary policies, with stable fiscal and monetary policies, in stable investment regimes, in stable investment regimes, with sound financial systems, with sound financial systems, and a clear and transparent business environment. and a clear and transparent business environment. It also involves ensuring the rule of law and taking measures to fight corruptionIt also involves ensuring the rule of law and taking measures to fight corruption
► Special measures are frequently required to ensure that small and micro-enterprises Special measures are frequently required to ensure that small and micro-enterprises participate effectively in markets. participate effectively in markets. credit (financial deepening), credit (financial deepening), lowering transactions costs of reaching consumers by expanding access to Internet lowering transactions costs of reaching consumers by expanding access to Internet
technology, technology, promoting trade at fairs, etc.; promoting trade at fairs, etc.; improving transportation in disadvantaged localitiesimproving transportation in disadvantaged localities
WDR 2000/1, discussionWDR 2000/1, discussion
► The next set of slides presents figures from The next set of slides presents figures from WDR 2000/1, chapter 3, on “opportunity,”WDR 2000/1, chapter 3, on “opportunity,” The chapter stresses the productive role of The chapter stresses the productive role of
overall economic growth in poverty overall economic growth in poverty reduction.reduction.
It also indicates how various national It also indicates how various national economies have channeled additional economies have channeled additional wealth (acquired through economic growth) wealth (acquired through economic growth) into poverty alleviationinto poverty alleviation
WDR 2000/1, discussionWDR 2000/1, discussion
► The WDR The WDR does arguedoes argue that aggregate (or that aggregate (or general) economic growth (increasing total general) economic growth (increasing total national wealth/capita) national wealth/capita) facilitatesfacilitates poverty poverty reduction.reduction.
► But does economic growth CAUSE poverty But does economic growth CAUSE poverty reduction? reduction?
► Is increasing wealth Is increasing wealth a necessary or a necessary or sufficient condition for poverty sufficient condition for poverty reduction?reduction?
► Keep in mind the multidimensional character Keep in mind the multidimensional character of poverty: growth might reduce poverty in of poverty: growth might reduce poverty in some dimensions (e.g. income) more than some dimensions (e.g. income) more than othersothers
WDR 2000/1, discussionWDR 2000/1, discussion
► The WDR The WDR does notdoes not argue that increasing wealth is argue that increasing wealth is a necessary, let alone sufficient, condition for a necessary, let alone sufficient, condition for poverty reductionpoverty reduction Interpreting WDR figures below indicates whyInterpreting WDR figures below indicates why
► We can explore the relationship between data and We can explore the relationship between data and arguments by looking closely at these figuresarguments by looking closely at these figures The are excellent examples of data revealing The are excellent examples of data revealing
more on close examination than first meets the more on close examination than first meets the eye. eye.
Note the statement atop this Note the statement atop this figure presents a correlation, a figure presents a correlation, a
statistical pattern; it ALSO statistical pattern; it ALSO implies causality: more wealth implies causality: more wealth
means less poverty. Thus means less poverty. Thus policies to increase wealth policies to increase wealth mightmight tend “in general” to tend “in general” to
reduce policy. (note sample)reduce policy. (note sample)
Q1: National wealth data and Q1: National wealth data and income poverty are measured income poverty are measured quite differently. What is the quite differently. What is the difference? Does it matter for difference? Does it matter for
interpreting these data?interpreting these data?
Q2: These two graphs can be Q2: These two graphs can be interpreted to mean that on interpreted to mean that on
average, poorer people live in average, poorer people live in poorer countries. Do these poorer countries. Do these
data suggest anything else? data suggest anything else?
A1: National wealth data derive from A1: National wealth data derive from national accounts. X axis values are national accounts. X axis values are
percapita consumption = (GDP - percapita consumption = (GDP - inventory – savings – exports + inventory – savings – exports +
imports)/ total populationimports)/ total population
Poverty data and hence quintiles of Poverty data and hence quintiles of consumption cost (y axis values) derive consumption cost (y axis values) derive
from sample survey data.from sample survey data.
Hence some incommensurability Hence some incommensurability appears in each data point.appears in each data point.
More serious problems arise for cross More serious problems arise for cross country comparisons.country comparisons.
PPP = purchasing power parity. A PPP = purchasing power parity. A calculation designed to compensate for calculation designed to compensate for variations in value of money and cost of variations in value of money and cost of
goods and services across countries.goods and services across countries.
PPP figures reduce problems of cross PPP figures reduce problems of cross country comparisons to acceptable country comparisons to acceptable
level for such analysislevel for such analysis..
Reading trick:Reading trick:
interpret the three interpret the three oval and three oval and three
rectangular clustersrectangular clusters
ovals: richer and ovals: richer and poorer societies have poorer societies have similar consumption similar consumption
levels for poorest levels for poorest 20%20%
rectangles: societies rectangles: societies with the same total with the same total wealth have lower wealth have lower
and higher and higher consumption levels consumption levels
for poorest 20%; and for poorest 20%; and range of variation is range of variation is smallest in poorest smallest in poorest
societies.societies.
Thus, the “in general” Thus, the “in general” statement is true (blue statement is true (blue
trend line) trend line)
But data ALSO point in But data ALSO point in other directions: other directions:
(1: ovals) more wealth (1: ovals) more wealth does not always mean does not always mean more consumption for more consumption for
poorest 20%; and poorest 20%; and (2: rectangles) the (2: rectangles) the
poorest 20% have higher poorest 20% have higher and lower consumption and lower consumption levels in societies with levels in societies with
the same percapita the same percapita wealth. wealth.
Red line indicates an axis Red line indicates an axis of national wealth of national wealth
increase with decline in increase with decline in poorest 20% poorest 20% consumption.consumption.
Interpret in wordsInterpret in words
(1) the clustering of (1) the clustering of these data points around these data points around
0:0 and0:0 and
(2) statistical differences (2) statistical differences among countries inamong countries in
(a) each quadrant (a) each quadrant separately, andseparately, and
(b) each quadrant (b) each quadrant comparatively.comparatively.
What can you What can you say say
comparatively comparatively about about
countries, countries, based on this based on this
figure?figure?
(see next slide)(see next slide)
General statement:General statement:
Health performance Health performance varies greatly among varies greatly among countries with similar countries with similar
PCGDP.PCGDP.
Provide details.Provide details.
Q:Q:
Where on this chart is Where on this chart is the poorest country the poorest country
with health with health performance performance
comparable to rich comparable to rich countries? countries?
The winnerThe winner
Compare Compare
(1) South (1) South Asia and Asia and
Sub-Saharan Sub-Saharan AfricaAfrica
(2) China (2) China and Thailandand Thailand
Note the two timescales. Note the two timescales. What is their implication for current trends?What is their implication for current trends?
Interpret the distribution of countries in this figure. Interpret the distribution of countries in this figure. Drawing concentric circles might help.Drawing concentric circles might help.
If this If this general general
statement statement applies applies inside inside
countries, countries, might it might it
also apply also apply across across
countries? countries?
Q1: Q1: What does the What does the ratio in this figure ratio in this figure
indicate? indicate?
Q2: What does a ratio Q2: What does a ratio >100 mean? >100 mean?
Q3: Does this data Q3: Does this data indicate literacy indicate literacy
levels?levels?
Q3: What are other Q3: What are other useful interpretations useful interpretations
of this data?of this data?
Consider the range Consider the range of ratios among of ratios among
countries with $1,000 countries with $1,000 PCGPD PCGPD
Consider the PCGDP Consider the PCGDP range among range among
countries with and full countries with and full gender equality in gender equality in
literacy rates.literacy rates.
WDR 2000/1 summary, WDR 2000/1 summary, continuedcontinued
► WB national strategy has three partsWB national strategy has three parts1.1. Promoting Opportunity (Chapters 3-5)Promoting Opportunity (Chapters 3-5)
2.2. Facilitating Empowerment (Chapters 6-7)Facilitating Empowerment (Chapters 6-7)
3.3. Enhancing Security (Chapters 8-9)Enhancing Security (Chapters 8-9)
► National strategy supplemented by National strategy supplemented by International Action (Chapters 10-11)International Action (Chapters 10-11)
1. Promoting Opportunity1. Promoting Opportunity
►Chapter 3 summary last weekChapter 3 summary last week Focus: Focus: the primacy of economic growththe primacy of economic growth Growth and inequalityGrowth and inequality Income growth and nonincome povertyIncome growth and nonincome poverty
WDR 2000/1WDR 2000/1Chap 4: Making Markets Work Better for Poor PeopleChap 4: Making Markets Work Better for Poor People
THE IMPACT OF INFLATIONTHE IMPACT OF INFLATIONAn Extreme Cast:An Extreme Cast:
Collapse in Real Wage (entitlement to food) caused Collapse in Real Wage (entitlement to food) caused starvation in The Great Bengal Faminestarvation in The Great Bengal FamineIndexes of Food Supplies and Prices in Bengal, 1939-44
0
50
100
150
200
250
300
350
400
450
1939-40 1940-41 1941-42 1942-43 1st half 1943-4
years
ind
ex v
alu
es
Wage Index
Foodgrains price index
Index of exchange rate
total grain
grain per cap
Transition to (A) Destitution and (B) Destitution or Husking Paddy for Different Occupations (Sen Table 6.7)
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
5
%A 1/39 - 1/43 %B 1/39-1/43 %A 1/43-5/44 %B 1/43-5/44
periods of transition
% f
or
co
lum
n s
eri
es
0
5
10
15
20
25
30
35
% f
or
line
se
rie
s
Peasant cultivation and share-cropping
Part peasant, part labour
Non-cultivating owners
Profession and services
Trade
Craft
Non-agricultural labour
Other productive occupations
Agricultural labour
Transport
Fishing
Husking paddy
Wage and price trends affect income groups Wage and price trends affect income groups differentlydifferently
Current Trends in BangladeshCurrent Trends in Bangladesh (from Daily Star 16 July 2005)(from Daily Star 16 July 2005)
Inflation Rate in Bangladesh, 2001-2005
0
2
4
6
8
2001 Jan 2002 Jan 2003 Feb 2004 Mar 2005 May
NoteNote Rice accounts for 60-Rice accounts for 60-
70% of inflation rate70% of inflation rate Female Daily Agr Wage Female Daily Agr Wage
is 75% male wageis 75% male wageRice Price and Agr Wages in Bangladesh
0%5%
10%15%20%25%30%35%
Agr Labor Daily WageIncrease 2001-4
Avg Rice Price top rangeincrease 2001-4
Avg Rice Price increase in2005
% in
creas
e
Wage trends favor skilled workers and Wage trends favor skilled workers and industry in general over agricultureindustry in general over agriculture
Wage Rate Ratios in Bangladesh
0
100
200
300
400
Skilled/UnskilledIndustrial Workers
Top/Bottom RangeSkilled Industrial
Workers
Top/Bottom RangeUnskilled Industrial
Workers
Unskilled Industworkers Bottom
Range/Agr Labor
Skilled IndustWorkers Top
Range/Agr Labor
Ratio %
2001 2004
Economic Growth and Overall Increase in National Wealth Economic Growth and Overall Increase in National Wealth includes Upward shift in commodityincludes Upward shift in commodity value/pricesvalue/prices
((Daily StarDaily Star 19 July 2005) 19 July 2005)► Higher Value LaborHigher Value Labor
19% decrease in labor exports from Bangladesh in Jan-May 2005 19% decrease in labor exports from Bangladesh in Jan-May 2005 compared to same period in 2004compared to same period in 2004
19% increase in receipts remitted from export labor19% increase in receipts remitted from export labor Reason: increasing demand abroad for skilled labor; declining demand Reason: increasing demand abroad for skilled labor; declining demand
for unskilled labor; hence lower numbers, higher wagesfor unskilled labor; hence lower numbers, higher wages► High Value Agriculture. IFPRI researchHigh Value Agriculture. IFPRI research
Per capita grain consumption declining or growing at less than 1% per Per capita grain consumption declining or growing at less than 1% per year in eight Asian countries (Bangladesh, Pakistan, India, Indonesia, year in eight Asian countries (Bangladesh, Pakistan, India, Indonesia, Philippines, Thailand, Vietnam, and China)Philippines, Thailand, Vietnam, and China)
Per capita consumption of HVA (fruits and vegetables) increasing at 2-Per capita consumption of HVA (fruits and vegetables) increasing at 2-10% per year10% per year
In Thailand and Philippines, >50% of all food is sold in supermarketsIn Thailand and Philippines, >50% of all food is sold in supermarkets In Dhaka city, about 15% of food sold passes through supermarketsIn Dhaka city, about 15% of food sold passes through supermarkets Market-connections-finance direct links between retailers and producers Market-connections-finance direct links between retailers and producers
through supply systems generate specialized production-consumption through supply systems generate specialized production-consumption commodity chains (e.g. BRAC in Chandina, where 30% poor farmer commodity chains (e.g. BRAC in Chandina, where 30% poor farmer income is in vegetables.)income is in vegetables.)
Chap 5: Expanding Poor People’s ParticipationChap 5: Expanding Poor People’s Participation
Joint forest Joint forest management management brings poor brings poor people into people into process of process of
state control state control over forest over forest resourcesresources
2. Empowerment2. Empowerment
Chap 6: Making State Institutions More Chap 6: Making State Institutions More Responsive to Poor PeopleResponsive to Poor People
Localizing GovernanceLocalizing Governance
Chap 7: Chap 7: Removing Removing
Social Social Barriers Barriers
and and Building Building Social Social
InstitutionsInstitutions
Public Public investmentinvestment
CHT in Bangladesh
UNICEF/BRAC/BBS 2004lbw anemia study:
LBW (<250g) Bdesh = 33.7%
urban children (6-59 mo)= 56% CHT children = 62%CHT infants (6-11 mo) = 90%
Anemia urban adolescent girls = 29%urban adolescent boys = 17% (lowest of all groups)
CHT adolescent boys = 40%CHT adolescent girls = 50%
3. Enhancing Security3. Enhancing SecurityChap 8: Helping Poor People Manage RiskChap 8: Helping Poor People Manage Risk
Dealing with Types of Risk (previous slide): Means Dealing with Types of Risk (previous slide): Means
of Reduction, Mitigation, Copingof Reduction, Mitigation, Coping (note )(note )
Non-State, non-market asset Non-State, non-market asset transfers for dealing with risk and transfers for dealing with risk and
crisiscrisis
Social Program ExpenditureSocial Program Expenditure
Using communities to allocate Using communities to allocate benefitsbenefits
Creative examplesCreative examples
Chap 9: Managing Economic Crises and Natural Chap 9: Managing Economic Crises and Natural DisastersDisasters
Crisis impact on HDI indicatorsCrisis impact on HDI indicators
The burden of disasters greatest where The burden of disasters greatest where national assets for coping, prevention, national assets for coping, prevention,
and mitigation lowestand mitigation lowest
Dealing with catastropheDealing with catastrophe
3. International Action3. International ActionChap 10: Harnessing Global Forces for Poor Chap 10: Harnessing Global Forces for Poor
PeoplePeople
Privatisation Privatisation of intellectual of intellectual
property property rights has rights has
transferred transferred assets assets
produced by produced by public funds public funds into profit into profit
sectorsector
Chap 11: Reforming Development Chap 11: Reforming Development Cooperation to Attack PovertyCooperation to Attack Poverty
World Bank initiatives 1World Bank initiatives 1
World Bank initiatives 2World Bank initiatives 2
NGO growth. National Debt NGO growth. National Debt BurdenBurden
Concessional (aid) transfers and Concessional (aid) transfers and nonconcessional (market rate) transfersnonconcessional (market rate) transfers
Debt relief and poverty Debt relief and poverty reductionreduction
Some critical considerations of WB Some critical considerations of WB approach to poverty reductionapproach to poverty reduction
FOCUS: FOCUS: The Market-led-growth-first orientation to The Market-led-growth-first orientation to
poverty reductionpoverty reduction
It is based on the DEBATABLE IDEA that It is based on the DEBATABLE IDEA that aggregate national wealth increase helps to aggregate national wealth increase helps to reduce and can be relied upon to eliminate reduce and can be relied upon to eliminate poverty, when combined with supportive state poverty, when combined with supportive state and private policies to make growth “pro-poor”and private policies to make growth “pro-poor”
Its concept of poverty, measures of poverty, Its concept of poverty, measures of poverty, ideas about causation, and policies follow from ideas about causation, and policies follow from and support this basic orientationand support this basic orientation
Does economic growth reduce Does economic growth reduce poverty? poverty?
► Note: the WB argues only that growth Note: the WB argues only that growth facilitates poverty reduction.facilitates poverty reduction.
► A 2004 DFID study of 14 countries in A 2004 DFID study of 14 countries in E.Europe, Africa, and Asia (including E.Europe, Africa, and Asia (including Bangladesh) argues more strongly that Bangladesh) argues more strongly that “growth reduces poverty.”“growth reduces poverty.” ““on average a 1 percent increase in income on average a 1 percent increase in income
percapita percapita reduced povertyreduced poverty by 1.7 percent” by 1.7 percent” during 1993 – 2002, according to DFID studyduring 1993 – 2002, according to DFID study
Causal connection made very forcefully, based Causal connection made very forcefully, based on correlations: growth and poverty headcount.on correlations: growth and poverty headcount.
Empirical Complications.Empirical Complications.Other explanations.Other explanations.
► DFID conclusions based on headcount poverty DFID conclusions based on headcount poverty reductionsreductions
► DFID findings of poverty reduction during growth are DFID findings of poverty reduction during growth are compatible with the argument that compatible with the argument that (1) factors other than growth reduced poverty during
economic growth and (2) that lower headcount poverty resulted from a trend
increase in inequality around the poverty line,► which raised barely-poor people above the line,► left poverty gap and severity intact (or perhaps increased both)► and also raised non-poor incomes disproportionately
► It is therefore possible to interpret the claim that It is therefore possible to interpret the claim that growth growth reducesreduces poverty as a moral and political poverty as a moral and political justification for the increasing inequality that justification for the increasing inequality that accompanies market-led economic growthaccompanies market-led economic growth
Counter-Market policies may be reducing Counter-Market policies may be reducing poverty during economic growth and might poverty during economic growth and might thus be making growth appear to “pro-poor”thus be making growth appear to “pro-poor”
► Vietnam is strongest case for “pro poor growth” Vietnam is strongest case for “pro poor growth” causal connection in the DFID studycausal connection in the DFID study
► Vietnam also country with strong social Vietnam also country with strong social programs organizing market operations programs organizing market operations particularly in rural areasparticularly in rural areas
► The state provides broadly egalitarian education, The state provides broadly egalitarian education, health care, market access, production cost health care, market access, production cost control, etc. all through non-market mechanismscontrol, etc. all through non-market mechanisms
► The case could thus be made here that an The case could thus be made here that an effective socialist state makes the market work effective socialist state makes the market work best for the poor best for the poor
Challenging TrendsChallenging Trends
Several empirical trends challenge the Several empirical trends challenge the idea that market-led economic growth idea that market-led economic growth
and the aggregate wealth increase and the aggregate wealth increase which it facilitates are effective means which it facilitates are effective means for reducing poverty substantially in for reducing poverty substantially in
the foreseeable future.the foreseeable future.
Trends that challenge the market-growth-first policy Trends that challenge the market-growth-first policy
model of poverty alleviationmodel of poverty alleviation ► Broad increases in inequality separating rich and poor Broad increases in inequality separating rich and poor
countries more and more dramatically during recent countries more and more dramatically during recent rapid growth (especially 1990s)rapid growth (especially 1990s)
► Growth in poor countries concentrates in growth Growth in poor countries concentrates in growth sectors tied to world markets sectors tied to world markets Generating higher value commodities (wealth) [e.g. Generating higher value commodities (wealth) [e.g.
vegetables, skilled labor, and education] for wealthier vegetables, skilled labor, and education] for wealthier segments of the population. segments of the population.
► Raising incomes and living standards Raising incomes and living standards mostmost among the among the non-poor and non-poor and leastleast among the poorest, inside and among the poorest, inside and across national economiesacross national economies
► Regional rich-poor differentiation: e.g. India and China; Regional rich-poor differentiation: e.g. India and China; urban-rural divide generally.urban-rural divide generally.
Share of Global Income Going to Richest 20% and Poorest 20% of World Population
YearShare of
Richest 20%
Share of Poorest
20%Ratio of Richest to Poorest
1960 70.2% 2.3% 30 to 1
1970 73.9% 2.3% 32 to 1
1980 76.3% 1.7% 45 to 1
1989 82.7% 1.4%59 to 1
Source: United Nations, Human Development Report, 1992.
Inequality is dynamic force allocating Inequality is dynamic force allocating growth benefits: Where does the new growth benefits: Where does the new
wealth go?wealth go?
US Income Disparities
Household Groups
Percent Share of
all Income
Percent Share of
all Income
Average After Tax Income
($000)
Average After Tax Income ($000)
1977 1999 1977 1999
bottom 20% 5.7 4.2 10 8.8
second lowest 20% 11.5 9.7 22.1 20
middle 20% 16.4 14.7 32.4 31.4
second highest 20% 22.8 21.3 42.6 45.1
highest 20% 44.2 50.4 74 102.3
highest 1% 7.3 12.9 234.7 515.6
note: percentages do not add to 100 due to rounding
Source: New York Times Sunday Sept 5, 1999. National Section p.16,
based on Congressional Budget Office data analyzed by Center on Budget and Policy Priorities
Winners and losersWinners and losersApr 26th 2001 Apr 26th 2001
From From The EconomistThe Economist print edition print edition
The global distribution of income is becoming ever The global distribution of income is becoming ever more unequal. That should be a matter of greater more unequal. That should be a matter of greater
concern than it is, argues Robert Wadeconcern than it is, argues Robert Wade
WADE continuedCHARTS MISSING – WILL BE ADDEDChart 1 (above) shows the distribution of the worlds population by average income of each country (using compatible data from 1993, the most recent year available). Income is measured in terms of purchasing power over comparable bundles of goods and services, or purchasing-power parity (PPP), rather than in terms of actual exchange rates. China and India, with between them almost 40% of world population, are each divided into urban and rural sectors and treated as four separate countries.
The distribution has two poles. One, at the bottom end, is at an average income of less than $1,500 a year. It contains the populations of most of Africa, India, Indonesia and rural China. At the other pole, with average PPP incomes of more than $11,500, are the United States, Japan, Germany, France, Britain and Italy. Some of the space between $1,500 and $11,500 is occupied by countries such as urban China, Russia and Mexico.
But notice the strange missing middle: relatively few people live in countries with average PPP incomes that fall between $5,000 and $11,500. If incomes were measured using actual exchange
rates, the range from poorest to richest would be much larger.
WADE continued
Having ignored world income distribution for decades, international economics has lately seen a burst of interest. But the statistical difficulties are so formidable that the debate has so far revolved around questions of econometric technique. Standing back from the fray, we can see that much of the controversy concerns how to compare income in different countries.The answer to what is happening to world income distribution turns out to depend heavily on whether countries are weighted by population, and whether income in different countries is measured in PPP terms or by using actual exchange rates. These two criteria can be set out in a matrix of four cells, with countries treated equally or weighted by population on one axis, and income measured in current exchange rates or in PPP terms on the other. Table 2 summarises the findings of the existing literature, dividing the
studies among the four cells.
“…. new studies differ from the others in being based solely on household income and expenditure surveys.
The earlier ones either used average GDP, ignoring inequality within each country, or used indirect methods to estimate within-country inequality,
including production surveys and revenue surveys, which typically miss important components of
household incomes. Branko Milanovic at the World Bank assembled the database, using the Banks
formidable statistical organisation to obtain household survey data from just about all the Banks members, covering 85% of the worlds population, for the years
1988 and 1993. The result is probably the most reliable data set on world income distribution.”
Then Mr Milanovic computed the Gini coefficient for world income distribution, combining within-country inequality and between-country inequality, and measuring it in PPP terms. (The Gini coefficient is a commonly used measure of inequality: 0 signifies perfect equality, 100 means that one person holds all the income.) The results are startling. World inequality increased from a Gini coefficient of 62.5 in 1988 to 66.0 in 1993. This is a faster rate of increase of inequality than that experienced within the United States and Britain during the 1980s. By 1993 an American on the average income of the poorest 10% of the population was better off than two-thirds of the worlds people.
WADE article. Concluded.The other new study, by Yuri Dikhanov and Michael Ward, uses the same data set with a different methodology. It confirms that world income distribution became markedly more unequal between 1988 and 1993. Like the Milanovic study, it finds that the Gini coefficient increased by about 6%. It finds, further, that the share of world income going to the poorest 10% of the worlds population fell by over a quarter, whereas the share of the richest 10% rose by 8%. The richest 10% pulled away from the median, while the poorest 10% fell away from the median, falling absolutely by a large amount. In short, we have to revise cell 4. World PPP income distribution with countries weighted by population (and China and India split into urban and rural) became much more unequal between 1988 and 1993 (see table 3).
Growth Raises overall cost of living. Current Trends in Growth Raises overall cost of living. Current Trends in Bangladesh indicate that price and wage rate trends favor Bangladesh indicate that price and wage rate trends favor
populations in “growth sectors”populations in “growth sectors” (from (from Daily StarDaily Star 16 July 2005) 16 July 2005)
Inflation Rate in Bangladesh, 2001-2005
0
2
4
6
8
2001 Jan 2002 Jan 2003 Feb 2004 Mar 2005 May
NoteNote Rice accounts for 60-Rice accounts for 60-
70% of inflation rate70% of inflation rate Female Daily Agr Wage Female Daily Agr Wage
is 75% male wageis 75% male wageRice Price and Agr Wages in Bangladesh
0%5%
10%15%20%25%30%35%
Agr Labor Daily WageIncrease 2001-4
Avg Rice Price top rangeincrease 2001-4
Avg Rice Price increase in2005
% in
creas
e
Wage trends favor skilled workers and Wage trends favor skilled workers and industry in general over agricultureindustry in general over agriculture
Wage Rate Ratios in Bangladesh
0
100
200
300
400
Skilled/UnskilledIndustrial Workers
Top/Bottom RangeSkilled Industrial
Workers
Top/Bottom RangeUnskilled Industrial
Workers
Unskilled Industworkers Bottom
Range/Agr Labor
Skilled IndustWorkers Top
Range/Agr Labor
Ratio %
2001 2004
Upward shift in commodity price values with economic growth
(Daily Star 19 July 2005)► Higher Value Labor
19% decrease in labor exports from Bangladesh in Jan-May 2005 compared to same period in 2004
19% increase in receipts remitted from export labor Reason: increasing demand abroad for skilled labor;
declining demand for unskilled labor; hence lower numbers, higher wages
► High Value Agriculture. IFPRI research Per capita grain consumption declining or growing at less
than 1% per year in eight Asian countries (Bangladesh, Pakistan, India, Indonesia, Philippines, Thailand, Vietnam, and China)
Per capita consumption of HVA (fruits and vegetables) increasing at 2-10% per year
In Thailand and Philippines, >50% of all food is sold in supermarkets
In Dhaka city, about 15% of food sold passes through supermarkets
Market-connections-finance direct links between retailers and producers through supply systems generate specialized production-consumption commodity chains (e.g. BRAC in Chandina, where 30% poor farmer income is in vegetables.)
EducationEducation
► Consider where the new seats in higher education are Consider where the new seats in higher education are being created in Bangladesh today.being created in Bangladesh today.
► They appear to be increasing disproportionately in They appear to be increasing disproportionately in private universities with high tuition, English medium, private universities with high tuition, English medium, oriented to higher income professional employmentoriented to higher income professional employment
► This may also to be true for primary and secondary This may also to be true for primary and secondary education in urban areas generallyeducation in urban areas generally
► This represents another shift up the commodity value This represents another shift up the commodity value chain associated with economic growth:chain associated with economic growth: NEW opportunities/capacities seem to be created NEW opportunities/capacities seem to be created
disproportionately in more expensive, more productive, more disproportionately in more expensive, more productive, more profitable, and higher wage-rate seeking educational profitable, and higher wage-rate seeking educational institutionsinstitutions
ALL this consistent with increase in rate of aggregate national ALL this consistent with increase in rate of aggregate national wealth increasewealth increase
Energy prices and “oil tax”Energy prices and “oil tax”
► Petroleum prices have just been raised in Petroleum prices have just been raised in Bangaldesh because of increasing world prices, Bangaldesh because of increasing world prices, hence import costs, and declining Taka value in hence import costs, and declining Taka value in relation to the US dollar, which is still the dominant relation to the US dollar, which is still the dominant world currencyworld currency
► Paying for oil with dollars demands more and more Paying for oil with dollars demands more and more Takas, spent in Bangladesh to buy imported oil.Takas, spent in Bangladesh to buy imported oil.
► Who pays this additional “oil tax” and where does it Who pays this additional “oil tax” and where does it go?go?
► Resulting price increases will spread across the Resulting price increases will spread across the economy with additional energy costs. economy with additional energy costs.
► Income increases will not follow quickly for most Income increases will not follow quickly for most people, and least of all for the poor.people, and least of all for the poor.
Non-market means are required – even with high Non-market means are required – even with high economic growth -- to expand participation, reduce economic growth -- to expand participation, reduce
barriers, and deliver services for the poorbarriers, and deliver services for the poor
► Policies targeting the poor appear to be “swimming Policies targeting the poor appear to be “swimming upstream,” or against the logical force of new asset upstream,” or against the logical force of new asset allocations in the global market economy as it operates allocations in the global market economy as it operates inside Bangladeshinside Bangladesh
► Numerous figures in Numerous figures in WDR 2001WDR 2001 can be read as indications can be read as indications that current conditions in poor countries mitigate against that current conditions in poor countries mitigate against additional capital investment (see next slide)additional capital investment (see next slide)
► High growth rate regions that show substantial reductions High growth rate regions that show substantial reductions in poverty may not typify trends in many countries (e.g. in in poverty may not typify trends in many countries (e.g. in East Asia), where internal inequalities are more entrenched East Asia), where internal inequalities are more entrenched and conditions for global investment are less attractiveand conditions for global investment are less attractive
► Ethnic and political forces may underlie economic growth. Ethnic and political forces may underlie economic growth. East Asia in particular has benefited from very high rates of East Asia in particular has benefited from very high rates of FDI from expatriate nationals (especially Chinese, but also FDI from expatriate nationals (especially Chinese, but also Koreans), and also from strong and favorable bilateral ties Koreans), and also from strong and favorable bilateral ties with US economy.with US economy.
► State delivery of goods and services to the poor are State delivery of goods and services to the poor are hampered in poor countries not only by functional hampered in poor countries not only by functional weaknesses but also by financial weaknesses in the weaknesses but also by financial weaknesses in the international economy (e.g. debt, exchange rates, international economy (e.g. debt, exchange rates, unfavorable trade balances, etc.)unfavorable trade balances, etc.)
The argument that “in general” increasing wealth correlates with poverty reduction is true (blue trend line)
But ovals show more wealth does not always increase consumption for poorest 20%.
Rectangles show the poorest 20% have higher and lower consumption levels in societies with the same percapita wealth.
The red line show an axis of national wealth increase with lower conusmption in poorest 20%.
The Vietnam case indicates that the “in general” correlation may not indicate actual causation.
To repeat: To repeat: these are current trends that challenge the market-these are current trends that challenge the market-growth-first policy model of poverty alleviationgrowth-first policy model of poverty alleviation
► Broad increases in inequality separating rich and poor Broad increases in inequality separating rich and poor countries more and more dramatically during recent countries more and more dramatically during recent rapid growth (especially 1990s)rapid growth (especially 1990s)
► Growth in poor countries concentrates in growth Growth in poor countries concentrates in growth sectors tied to world markets sectors tied to world markets Generating higher value commodities (wealth) [e.g. Generating higher value commodities (wealth) [e.g.
vegetables, skilled labor, and education] for wealthier vegetables, skilled labor, and education] for wealthier segments of the population. segments of the population.
► Raising incomes and living standards Raising incomes and living standards mostmost among the among the non-poor and non-poor and leastleast among the poorest, inside and among the poorest, inside and across national economiesacross national economies
► Regional rich-poor differentiation: e.g. India and China; Regional rich-poor differentiation: e.g. India and China; urban-rural divide generally.urban-rural divide generally.
The relationship between economic growth, The relationship between economic growth, inequality, and poverty reduction: three inequality, and poverty reduction: three
imagesimages► Economic growth, led by free market forces, is the engine that
generates more wealth for whole societies, including the poor, whose disadvantages amidst inequality need special policy attention to insure that growth is directed specifically toward poverty reduction, to make growth optimally “pro-poor.”
► Reducing poverty is swimming upstream in the strong currents of free-market-led growth first development policies that now prevail under globalization of the strong state commitments to poverty reduction and strong national economies make it more feasible to succeed, but globally and nationally, market currents pull wealth to richer sectors, regions, and populations
► The rising tide of economic growth lifts all the boats but richer sectors rise faster and higher; “poverty reduction” occurs only at the margins of the market-growth mainstream, though it does occur.
Globalization and Poverty: Globalization and Poverty: two debatable propositionstwo debatable propositions
► Globalization is the universal spread of market institutions and thus the progressive inclusion of everyone in the world in the creative wealth-producing vitality of the market economy. The result is the eventual elimination of poverty.
► Globalization is the spread of wealth and investment among productively profitable social segments and sectors of national economies around the world, leaving “high risk – low yield” places, people, and sectors out of the circuit. The result is the perpetual reproduction of poverty.
