The poorest of the world are being left behind. We need to reach out and lift them into our lifeboat.
This view is heard quite often. Yet other observers appear to tell a very different story. They use aphorisms such as “a rising tide lifts all boats”, or they point to evidence that “growth is good for the poor” and that the poor are “breaking through from the bottom”.
Can we reconcile these seemingly conflicting views? In my paper, I draw on the results from household surveys for developing countries spanning 1981 to 2011. I find that there has been considerable progress against poverty when one counts the numbers of people living below a wide range of poverty lines, including lines well below the international line of $US1.25 per person per day. Each line is fixed in real value over time and across countries.
The evidence indicates falling incidence and depth of absolute poverty in the developing world over recent decades. That is good news. But does it mean that Ban Ki-moon and others are wrong?
What’s missing from the picture of poverty?
This paper argues that something important is missing from the numbers generated by counting poor people over time. If overall economic progress is not to “leave the poorest behind” then it must, in due course, raise the lower bound to the distribution of permanent consumption levels in society. That lower bound can be called the consumption floor.
There are good reasons to look at what is happening to the consumption floor. An important school of moral philosophy has argued that we should judge a society’s progress by its ability to enhance the welfare of the least advantaged, following John Rawls’ proposed principles of justice. By this view, a higher floor is not only preferred, but is the main criterion of distributive justice – subject to other criteria of liberty, as identified by Rawls.
The Rawlsian approach of using success in raising the consumption floor as an indicator of social progress has not been favoured by economists, but it has deep roots in thinking about development and social policy. In a famous example, in 1948 Mahatma Gandhi was asked:
How can I know that the decisions I am making are the best I can make?
I will give you a talisman. Whenever you are in doubt, or when the self becomes too much with you, apply the following test. Recall the face of the poorest and the weakest man whom you may have seen, and ask yourself if the step you contemplate is going to be of any use to him. Will he gain anything by it?
The spirit of Gandhi’s talisman was echoed (in somewhat drier terms) 65 years later in a report initiated by the United Nations on setting new development goals. The report argued that:
The indicators that track them should be disaggregated to ensure no one is left behind and targets should only be considered ‘achieved’ if they are met for all relevant income and social groups.
As a guide to international cooperation on development, that’s tough to top.
Social policies across the globe have also emphasised the need to raise the consumption floor.
Assessing progress for the poorest
Estimating the level of the consumption floor is difficult. I have proposed two methods of doing so. Both can be implemented with readily available data, although they make very different assumptions.
Both methods suggest a consumption floor today that is about half of the international poverty line of $1.25 a day. This is probably close to the consumption of essential foods for those living on around $1.25 a day.
My principal empirical finding is that, while the counting approach shows huge progress for the poorest, the Rawlsian approach of focusing on the floor does not. The distribution of the gains among the poor has meant that the expected value of the consumption floor has risen very little over the last 30 years.
The figure below gives the estimated level over time for the developing world as a whole. Very little progress in raising the floor is evident despite the progress (accelerating since 2000) in raising the overall average consumption.
Another perspective is shown below. This gives the absolute gain in consumption in the developing world over 1981-2011 by percentile, from the poorest (on the left) to the richest (right). Consistent with the lack of progress in raising the floor, we see that the gains are close to zero for the poorest, but rising to quite high levels.
This is also consistent with what we know about rising absolute inequality in the developing world, as I recently discussed.
While policymakers would be ill-advised to look solely at the level of the floor in a given society, it does have normative significance independently of attainments in reducing the numbers of people living near that floor. The argument here is not that progress against poverty should be judged solely by the level of the consumption floor, but only that this should not be ignored as we think about development goals and social policies going forward.
This article is based on the keynote address to the ACFID 5th University Network Conference at Monash University in Melbourne on June 4-5 2015. Follow the conversation @ACFID and @Monash_Arts #EvidencePractice.