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April 2015, No. 4 Vol. LI, Beyond 2015
In September 2015, Heads of State will convene at the General Assembly of the 51³Ô¹Ï to agree upon a set of sustainable development goals (SDGs). The first target of the first SDG proposed?by the Open Working Group (OWG) of Member States is to ¡°eradicate extreme poverty for all people everywhere¡± by 2030. The second target is to reduce at least by half the proportion of people living in poverty according to national definitions. These are noble and historic targets for global progress¡ªthey deserve their status at the top of the list. At the same time, they illustrate issues affecting a considerable number of the 169 development targets proposed by OWG, such as how do we measure them and are they plausible?
These two questions are linked. How we resolve the challenges of measurement will have a profound impact on the targets¡¯ power to motivate as well as on the likelihood that those targets will be met. Poverty lines at the national and local level are frequently revised upward, and there are good reasons for this. This approach, however, risks the possibility that steady development progress will not yield poverty reduction, simply because the poverty line keeps moving too.
As OWG suggested, extreme poverty is ¡°currently measured as people living on less than US $1.25 a day¡±, although that is unlikely to be the case for long. The ¡°official¡± extreme poverty line and the number of people living below it are calculated by a (well-meaning) cabal in the bowels of the World Bank headquarters. They are working on a revision that could have a dramatic impact on the dollar consumption figure, declared as the ¡°extreme poverty line¡±, as well as on the number of people living below that threshold.
In the past, the global extreme poverty line established by the World Bank was set to reflect the value of national poverty lines in the world¡¯s poorest countries. The original 1990 ¡°dollar a day¡± poverty line was ¡°typical of low income countries¡±1 at the time. In 2008, it was updated to match the latest available average national poverty line of the world¡¯s 15 poorest countries, converted at an exchange rate designed to reflect the different prices of the same goods and services across countries.
The World Bank is in the process of proposing a new global line and other poverty numbers based on more recent national poverty lines, as well as on data from a 2011 global survey of prices. By the time the World Bank decides that it is ready to release the numbers¡ªa process, which has previously taken up to two years¡ªthe global extreme poverty line may be at US $1.75 a day or higher. The new data suggests, however, that the prices of goods in poor countries are lower than we thought. This in turn may suggest a dramatic decline in the number of people living in poverty¡ªby as much as a third (from 1.2 billion in 2010, a number based on the old price data and poverty line, to below 900 million, a number calculated using the new data provided by the Brookings Institution).
One thing is clear: if we are to ¡°eradicate extreme poverty for all people everywhere¡± by 2030, we will have to use an entirely different approach to setting the planetary extreme poverty line than that used by the World Bank in the past.
Imagine that we are in 2030, and we are looking at the national poverty lines of the world¡¯s 15 poorest countries. How likely is it that they will all be set at a level below the consumption of their very poorest citizens? They shouldn¡¯t be set that low. The idea that countries, which most optimistically will still have an average income that is a fraction of that of the poorest people in Europe or the United States of America today, would declare that they have no poor is simply ridiculous. Under any international definition of extreme poverty based on the most recent national poverty lines of a number of countries, there will always be poor people in the world¡ªincluding all of those living in poverty according to the national definition in the countries used to set the global ¡°extreme poverty¡± line. This suggests that a zero poverty goal using the World Bank ¡¯s current methodology could never be met.
If we¡¯re going to set a zero goal for global poverty in the post-2015 development agenda, it has to be an absolute goal, and not one set relative to national poverty lines, and the process of setting the new global poverty line should be open, transparent and participatory. For years the World Bank has kept secret the data it uses to measure global levels of income and consumption. The Bank decides when and how to incorporate data from income and price surveys, and it also chooses the method to calculate the poverty line. As part of the process of setting the sustainable development goals and the data revolution that must underpin it, shouldn¡¯t the world¡¯s poor and Governments of developing countries have some input into defining ¡°what is poverty¡±? The process is also urgent: we will set the goal in September 2015, after all.
Could we meet a target to eradicate absolute poverty below a certain threshold? That depends on the level at which it is set, of course. ?A number of analysts, however, have attempted to calculate the likelihood of wiping out the US $1.25 a day poverty line, using old prices and poverty numbers. If there was strong growth in the poorest countries over the next 15 years and those countries saw rapidly declining inequality, perhaps as few as 2 per cent of the population of the developing world would be left living below US $1.25 a day by 2030. Of course it is far too optimistic to predict that every poor country will see rapid growth and declining inequality over the next 15 years¡ªsome will fall victim to bad governance, low commodity prices, or civil unrest that derails progress. Thus, the real number will be considerably higher.
The gap could still be overcome with transfers¡ªsimply giving money to families which saw average incomes below the US $1.25 threshold. The definition of who is poor, however, changes rapidly over time, depending on seasons, weather, health care access, escalation of violence and just bad luck. Rather than the representative surveys currently taken every few years, maintaining a global $1.25 consumption floor would take many surveys a year covering the entire global population at risk.?
More plausible than an accurately targeted program is one that provides support to a far larger group at risk of falling below $1.25 a day.? That, however, would raise the price tag, of course.? We would then have to find a way to transfer the money: mobile banking has spread rapidly, but most of the world¡¯s poorest people still don¡¯t have access to banking services. This is not to say that ending extreme poverty by 2030 is impossible, but rather that it would take an immense effort. In fact, to date, we haven¡¯t even agreed upon a definition of ¡°extreme poverty¡± that we could plausibly eradicate.
Meanwhile, there is a similar, if less severe measurement challenge with the second poverty target of reducing at least by half the proportion of people living in poverty in each country according to national definitions. How those definitions are calculated varies considerably across countries. In the United States, for example, the number is meant to reflect the same (inflation-adjusted) income over time. In many other countries, however, the poverty line is explicitly or effectively a relative line. As average incomes increase, so does the income below which people are defined as poor. In those countries, halving the proportion of people living in poverty can only be accomplished through a dramatic reduction in inequality.?
That¡¯s not a bad thing, as inequality has been rising within countries across the world, and we should reverse the trend. The work, however, is yet to be done in order to show that the scale of inequality reduction required to halve the number of people living below a relative poverty line is plausible in most (or even many) countries.? The last thing we would want the SDGs to encourage is to ¡°lower the bar¡± of national poverty lines, whereby countries would meet the SDG target by making their official poverty line a steadily smaller proportion of average incomes over time.? That speaks to the potential advantage of setting an explicit relative target at the country level¡ªreducing the gap between the bottom 40 per cent and the top 10 per cent in every country by 25 per cent, or closing the gap between the median income and the mean income by a third, as it might be.
Therefore, for the first two targets of the first of the Sustainable Development Goals, there is considerable work to do before September 2015.? Before we set the goal, we should fix the goalposts.?
Notes
1 Shaohua Chen and Martin Ravallion, ¡°The developing world is poorer?than we thought, but no less successful in the fight against poverty.¡±?Policy Research Working Paper, No. 4703 (Washington, D.C., World?Bank, 2008). Available from .
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