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The Harvey files 5: changing the poverty level

By Harvey Cole  

For years we have been told that a billion or so people in the world have to live on “less than a dollar a day.” That originally meant that poverty was defined as a money income of $1.08 a day in terms of the US dollar at its 1993 level.
 
The value of the dollar was set at so-called purchasing-power parity, meaning what it would have cost an American to buy a defined selection of goods. (PPP, as it is known, is used in making international comparisons to avoid the distortions caused by fluctuations in exchange rates).
 
But the “dollar a day” standard has always seemed an unrealistic way of defining poverty, mainly because the poor countries of the world are not primarily money-based economies. Much of daily life, particularly in rural areas, is based on exchanges that do not involve money changing hands. Housing, food and sometimes clothing may be offered in return for labour, and food is also grown for direct consumption instead of having to be bought.
 
The World Bank has published two papers on which it is consulting with proposals to change the yardstick – partly to reflect some progress in reducing relative poverty levels since 1993, particularly in China.
 
But the prospective outcome is odd. $1.08 at 1993 prices would become $1.45 at 2005 PPP rates. But the new standard looks like being set at only $1.25 – a drop of 14 per cent in real terms. This, of course, has the effect of reducing the numbers of people below the threshold, and the World Bank has in fact decided to do just this. Having collected information from 75 of the poorer countries, it restricted its analysis to the 15 poorest among these – including 13 in sub-Saharan Africa.
 
So the new poverty standard is, in effect, $0.93 a day in the original 1993 dollars, and reflects almost entirely conditions in the worst-off parts of Africa.
 
While living conditions and levels of poverty remain appallingly low in much more of the world than covered by the new calculations, at the same time it would be quite wrong to assume that “living on a dollar a day,” or close to it, can be compared in any realistic way with the daily expenditure of advanced countries. Look at all the things the real poor do not need to bother with – not least all our “defensive” or negative expenditure: from insurance to gambling and from the disposal of refuse to countering pollution.
 
The Economist and Financial Times have been pondering the new poverty guideline. Two comments. First, what would a purchasing-power parity collection of goods worth $1.25 a day look like in London or New York? Secondly, the poverty line for a family of three could be just over $26 a week. Just enough to buy the Financial Times and the Economist for a week – and nothing else.

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