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A case of misplaced euphoria

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In spite of the rosy picture painted by the World Bank, the prospect of eliminating extreme poverty remains distant

In a protracted period of gloom and persistent recession with feeble signs of recovery in a large part of the developed world, the World Bank, Brookings Institution and others can be forgiven for their euphoria over the accomplishment of a key Millennium Development Goal (MDG) — of halving extreme poverty in the developing world — five years ahead of the 2015 deadline.

Average of 15 poorest countries

Extreme poverty is measured with reference to a threshold of $1.25 per capita per day (in terms of 2005 dollars adjusted for purchasing power differences). This poverty line is the average of the 15 poorest countries. Those below it are condemned to a wretched, brutish and short existence.

Yet, 970 million people will remain poor in 2015, with 84 per cent of them concentrated in South Asia and Sub-Saharan Africa. The latter is also the only region that will not achieve this MDG by 2015.

Global poverty remains a rural problem with more than three-fourths of the extremely poor located in rural areas. However, as global poverty fell, so did the gap between rural-urban poverty. It reduced by half in East Asia and the Pacific by 2008, while in Sub-Saharan Africa, Latin America and the Caribbean, and South Asia, there was less progress.

Projections differ but various scenarios suggest that poverty estimates in 2030 will range between three and nine per cent. Most projections, however, pay lip service, if any, to market and natural catastrophic risks. Rates of GDP growth observed in recent years are extrapolated with ad hoc assumptions about changes in income inequality to arrive at poverty estimates in 2030. As policy buffers against the food price surge and financial crisis that followed in quick succession are far from adequate, vulnerability to such shocks remains a major concern. Besides, the havoc wreaked by natural disasters and conflicts often wipes out years of development.

The Kashmir earthquake in 2005, for example, more than offset the gains from three years of development assistance. So while such shocks will continue to occur with the frequencies observed in the past, those associated with natural catastrophes may rise as global warming rises.

It is indeed odd that while last year’s Global Monitoring Report (GMR 2012), prepared by World Bank researchers, drew pointed attention to vulnerability to food price and related shocks — specifically the dire consequences for undernourished women and children — the MDG projections in GMR 2013 gloss over this issue and paint a rosy picture of banishing extreme poverty and other deprivations in the next two decades (i.e. 2010 to 2030).

Ad hoc assumptions about income inequality widen the range of projected poverty in 2030. With high growth and low income inequality, extreme poverty is likely to be about three per cent while the combination of low growth and high inequality yields a much higher incidence of extreme poverty (nine per cent). Neither the GMR 2013 nor studies by Brookings offer a definitive account of how growth and inequality interact. In fact, recent estimates point to a worsening of income inequality in many countries (China and India) and improvement in a few (like Brazil). The important point is that if growth widens income inequality, ad hoc assumptions about inequality undermine the plausibility of projected poverty in 2030. The actual may well be outside the range projected.

For poverty reduction, some forms of inequality matter more than others. Important ones include inequality in the distribution of assets, especially land, human capital, financial capital and access to public assets such as rural infrastructure. The fast growing economies of East and South-East Asia had the advantage of low asset inequality compared to other Asian and Pacific economies. In some countries, this followed land reforms and a better distribution of educational services. So, moderation of current income inequality while facilitating access to income-generating assets and the promotion of employment opportunities for the poor are imperative.

‘Missing women’

Gender inequity is given short shrift in the MDGs and the focus is confined to differences in primary and secondary education enrolments. But gender disparities continue from birth to adulthood. The cycle of maternal and child malnutrition, morbidity and mortality, tends to perpetuate poverty over generations: a vicious cycle of low investment in women and in girls. Gender discrimination in access to health facilities, nutrition, education and security exacerbates this process further. Arguably, a more appropriate indicator of gender inequity is Amartya Sen’s measure of “missing women.” It is intuitive and appealing as it captures women’s multiple deprivations over a life span. Comparison of census results for India in 2001 and 2011 points to a slight increase in the sex ratio — a rise from 933 to 940 females per 1,000 males. But there is considerable variation in this ratio across different States. Haryana has the lowest sex ratio (877 females per 1,000 males) while Kerala has the highest (1,084). It is one of the two States (Puducherry being the second) where the number of women exceeds that of men while a few others (Karnataka and Andhra Pradesh) show higher sex ratios in 2011 relative to 2001. Female foeticide and infanticide are stark illustrations of discrimination that begins in the womb and continues thereafter lowering female/male sex ratio.

Recent studies have drawn attention to the important role of institutions in growth acceleration and poverty reduction. Unfortunately, none of the recent studies (including GMR 2013) examines these links critically despite easy access to World Bank’s rich and up-to-date database on key governance/institutional quality indicators (voice and accountability, political stability and absence of violence, control of corruption, rule of law, and an aggregate index of institutional quality). Since institutional improvements evolve over time, in complex ways, extensive experiments were carried out in a study that one of us did. Even modest improvements in institutional quality are associated with significant effects on income and, consequently, on poverty. For example, with the voice and accountability index assumed to take on the average value of this index among the top 30 performers, and the historic growth rate of agricultural income, the poverty head-count index (or the proportion of poor) shows marked reductions in China, Bangladesh, India, Sri Lanka and Indonesia, relative to the base line. A key issue is institutional “triggers” that induce institutional quality improvements. A case in point is the right to information that has had remarkable effects in terms of transparency and accountability in India.

Small cities

The GMR 2013 (as well as a series of recent papers by World Bank researchers) make(s) a powerful case for rapid and well-managed urbanisation as key to overall poverty reduction. It rests on efficient rural-urban migration and better utilisation of agglomeration economies. Indeed, it is argued that these could also result in speedier rural poverty reduction. An important link in the chain are small cities (somewhat misleadingly referred to as “the missing middle” given their rapid growth). Their weak infrastructure, and poor hygiene and sanitation are likely to turn them into slums with growing rural-urban migration. So the refrain is that investment must be directed to such cities to better exploit their growth potential.

A premise is that more rural-urban migration will have a substantial pay-off in terms of higher wages in rural areas and greater diversification of rural economies. Fine, except that if this premise is turned on its head, more efficient land, labour and credit markets and better infrastructure in rural areas would not only help raise agricultural productivity but also enable diversification of rural economies and, consequently, discourage rural-urban migration. This dynamic overturns the World Bank thesis.

In conclusion, neither the process of poverty reduction nor the projections for 2030 are plausible. So the prospects of eliminating extreme poverty remain fragile, grim and distant.

(Vani S. Kulkarni is research associate, Department of Sociology, Yale University, and Raghav Gaiha is visiting scientist, Department of Global Health and Population, Harvard School of Public Health.)

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Printable version | May 27, 2017 4:40:58 PM | http://www.thehindu.com/opinion/lead/a-case-of-misplaced-euphoria/article4815035.ece