Dollar benchmark: The rise of the $1-a-day statistic

 
Haitian mother and child

It's shocking to learn how many people live on less than $1 day - and regular publication of the figures over the last two decades has helped fuel anti-poverty campaigns. But could the statistic actually have done more harm than good?

In the late 1980s, a group of economists at the World Bank in Washington DC noticed that a number of developing countries drew their poverty lines at an income of about $370 a year.

This reflected the basic amount that a person needed to live. Each country had a different sense of what the essentials were, but the figure of roughly $370 was common to all, so the World Bank team proposed it as a global poverty line.

Some time later one of these economists, Martin Ravallion, was having dinner with his wife and, as they chatted, he had what he described as a kind of "epiphany".

If you divide that $370 by 365 days, you get just over $1. And so the catchy "$1-a-day"' concept was born.

Simple, powerful and shocking.

"We intended to have some impact with it," Martin Ravallion recalls. "Make well-heeled people realise how poor many people in the world are."

But it's a lot more complicated, and controversial, than it at first appears.

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For a start, Ravallion and his colleagues at the World Bank were not talking about what you could buy if you took an American dollar to a bank and converted it into Indian rupees or Nigeria naira.

A US dollar does go quite a long way in some developing countries.

Instead, the economists calculated a specially-adjusted dollar using something called Purchasing Power Parity, or PPP.

They looked at the price of hundreds of goods in developing countries. And then with reference to national accounts, household surveys and census data, they calculated how much money you would need in each country to buy a comparable basket of goods that would cost you $1 in the USA.

You were under the global poverty line if you couldn't afford that basket.

It's still a reality of life for 13% of people in China; 47.5% in Sub-Saharan Africa; 36% in South Asia; 14% in East Asia and the Pacific; 6.5% in Latin America and the Caribbean. Almost 1.3bn people in total.

And surprisingly perhaps, people who live on $1 a day do not spend all of it on that basket of food - on staying alive. They typically spend about 40 cents on other things, says Professor Abhijit Banerjee of MIT.

Beggar with coins, Manila The first UN Millennium Development Goal focused on halving the number of people living on $1 a day

"Even though they could actually buy enough calories, the fact is they don't. If you look at the people especially in South Asia who live on $1 a day - huge malnutrition.

"They sacrifice calories to buy some entertainment, some pleasure.

"It's a balance between survivalist behaviour and pleasure-seeking behaviour. I think as human beings we need both."

The $1 figure is also an average.

"Poor families… may earn $10 a day and then nothing for two weeks," says Professor Jonathan Morduch of the Wagner School at New York University.

"One season they may earn a lot, one season they may earn very little."

The World Bank's first report on people living on $1 a day came out in 1993. Regular updates since then have played an important role in focusing attention on the world's poor.

But one major reason the number took off and gained a life of its own, was the adoption as the first UN Millennium Development goal to "halve, between 1990 and 2015, the proportion of people whose income is less than $1 a day".

This high-profile target was agreed by the UN General Assembly and embraced by most of the world's development institutions.

Ten days ago, the World Bank declared the goal had been met early.

Dollar income levels

  • The World Bank says using the $1.25 figure as a measure is judging the world by "what 'poverty' means in the world's poorest countries"
  • Better-off countries have higher poverty lines
  • The median poverty line among developing countries is $2 (ie if national poverty lines are put in order, it's the mid-point)
  • The number of people living between $1.25 and $2 has almost doubled between 1981 and 2008

In 1990, 31% of the population of the developing world lived on less than $1 a day - close to 1.4 billion. In 2008, half that proportion did - 14%, or about 800 million.

However, once again, things are more complicated than they may at first appear.

Over the years since the Millennium Development Goal was set, the $1 a day poverty line has been recalibrated. The World Bank's global poverty line measure is now not $1, but $1.25 per day.

When the phrase was first coined in 1993, the purchasing power parity calculations were based on price and consumption data from the 1980s.

But by 2008, the World Bank economists had more and better data on price and consumption, enabling them to refine these calculations - and more developing countries had calculated poverty lines.

So the poverty line was re-set at $1.25, at 2005 PPP calculations. This represented an average of the poverty lines set in 10-to-20 developing countries.

The job of halving the proportion of people whose income is less than $1.25 a day has almost been done, but not quite.

In 1990, 1.9bn people - 43% of the developing world - lived on less than $1.25. In 2008, about 1.3bn, or 22% did.

Numbers living on less than $1.25 a day

Despite its success at driving home just how many people are living in extreme poverty, some critics think the $1-a-day benchmark has done more harm than good.

It's a "successful failure", according to Lant Pritchett, an ex-World Bank economist who is now Professor of the Practice of International Development at Harvard University's Kennedy School.

"It's a wildly successful PR device that I think has been a failure in terms of achieving the objectives of improving human well-being in the world," he says.

He argues that it has put a focus on philanthropy more than long-term development - applying a sticking plaster rather than solving the problem.

"Instead of promoting prosperous economies, it's about 'How do we identify and target and get transfers to the few people under this penurious line?' which just isn't the way, historically, anybody has ever eliminated poverty."

And even at $1.25 it is set too low he says - because someone earning $1.25 or $1.50 is still in dire poverty.

Martin Ravallion Martin Ravallion: The poorest must be the highest priority

Pritchett proposes an additional $10 poverty line be created.

But Ravallion rejects the criticism.

Progress on reducing the numbers living on less than $1.25 a day has mostly occurred thanks to economic growth, he says, rather than handouts.

And while he accepts that people who make it above the $1.25 poverty line remain vulnerable, and that there has been a "bunching up" of people just above the threshold, he says he has always argued that "we should look at multiple poverty lines", not just the $1.25 figure.

"We should look at the whole distribution. That's what I've said from day one," he says. "What I'm also saying is that our highest priority must be the poorest first."

It's is an argument that divides experts in the field.

Professor Banerjee agrees that the $1.25 a day figure plays a useful role, because there is a finite amount of aid that rich countries are prepared to give and it makes sense, he says, for it to be given to the poorest people.

But Professor Morduch says the figure is so low, it has encouraged the idea that people in this minimal income bracket must lead passive, helpless lives, when this is not the case.

In fact, he says, they are keen to save and need tools, such as bank accounts, to help them do so.

"The whole condition of living on $1 a day has much less to do with that average than with the ups and downs. So it's not surprising that households are very actively trying to save," he says.

"They are not living hand to mouth; they are thinking about the future."

 

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  • rate this
    +1

    Comment number 26.

    Comedian Jimmy Carr said it best. If people in poorer countries can survive on $1 a day we must be paying well over the odds for our groceries.

  • rate this
    +1

    Comment number 25.

    #15 - go off and look up 'Gaussian distribution'. Then have a think about how it is indeed entirely possible to be in a position where people earn less than a quarter of the national average. The only way to avoid this would be by skewing the distribution markedly downwards, so that the minimum and average wages were close together. Perhaps this is indeed the secret aim of the bankers?...

  • rate this
    +7

    Comment number 24.

    These monetary measures are quire meningless if people live outside monetary economy.

    If you grow or gather your own food and build your own houses there is no need for money. There are wast amounts of people who live at incomes of zero dollars a day.

  • rate this
    -7

    Comment number 23.

    Poverty is a contrived thing.

    For example, the Canadian prime minister, S. Harper; is going to spend 9 billion dollars on F-35s warplanes. Or else he could give every man jack of us; in the world, a billion dollars each? For a little less than the F.35's are going to cost the Canadian tax-payer.

    See ...... contrived!

  • rate this
    +2

    Comment number 22.

    I find it easy to use a rough log scale based on base PI:

    $1.25 = pi^0
    $3.92 = pi^1
    $12.34 = pi^2
    etc...
    up to the fat cats:
    $112,540,276 per day = pi^16

    So we can ask who's eating all the pies and we can put a easy to compare metric to someone's economic trophic level.

    How many pies are you? I'm a pi^2.4 kinda guy.

  • rate this
    +38

    Comment number 21.

    This misses the point. If you have land & animals to tend, you don't need much cash to live a decent life. But if a large corp or gov't takes your land and builds a factory on it, you now can't support yourself. Well, you can work for their factory. If they pay $3/day, you're above the poverty line, but that $3/day doesn't get you the food and shelter that your own land got you. That, is a FAIL.

  • rate this
    +8

    Comment number 20.

    #16. Adept
    I see alot of people worried about the whole population/resouces issue but we already see how we can solve this problem with urban living and female education. Urbanisation and female literacy rates almost perfectly corralate with how few children they choose to have.

  • rate this
    +2

    Comment number 19.

    Eradicate greed & you eradicate poverty. If it wasn't so outrageous, it would laughable to see people in western throw-away societies calling for what amounts to a culling of people in poor nations, most of whom have been & are being exploited by business, religious organisations & tourism for centuries. Every day, the BBC finds yet more of these devisive HYS threads & panders to the bigots.

  • rate this
    +1

    Comment number 18.

    In 1891 90% of the world lived in extreme poverty that is children dying of easily preventable diseases, and not having enough to eat. In 1981 the figure was 52% today it has dropped to 26% with 26% to go. We Can end extreme poverty with all that means in terms of better education reducing birth rates etc. Ending poverty will require giving people and economic role not just hand outs.

  • rate this
    +1

    Comment number 17.

    @15 troberts-holmes

    It is not bad mathematics. If you have a range of items and take an average, there will always be a percentage of that average that is "below average" and a percentage that is "above average". If your group includes 10 A* mathematics pupils, 9 of whom were awarded 98% in the exam, the one that earned 97% is below average.

  • rate this
    -1

    Comment number 16.

    To be honest when I see poverty striken nations and their citizens saying no to contraceptives and wanting 10 children regardless of how dire their situation then to feed them all would just create a massive poverty boom when the next generation have more children.

    Poverty needs to address breeding instead of feeding and let these countries work out their own mess and not rely on free food.

  • rate this
    -1

    Comment number 15.

    To Neo-Realist that is the worst mathematics ive ever heard there will not always be people learning less than a quarter of the national average. This whole report misses the key causes of poverty which are the structural adjust policies making it impossible for any African state to build its primary industries aswell as global institutions demanding debt repayment from ill equipped states.

  • rate this
    +11

    Comment number 14.

    "Epiphany"?! Dividing 370 by 365 is not an epiphany! I imagine this amazing revelation came to him as he sipped a $370 bottle of Bordeaux

  • rate this
    +9

    Comment number 13.

    "I can't see the Vatican being very happy with that."

    So because one group of religious extremists says so we should run the world their way?

  • rate this
    +2

    Comment number 12.

    It's done loads more harm than good, because it's convinced people even further that the mark of happiness and of wealth is based on how much money a person has. Anyone in Zimbabwe can tell you that having a lot of 'wealth' is meaningless if everything is priced out of reach. Global GDP is also a complete fallacy that can't tell you a damn thing about the overall state of a nation.

  • rate this
    -1

    Comment number 11.

    And people will carry on living on less than $1 a day as long as charities keep doing silly things with the copious amounts of money they get given, like spending 30% of all money raised on a giant dinner and entertainment evening for all who organized the fundraiser, then a further 50% of the money on 5-star hotels and luxury 4-wheel drive vehicles for the staff handing out food in Haiti.

  • rate this
    +2

    Comment number 10.

    Once the dollar is no longer a international reserve currency many folks will be better off - aftera;; at present they're working like virtual slaves in the third world to send goods to debt ridden first. Imagine if they got to send goods to themselves instead?

  • rate this
    +4

    Comment number 9.

    Encouraging, through aid, millions of people to continue living in areas with endemic droughts or floods and having large numbers of children does not strike me as the optimum economic model.

  • rate this
    +2

    Comment number 8.

    4.ReallyReal
    "If the 40% people spent on 'entertainment' was spent on condoms, maybe there'd be fewer kids born into abject poverty, or better still, if 40% of all aid given to the very poor was condoms, the rich West would actually be able to say that we were doing something useful to prevent poverty and the spread of killer diseases."

    I can't see the Vatican being very happy with that.

  • rate this
    0

    Comment number 7.

    I always thought that the measure of poverty was usually related to a percentage of national/regional/continental income? If you earn less than 25% of the national average you are in poverty, or somesuch?

    If this is the case, poverty can never be eradicated, as it is a mathematical calculation. There will always be a bottom 25%, or whatever, by deffinition.

 

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