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.

More or Less: Behind the stats

You can listen to More or Less on BBC Radio 4 and the BBC World Service or by downloading the free BBC podcast

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."

 

More on This Story

In today's Magazine

Comments

This entry is now closed for comments

Jump to comments pagination
 
  • rate this
    -1

    Comment number 106.

    Sandy Harlestone-Smith
    " it's all about distribution of wealth. Those who warrant it - have it."

    Wow - someone who actually believes that wealth is handed out according to some estimation of individual value. The jury is not out on this.. wealth is a measure of unfairness; of who took from who, and if you did dole it out fairly it would be the ruthless and the greedy who would gain it.

  • rate this
    0

    Comment number 105.

    If anybody want's to find out about the problems faced by the poor than I highly recommend 'Poor Economics' by Abhijit Banerjee & Esther Duflo

  • rate this
    0

    Comment number 104.

    So why do I have to pay so much more than 1.50USD a day to live?

  • rate this
    +1

    Comment number 103.

    Sad that poverty is always valued in monetry terms. What about the richness of life, the love of family and friends, the beauty of the countryside, the singing of the birds? Ghandi was pennyless, was he poor? I think not. A happiness survey would show much better outcomes in the slums of Mumbai than any city in England.

  • rate this
    +3

    Comment number 102.

    So.

    Civilisation. Not a massive success then ?

    Back to the bows and arrows.

    What do you mean we can't ?

  • rate this
    -2

    Comment number 101.

    What did people live on before money was invented? I'm not suggesting everyone had a better quality of life then, probably the divisions were even more marked. But it's all about distribution of wealth. Those who warrant it - have it.

    Dole it all out equally and the 1% with 99% will have their 99% back within a generation.

    It's all geography and genes.

  • Comment number 100.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • rate this
    0

    Comment number 99.

    The amount of tobacco sold in many of the 'poor' countries belies the percentages of those on the dollar a day figures - unless no one eats?

  • rate this
    +2

    Comment number 98.

    digbic78

    Dear wininie the pooh
    The rain forest is not destroyed by subsistence farmers, who lack the chain saws and bulldozers to do it. It is destroyed for its timber and for bulk farming at the behest of international commerce, despite it actually being worth more as a sustainable resource.
    But, don't let facts get in the way of a mad rant will you. LOL.

  • rate this
    +3

    Comment number 97.

    I can't afford kids, so I'm not having any. Why can't others act the same way, would stop the need for handouts!

  • rate this
    -1

    Comment number 96.

    re95
    how are subsitence farmers-who operate outside the global economy and destroy the rainforests a result of the lifestyle choices of the UK?
    they do not produce anything for us,hence their title;subsistence farmers!lol.
    also your last point.How does the third world becoming like us help?how will that help the rain forests?liberals and their bleeding hearts

  • rate this
    +1

    Comment number 95.

    digbic78

    "how will I miss subsistence farmers destroying large swathes of our rain forests?"
    Your income and all your luxuries and everything allows you to live in this greatly overcrowded and fairly unproductive island is gained because of the economic imbalance. No one can be rich unless there are poor to make them. The destruction of rainforest is caused by demand from the richer nations.

  • rate this
    0

    Comment number 94.

    Bluesberry - there is massive financial speculation in agriculture the USA but food is cheaper today than it was 30, 40 years ago...no?

  • rate this
    -4

    Comment number 93.

    Comment number 90. Proletarian Revolutionary
    "69.Some Lingering Fog
    And yet there are still plenty of people in the UK who believe that poverty is rife in the UK.
    ---
    Indeed. There are people in the UK how thing not having the latest XBox Game equals poverty."

    And there are tens of thousands living on the streets, so what's your point? Or do they inconvenience your ideology too much?

  • Comment number 92.

    All this user's posts have been removed.Why?

  • rate this
    -3

    Comment number 91.

    The worst scenarion that can happen to the billions of poor is for them to end up with our living standards.It's to high and unsustainable for all of us.The energy output needed will mean hundres of nuclear and coal fired power stations,huge drain on the water table and no more rain forests as they will want their burgers.The liberals have an agenda so kiss goodbye to this green unique planet.

  • Comment number 90.

    All this user's posts have been removed.Why?

  • rate this
    -2

    Comment number 89.

    The $1.25 poverty line - just doesn't have the same ring as a $1 does it ?

  • rate this
    0

    Comment number 88.

    Speculation on food drives food prices up. Solution: protect agricultural raw materials from speculation. Give (UN) Unctad worldwide control over setting stock prices for agricultural raw materials. Only producers, traders & users of these materials would be able to intervene on the FUTURES MARKETS. Exclude anyone who does not make use of a traded good from the stock exchange.

  • rate this
    0

    Comment number 87.

    The richest 20 percent of the world's population receives 75 percent of the world's income, while the poorest 40 percent receive only 5 percent of the world's income.
    So.. cutting 10% income from the top 20% will triple the income of the poorest. Would you take the cut if you knew the money was actually going to the poor?

 

Page 3 of 8

 

Features

BBC © 2014 The BBC is not responsible for the content of external sites. Read more.

This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.