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
    0

    Comment number 146.

    It's all a bit flawed, isn't it? $1 a day in the wealthy west is nothing at all, but in poorer, more agrarian societies it may well be enough for a reasonable living. The test is surely having clean water, sufficient food, clothing, shelter and at least basic education for children.

  • rate this
    0

    Comment number 145.

    It never ceases to amaze just how much effort, time and research goes into tinkering but essentially keeping in place an economic model that celebrates as a success the personal remuneration of more than $1 Billion to each of the top 5 hedge fund managers whilst 40,000 men women and children starve to death each and every day.

  • rate this
    +2

    Comment number 144.

    @43

    OK, so stop & think.

    Nature determines which lands can support life.

    NGOs, Aid, Charity - whatever - actually stops the need for the non-migration of peoples to land that would/could support life.

    Politics, wars, territorialism - whatever - prevents this migration.

    NGOs, Aid, Charity, whatever, repeats previous unsuccessful formula.

    You can not outsmart NATURE!

  • rate this
    0

    Comment number 143.

    Tell us something new!! there have been rich and poor all over the world since time began, it will always be that way and anyone who thinks they can sort it has their head in the clouds. It just seems now the rich are getting richer and the poor getting poorer.

  • rate this
    +2

    Comment number 142.

    Long before there was a West to blame for all the world's ills,powerful communities would attack weaker ones to steal,enslave and kill.
    The problem lies in human nature which,at its worst,is pretty horrific.
    Countless laws exist to promote justice and fairness.But humans are still the same at heart.
    Having said all that,I do love people!

  • rate this
    +1

    Comment number 141.

    The amount of money donated to the third world by the UK every year must be enormous. If only people were a little more inclined to donate and help their local communities.

    The international aid budget has not been cut for a reason! It is for central government to aid those in the third world and for us to work towards improving our own communities and making Britain a better place for all!

  • rate this
    +1

    Comment number 140.

    That whole diagram is misleading, don't you think? The only real reason for a decline is clearly population increases, the real number outside of China is the same.The article fails to address that clearly according to these statistics the number of people below the poverty line has remained stationary for 27years, surely that is what this article should be about, not focus on an economic concept.

  • rate this
    +1

    Comment number 139.

    Comment number 35. Proletarian Revolutionary
    "Seeing the many comments on the http://www.bbc.co.uk/news/world-africa-17308913 topic, most people do not care one bit, sad but a true reflection on the UK & the west as a whole."

    No, what's really sad is that you ignore their arguments because it might challenge your beliefs. We send more aid to Africa than anyone, we have a right to an opinion.

  • rate this
    -1

    Comment number 138.

    If folk can live for $1 a day in some parts of the world, that says a lot about how expensive life is in the west. And that is the real tragedy.

  • rate this
    0

    Comment number 137.

    I find it strange that you included the very interesting and informative graph but failed to mention what it was demonstrating in the article. 96.9% of the reduction took place in China. Between 1981 and 2008 650 million less people live below this threshold but when China is eliminated only 20 million fewer people are living below this threshold.

  • rate this
    0

    Comment number 136.

    It puts it in context. My council tax, gas, electricity, water, TV, telephone and internet adds up to $15 a day all on their own. That is before I eat. If I could live comfortably in a mud hut in sub saharan africa, I might consider it.

  • rate this
    0

    Comment number 135.

    Don't forget that those people do not go into a store and ask for a can of coke and 20 Marlboro lights! They live off the land, build their own houses and they barter. But those who live on $100 a day are now incapable of supporting themselves. They are equally slaves of the "system", just simply unaware that Earth's free resources are being resold to them.

  • rate this
    0

    Comment number 134.

    They're called 'Developing Countries' and NOT '3rd World Countries'

    During the Soviet era, '1st World' referred to Developed Market Economies, '2nd World' referred to Soviet and Planned Economy countries and the '3rd World' referred to all others.

    On a seperate note, they're called 'Native Americans' NOT 'Red Indians'

  • rate this
    -1

    Comment number 133.

    How interesting that learned economists would simply accept a thoughtless catchphrase as a real measure of anything. From that, I infer that they just don't care about people who have no money. After all, how can you have an economic theory of capitalism and consumption if there are no dollars to figure into a formula?

  • rate this
    +1

    Comment number 132.

    122.Dilli
    1 Hour ago
    Chinese Proverb - "Give a man a fish and you feed him for a day. Teach a man to fish and you feed him for a lifetime."
    We should work on teaching every poor people in the world to fish, and then we should stop giving them fish. Provided we do not take away their river where they can fish. Simple?


    +++
    Are fish populations increasing in step with our population?

  • rate this
    0

    Comment number 131.

    It's been said, but bears repeating.
    *We* are responsible for '3rd world' poverty. The so called '1st world'.
    Always have been, always will be. We invade (not always militarily and often by proxy), disband and demolish culture, replace with our own imposed system and blame them when it all goes belly up for those that don't work for 'us'.
    *We* are '1st World Corporation Plc'.

  • rate this
    0

    Comment number 130.

    @128
    I think that's partly the point. It IS possible, just about, to get enough calories on $1 even in US/UK. It just means little choice, and not hugely healthy diet as you don't get much variety.

    2.7 billion people live on less than $2 per day and there's an organisation running a challenge in a couple of weeks for people to live on this for all their food and drink.

    http://codewe.org/2-a-day

  • rate this
    0

    Comment number 129.

    128:But I have difficulty with the definition if it really means what could be bought in America for $1. I haven't been there recently, but I suspect that it would not be possible to buy enough calories to stay alive in America with only $1."
    **
    If you bought rice&beans in bulk & divided them up into portions you could manage on $1. a day.

  • rate this
    +1

    Comment number 128.

    Like others I assumed that the $ a day did not take account of local costs. It seems that was wrong, and I'm pleased to have this made clear. But I have difficulty with the definition if it really means what could be bought in America for $1. I haven't been there recently, but I suspect that it would not be possible to buy enough calories to stay alive in America with only $1. So how does it work?

  • rate this
    +1

    Comment number 127.

    119.Civilisation Was it worth it Nope:
    "All those advocating population control for 'them'.
    'They' are who exactly ?"
    **
    Good question.Thanks!

 

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