World Poverty—Growth or Redistribution by Timothy Taylor Poverty across the worl

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World Poverty—Growth or Redistribution by Timothy Taylor

Poverty across the world is commonly defined by what has come to be know as the $1-a-day standard that is, people who are living on less than $1 a day. About 1 billion people around the world were below this poverty line in 2004. Where that poverty line come from? Once each year, the World bank puts out something called the World Development Report, which is pretty much always a highly readable, useful report if you like those sorts o things. It’s a few hundred pages long, and its both about development around the world in general, and in each year,it focuses also some specific subject.The 1990 World Development Report took a stab at defining what was meant by poor people of the world.It calculated that these were the people who,in their numbers in 1985, were living on less than 41 a day. Let s call that $365 a year per person or for a family of four, that would be something like $1470.In their calculation,where did that number come from?They based that calculation of $1 a day on how much it costs to buy an extremely basic subsistence level of food and some other basic goods..That is, if you earn less than $1 a day,you were very likely to be malnourished and to suffer real physical and health problems from lack of good nutrition, as well as from lack of medical care and shelter, and all sorts of other factors.It turned out( that) when they started thinking of poverty in that way,the definition they were using was actually quite close to what some countries like India were using as their official measure of poverty within their countries. That offered some confirmation that this level was a plausible one. Later they updated this, so it was then $1.08 a person, measured in 1993 dollars, adjusted for inflation. since then, they raise the amount by an amount of inflation each year. But the exact amount each year down to the pennies is less important than remembering that there is a basic subsistence standard of living out there, and let s just call it the $1-a-day level. Overall, there are about 1.25 billion people who were below the $1-a-day poverty line in 1990. By 2004, that number had dropped down to slightly under a billion. To put it another way, about 27% of the world population in 1990 was below the $ 1-a-day poverty line and that was down to about one-fifth of world population below the $1-a-day poverty line by 2004.To me, this is just a stunningly large number.Sure, we all know that extreme, grinding, subsistence poverty existed and was a way of life in the past, and certainly, we re all aware at some level that extreme, grinding, subsistence poverty exists in the 21 st century, as well. But to think that roughly one in six of all the humans on earth are in this category, even in the first decade of the 21st century, that s a thought that sends an unpleasant chill down my spine.while the reduction in the share of the population below the $1-a-day poverty line is surely very welcome, an awful lot of it is due to the fast growth of China.Consider the East Asia and pacific region of the world,which is a World bank category;it s dominated in population by China.If you look at that region of the world,the share of population below the poverty line was 30% in 1990 and had fallen to just 9% by 2004.If you look at sub-Saharan Africa, on the other hand, the $1-a-day poverty rate fell from 47% in 1990 to only 41% in 2004. To put it another way, in Africa,two people out of every five are still below the $1- a-day poverty line in the middle of the first decade of the 21st century. That enough sends an even fiercer chill down my spine. Of course, there s nothing magic in looking at a $1-a-day. It also may be helpful to look at what would be the poverty line if you chose a slightly higher level.Of course, instead of choosing $1 a day, think about $2-a-day poverty line.In Africa in 2004, 41% of the population was below the 41-a-day poverty line, but more than 70% of the entire population of Africa was below a $2-a-day poverty line.In East Asia,9% were below the $1-a-day poverty line, as I mentioned a moment ago, but still a third of the population of that region is below $2 a day.In Latin America, it s also 9% below $1 a day, but 22% are below $2 a day.In South Asia, which is the region that mainly includes India and the subcontinent around it, 31% were below $1-a-day poverty 2004, but 77% were below $2 a day. Again, just think about it .Some years into the 21st century, about one -fifth of the world population lives on less than $1 a day.In some major regions of the world, roughly three-quarters of the population is living less than $2 a day. When you think of what it means to live in the 21st century, what its means to be a typical human being in the 21st century, it really takes you outside of the focus of citizens who love in the United States and other high-income countries.Even poor citizens in the United States live like the rich in the other countries, with indoor plumping and electricity, and television and phone,clean water,a nd access to health care. For comparison, the U.S poverty line for a family of three works out to about $13 a day.The $1-a-day poverty line, of course, can be questioned, like all economic statistics, both on the details of how its measured and o whether its too narrow a measure of poverty . Let s talk about both of these issues. One difficulty in calculating the number is that, of course, you need to convert currencies of all different countries into that U.S. $1 per day . What exchange rate do you use? As we talked about in converting GDP figures between countries, you can’t use the market exchange rate because it jumps around too much. But an exchange rate calculated on surveys of purchasing power, the so-called purchasing power exchange rate, will make more sense.However, this purchasing power exchange rate is based on buying power of similar things that are bought and sold in different countries. IT may not reflect well things that are really just bought and sold within one particular country. There s a source of concern there about the accuracy of the numbers.There is also an urban/rural problem.It s widely believed that prices are higher in urban areas than in rural areas . Wages and incomes are also higher in urban than in rural areas. It s not clear that the same $1-a-day poverty line works equally well in urban and rural areas. It s also worth nothing that a $1-a-day poverty line, or$365 dollars a years, isn’t quite the same as the per capita GDP numbers we ve been talking about throughout these lectures. Per Capita GDP, after all, is an average for total production in the economy. It doesn’t tell you anything about how that production is distributed . Also, gross domestic product is what a society produces.What a society produces is not identical to the consumption received by workers. For example, when society produces investment goods, those aren’t going into consumption by workers.The $1-a-day poverty line is not a perfect number. In a way, that shouldn’t be a big surprise. Whoever said anything was a perfect number? But standard like $1 a day can still be very helpful, even if they aren’t perfect, as long as you don’t change the definition year to year. As long as you keep the same definition over time, you can see what happens suing that definition. If you don’t like that one, you use $2 a day or some different line. Some people would broaden the definition of poverty much further. Nobel laureate economist Amartya Sen proposed what is sometimes called the capabilities approach to thinking about poverty.In this view, income is a big thing and it matters, but it’s also just a tool toward the ultimate goal. What ultimately matters is that people should have the ability to develop their capabilities which would include good nutrion, education, health, equality democratic and social participation, and other capabilities you might think about. Let me give you a couple of practical examples of how this has been put into practice. One part of the United Nations puts out something each year called “ Human Development Report”.It ranks countries according to a mixture of different factors, including income measured by per capita GDP, life expectancy for the country ,a nd education levels for the country.They also produce other versions of this measure that might add in factors like the level of inequality bwtween men and women or the level of poverty inside a country. You can look up thes Human Development Reports on the Web if you like. They always make for provocative reading . In the 2007 2008 ranking, for example, the United states ranks 12th in the world according to the Human Development Report just behind Finland and just ahead of Spain. In these ranking, The U.S. advantage in per capita GDP is, to some extent, offset by a worse performance on life expectancy and on educational performance compares to some other countries. Or compare just to choose two countries at random Russia and Chile.They are similar in measures of per capita GDP. Chile ranks 55th in the world among all countries in per capita GDP ;Russia ranks 58th.Both have pretty high levels of school enrollment, although Russia isa a little bit better. Among the countries of the world,Russia ranks 37th in school enrollment, and Chile ranks 48th.But Chile is much better on life expectancy. Chile is 28th the world in life expectancy; Russia is 119th in the world if life expectancy, with that big decline in life expectancy that followed the economic transition in the 1990s leading to those big decline in life expectancy for Russia . As a result, in the overall human development rankings,chile ranks well ahead of Russia.In these ranking for 2007 2008, Chile ends up 40th overall; Russia ends up 67th overall.As I said, I think these are always interesting,provocative ways of thinking about the world, but they do raise some obvious issues.If you are going to mix together different things, like per capita GDP, and life expectancy, and education, and other, what should get the most weight? Are all these categories equal? Are they not equal?If they are not equal, how are going to compare them? Are you going to say what s more important, having an extra year of life, or say an extra $1000 per year in per capita GDP, or on average,an extra two years of education for everyone?How should those be weighted against each other?If it s true that higher incomes lead to more education which does seem to be true around the world then you re sort of counting income twice.You re counting income first, and then you re counting increases in education from income. It s sort of double counting in a way At a deeper level,philosophers who look at the human capabilities approach and Im thinking here of people like Martha Nussbaum at the University of Chicago they start getting into many deeper ideas about what it really means to fulfill human capabilities.They start talking about the capacity for play and for delight, and for love. As an economist, I can feel myself getting into really deep water here I don’t know how to swim in that kind of water.Still it always interesting.The capabilities approach helps to emphasize that countries with similar income levels, like Russia and Chile, can really be quite different when you include other measures of the standard of living , like health or education.This approach, the capabilities approach, gained a lot of force in 2000 when the UN General Assembly adopted a resolution about what it calls the Millennium Development Goal.These, in particular, were eight goals for what countries and development agencies would try to accomplish over time.Let me list out the eight Millennium Development Goals (1) to eradicate extreme poverty and hunger;(2)achieve universal primary education;(3) promote gender equality and empower women;(4)reduce child mortality;(5)improve maternal health;(6) combat HIV/AIDS,malaria, and other diseases;(7) ensure environment sustainability;(8) develop a global partnership for development.What I really like about the Millennium Development Goals is that many of these goals have a concrete, numerical target behind them.For example, goal number one about eradicating extreme poverty says the goal is to reduce the percentage of people in the world who are living on less than $1 a day half from the 1990 level up to 2015 What I’m not sure about, in thinking about this, is why there are eight goals and whether all eight of them make equal sense.For example, three of the goals are related to health: child mortality, maternal health and other diseases. Those are all worthwhile but maybe health should be one goal rather than three goals. Thre s that eight goal, the global partnership for development, which to me is just vapid, empty bureaucrat-speak.Its all about a process;it s not about the outcomes you re hoping to get out of the process.But, that said, I do think the human capabilities approach is a useful reminder not just to focus on income.It does lead to questions about how to measure everything else and what to include and how to weight it .The rest of this lecture is going to focus on income measures of poverty, but many of these issues about other ways of thinking about standard of living do come up throughout the course.For example, there ll be later lectures specifically that take up topics of food and hunger, gender equality, and environmental issues, like climate change.How do we address poverty?(here s the)big picture:There are two approaches to tackling poverty.One would be growing the size of the economic pie;the other is redistributing the pie.How can a country reduce its $1-a-day poverty level?How can the Millennium Development Goal of cutting poverty in half be reached?Let s think about these two possibilities, growing the pie and redistributing the pie, and let me say a bit about each one.The limitations of growth in reducing poverty are real.Imagine, for example, however, as a starting point, that growth raises all people in a economy up by the same proportionate amount.If economic growth does that, then growth will raise up those at the bottom and will directly affect poverty.Its worth remembering that the greatest advance against poverty in the history of mankind is the economic growth in China( and in India) over recent decades, which has lifted several hundred million people out of poverty at $1 a day or $2 a day, however you want to measure it. But , in other areas of the world like Africa,Thre just hasn’t been very much economic growth in recent decades, and not many people have climed out of poverty as a result. Can economic growth be fast enough to do the job? Can it be fast enough to meet the Millennium Development Goal?Tim Besley,who s an economist at the London School of Economics, calculated a few years ago how fast economies would have to grow, assuming no change in the distribution of income, so economic growth raises everybody up by the same propotion.How much do the economies have to grow to meet the Millennium Development Goal of cutting poverty in half ? By his calculations Africa would nee a growth of maybe 5.5 to 6% a year for the next decade or so to do that .Latin America would need to grow maybe 3.8% a year for a decade to meet Millennium Development Goal. South Asia, meaning India and surrounding countries, would have to grow something like 4.7% a year to meet that goal. India has reached this rate of growth in recent years. But some other surrounding countries in South Asia, like Bangladesh and Sri Lanka haven’t quite done as well.For Africa, the arte of growth that Besley thinks is necessary that 6% a year rate of growth seems just impossibly high.Remember, Africa saw close to zero economic growth in per capita GDP from 1970 up to the early 2000s. Even with some resurgence of growth in sub- Saharan Africa in the first decade of the 2000s, sustained growth at that kind of rate just hasn’t been the hostiorical pattern in Africa.Also, remember that even meeting the Millennium Development Goal just cuts the poverty level in half from 1990 to 2015. You d still have, by 2015, the other half still below the $1-a-day poverty line .Optimistically, even if you got the necessary growth rates, you d still have one in eight people in the world, or something like that, below the $1-a-day poverty line,Finally,if growth is accompanied by greater inequality then it would be possible to have economic growth and have no reduction in poverty at all.There have been worries that certain parts distributed, like Latin America, parts of Eastern Europe, and South Africa, might fall into this category, where growth may not reduce poverty very much.What about redistribution, the other big option?This would be a complementary approach; obviously, you don’t do all one or all the other .But in low-income countries, there are two big hurdles, two big practical problems with redistribution.The first one is that there s no government infrastructure in a lot of low-income countries for collecting and distributing money in a sensible way.IN high-income countries, economists sometimes talk about the tax and transfer system .It s easy to collect money in taxes;it s fairly easy to distribute it.But low-income countries often don’t have a sensible tax code, and they don’t have a sensible transfer of bureaucracy either.The other practical problem is that in some low-income countries, they re just so poor there s just not very much to redistribute.Redistribution, for example, could have a substantial effect in latin America because inequality is pretty high, and those who have more income have enough that you could redistribute it.But in South Asia, like India, there s just less inequality to start and not as many poor people.In Africa, it s so very poor, on average,there s just not a whole lot of ability for redistribution to work.In coutries across Africa, redistribution isn’t really Robin Hood take from the rich and give to the poor.There aren’t that many rich, so it just doesn’t work that well . A possible alternative here is to run public programs that tend to benefit the standard of living of the poor.Rather than trying to give them money, you do things like provide public service,like education and health and try improve the standard of living in that way.Or you provide access to credit or try to ensure better property rights.There are ways outside the income system of trying to improve people standard of living.i ve ben emphasizing that there are some difficulties with growth and redistribution in reducing the $1-a-day poverty rate, but I don’t mean to say that growth or redistribution can’ or it can’t matter or it doesn’t help somehow.Clearly, it does matter a lot.Look at the experience of China and India, for example,As we were going around the world in earlier lecture, a lot of my lectures focused on economic growth and will focus more on economic growth before we re done.Over time, in fact, growth is really the only answer here to reducing poverty.To explain why, I guess I can’t do any better than to quote from Robert Lucas, who s a Nobel laureate economist from the University of Chicago.Lucas wrote a few years ago: “Of the tendencies that are harmful to sound economics, the most seductive, and in my opinion the most poisonous, is to focus on questions of distribution.IN this very minute, a child is being born to an American family, and another child,equally valued by God,is being born to a family in India.The resources of all kinds that will be at the disposal of this new America will be on the order of 15 times the resources available to his Indian brother. This seems to us a terrible wrong, justifying direct corrective action, and perhaps some actions of this kind can and should be taken.But, of the vast increase in the well-being of hundreds of millions of people that has occurred in the 200- year course of the industrial revolution to date, virtually none of it can be attributed to direct redistribution of resources from rich to poor. The potential for improving the lives of poor people by finding different ways of distributing current production is nothing compares to the apparently limitless potential of increasing production. In the long term,Lucas is completely right.IF you don’t have a lot of economic growth over time, you just aren’t going to fix poverty with redistribution alone.There are, however, with economic growth, questions of how fast it can reduce poverty and how well it is focused on fighting poverty, and that s where redistribution can have a role .Instead of continuing here to talk at the lofty level about growth and redistribution, let s get down to the grassroots level and talk about what needs to happen in the lives of poor people to help them move out of the $1-a-day poverty zone.What lifts the evry poor around the world above the $1-a-day poverty line.I’m not asking here what makes a c.ountry rich, but what s different down at the grassroots? What s different in the lives of those who are below $1 a day or $2 a day in comparison with those who are at $2 to $6 a day in lower-income countries or $6 to $10 a day ?The journal that I edit, the Journal of Economic Perspectives, has published some research over the last few years by two MIT economists, Esther Duflo and Abhijit Banerjee Massachusetts Institute of Technology.They have looked at household-level surveys to investigate what life is really like for the very poor of the world.We re not talking about high-powered statistical analysis here. We re just looking at detailed survey data on how the poor actually live. The World bank does something called a Living Standard Measurement Survey, which is a detailed survey of how people live in different countries in the world, and also have done some surveys themselves in Indiaon different groups.They looked across 13 countries, chosen basically because there s pretty good household-level survey data on how people are really living.In Africa, for example, it was Ivory Coast, Tanzania, and South Africa.IN Latin America, it was Mexico, Guatemala, Nicaragua,Panama, and Peru.In South Asia, it was India and Pakistan.IN East Asia,it was Indonesia, East Timor, and Papua,New Guiea.We can look at those countries, and based upon that data,we can say.How do the poor actually live? What I want to focus on here is: What Flexibility do poor folks have in their lives?What makes the difference in moving above that$1-a-day or $2 -a-day poverty line?One thing you can look at, for example,is consumption patterns for those with very low incomes.It turns out that consumption patterns, if you look at the share of income spent on different categories, are not that wildly different if you look at the share of income spent on food or housing and so on.Of course, those in the middle class in low-income countries have more of everything, but the shares of income spent are roughly the same.It turn out that even those that are really poor in low-income countries do, at least theory,have some ability to save or to reallocate resources. Even those with very low incomes,living on less than $1-a-day, spend a reasonable amount of their income on things like tobacco and alcohol, and festivals, and certain kinds of foods that don’t have a high number of calories for the price that you pay.The middle class in low-income countries often has enough discretionary income for things like a TV set and furniture, as well as a much better diet and money for education for their children.The very poor, along with the near poor and the middle class of ow-income countries, seem to borrow at roughly the same interest rate, and they often seem to have family member who s running a small,under capitalized business that doesn’t do very much.There is some potential for saving, however, and that s an interesting insight.The second insight that comes out of their research is that there s a big difference in fertility patterns between those with very low incomes and those who are middle class in low-income countries.The middle class has, on average, about one child per family less. Let me give you a hypothetical way of reducing poverty very quickly.We ll call it the Taylor Plan for Reducing Poverty.Say that you have $2400 in annual income, and you have eight people in your household.That s $2400 divided by 8, which works out to $300 per person.That s less than $1 a day .Now have the same $2400 in income but have only six people in your household.Now, it s $400 per person and presto ! You re above the $1 -a-day poverty line. Im being a little facetious here, and of course, you can play with the numbers however you want. But the basic idea is: if you don’t have quite as many children, then you may have a better chance of raising the standard of living for everyone in a relatively quick way. Other research suggests that in very low-income countries,teen pregnancy may be especially linked to$1-a-day poverty.Partly this is because teen pregnancy means more kids are likely into the future.Partly it s because teen pregnancy affects the mother accumulation of skills and capital, and so the children of teenage mothers are often raised in a very extende large, very poor family.Notice that this has nothing to do with GDP growing; it has nothing to do with redistribution.I m just saying, working on the denominator of family income divided by size of family, don’t divide family income by quite as many people. It s a little hard to separate cause and effect here. It may be there s some luck involved. It may be that there are lots of pretty similar adolescents, and they re doing what adolescents do, and some end up as parents and some don’t . AS a result, some end up as low-income and some don’t , just more or less by chance.Banerjee and Duflo, in their work, admit this possibility, but their best guess is that control of fertility might be one of the important factors in helping the middle class in low-income countries have a higher standard of living than the poor.There actually seems to be sort of a cycle here. Once you re in the situation where you have a job and asmaller family, then it s easier to invest in education and health so that future generations are better off, as well. But in terms of the differences between those with lower and higher incomes, maybe the biggest difference is in terms of job patterns.The big difference here is that those in the middle class, say $2 to $6 a day or $6 to $10 a day, are far more likely to have a salaries, regular job than those with lower income levels. In these kinds of countries, in this survey, something like 80 to 90% of the middle class and Im talking now about those above $2 a day and up to $10 a day get paid regular.They re paid weekly or monthly.If you look at those who are receiving less than $1 a day,it s something like one-third or maybe 40% who get paid weekly or monthly.The rest get irregular pay, when they get it at all. It s also true that the middle class is more likely to have migrated to find that job.It varies by country, but often,half or more of the middle class getting $6 a day have migrated in order to get the job that they held. Of those at less than $1 a day, only about 10 to 15% have migrated to get the job they held.These better jobs sometimes are a matter of migration, but it doesn’t seem to be particularly a matter of education or higher skills.In fact, sometimes,it s a just a matter of lucky local events.Let them uproit themselves and migrate in search of a better job and a better life.The fundamental problem, however, of solving poverty and this is something so obvious, but it makes sense is hooking up unskilled workers to consistent local paychecks. When you focus on the poor,their immediate needs are so great that it s easy for the discussion to focus on food,, clean water,education all the things they need.These are all worthwhile endeavors.But even if you provide food and clothing, and vaccinations, and antimalarial nets dipped in insecticide, and classroom for the kids, you still haven’t solved the problem of earning income. At its most basic level, earning income requires two things: it requires a willing worker, and it required a willing employer. Low- income countries are full of willing workers. Many countries have raised their literacy and health levels in recent decades, and the workers have more skills than they have before.But many of these same low-income countries are massively lacking in willing employers. That s why there s so much migration to find jobs. That s why so many workers ,skilled and unskilled,try to migrate out of the country altogether.That s why a lot of the governance issues like how much corruption there in a country, how hard it is to start a business have come up over and over in these lectures as we talk talk about areas around the world, including Africa and Latin America, India, and the Middle East.Sometimes people say it takes two wings to fly .In labor market, those two wings are willing and capable workers on one wing and willing and capable employers on the other wing.Frankly,you cannot be really in favor of workers if you re not also in favor of employers. In the low-income countries, you have the wing for the supply side of the labor market, but often, those economies are trying to flap along without much contribution from the demand side of the labor market from those who want to hire workers.Both sides of the labor market matter.The fastest way to get someone out of the poverty is for them to have a regular salaried job available to them. But you need both demand and supply wings in the labor market for any economy to fly.

Timothy Taylor,Global Poverty.

go to the link that I provide and answer these following question:

a) According to Taylor,what are key issues related to the measurement of poverty?

b)What is the difference between income-based and consumption-based measures of poverty?

c)Why does Talor argue that redistribution is not the most efficient manner of addressing inequality(as opposed to economic growth)?

d)Citing the research of Duflo,what is Taylor's argument relating to actual consumption=patterns by the poor?

e)Provide your appraisal of Taylor's solutions( recommendations) to redress poverty?

Explanation / Answer

a. According to Taylor, one of the key issues is that how to find a perfect measurement of poverty. He gives the example of various poverty lines such as that of the US and World Bank. He says that if we were to use the US poverty line of $1 a day, then a problem in calculating the number would occur. The currencies of different countries will have to be converted to a dollar. In that, the question of exchange rate comes. As he put it that "in converting GDP figures between countries, you can’t use the market exchange rate because it jumps around too much". He says that maybe purchasing power calculated through surveys may work but that is also based on buying-power of similar things that are bought and sold in different countries.

The urban-rural composition is also a concern since it is understood that rich people live in urban areas while the less rich in rural.

b. The measures those take income as a yardstick to measure poverty are income based measures of the same. For example, an individual earning less than $1 a day is poor. The consumption-based measures are those consider consumption as a yardstick for poverty. For example, an individual who takes less than a particular amount of calories a day is poor.

c. Talor argued that redistribution is not the most efficient manner of addressing inequality citing the reason that it is only possible in rich countries. The poor countries don't have the necessary government infrastructure to start on a process of redistribution.

d. Talor argument, citing the research of Duflo is that the poor people consume their income on unproductive things such as TV, Tabaco, and festivals. Also, they share the income for consumption among the family members as Income divided by the number of members.

e. The solutions suggested by Talor are a systematic combination of previous work available on poverty and his own understanding of that. On the question of redistribution in the less rich countries he seems skeptical, yet there examples like China which has developed from a poor country to fastest growing economy. Overall, Talor's suggestions are comprehensive.

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