29 February 2016

Asian poverty update

Poverty reduction in Asia has been spectacular, confirms the World Bank's latest poverty estimates. But we need to scratch below the surface of this rosy assessment, cautions John West.

The dramatic reduction in "extreme poverty" in the developing world -- from 44.3% of the total population in 1990 to 15% in 2012 -- has been driven by Asia, confirms the World Bank in its latest estimates.

To generate these estimates, the World Bank has recalibrated its "poverty line", which once stood at $1.00 a day, and is now put at $1.90. In other words, if you are living on less than $1.90 a day, you are deemed to be living in extreme poverty.

Extreme poverty fell from some 61% of East Asia and the Pacific's total population in 1990 to only 7% in 2012, and may have even fallen further to 4% by 2015, or 83 million persons. This achievement has been mainly driven by China, and to a lesser extent Southeast Asia.

South Asia, dominated by India, saw a fall in extreme poverty from 51% of the total population in 1990 to 19% in 2012, and possibly further to 14% in 2015, or 231 million persons

International commentators like CNN's Fareed Zakaria are prone embrace these statistics, and proclaim that Asia is winning the war against poverty. There is indeed no doubt that Asia's record in poverty reduction has been spectacular. But closer examination of these statistics calls for a much more nuanced assessment.

The extreme poverty line is based on a very low threshold standard of living, and corresponds to the minimum costs of life's basic needs. Further, it was calculated by taking the average of the national poverty lines of the world’s 15 poorest countries for which data are available, namely Chad, Ethiopia, The Gambia, Ghana, Guinea-Bissau, Malawi, Mali, Mozambique, Nepal, Niger, Rwanda, Sierra Leone, Tajikistan, Tanzania, and Uganda.

In other words, this extreme poverty line is of very little relevance to Asia's emerging economies. Any Chinese person can confirm that it is virtually impossible to live in Shanghai on $5 or even $10 a day, let alone $1.90.

This is why the World Bank has estimated another, less well publicized, poverty line of $3.10 a day, which many refer to as a "moderate", rather than, extreme poverty line.

On this basis, some 22% of East Asians would have been living in poverty in 2012, triple the 7% based on $1.90 a day. In the case of miraculous China, 27% of the population was living in poverty in 2010 (the latest available date). Some 55% of South Asians were living in poverty in 2012 based on the $3.10 a day poverty line, almost triple 19% based on $1.90 a day. In incredible India, 58% of the population were living below this poverty line in 2011.

In other words, while vast numbers of people may have escaped extreme poverty, very many are still living in moderate poverty. And very many again are sitting sitting just a few dollars above these poverty lines. This means that they are highly vulnerable to falling back into extreme poverty in the event of an earthquake, flood or other natural disaster, a sudden hike in food prices, or a personal/family problem like unemployment, or health problem.

What's more, there is a lot more to poverty than "income poverty". Poverty is a multidimensional concept, and Asia has been less successful in tackling poverty’s non-income dimensions.

For example, someone from India may well earn $1.90 a day, but suffer from other deprivations -- like no access to drinking water, toilets, education for his children, even healthcare facilities, or personal security. Indeed, India's has achieved less progress in terms of multidimensional poverty than for income poverty, as has Pakistan where the multidimensional poverty rate in recent years has been 44%, while income poverty has been 13%. These non-income dimensions of poverty require addressing inequality of opportunity, which can transmit poverty from generation to generation.

The development trajectory of many Asian countries is also environmentally unsustainable, with: unsustainable use of natural resources like land, water, forestry, fisheries and biodiversity; rampant air, water, toxics and solid waste pollution; and dramatic increases in carbon emissions.

Looking ahead, there are very real risks of this nature, like climate change, to which many Asian cities and rural areas are highly exposed. And it is Asia's poor who are the most highly exposed, because: poverty means that they often live in the most exposed areas; and poverty also means that they have very few assets to fall back on, in the event of such disasters.

But won't things just keep on improving, as they have done over the past few decades?

Most regrettably no! The first decade of the millennium saw dramatic economic growth fuelled initially by American excesses, and then by Chinese excesses. This enabled emerging economies, especially commodity exporters like Indonesia and Malaysia, to surf the economic wave of the century, which was the period of the highest poverty reduction.

The party is now over, and there is no likelihood of a return to high growth for the foreseeable future. And population aging, not only in the West, but also in many emerging Asian economies, is also hitting economic growth rates.

Further, as the Asian Development Bank has analyzed, the impact of economic growth on poverty is now diminishing. Many people who have been lifted out of poverty were living just below the poverty line, and were the “low-hanging fruit” of poverty reduction. We are now faced with a greater share of people who are deeply poor, and not so easily lifted out of poverty.

Another factor is rising inequality, which means that the rich are benefiting more from economic growth than the poor. There are also many groups who need specific and targeted assistance to escape poverty, such as: women in virtually all Asian countries; rural populations, including in China; indigenous peoples, especially in countries like India, Indonesia and Myanmar; ethnic minorities like Sri Lanka's Tamil population; migrant communities like Japan's ethnic Korean population; and refugees like Myanmar's Rohingya who are now increasingly present in Thailand and other Southeast Asia.

Mahatma Gandhi once famously noted, "A nation's greatness is measured by how it treats its weakest members." In this context, Asia’s great battle against poverty remains very much work in progress.
Tags: asia, poverty, extreme poverty, world bank