Living on less than one dollar a day: this is the definition of absolute
poverty.
This definition might seem simple: surely it just means that the poorest people in the world have less than $1 (50p) to spend each day. And perhaps it might seem that absolute poverty is not too bad: because although $1 won't buy much in an industrial country, in India or Africa it can be enough to survive.
But this isn't what the definition means.

Many people - in Universities, on television, in government - have misunderstood what the "one dollar a day" definition means, and as a consequence they don't realise how serious global poverty really is. This pamphlet tries to explain what it really means.

A dollar a day?
The commonly accepted measure of absolute poverty is an index known as the international poverty line: this is the ‘one dollar a day’ marker set by the World Bank. But to earn a dollar a day does not, by this measure, actually mean to earn a dollar’s worth at international exchange rates. It is calculated using a conversion mechanism known as Purchasing Power Parity, which compares the ability of people in different countries to buy a "basket" of goods which would cost a dollar in the USA. In other words, earning less than a dollar a day means that you don’t earn enough in a day to buy you what a dollar could buy you in America. To take a specific example: an Indian worker who earns forty-five rupees a day will not be deemed to be below the poverty line, even though they earn less than a dollar at international exchange rates. This is because it only costs about nine rupees to buy food that would cost you a dollar in the USA. The international poverty line is set much lower than, at first glance, it appears. Another way of seeing this is to imagine how far you could get in an American city with just one dollar. The US Department of Agriculture calculates that in 2007 the minimum expenditure required to nourish an adult male for a week in the United States is $35.40 - and this only counts what they would spend on food. This is roughly five times as generous as the international poverty line, which is supposed to include all other expenses as well as food. Supporters of the Purchasing Power Parity index argue that it provides a sounder measure than exchange rates, which can be distorted by currency speculation. They also suggest that, in an efficient global market, identical goods would have only one price and the measurement would attain perfect validity. Until that day arrives, though, the index is only capable of showing us how far the global market is from being fair and efficient. And while this index is set so low, it is not fit for the purpose of measuring progress towards the first of the United Nations Millenium Development Goals, to halve extreme poverty by 2015. If we are serious about defeating poverty, our sights must be set far higher.

The mismeasure of poverty

We are familiar with states being experts at managing statistics to their own advantage - the words ‘state’ and ‘statistic’ share a common root, after all - but it is perhaps less easy to accept that an international institution such as the World Bank, with such key responsibilities for the reduction of poverty, would do the same thing.

The economist Sanjay Reddy and the philosopher Thomas Pogge, however, have argued that the World Bank’s ‘dollar a day’ international poverty line is, for all its appearance of precision, unreliable and highly vulnerable to manipulation. This section is an attempt to introduce some of their arguments.

After translating its poverty line between countries using Purchasing Power Parity in the manner described above, the Bank performs a second step, translating the sum through time by looking at inflation within the countries. This would be
meaningful if the Purchasing Power Parity between countries was consistent at different times, and if the rates of inflation over time were consistent between
countries. But none of these ratios is actually consistent with each other. The World Bank contrives consistency by using the Purchasing Power Parity ratios for a base year: but the choice of this year is arbitrary and has huge implications for the measurement of poverty. In the year 2000, the World Bank shifted its base year
from 1985 to 1993, with huge statistical effects (the number of Mauritanians deemed to be below the poverty line, for example, fell from 31.4% to 3.8%).
As a method of measuring poverty, therefore, this method is both complicated and unreliable. And there are real alternatives: SocialWatch, an international research network, administers the Basic Capabilities Index which measures wealth in terms of access to essential goods and welfare. The World Bank, however, persists with a ‘money metric’ approach. A possible reason for this is that the ‘dollar a day’
poverty line is geared to producing positive results.

This is because the basket of goods the World Bank uses to calculate purchasing power includes services - intangible goods such as teaching, banking or web-design - which tend to be relatively much better value in developing countries than in the
rich world, and thus shrink the cost of the developing countries’ basket of goods considerably. When considering the phenomenon of absolute poverty, however, this must be seen as a distortion – these services are hopelessly out of reach for people struggling to acquire such basic necessities as food and water. It has been calculated that 30%- 40% more people would be considered to be living in absolute
poverty if measurements excluded services and only took account of these basics. Not only do the services in the basket increase the appearance of wealth in
developing countries, they also inflate the impression of increasing wealth, as these
services become a greater share ofthe global basket over time.

In his moral philosophical work Pogge argues that we in the rich countries of the world like to view poverty as being confined to certain periods – such as famines
– and certain areas – such as war zones and corrupt regimes. This enables us to see poverty as a problem to be dealt with by charity – which is relatively painless – rather than by asking difficult questions about the way we live our lives. The World Bank has been in some measure responsible for propagating this view, casting corrupt regimes as the villains against a rosy backcloth of the poverty reduction
which will inevitably come from ‘business as usual’, and from accepting its aggressively corporate agenda. The statistics the World Bank produces seem to support this vision. It is only when we examine them critically that we realise that ‘business as usual’ will not be sufficient.

Written by James PicardoThis pamphlet is based mainly on an article by Thomas Pogge and Sanjay Reddy called
“Unknown: The Extent, Distribution, and Trend of Global Income Poverty.”

References used in the text

Line 6 – The World Bank’s IPL calculations are described at
www.worldbank.org/poverty and can be replicated at http://iresearch.worldbank.org/PovcalNet/jsp/index.jsp

Line 7 – The United Nation’s Millenium Development Goals are
outlined at www.un.org/millenniumgoals/

Line 14 – The idea of Purchasing Power Parity is first outlined in Cassel,Gustav, 1923. The Theory Of Social Economy, Unwin.

Line 20 – These measurements are for 2005. For a table comparing
exchange rates with PPPs, see
http://devdata.worldbank.org/wdi2005/Table5_7.htm

Line 27 – The US Department of Agriculture’s ‘Thrify Food Plan’ can
be found at www.cnpp.usda.gov/Publications/FoodPlans/2007/CostofFoodApr07.pdf

Line 36 – The methodological argument for using Purchasing Power
Parity to measure poverty are outlined in Chen, Shaohua and Martin Ravallion, 2001 “How Did the World’s Poorest Fare in the 1990s” Review of Income and Wealth 47, 283-300

The Mismeasure of Poverty

Line 4 – 1770, "science dealing with data about the condition of a state or community," from Ger. Statistik, popularized and perhaps coined by Ger. political scientist Gottfried Aschenwall (1719-72) – www.etmyonline.com

Line 10 – Reddy, Sanjay and Thomas W. Pogge, 2003. “Unknown: The Extent, Distribution, and Trend of Global Income Poverty”, which can be read at www.cceia.org/resources/articles_papers_reports/815.html
Reddy, Sanjay and Thomas W. Pogge, 2003. “How Not to Count the Poor.” Unpublished working paper, which can be read at www.columbia.edu/~sr793/count.pdf

Line 25 – www.socialwatch.org/en/portada.htm for detail on the
Basic Capabilities Index and other useful indices

Line 42 – Thomas W. Pogge, 2002. World Poverty and Human Rights,
Polity, Cambridge.

Line 49 – See Paul Wolfowitz’s speech of April 11, 2006 in Jakarta
‘Good Governance and Development’ at www.worldbank.org