Poverty International Poverty Centre

United Nations Development Programme December 2006

What is poverty? Concepts and measures 2 United Nations Development Programme

he international development community has had poverty in focus for more than FROM THE T a decade. At summit meetings and other occasions, world leaders have stated and reconfirmed their agreement that poverty must be reduced and eventually eradicated.

EDITOR The political commitment is a necessary, but not sufficient, condition for this to happen. Analysts, policy-makers and practitioners need appropriate concepts and dedicated measures to enable progress from rhetoric and general policy statements to action and results on the ground.

In this issue of IPC’s journal Poverty in Focus we present ten articles intended to throw Poverty in Focus is a regular publication of the UNDP International Poverty Centre (IPC). Its light on the question of how best to define and measure poverty. purpose is to present the results of research on poverty and inequality in the developing world. Robert Chambers outlines five clusters of meanings and reminds us of the importance of the analysis and views of poor people themselves and their many meanings. When they The International Poverty Centre (IPC) is a joint project between the United Nations get to express their views, we get a case for changing language, concepts and Development Programme and Brazil to promote measures in development. The key issue is whose reality counts – theirs or ours? South-South Cooperation on applied poverty research. It specialises in analysing poverty and Peter Townsend provides an historical perspective of the poverty concept and the setting inequality and offering research-based policy of poverty lines. Three poverty concepts have evolved, based on ideas of subsistence, recommendations on how to reduce them. IPC is directly linked to the Poverty Group of the basic needs and relative deprivation. Since material needs are socially determined, we Bureau for Development Policy, UNDP and the need a new international poverty line based on what is required in different countries Brazilian Government’s Institute for Applied to surmount material and social deprivation. Economic Research (Ipea). Sakiko Fukuda-Parr describes the multidimensional poverty measures developed by UNDP’s Human Development Reports since 1990, especially the Human Poverty Index IPC Director (acting) (HPI). It shows a large spread of human poverty among countries with similar levels of Terry McKinley income poverty and thus, HPI is only weakly correlated with income poverty. Recent HPI Editor trends are also presented and discussed. Dag Ehrenpreis International Advisory Board Caterina Ruggeri Laderchi, Ruhi Saith and Frances Stewart analyse empirical evidence to see Oscar Altimir, CEPAL, Santiago de Chile if and why the definition of poverty matters. They also report on field testing in two Giovanni A. Cornia, Università di Firenze developing countries of four different approaches. These are shown to have different Nora Lustig, UNDP/BDP Poverty Group implications for policy and also for targeting, since they identify different causes and Gita Sen, Indian Institute of Management, Bangalore Anna Tibaijuka, UN Habitat, Nairobi effects of poverty, and different people as being poor. Peter Townsend, London School of Economics Philippe van Parijs, Université de Louvain Gustav Ranis, Frances Stewart and Emma Samman review the various listings of human wellbeing and poverty elements, thus identifying a comprehensive set of dimensions Desktop Publishers in order to empirically explore whether UNDP’s Human Development Index is adequate Roberto Astorino and Lucas Moll or needs to be supplemented. They show that assessing human development fully Front page: Photo by Fabio Veras, IPC, of requires a broader set of indicators. an African cobweb to illustrate both the fragility and the tenacity of the life situations Peter Edward outlines a moral concept of absolute poverty and defines an Ethical of people living in or close to conditions of poverty. The web metaphor is also applicable Poverty Line derived from globally standardised and ethically justifiable wellbeing to the interlinkages between the various indicators. Applying it to actual income data shows that world poverty by a moral dimensions of poverty and wellbeing, as in the definition is much larger than by current measures, and so is the required global figure on page 3. income redistribution. Editor’s note: The sources of graphs and tables are the reference publications at Lord Meghnad Desai finds the definitions of absolute poverty static, calorific, asocial the end of each article concerned. Thanks for and atheoretical. He proposes a new poverty line to be based on the need to permission to use this material to Robert maintain individual labour capacities intact, thus connecting to health, nutrition Chambers, Institute of Development Studies, Sussex, UK; UNDP Human Development and monetary measures. Report Office, New York; Journal of Human Development, Routledge; Third World Ravi Kanbur considers the conundrums of measuring poverty when populations change Quarterly, Routledge. And thanks not least to and analyses three population size scenarios – increased, decreased and unchanged, but all the authors contributing their time and intellectual products without any monetary with churning around the poverty line. He delivers some remarkable points to consider. remuneration. Nanak Kakwani proposes a multidimensional poverty concept that is causally linked to command over economic resources. He argues for an income poverty line that reflects United Nations Development Programme the cost of achieving basic human needs. Internatinal Poverty Centre SBS – Ed. BNDES, 10º andar Sabine Alkire in response to Kakwani argues that it is not the cause of poverty that 70076-900 Brasilia DF Brazil matters, but what is actionable by public policy. There are many ways to measure [email protected] capability deprivation. The debate ends, for now, with a rejoinder by Kakwani. www.undp-povertycentre.org We wish you an informative and valuable reading of this issue of Poverty in Focus. The content of this publication does not necessarily reflect the official views of UNDP. Dag Ehrenpreis International Poverty Centre Poverty In Focus December 2006 3

by Robert Chambers, What is Poverty? Institute of Development Studies, Sussex, UK Who asks? Who answers?

The flood of development rhetoric These four clusters of the meanings of on poverty, the primacy accorded by poverty have all been constructed by What poverty is taken lenders and donors to the Millennium “us”, by development professionals. to mean depends on Development Goals, of which the reduction They are expressions of “our” education, who asks the question, of extreme poverty is the first and usually training, mindsets, experiences and how it is understood, considered the most important, and the reflections. They reflect our power, as and who responds. frequency with which reducing, alleviating non-poor people, to make definitions or eliminating poverty is seen as a prime according to our perceptions. And the Our common meanings goal and measure of development – primacy we accord to poverty have all been constructed these factors make it matter more than alleviation, reduction or elimination by us, non-poor people. ever to know what poverty is. What it is implies that these meanings that we taken to mean depends on who asks the give are fundamental to what They reflect our power question, how it is understood, and who development should be about. to make definitions responds. From this perspective, it has at according to least five clusters of meanings. One expression of this has twelve our perceptions. dimensions, each one potentially having The first is income-poverty or its common an impact on all of the others, and Whose reality counts? proxy (because less unreliable to measure) vice versa, thus emphasising the Ours, as we construct it consumption-poverty. This needs no interdependence of the dimensions of with our mindsets and for elaboration. When many, especially poverty as we see them (see figure below). our purposes? Or theirs economists, use the word poverty they as we enable them are referring to these measures. Poverty Another expression of this has five to analyse and express it? is what can be and has been measured, dimensions to illustrate development as and measurement and comparisons provide endless scope for debate.

The second cluster of meanings is material lack or want. Besides income, this includes lack of or little wealth and lack or low quality of other assets such as shelter, clothing, furniture, personal means of transport, radios or television, and so on. This also tends to include no or poor access to services.

A third cluster of meanings derives from Amartya Sen, and is expressed as capability deprivation, referring to what we can or cannot do, can or cannot be. This includes but goes beyond material lack or want to include human capabilities, for example skills and physical abilities, and also self-respect in society.

A fourth cluster takes a yet more broadly multi-dimensional view of deprivation, with material lack or want as only one of several mutually reinforcing dimensions. 4 United Nations Development Programme

good change. Development thus can be seen as shifting from illbeing to wellbeing with equity, with interventions to enhance wellbeing possible at any of the five points (see figure on the right).

But these dimensions are all abstractions, to varying degrees reductionist, based on our analysis and views. They tend to overlook and ignore the analysis and views of the objects of the definition and description – “the poor”, that is people who are in a bad condition variously described as poor, marginalised, vulnerable, excluded or deprived. There is then a fifth cluster, which is the multiplicity of their meanings.

These dimensions have been elicited in many contexts, most extensively perhaps in the World Bank’s participatory research programme Voices of the Poor, in which over 20,000 poor women and men from 23 countries were convened in small groups and facilitated to analyse and express their realities. Questions striking commonalities – material “What can you do to reduce our bad had to be confronted concerning words, wellbeing, having enough; bodily experiences of life and living, and to translations, languages and concepts. wellbeing, being and appearing well; enable us to achieve more of the good many aspects of social wellbeing things in life to which we aspire?” The word poverty translated into other including being able to settle children, Policies and actions that follow would languages carries different connotations. and being able to help others; security; then be designed to reduce illbeing and This was one factor in deciding to seek and freedom of choice and action. enhance wellbeing in their own terms. better insights and comparability by Both these commonalities and local The MDGs may help, but are far from inviting the local analysts to use their own differences make a case for changing enough for this, and may at times even words and concepts for illbeing or bad language, concepts and measures in misdirect effort. quality of life, and wellbeing or good development. quality of life. Even allowing for the pitfalls Direct actions towards their achievement of analysing and imposing outsiders’ The case is for the language of illbeing may often not present the best priorities categories on their diverse responses, and wellbeing to be widely used in and paths. For they narrow and values and realities, it was striking how addition to poverty and wealth, which standardise vision, leave out much common and strong the same dimensions are only one part of them. It is for that matters, and do not allow for the were across cultures and contexts. repeated participatory processes to multifarious ways in which people can enable local people, especially the be enabled to enjoy a better life. There were many poverties or deprivations. poorest, most marginalised and most Policies and actions need to be informed Dimensions of the bad life included not vulnerable, to analyse and monitor the much less by top-down targets and only income-poverty and material lack, but quality of their lives, and for this to be much more by the diverse bottom-up many others, some of them represented in fed back regularly to policy-makers. realities of the powerless. the web of poverty’s disadvantages in the It is for policy-makers to spend time figure, for example poverty of time, living living in poor communities and The questions are then: whose reality and working in bad places – “the places appreciating their conditions and counts? Ours? Or theirs? Or more of the poor” and bad social, especially realities firsthand. precisely: ours, as we construct it with gender, relations. Others were the body as our mindsets and for our purposes? the main asset of many poor people, If we are seriously pro-poor Or theirs as we enable them to analyse indivisible, uninsured, and vulnerable professionals, the answer to “What is and express it? to flipping from asset to liability; many poverty?” is “That is the wrong question.” aspects of insecurity, worry and anxiety; It is our question, not theirs. The and pervasively powerlessness. question of those who are poor, Robert Chambers: “Power, knowledge and marginalised and vulnerable is more policy influence: reflections on an experience” in Karen Brock and Rosemary McGee (eds) The many ideas of wellbeing and the likely to be, in varied forms and many Knowing Poverty: Critical reflections on good life to which people aspired had languages with different nuances: participatory research and policy, London 2002. International Poverty Centre Poverty In Focus December 2006 5

by Peter Townsend, What is Poverty? London School of Economics An historical perspective

Historically, poverty has been related comparative work. They depend to income, which remains at the core of principally on the ideas of subsistence, Three poverty concepts the concept today. However, “income” is basic needs and relative deprivation. have evolved, based itself no less problematic a concept than on ideas of subsistence, “poverty”; it too has to be carefully and The subsistence idea was a result of work basic needs and precisely elaborated. Other resources such prompted by nutritionists in Victorian relative deprivation. as assets, income in kind and subsidies to England. Families were defined to be in public services and employment should poverty when their incomes were not Material needs are be imputed to arrive at a comprehensive “sufficient to obtain the minimum socially determined. but accurate measure of income. necessaries for the maintenance of merely physical efficiency”. A family was Globalisation connects People can be said to be in poverty when treated as being in poverty if its income peoples and living they are deprived of income and other minus rent fell short of the poverty line. standards, while resources needed to obtain the conditions Although allowance was made in inequality is increasing. of life—the diets, material goods, calculating the income level for clothing, amenities, standards and services— fuel and some other items, this allowance Poor people are denied that enable them to play the roles, meet was very small, and food accounted for the resources to fulfil the obligations and participate in the much the greatest share of subsistence. social demands and relationships and customs of their society. observe customs. These ideas have influenced scientific The determination of a poverty line cannot practice and international and national We need better poverty be based on an arbitrary selection of a low policies for over 100 years. Examples are measures and regular level of income. Only scientific criteria the statistical measures adopted to UN monitoring reports. independent of income can justify where describe social conditions, at first within the poverty line should be drawn. The individual countries but later with wide multiplicity and severity of different application by international agencies such types of deprivation can constitute those as the World Bank. The idea of subsistence criteria. The key is therefore to define a was freely exported to member States of threshold of income below which people the former British Empire, e.g. for setting are found to be thus deprived. the wages of blacks in South Africa and framing development plans in India and The measure of multiple deprivations Malaysia. In the United States, “subsistence” must be decided on the basis of evidence remains the basis of the official measure about each and every sphere of the range of poverty. of social and individual activities people perform in fulfilment of individual and The use of “subsistence” to define family needs, and social obligations. The poverty has been criticized because it degree of material and social deprivation implies that human needs are mainly relative to income is the basis for physical rather than also social needs. ascertaining the threshold amount of People are not simply individual income ordinarily required by households organisms requiring replacement of of different compositions to surmount sources of physical energy; they are poverty. The application of this method social beings expected to perform permits analysis of trends in poverty in socially demanding roles as workers, and across different countries. citizens, parents, partners, neighbours and friends. Moreover, they are not The understanding and relief of poverty simply consumers of physical goods but has been a major human preoccupation producers of those goods and are also for many centuries. Since the 1880s, three expected to act out different roles in alternative conceptions of poverty have their various social associations. They are evolved as a basis for international and dependent on collectively provided 6 United Nations Development Programme

utilities and facilities. These needs apply The “basic needs” concept, on the other Establishing that threshold depends on universally and not merely in the rich hand, aimed at establishing at least some accumulating the available evidence, and industrial societies. of the preconditions for community whether sociological and economic development. It played a prominent part approaches may be reconciled. The lack of elaborate social institutions in national development plans fostered and services in low-income countries and by the international community, Such reconciliation is some distance away. their scant resources direct our attention especially UN agenices. Despite the influence of Amartya Sen’s to whether or not the most basic material contributions to development studies for subsistence needs can be met in those In the late 20th century, a third social two decades, his ideas on capabilities have countries. Meeting such needs as the formulation of the meaning of poverty not reached the mainstream of poverty satisfaction of hunger is widely accepted was developed: relative deprivation. analysis among economists, and have as a priority. Such needs have been “Relativity” as suggested above, applies to been said to leave important gaps. included in the categorisation of both income and other resources and also “absolute” poverty, which however would to material and social conditions. In the There are forms of impoverishment, for better be labelled “extreme” or “severe.” 21st century societies are passing through example through social exclusion, when such rapid change that a poverty standard individual capabilities to overcome Physical needs are subject to rapid devised at some historical date in the past poverty are not at issue. Those capabilities change because of shifts in social activity is difficult to justify under new conditions. are also identified as originating within and demand patterns. The need for People living in the present are not subject the individual rather than with groups or material goods, their relevance to the to the same laws, obligations and customs nations collectively or being determined society of the day, and even the goods that applied to a previous era. externally by market conglomerates. Again, themselves, are not, after all, fixed or the capabilities approach does not seem unvarying. And the amount and kind, Globalisation is connecting peoples and to address the structural sources of the and thus the cost, of food depend on their standards of living, while inequalities capabilities of the rich and powerful. work, climate and social customs. So within and between countries are growing. Capabilities are different from perceptions. material needs turn out to be socially There are, therefore, major objections These sometimes offer a valuable determined in different ways. to merely updating any historical correction to independent analysis benchmark of poverty on the basis of of behaviour and living conditions. By the 1970s a second formulation—that some index of prices. Over many years In an attempt to define poverty of “basic needs”—began to exert wide the “relativity” of meanings of poverty operationally, the World Bank in 1990 influence, supported strongly by the ILO. has come to be recognized, in part if not adopted a rule-of-thumb measure of Two elements were included. First, comprehensively. Adam Smith, for example, US$ 370 per year per person at 1985 minimum consumption needs of a recognized the ways in which “necessities” prices (the “dollar a day” poverty line) for family: adequate food, shelter and were defined by custom in the early part poor countries. This crude indicator may clothing, as well as certain household of the 19th century, citing the labourer’s have been a convenient interim measure furniture and equipment. And second, need to wear a shirt as an example. for practical purposes, a short-term essential services provided by and for the expedient, but has not turned out to community at large, such as safe water, It is not enough to describe poverty as be of continuing value. sanitation, public transport and health a condition applying to those whose care, education and cultural facilities. In disposable income is low relative to that Eliminating poverty requires better rural areas, basic needs also include land, of others. This is to fail to distinguish definition and measurement. We need agricultural tools and access to farming. conceptually between inequality and (i) an international poverty line that poverty. Poor people are not just the defines a threshold of income (including The “basic needs” concept is an extension victims of a maldistribution of resources in kind) required in different countries to of the subsistence concept. In addition but, more exactly, they lack, or are surmount material and social deprivation; to material needs for individual physical denied, the resources to fulfil social (ii) regular reports on the extent of poverty survival and efficiency, there are the facilities demands and observe the customs as in every country, based on measures of and services—for health care, sanitation well as the unfolding laws, of society. both “absolute” – i.e. “extreme” – and and education—required by local This criterion lends itself to scientific “overall” poverty, as agreed in 1995 at the communities and populations as a whole. observation, measurement and analysis World Summit for Social Development. of multiple deprivations. Thus, antipoverty policies must be The attractions to some of the monitored and evaluated regularly and “subsistence” concept included its limited However, as with any formulation, there on a much larger scale by governments, scope and therefore limited implications are problems in defining poverty by the United Nations, by the for policy and political action. In the past operationally. Under the “relative international financial institutions and by and into the present, it seemed easier to deprivation” approach, a threshold of other relevant international agencies. restrict the meaning of poverty to material income is envisaged, according to size and physical needs than also to include and type of family, below which Townsend, P.: Introduction, Compendium of best practices in poverty measurement; the non-fulfilment of social roles, given withdrawal or exclusion from active Expert Group on Poverty Statistics (Rio the overriding emphasis of individualism. membership of society is common. Group), Rio de Janeiro, September 2006. International Poverty Centre Poverty In Focus December 2006 7

by Sakiko Fukuda-Parr, The Human The New School University Poverty Index: A multidimensional measure

Poverty as a public policy concern, which analysed poverty in terms of whether at the global, national or opportunities, empowerment and Human poverty is community level, is now widely vulnerability. This consensus builds on a a complex set of considered to be a multidimensional lively debate that challenged the income deprivations in problem. Over the last few decades, new focus and argued for a human focus. many dimensions. perspectives on poverty have challenged the focus on income and consumption as This debate included various It has to be the defining condition of poor people. perspectives on poverty, such as basic measured and Studies of the problems of poor people needs, participatory assessment, human analysed with and communities, and of the obstacles rights, social exclusion, and capabilities; this in mind. and opportunities to improving their all of which are discussed elsewhere in situation, have led to an understanding of this journal. The analytical application Thus UNDP has poverty as a complex set of deprivations. of the capability approach has been developed the developed and diffused through UNDP’s three-dimensional These alternative perspectives have Human Development Reports (HDR). They refocused the concept of poverty as a view poverty as reflecting the lack of Human Poverty Index. human condition that reflects failures in choices and opportunities in the key areas many dimensions of human life – hunger, of education, health, and command over It shows a large unemployment, homelessness, illness resources, as well as voice related to spread of human and health care, powerlessness and democratic processes. The first HDR in poverty among victimisation, and social injustice; they all 1990 introduced the Human countries with similar add up to an assault on human dignity. Development Index (HDI). levels of income poverty.

Strategies to eradicate poverty require Despite this shift to a multidimensional Trends show good not only economic growth and poverty concept, monitoring has continued progress: 40 out of 44 redistribution but also direct intervention to rely on the income measure. At the covered countries, in many areas such as expanding global level, the $1/day (PPP) measure including many in education, removing discrimination and developed and updated regularly by the Africa, have reduced securing social injustice; different types World Bank is the one that is consistently human poverty levels. of deprivations in human lives are used to monitor the size and trends in interrelated and reinforce one another. global poverty. At the national level, most governments define poverty For example, lack of education often threshold lines by household income. defines the condition of a poor person but it is also an obstacle to other important Measures of poverty used by researchers aspects of a person’s wellbeing, e.g. also rely on the income- and consumption- employment and income, good health based national and international and health care and other basic amenities measures. For sure, a wide range of other such as clean water and sanitation. These indicators are used at both global and are also interrelated with discrimination national levels. For example, the eight and lack of access to justice. Millennium Development Goals have 49 indicators to monitor progress. But it is These ideas are not new but what is the income measure that is most used relatively new is their emerging as a to gauge trends overall. consensus among policy makers, the public and development specialists. This is One reason why the $1/day measure reflected in the adoption of the Millennium is relied upon for overall monitoring Development Goals, and as a conceptual purposes is the need to look at one shift in the treatment of poverty by the number rather than 49 different ones to World Bank in their World Development make an overall assessment of progress. Reports from 1980 up to the WDR 2000/01, It is useful to have focused measures of 8 United Nations Development Programme

critical areas of human wellbeing such as HPI is a measure of capability deprivation; Some very low-income child mortality or access to clean water. it aims to capture ‘human poverty’ as But it is difficult to decide which one to distinct from ‘income poverty’, i.e. failures countries reduced HPI use in making an overall assessment to achieve the basic capabilities needed more than many with about whether poverty overall is for human functioning rather than any higher income levels. improving or deteriorating. A composite given level of consumption or income. measure therefore is needed to make this But like the HDI, the HPI is a highly overall assessment that can aggregate incomplete measure and does not the different features of deprivation. capture many of the dimensions of a participation such as political freedom full life, nor the social conditions that are and cultural choices, are simply not The HDR 1996 introduced the Human necessary. Sen refers to five ‘instrumental quantifiable or lack data and thus not Poverty Index (HPI) to fill this gap. It is a freedoms’ as essential to a life of dignity, included. Still, HPI is a more adequate composite measure set in the capability namely economic facilities, social measure of deprivations in human lives and human development space, drawing opportunities, political freedom, security than the income poverty measure. on the several important perspectives and transparency guarantees. Neither the that have enriched our understanding of HPI nor HDI include indicators of political HPI focuses on three of the four key poverty. In this framework, poverty is the freedom, security and transparency. dimensions of HDI: the capability to deprivation side of human development – (i) survive, measured by vulnerability to the denial of basic choices and The challenges of measuring human early death defined as before 40 years; opportunities to lead a long, healthy, poverty are considerable, starting with (ii) be knowledgeable, measured by the creative and free life; to enjoy a decent the selection of key dimensions, their adult illiteracy rate; and (iii) have access standard of living; and to participate weighting, and a search for appropriate to private income as well as public in the life of the community including data sets. Important aspects of human provisioning, measured by the political freedom and cultural choices. poverty, notably those relating to percentage of malnourished children under five and by the percentage of people without access to safe water.

HPI trends 1990-2002 These particular measures are not so relevant in the richer industrial societies. Thus, an adjusted index (HPI-2) was Country Change in HPI HPI Rank Rank Change developed with indicators more suited HPI-value (%) 1990 2002 1990 2002 in ranks* to high income OECD countries. The HPI estimates are published in the annual India -12.1 43.5 31.4 33 26 -7 HDRs. The new HDR 2006 shows some interesting trends that contrast it from Viet Nam -11.7 31.7 20.0 25 22 -3 the $1 a day measure. Although HPI and the $1 a day headcount measure are Ghana -10.5 36.5 26.0 26 24 -2 broadly correlated, there are considerable divergences between them (see page 9). Tunisia -10.0 29.1 19.2 23 21 -2 The correlation between income poverty Nicaragua -9.2 27.5 18.3 22 20 -2 and human poverty is weak, and there is a large spread in levels of human poverty Uganda -8.9 45.3 36.4 35 30 -5 among countries with similar levels of income poverty. Some countries with Morocco -8.6 43.1 34.5 31 27 -4 high levels of human poverty around 40% such as Pakistan and Yemen have Indonesia -8.3 26.1 17.8 20 18 -2 relatively low levels of income poverty around 15-17% like Ecuador and China, Guatemala -8.3 30.8 22.5 24 23 -1 which have reduced human poverty to around 10%. Senegal -7.6 51.7 44.1 40 37 -3 These data highlight both achievements Madagascar -4.8 40.7 35.9 29 29 0 and challenges for governments. Some countries with very low GDP per capita Malawi 3.4 43.4 46.8 32 40 8 have achieved significantly more reduction in human poverty than countries with higher levels of income. Botswana 19.8 23.7 43.5 17 36 19 Tanzania for example reduced human poverty to 36%, which is still high, Zimbabwe 25.8 26.3 52.0 21 41 20 though not when compared to their * Negative value = rank improvement income poverty of 58% and per capita International Poverty Centre Poverty In Focus December 2006 9

% ZM NG CF ML MG TZ NE NI GH

IN BD MN NA BF BO YE ET EC CN ZA PK BR ID DO MA TH TN

GDP of only PPP$ 674. This level of human • Feasibility: The HPI demonstrates the relevance and the feasibility of a poverty is similar to or lower than Country designations countries with much higher incomes, multi-dimensional aggregate measure such as Pakistan (36%) and Bangladesh to monitor human as opposed to (44%), where per capita GDP is income poverty. BD = Bangladesh respectively PPP$ 2225 and PPP$ 1870. • Data availability: HPI uses BO = Bolivia internationally comparable data. BR = Brazil Trends in human poverty are available in While there are many gaps, the gaps BF = Burkina Faso HDR 2004 for 12 years up to 2002 for 44 in these data are fewer than the gaps CF = Central African Republic countries. They show important progress; in the PPP $1 a day estimates. HPI is 40 out of 44 countries show a net estimated for 102 developing CN = China reduction in HPI, with India, Viet Nam, countries while the PPP $1 a day DO = Dominican Republic Ghana, Tunisia, Nicaragua, Uganda, estimate is available for 94 countries. EC = Ecuador Morocco, Indonesia and Guatemala having ET = Ethiopia reduced poverty by over 8 percentage Further work that could develop a more points. It is encouraging to note the useful measure to monitor poverty include: GH = Ghana many African countries having made • Coverage: HPI covers 95 countries as IN = India progress. However, dramatic increases compared with 174 countries for HDI. ID = Indonesia • Global and regional estimates. HPI is in human poverty were registered in MG = Madagascar Zimbabwe (26%) and Botswana (20%). of particular interest for monitoring global trends in the way that the ML = Mali HPI estimates so far have shown $1/day income poverty estimates do. MN = Mongolia a number of strengths: Global and regional estimates of HPI MA = Morocco • should be attempted. Policy priorities: Countries that show NA = Namibia higher levels of human poverty in NI = Nicaragua relation to income poverty or per HPI estimates show the relevance of capita income point to a need for aggregate, internationally comparable NE = Niger greater policy attention on low social measures of multidimensional poverty. NG = Nigeria achievements, especially public Intercountry comparisons of HPI sharpen PK = Pakistan provisioning related to health and the focus on human poverty that requires ZA = South Africa education. Although HPI does not policy attention, and should be further capture the full extent of developed to provide a global TZ = Tanzania deprivations in human lives, monitoring tool. TH = Thailand it covers the essential aspects TN = Tunisia of life that relate to social and UNDP Human Development Report 2006: YE = Yemen economic policies, and that go Beyond Scarcity: Power, poverty and the ZM = Zambia beyond income alone. global water crisis, New York, 2006. 10 United Nations Development Programme

by Caterina Ruggeri Laderchi,* Ruhi Saith & Frances Stewart Does the Definition of Queen Elizabeth House, Oxford University Poverty Matter? Comparing four approaches

There is now world-wide agreement It identifies poverty with a shortfall in Poverty definitions and on poverty reduction as an overriding consumption (or income) from some measurement have important goal of development policy, but not on poverty line. The valuation of the implications for targeting the definition of poverty. Does this different components of income or and policy. matter for policy and practice? We consumption is done at market prices, reviewed the monetary, capability, social which requires identification of the Empirical evidence shows that exclusion and participatory approaches relevant market and the imputation of poverty rates vary a lot when to defining and measuring poverty; they monetary values for those items that are different concepts and do have different implications for policy, not valued through the market (such as measures are used. and also for targeting since they identify subsistence production and social services different people as being poor. and, in principle, other public goods). A study of India and Peru found different people There are a number of issues involved in Various technical solutions have been identified as poor defining and measuring poverty. Is it suggested for differentiating the poor depending on which confined to material aspects of life, or and non-poor using the monetary approach was adopted. does it also include social, cultural and approach, although there is no theory of political aspects? Is it about what may be poverty that would clearly differentiate Clearer definitions and achieved, given the resources available the poor from the non-poor. Relative measures are essential for and the prevailing environment, or what poverty lines can be determined by poverty-centred is actually achieved? Should definitions political consensus. Attempts to find an development policies. and measurement methods be applied in objective basis for an absolute poverty the same way in all countries and used for line aim at identifying behavioural comparisons? Are there “objective” breaks between the poor and non-poor. methods, or are value judgements The nutritional needs for survival provide involved? What is the rationale for the most common basis for such a break. defining a poverty line? Should it be absolute as in the Millennium Development Yet there are problems about nutritionally- Goals and in most developing countries, based poverty lines. Differing metabolic or relative as in the rich OECD countries? rates, activities, size, gender and age among people mean that what is adequate Some further issues: Should poverty be varies among them. Moreover, differing defined and measured at the individual, tastes, food availability and prices affect household or geographic area level; and how much money income is needed to for what respective purpose? The secure any particular level of nutrition. multidimensionality issue—considering Moreover, poverty lines are often drawn that individual well-being/poverty up at the level of the household, manifests itself in multiple dimensions, disregarding how the intra-household should an aggregate index be distribution affects individual nutrition developed, and how? Finally, the time levels. All this suggests that it is not horizon over which poverty is identified possible to draw up a unique poverty needs to be specified—many people line based on nutritional requirements. move in and out of poverty over seasons and years, hence the longer the time The three other approaches to deprivation perspective the less poverty will appear. address some of the perceived defects of the monetary approach. The monetary approach to the identification and measurement of The capability approach (CA) rejects * The World Bank, Washington, D. C. poverty is the most commonly used. monetary income as its measure of well- International Poverty Centre Poverty In Focus December 2006 11

being, and instead focuses on indicators particular society and what its main children were education poor (not of freedom to live a valued life. Poverty is elements might be. The PA method is attending primary school); 70% of defined as failure to achieve certain complex and invariably contains children less than 13 years old were minimal or basic capabilities, i.e. the multidimensional analysis. Like the SE it undernourished, 44% severely; but only ability to satisfy adequately certain includes processes, causes and outcomes 7% of individuals between 7 and 59 crucially important functionings. Many of poverty, as perceived by the poor. The suffered from chronic illness. analysts have proposed generic lists of PA is apparently cost-effective, but the essential capabilities, but they tend to community spends much more time on In Peru, in contrast, monetary poverty at reflect current western conceptions of the these exercises. 54% (again using a national poverty line) “good life”, raising doubts on its ability to was greater than capability poverty: 20% reflect an “overlapping consensus”. A critical issue for our comparison is of the adults and 7% of the children were Defining operational CA measures poses whether the four approaches identify education poor; 10% of adults were a number of methodological issues. broadly the same people as poor; as if health poor and 29% of the children they do the theoretical differences may below 5 years were undernourished. The concept of social exclusion (SE) be unimportant in policy or targeting describes the processes of marginalization terms. Despite its theoretical deficiencies, The India/Peru study had problems in and deprivation that can arise even in monetary poverty could be used as a estimating social exclusion. It had been rich countries with comprehensive welfare proxy for other types of poverty if intended that the participatory focus provisions. It is a reminder of the broadly the same people are identified groups would define social exclusion, and multiple faces of deprivation. SE is as poor under the different measures. this definition would then be applied to perhaps the most difficult to interpret the data set. But none of the participatory of the poverty concepts under review. Empirical evidence indicates that poverty activities generated a definition of social Still, SE is the only approach that rates differ significantly according to the exclusion—none of the groups saw focuses intrinsically on the processes approach adopted, for countries as a themselves as socially excluded. and dynamics that allow deprivation whole and for regions of the world. to arise and persist. Country ranking differs in comparing Poverty definitions and measurement capability poverty and both international have important implications for targeting Moreover, the analysis of exclusion and national monetary poverty lines. and policy. The considerable lack lends itself to the study of structural Different measures of deprivation are of overlaps between the different characteristics of society and the associated, and indeed the different approaches means that targeting situation of marginalised groups (e.g. measures do not seem independent according to one type of poverty ethnic minorities or the landless), whereas (see page 9). What is striking, however, will involve serious targeting errors the monetary and capability approaches is that low levels of poverty according to in relation to other types. Moreover, tend rather to focus on individual one measure are compatible with high definitions also have implications characteristics and circumstances. levels of poverty according to another. for policy. While a monetary approach SE leads to a focus on distributional suggests a focus on increasing money issues—the situation of those deprived It is this variability which points to incomes (by economic growth, or relative to the norm generally cannot the potential lack of overlap in practice redistribution), a capability approach improve without some redistribution of between different ways of measuring tends to lead to more emphasis on the opportunities and outcomes. SE also poverty, and it is this variability which provision of public goods. Social points to excluders as well as excludees, calls for in-depth empirical assessment exclusion draws attention to the need again a contrast to the previous of the underlying causes. Such to break down exclusionary factors, approaches that describe a world without empirical tests can also show whether for example, by redistribution and analysing or attributing responsibility. different measures are capturing antidiscrimination policies. different populations. The participatory approach (PA) aims to This suggests that identification and get people themselves to participate in A study of India and Peru, drawing on targeting of the poor with combined decisions about what it means to be both national data sets and micro- methods should be more widely poor and the magnitude of poverty. The surveys, found that significantly different adopted, reflecting the current concerns major advantage is that it largely avoids people were identified as poor in the two for a broad characterization of poverty. externally imposed standards. PA also countries according to whether the Definitions do matter. Clearer and more transparent definitions of poverty provides a way of solving some of the monetary, capability or participatory are an essential prerequisite of any problems encountered with the other approach was adopted. development policy that puts poverty methods. For example, they help to reduction at its centre. define: an appropriate minimum basket The national data sets showed that in of commodities for the monetary India, using the national poverty line, Caterina Ruggeri Laderchi, Ruhi Saith & approach; a list of basic capabilities in the monetary poverty, at 38%, was below Frances Stewart: Does it Matter that we do not Agree on the Definition of Poverty? capability approach; and whether the capability poverty: 52% of adults were A Comparison of Four Approaches. Oxford concept of SE can be applied in a education poor (illiterate); and 26% of Development Studies, September 2003. 12 United Nations Development Programme

by Gustav Ranis,* Frances Stewart and Emma Samman, Human Development: Queen Elizabeth House, Oxford University Beyond the HDI

Human Development (HD) has The lists are not in total agreement; some UNDP’s HDI and HPI been defined as ‘a process of enlarging emphasize certain aspects more than measures include only people’s choices’. Although HD is often others for example regarding material a few basic aspects of equated with the UNDP’s Human and mon-material aspects such as human development. Development Index (HDI) in popular friendship and emotions, and discourse, it has long been recognized environmental issues. This article reports on that this is an incomplete measure of HD, a study that identified leaving out many important aspects of Surveying these attempts to define the many more relevant life; it encompasses only three rather full life, we find that they are in broad indicators. basic elements of human wellbeing. agreement about the main dimensions to Our aim is to identify a broader set of be included. In the light of this, we drew Correlation analysis dimensions of wellbeing constituting HD up a list of the categories of life that are found 31 indicators with and indicators to measure them. We then candidates to be included as part of an different trends from explore whether the HDI in fact is a good enlarged conception of HD (see box below). each other and also measure of the broader dimensions or from HDI. whether additional indicators are needed. Any list of categories is inevitably both subjective and ethnocentric. Hence, anyone Income per capita Defining what makes for a fulfilled life finding this type of approach helpful proved a poor indicator has been a central theme of philosophers should be able to amend the categorization of human development. and politicians throughout history. to reflect different views. This applies Aristotle’s Ethics, for example, was especially across different cultures. Assessing human devoted to identifying the conditions development fully needed to achieve eudaimonia, commonly Unlike some of the reviewed literature requires a broad set interpreted as ‘the best life’. listings of human flourishing, our list does of indicators. not include spiritual well-being, due to Our first task is to identify which aspects problems of definition and measurement. of life might reasonably qualify as part of We separated social relations, which a broader conception of HD. Many concerns individuals having satisfactory attempts have been made to identify relations with others, from community what makes for a flourishing life. Here we wellbeing, which concerns the community will consider six lists, each of which as a whole and includes such elements as adopts a different philosophical low crime rates and a thriving civil society. approach and justification (see page 13). We also separated empowerment from

Enlarged conception of HD

1. The HDI itself, which includes health, education and a measure of income 2. Mental wellbeing – an individual’s psychological state 3. Empowerment 4. Political freedom 5. Social relations 6. Community well-being 7. Inequalities 8. Work conditions 9. Leisure conditions 10. Political security – freedom from political violence or instability 11. Economic security – freedom from economic fluctuations 12. Environmental conditions * Yale University International Poverty Centre Poverty In Focus December 2006 13

Requirements for human flourishing

Authors Rawls (1972) Finnis, Grisez, Doyal and Nussbaum Narayan Camfield and Boyle (1987) Gough (1993) (2000) -Parker (2000) (2005)

Defining Primary Basic human Basic needs Central human Dimensions Quality concepts goods values and Intermediate functional of wellbeing of life needs capabilities

Bodily Bodily life – Physical health Life Bodily well- wellbeing health, vigour -Nutrition: food Bodily health being and safety and water Bodily integrity Access to health -Health care services -Safe birth control Good physical and child bearing environment -Safe Physical environment

Material Income and Protective housing Material well- Food wellbeing wealth Economic security being Food Shelter Assets Mental Knowledge Basic Senses, Education development Practical education Imagination, (Bangladesh reasonableness Thought and Ethiopia, Emotions vs. Thailand Practical reason and Peru) Play

Work Freedom of Skillful Work Work occupation performance in work and play

Security Physical security Civil peace Physically safe environment Lawfulness (access to justice) Personal physical security Security in old age

Social Social bases Friendship Significant Affiliation Social well- Family relations of self-respect primary Social bases for being relationships self-respect -Family -Self-respect and dignity -Community relations Spiritual Self-integration Religion wellbeing Harmony with (important in ultimate source Bangladesh of reality and Thailand)

Empowerment Rights, Autonomy Control Freedom of and political liberties, of agency over one’s choice and Freedom opportunities Civil and environment action Powers & political prerogatives of rights office & positions Political of responsibility participation Freedom of movement

Respect for Other species other species 14 United Nations Development Programme

political freedom, as the former focuses requires a much broader set of indicators to a broader set of dimensions seriously on the lack of power of particular groups, than the HDI alone. We found that under- affects the way one should measure and while the latter relates to liberal political five mortality rates do as well as HDI, but assess country performance. conditions more generally. We included PPP income per capita is less representative inequalities as a general category, because of other dimensions of human In future work in this area, we intend they affect wellbeing independently, development. The HDI (and the other two to identify typologies of developing especially that of the poor. broad indicators) are shown to be worse countries/regions according to their indicators of the extended conception of success or failure over time with respect We then identified indicators of human development for OECD countries to the different dimensions of HD and performance in each of the categories than for developing countries. relate this to potential policy choices. from international data sets. Analysing To the extent that data are available, correlations among the indicators within Our research thus explores empirical we would also like to trace the historical each category across countries, and correlations, but does not attempt to progress of the current OECD countries discarding those that are highly correlated investigate causality. We recognize that in the various categories, which may with others in the same category, left 39 our procedures are somewhat arbitrary help in drawing conclusions about indicators to encompass the eleven non- and a change in the dimensions used, transitions over time. HDI categories. Of these, eight indicators the thresholds adopted, etc., would yield are highly correlated with the HDI and somewhat different results. Our basic may therefore be represented by it. But 31 purpose, however, is not to be definitive Human Development: beyond the Human Development Index by Gustav are not highly correlated, suggesting that but to show that extending the concept Ranis, Frances Stewart and Emma Samman. a full assessment of human development and measurement of Human Development Journal of Human Development 7, 3, 323-358.

by Peter Edward, The Ethical Poverty Line: Judge Business School, Cambridge, UK A moral definition of absolute poverty

The first Millennium Development The basis for the $1-a-day poverty line is Goal (MDG) to halve ‘extreme’ poverty simply that it is the median of 10 of the “We are one moral universe. by 2015 has been justified as a moral lowest national poverty lines in the world. And the shared moral sense duty. However, this morality is only It is not derived from any consideration common to us all partial if absolute poverty is defined of well-being or basic needs. The World makes us recognise by the $1-a-day poverty line. We need Bank economists most involved in this our duty to others.” a morally defensible poverty line. area, recently called it ‘frugal’, stating that it ‘must be deemed a conservative Gordon Brown, UK Chancellor Poverty defined as a lack of well-being is estimate whereby aggregate poverty in of the Exchequer, advocating clearly multidimensional. The MDG and the developing world is defined by the a “Marshall Plan” for World Bank $1-a-day poverty line, being perceptions of poverty found in the the world’s poor. a solely monetary measure, has therefore poorest countries’. The implication is that rightly been criticised as inadequate the $1-a-day poverty line is unreasonably and monodimensional. Yet, it is the most low. Almost certainly it is lower than widely recognised poverty estimate in developed world populations would use today. The objective of this article is consider morally justifiable. Indeed, the to demonstrate that, even if we accept World Bank does increasingly quote a monetary measure of poverty, the poverty indices for a $2-a-day line that $1-a-day poverty line is unrealistically seems to be based simply on a doubling low thus misleading policy makers of the $1-a-day poverty line. and the public on the extent of global poverty and the scale of redistribution World income distribution curves show needed to remove it. the highest population density between International Poverty Centre Poverty In Focus December 2006 15

the $1-a-day to $2-a-day poverty lines. Thus, the poverty headcount is very sensitive to changes in the poverty line, especially around those levels. If the public and policy makers are to recognise just how much poverty there is in the world, a clear, relevant and morally justifiable basis for setting the poverty line becomes essential.

The ethical poverty line (EPL) proposed here is derived from globally standardised and ethically justifiable wellbeing outcomes for which sufficient data already exist in the World Development Indicators (WDI). The EPL does not overcome the inherent problem of all income poverty lines, namely that they oversimplify and reduce the complexity of global poverty to a monodimensional monetary measure. However, the EPL at least provides a morally defensible basis Note: Circles are proportional to population. for setting the line.

The intellectual background to the EPL Applying the model to national risked dramatic shortening solely as a draws on two specific areas of research; populations disaggregated by result of that poverty. Invoking the first by economists on wellbeing consumption level, the statistical Golden Rule—‘Do unto others as you measures and their determinants; and correlation was established between would have them do unto you’—we second on public health, relating modelled life-expectancies and the actual might argue that every community individual life-expectancy to individual ones published in WDI. Similar correlations should be entitled to achieve a minimum income levels. These two areas can be were achieved from the best of the consumption level sufficient for all combined to derive an international functions investigated for the model. individuals to expect to live a reasonably poverty line directly from aggregate life- Collectively these results set the kink full lifespan. On this basis 74 years could expectancy (i.e. wellbeing) outcomes. The consumption at between $2.7-a-day and be considered to be a reasonable association between life-expectancy and $3.9-a-day, and probably around $3-a- lifespan and $2.7-a-day would be the income was first explored by health day. To err on the side of caution, the global ethical poverty line (Global EPL). economists who showed how national following discussion of the results is In this sense the kink consumption average life-expectancy falls rapidly when entirely based on the function that sets becomes not only an absolute poverty average income levels fall below a critical kink-consumption at its lowest and hence line but also an Ethical Poverty Line (EPL). level (see figure). A similar correlation was least challenging level, namely $2.7-a-day. found by public health researchers This Global EPL is obviously significantly between individual income and life- The results can be interpreted as higher than the established $1-a-day line. expectancy, indicating a maximum life- showing that, given the current state of However, it is not unreasonable. The expectancy around 73 to 75 years world development, it is reasonable to World Bank increasingly uses a $2-a-day beyond which increases in income have expect to live to 74 years if you have poverty line which is considered to be little or no further effect. ‘adequate’ consumption. Based on more representative of the poverty lines average performance across the world of middle-income countries. The average If poverty is best defined in terms of low (excluding the worst distorting effect of national poverty line in the developing levels of wellbeing rather than income, AIDS in Africa), $2.7-a-day (in 1993 PPP world is is reported to be close to $2 per and life-expectancy at birth is the prices) should be ‘adequate’. day , providing a further argument for indicator of well-being, then an ethical Consumption above this level adds only raising the international poverty line to poverty line can be developed by nominal years to expected lifespan. around this level. modelling the relation between national Consumption below this level reduces average life-expectancy outcomes and expected lifespan dramatically. This analysis still includes a significant their underlying source in individual number of countries in sub-Saharan absolute poverty levels. The model Applying an ethical dimension to the Africa, where problems such as AIDS and assumes the observed fact of a “kink” in kink model assumes that none of us civil war lead to premature death. While the correlation curve indicating the would wish to be born into such a low these problems are undoubtedly critical consumption level. consumption level that our lifespan associated with poverty, they are not 16 United Nations Development Programme

directly caused by a lack of consumption and they certainly cannot be resolved Indicators from poverty lines merely by increasing the consumption of World Bank Minimum EPL Global EPL the poor. Consequently their inclusion in Poverty Line $1-a-day $1.9-a-day $2.7-a-day the analysis introduces an upward bias into the EPL calculation that some might Counting the poor argue was unreasonable. Poverty head-count (millions) 1050 2500 3100 Poverty rate (head-count as % of global population) 17% 41% 51% Recognising this, the EPL has also been Poverty gap ($billions PPP) 140 900 1980 recalculated separating out all of sub- Poverty gap as % of global GNI 0.7% 4.7% 10.4% Saharan Africa. The results are striking. As expected, this Minimum EPL is lower than the Global EPL at around $1.9-a-day. 50% of the world’s population. To remove of the EPL are huge. For example, the The kink lifespan (72 years) is little altered poverty at the Minimum EPL level, the cost of removing ethical poverty today and stands in stark contrast to sub- share of the world’s output that these (conservatively based on the Minimum Saharan Africa. There, the kink lifespan poor consume would need to increase by EPL line) would be comparable to an falls to 48 years, while the very low 70%. Yet this is still only a poverty gap of additional global tax of 30% on all poverty line ($0.6-a-day) may well 5% of global consumption. consumption above US median levels. indicate that, only for those in the As a tax levied on anyone, anywhere in most extreme poverty, do the risks This may look like a fairly small the world, it would affect 6% of world of premature death from lack of proportion of global consumption. population, including half the US consumption outweigh the very high It is put more clearly into perspective, population and one in three people in risks of death from other causes. This however, by estimating the extent of the UK. If we wanted to remove ethical may well be striking evidence of the redistribution that would be required if poverty at the higher Global EPL level, dramatic impact of AIDS in the region. we wanted to eliminate global poverty this tax would extend to four-fifths of today. For example, the cost of ‘merely’ the US population and almost three- What then are the implications of using removing $1-a-day poverty would be quarters of the UK population. the EPL to define absolute poverty? The equivalent to a 30% global tax on the table summarises a number of poverty consumption of roughly the richest 1% The EPL, therefore, reveals that the price indicators for the $1-a-day poverty line, of world population, affecting one in 10 to be paid for accepting a moral duty to the $1.9-a-day Minimum EPL and the people in the USA and one in 20 in the UK. remove poverty today is one that would $2.7-a-day Global EPL. Compared with cut deeply into the pockets of developed the $1-a-day line, the Minimum EPL more Raising the poverty line to the EPL both world populations. than doubles the number of people puts many more people in poverty and considered to be in poverty to 2.5 billion, raises the threshold that each poor Peter Edward: The Ethical Poverty Line: or 40% of the world’s population, while person has to climb over to get out of a moral quantification of absolute poverty the Global EPL lifts this to 3 billion, or poverty. The redistribution implications Third World Quarterly, Vol. 27, No. 2, 2006.

by Lord Meghnad Desai, A New Measure of the the London School of Economics Poverty Line

There is now a huge literature on Index (HPI, see article by Sakiko Fukuda- This article suggests a new measure poverty, its measurement and its cure. Parr, page 7), which includes life whereby the two approaches can This article concentrates on the question expectancy, literacy, access to safe water be reconciled. of drawing up the poverty line, the and child malnutrition as the criteria for absolute level of income or consumption defining the proportion of population It does so by using the Hicksian concept below which people are said to be who are poor, and (ii) a new method for of income as the maximum that can be in poverty. determining the poverty line using spent from a stock of capital while utility theory as proposed by Nanak leaving the value of the stock intact. It Two measures are considered as basic Kakwani, International Poverty Centre links therefore income generation and references, (i) the UNDP Human Poverty (see page 20). consumption to define the poverty line. International Poverty Centre Poverty In Focus December 2006 17

Definitions of absolute poverty have power intact. In particular, we can say How to draw up the been static, calorific, asocial and that enough food should be purchasable poverty line, below atheoretical. Typically a basket of goods which will prevent any deterioration in is defined which will, at minimum cost, health. The poverty level will then which people are afford a required calorific standard to an crucially depend on the availability of said to be in poverty? individual or a household. That cost is work and the wage rate. If the individual then augmented to reflect the share of cannot earn enough to be able to eat so food in the total budget of a sample as to prevent deterioration in health, and, A new measure is of the population for which the poverty in general, labour power, then he or she proposed, based on line is being drawn. is poor. the need to maintain The thus derived poverty line is typically There are several advantages to this a person’s labour static since it is taken to be a constant definition when compared to the capacity intact. over time, except for inflation standard definition which relies on adjustment. It is asocial since it is uniform calories. For one thing it is dynamic; for individuals of all ages and both sexes, as availability of work or wages change, regardless of health status and special e.g. due to seasonal changes or because needs. It is atheoretical because the the individual’s health may deteriorate, absolute poverty level concept fixes a he or she will move in and out of priori an arbitrary level of calories with poverty. It also relates the consumption no choice involved. of food to income generation while avoiding imposing any specific calorific Yet the biggest criticism of such measures requirements. It is firmly based in an is that they focus on a passive variable, economic theoretic definition of income. consumer expenditure, while ignoring the income generation process. The definition connects in an obvious Inadequate income is after all the root way to issues of health and nutrition and of poverty. A composite measure such thus builds a bridge between monetary as the HPI looks at the family as a whole measures and the HPI. In principle, and factors in several dimensions though data demanding in practice, of human poverty. These two ways of we can define this critical food intake at looking at poverty should be combined individual level allowing for age, gender, into a single one. health status.

We assume a household with some There are of course several caveats adults of working age and capacity as to be added. It is at an individual well as children. The adult labour power level and only for a wage labourer. is an asset which will yield an income if It also simplifies the income generation employment can be found. Although process by taking the wage as given the household may also have access to and letting the uncertainty attach to land and/or credit or some form of non- the hours worked. It will need to be human capital, we first focus on labour extended to other income generation power alone in the case of a person processes such as peasant cultivation seeking paid work as hired employee. whether as a sharecropper or tenant This capacity to work crucially depends farmer or small landholder. There is also on food intake, health and literacy. the need of aggregating over members of a household. No doubt others will From these assets the individual can point out many more caveats which expect a flow of income, which will need to be made. depend on the demand for work and the wage rate. For someone self-employed, But the new approach presents in a for example a peasant cultivator, it will highly simplified fashion a way of depend upon expectations of yield and connecting consumption and income the price of output. generation via the notion of labour power/capacity to work. It allows for We can define the poverty line as that different levels of required food level of expected income which allows consumption for different individuals the individual to consume enough food and thus breaks away from any uniform while maintaining his or her labour “dollar-a-day” notion. 18 United Nations Development Programme

by Ravi Kanbur, Cornell University Measuring Poverty with a Changing Population

The basic structure of poverty the same, or doubled? The population Poverty incidence may fall measurement has been built on replication axiom asserts categorically while the number of poor intuitions that are strong when the that poverty is unchanged. From this people grows. Has poverty population whose poverty is being comes the mathematical form of most of then fallen or risen? measured is fixed and given. But when it our poverty indices, where total population is changing, standard measures of poverty is found in the denominator of the Most poverty measures can lead to uncomfortable or dissonant formula. But if you would say that in this show a decrease when conclusions. To illustrate and explain this example poverty has doubled, because the mortality among point, I want to consider income there are twice as many poor people, poor people is higher distribution at two points in time when then you would not buy into the than that of the rest. the population has also changed in some population replication axiom. I believe way. I will look at three population size that most ground level activists, those Should those who would scenarios—increased, decreased, and who actually deal with poverty, would have been alive but for unchanged but with churning around a indeed be concerned about the larger their poverty be included constant income distribution. numbers of the poor. when counting the poor? Consider a country where the incidence Since the issue is about an axiom, it is not Is poverty unchanged of poverty is falling by 1 percentage point necessarily about being “right” or “wrong”. when as many people per annum but population is rising by 2 At the very least it is about seeing things have become poor as percentage points per annum. Poverty as in different ways, and it is about asking those who have normally measured—the number of poor statistical agencies to produce both sorts escaped poverty? people as a proportion of total of numbers—normalized by population population—has fallen. But the absolute size, and not so normalized. It is good number of the poor has risen. This is not that the World Bank has started doing just a statistical curiosum, but it can this. With this information, we might occur, and has occurred in countries, like better understand the incomprehension those in Africa, where population growth of those who see official poverty figures is relatively high. going down while experienced poverty, the number of the poor, goes up. Such an outcome can lead, and has led, to dissonance between the claims of Let me now construct another scenario. economists that poverty has fallen, and Starting from a given distribution of the ground level, lived experience of those income, suppose that some of the poor who work with the poor and of the poor die because of poverty. Of course, the themselves. “How,” the latter group exclaim, absolute number of poor goes down. It is “can you economists claim that poverty easy to check that even the proportion of has gone down, when the soup kitchens poor will go down. Thus the conflict are fuller than ever before and there are discussed above is no longer present. more street children than ever before?” Poverty has gone down whichever way The answer is found in some variant or you measure it, but only because poverty has other of the “population replication killed the poor! And this is not just a axiom”, which undergirds every curiosum either. This phenomenon will be commonly used measure of poverty. present to some extent whenever mortality Imagine two societies identical in is higher among the poor than among the everyway. There is poverty in each, but it rich, which is of course a very commonly is identical poverty. Now imagine that we observed phenomenon. And it will arise combine these two societies into one. for a wide variety of poverty measures, not Would you say that poverty has stayed just the incidence of poverty. Moreover, International Poverty Centre Poverty In Focus December 2006 19

the issue arises also in the measurement the simplest case, where there are two Can the experience of of health status of a population, and in income levels, one below the poverty line the discussion of whether AIDS deaths and one above the poverty line. In one poverty in one period can deliver a dividend in the form of society, the rich stay rich and the poor for an individual be an increase in per capita income. stay poor. In another, the rich and poor “washed away” swap places every period. To keep tings This cannot be right. We cannot have our conceptually simple, let there be no by an above poverty line standard poverty measures rewarding saving or investment, so that income is experience in another? policies that reduce poverty by eliminating consumption. The snapshot poverty the poor. Put another way, we cannot (income or consumption) is unchanging have our standard poverty measures period to period, of course, and is the penalizing policies that prevent the same in the two societies. But are these two deaths of the poor. And yet, the Number societies really the same in terms of poverty? 1 Millennium Development Goal, of halving the incidence of poverty over a The answer depends on our intuitions given length of time, is wide open to this of what the experience of poverty means, objection. We have been led, somewhat and whether the experience of poverty in unthinkingly, into this trap because the one period for an individual can be intuitions that work well when population “washed away” by an above poverty line is fixed go awry when it is changing. experience in another. Imagine yourself at the end of Shakespeare’s play, King Lear. The answer to this conundrum is not easy, You see a once powerful man brought because among other things it forces us low and you heart goes out to him. Then to ask how far back we want to go in someone says, “Well, you know, the first evaluating today’s poverty. Had some fifty years of his life weren’t all that bad, poor children who died yesterday been and all in all….” To aggregate over Lear’s alive today, poverty would have been life is to miss the point and the higher. But how would we count those poignancy of his downfall. who died a hundred years ago because of poverty? If a year ago is too short, and To aggregate poverty experiences with a hundred years ago is too long, where above poverty line experiences for an in between is the right cut-off? individual is equally, in my view, to miss the point about poverty—at least if we An alternative is to have measures of take the idea of poverty seriously enough income poverty stay as they are, but also to set it apart from non-poverty, as we include measures of mortality (among do in the way that we measure poverty. the poor) in our evaluation. This is the On the King Lear view, therefore, the two direction taken by UNDP’s Human Poverty societies I described above have the same Index, which has the proportion of people poverty. If this makes you uncomfortable, likely to die before the age of 60 as a and at the same time you find something component along with an income poverty compelling about the Lear example, then measure. But the specific assumptions you will agree that this issue has not underlying any measure need to be made been fully addressed in our measurement clear; in particular how to define the of poverty. population whose wellbeing is being evaluated. Those currently alive, which is The three conundrums exposited here are the present empirical method, and which meant not to paralyze the measurement of gets us into the difficulties noted above? poverty but to invigorate the discussion Or do we include some of those who of the assumptions that underlie the would have been alive but for their standard measures of poverty. I look poverty? An explicit derivation of forward to the response. measures that satisfy key assumptions and basic intuitions is some ways away. Chakravarty, Satya R., Ravi Kanbur and Diganta Mukherjee. 2006. “Population Let us finally turn to a situation where Growth and Poverty Measurement.” Social both the population and the income Choice and Welfare, Vol.26, pp 471-483. distribution is unchanging, but the Kanbur, Ravi and Diganta Mukherjee. 2006. different income slots are occupied “Premature Mortality and Poverty Measurement.” Processed. Cornell by different individuals at different times. University: . 20 United Nations Development Programme

by Nanak Kakwani, International Poverty Centre, Poverty and Wellbeing UNDP

According to the 2000 World which they consume. The higher the Economic growth is Development Report (WDR), “poverty is income the greater the command people not a good indicator pronounced deprivation in wellbeing”. have over commodities. The possession of poverty reduction. But what does wellbeing mean? How of commodities, which include services, do we define it? What are the elements provides people with the means to lead Poverty means low necessary to ensure a decent level of a better life; thus, the possession of levels of wellbeing, wellbeing? These are not easy commodities or opulence is closely not just low income; questions to answer. related to the quality of life people measures must relate lead. But it is only a means to an end. closely to people’s lives. In the socioeconomic literature, several As Amartya Sen points out, “ultimately, approaches have been used to describe the focus has to be on what we can or Poverty is failure of socially wellbeing; important among them are cannot do, can or cannot be”. Thus, determined basic capabilities, basic needs, economic growth, quality wellbeing must be seen in terms of but only when caused by lack of life and welfare. How do these individual achievements and not in of resources. approaches differ? And, which terms of means that individuals possess. approach is the most appropriate to A new international poverty describe wellbeing? This article deals, The wellbeing or standard of living is not line is needed. It should reflect briefly, with these broad questions. about the possession of commodities, the cost of basic human needs. but it is about living. This line of In any society, some people obviously reasoning led Sen to develop the enjoy higher levels of wellbeing than ideas of “functionings and capabilities”. others. Poverty is viewed here as the Thus, a ‘functioning’ is an achievement, lowest level of wellbeing, which is and a ‘capability’ is the ability to achieve. experienced by those people in society Functionings are directly related to what who are so deprived that they are kind of life people actually lead, whereas unable to function with dignity. As capabilities are connected with the stated in the 2002 WDR, to be poor “is to freedom people have in the choice of be hungry, to lack shelter and clothing, life they lead, which is their functionings. to be sick and not cared for, to be illiterate and not schooled”. Income allows an individual to purchase commodities with which he or she Economic growth provides greater generates various functionings. But all command over goods and services individuals cannot convert commodities and thus, on average, gives people into functionings to the same degree. greater choices. However, this does For instance, a disabled person may not necessarily imply higher wellbeing not be able to do many things that an for everyone; the benefits of economic able-bodied individual can do with the growth are never shared equally. same commodity. Thus, in measuring Increasing per capita income is not wellbeing or standard of living, our an appropriate indicator of changes focus should be on the achievements in the aggregate wellbeing. Economic of people and not on the commodities growth is a means and not an end they possess. of development and thus must be supplemented with indicators that are It may seem obvious that the higher more closely related to individual lives. the income people have, the greater will be their capabilities. After all, it is an People want income because it gives observed fact that rich countries do have them the possession of commodities, a higher standard of living than poor International Poverty Centre Poverty In Focus December 2006 21

countries. But the relationship between Poverty is defined by a poverty line, i.e. It would be odd the two is not as simple as it appears. For the minimum income needed to be able instance, consider a country, which has to satisfy minimum basic needs. But to call a disabled succeeded in reducing mortality so much income is not the only kind of deprivation millionaire “poor”. that its per capita GDP falls because of people may suffer. Although income the resulting increase in population; has deprivation may give rise to several other the country’s living standard improved or kinds of deprivations, people may suffer inadequacy of command over resources deteriorated? The answer is not clear. The acute deprivation in many aspects of life needed to generate socially determined fall in per capita income shows that the even if they possess adequate command basic capabilities, whereas capability average citizen has become poorer, while over commodities. It is the low level of deprivation is more general and may at the same time the country has extended wellbeing which is important rather than be caused by a host of factors. the capability of its citizens to live a low level of income. longer life. This example demonstrates Among them, income or entitlement to the complex nature of the relationship Thus, poverty should be viewed as the resources may not be the most important. between the income and the capabilities deprivation of basic capabilities rather Thus, a person may suffer capability people possess. than merely as low level of income. deprivation but still may not always be Poverty encompasses not only material poor. Defining poverty from the capability It is not uncommon to think that deprivation (measured by income or perspective cannot be done independently ultimately it is the happiness of people consumption) but also many other forms of income. The capabilities to function, that really counts. Could we then of deprivations in different aspects of life which are linked to poverty, are those measure wellbeing by the degree of such as unemployment, ill health, lack of derivable from income. Income or happiness enjoyed by the people? education, vulnerability, powerlessness, command over recourses cannot be The answer is no. Sen argues that living social exclusion and so on. separated from capability, but at the standards cannot be the same thing same it must be recognized that the link as happiness. People can be happy or Under the capability deprivation between them is far from simple. unhappy irrespective of how they live approach, an individual may be defined or do not live. In India many people live as poor if he or she lacks basic Individuals have different needs and, in severe poverty with no access to the capabilities. What are these basic therefore, differ with respect to their basic amenities of life, but they may still capabilities? How do we identify them? ability to convert incomes or resources be happy because of the religious belief This is an issue of value judgment. It they have into capabilities to function. that in their next life they will be better depends on how a society prioritizes Thus different individuals will require off. Indeed, they believe that the more different capabilities. These priorities may different resources to achieve basic they suffer in this life, the better off they also depend on a country’s economic capabilities. It is best that any proposed will be in their next life. These religious resources. There is no clear-cut formula income measure of poverty be constructed beliefs may help people to suffer happily for determining basic capabilities. from capabilities. The choice of a poverty but they do not improve their living line should reflect the cost of achieving conditions. Wellbeing is about Can we describe poverty purely in terms basic human needs. capabilities and achievements. of capability deprivation? Suppose that a millionaire, who has all the economic However, that is not the case with the Wellbeing means to buy anything, has a disease most frequently used international is not happiness. or disability which prevents him from poverty measure, the PPP $1/day per achieving some basic functionings. He person. It was constructed by World It is about capabilities or she is surely suffering from a serious Bank researchers in 1990 as the median and achievements. capability deprivation in spite of having of the lowest ten national poverty lines all the best medical facilities at his or her available in a sample of 33 countries. disposal. Yet, it would be odd to call this It has been shown that a person may The level of happiness can still be a good millionaire “poor”. not attain income-dependent basic indicator of people’s wellbeing, but it is capabilities even with an income not the same thing. Happiness can only Poverty is present when basic capability sufficient to count as non-poor be measured by people’s perceptions, failure arises because a person has according to the $1/day yardstick. which may change drastically in a short inadequate command over resources, If the reduction of poverty, as properly period. Thus, the level of happiness alone whether through market or non-market understood, is to be achieved, then new would not be a stable or suffcient sources. By examining capability measures of its extent and distribution indicator of wellbeing. It may change deprivation alone, we cannot always in the world will be required. without any change in people’s actual identify persons who are poor in this levels of living. specific sense. Accordingly, a distinction should be made between capability Nanak Kakwani and Hyun H. Son: “New The income approach views poverty as deprivation in general and poverty Global Poverty Counts”, Working paper no. 29, UNDP International Poverty Centre, deprivation of income (or consumption). specifically. Poverty results from the September 2006. 22 United Nations Development Programme

I N R E S P O N S E Re: Poverty and Wellbeing by Sabina Alkire, Oxford University

Kakwani’s broad view Nanak Kakwani’s careful and clear article acknowledges the conceptual of the possible elements inadequacies of aggregate economic growth and happiness as representations of of poverty seems exactly right. wellbeing or poverty. It then argues that poverty should be viewed as the deprivation of basic capabilities rather than merely as low level of income. Moreover it states that But then he turns back to the selection of basic capabilities is a value judgement and that there is no clear-cut resource-based definitions formula for determining basic capabilities. It further states: “Poverty encompasses not of poverty and to only material deprivation (measured by income or consumption) but also many other income-based definitions forms of deprivations in different aspects of life such as unemployment, ill health, lack of capability poverty. of education, vulnerability, powerlessness, social exclusion and so on.” This broad view of the possible elements of poverty seems exactly right. Basic capabilities can often be expanded by public action At the close the article takes two quite interesting turns, first back to resource-based regardless of causation. definitions of poverty and second back to income-based definitions of capability poverty. Although I am not entirely sure I have interpreted these correctly, I would like There are numerous to draw attention to these turns, and also to other possible avenues for exploration. ways to measure capability deprivation. Having established that “poverty should be viewed as the deprivation of basic capabilities”, Kakwani then appears to argue that this is the case only when poverty is They should be further caused by resource deprivation: “Poverty is present when basic capability failure arises developed rather than because a person has inadequate command over resources, whether through market or confining interest to non-market sources.” He poses the case of a millionaire with an illness that prevents income poverty lines alone. him or her from achieving a basic functioning. The millionaire is capability deprived – despite having splendid medical care – but should not, he argues, be called ‘poor’.

The article closes with a discussion of the most frequently used poverty line – $1 a day per person. Here the article takes a turn, arguing that despite the complexity of the relationship between capabilities and income, “defining poverty from the capability perspective cannot be done independently of income”. An alternative reading of Kakwani’s last argument is that capability poverty might be defined in other ways, but in those situations in which income poverty lines are to be constructed, the basis of their construction should be some kind(s) of capability deprivation.

The article contains three quite distinct lines of thought: • Poverty should be viewed as the set of deprivations of basic capabilities. • Poverty refers to the subset of basic capability deprivations that are caused by inadequate command over resources. • Poverty refers to basic capability deprivation insofar as this can be represented by income poverty lines or in income space.

I would warmly endorse the first of these, but reframe the second and third, to argue a) that poverty should be defined normatively not according to its cause but according to whether it can be influenced by public action, and b) that multidimensional poverty comparisons should be developed to displace income poverty lines (although when the latter are used they should be pegged to basic capabilities).

Consider the ill millionaire, and compare her with a vivacious millionaire. Perhaps the ‘basic functioning’ that her illness prevents is the physical ability to be nourished; thus issues of energy and indeed survival reemerge constantly. Clearly this capability deprivation is caused by some condition other than resource deprivation. Should she be considered poor? The category of ‘capability deprivation’ allows Kakwani to describe the difference between our rail-thin millionaire and a plump and vivacious millionaire. In defining poverty as the subset of capability deprivations that are caused by International Poverty Centre Poverty In Focus December 2006 23

inadequate resources, it seems that Kakwani wishes to define poverty not descriptively but normatively as capability deprivations that can (and should) be addressed by public action (by which we might mean not only action of the state sector but also of NGOs, business, and civil society). The problem with defining poverty according to its cause is not only that it is difficult to establish causality, but it may not be necessary: basic capabilities can often be expanded by public action regardless of causation.

When we use the term poverty as a moral or normative concept that serves as a trigger for action (rather than as a description, which one could also do), one might instead define poverty as the subset of basic capability deprivations that are “socially influenceable.” In his article “Elements of a Theory of Human Rights,” Sen argued that capabilities could be selected for special attention on the basis of two criteria. First, they were of special importance (that is, they were judged to be basic capabilities). Second, they were socially influenceable. For example, tranquility of mind or serenity of heart may be tremendously important to many – both the destitute and the wealthy – but it is not terribly amenable to change by concerted public action. This definition might achieve Kakwani’s objective without requiring neither the establishment of causality, nor the definition of what counts as command over resources.

A third point concerns how to establish income poverty lines. Kakwani acknowledges the difficulties in using income to indicate basic capabilities because of people’s very different personal conversion factors (as well as, we might observe, different institutional and market contexts), but argues that income poverty should be grounded on capability deprivation rather than on absolute income level such as $1/day. The only peculiarity with this argument is that it neither defends nor critically examines the focus on income space. Income poverty lines adjusted to reflect some basic functioning, such as nutritional status, or (and this is quite different) to reflect a resource, such as a caloric line, have a conceptual advantage over current PPP lines. But there are numerous ways to measure capability deprivation.

Foster and Sen describe four. The first is the ‘direct’ approach that employed indicators of functionings either alone, in a disaggregated way or aggregated into a multidimensional index such as the Human Poverty Index (HPI) or the Bourguignon-Chakravarty Index, which specifies a ‘poverty line’ for each of multiple dimensions of poverty. The second supplemented income measures informally with other measures, perhaps akin to contemporary poverty profiles. The third sets income poverty lines with respect to capabilities, for example through equivalence scales; the fourth examines partial orderings of ordinal intensity (for example DALYs and their successor indicators).

Research has broken open multidimensional poverty measurement and is actively developing multidimensional measures such as indices, poverty profiles, and stochastic dominance comparisons. Given their promise, measurement of capability poverty should involve and further develop these measures rather than confining interest to income poverty lines alone.

Sen, A. K., On Economic Inequality with a substantial annexe ‘after a Quarter Century’ by J Foster and A Sen. 2nd Edition. (Oxford: Clarendon Oxford Press, 1997). Sen, A. K., ‘Elements of a Theory of Human Rights’, Philosophy and Public Affairs, 234 (2004).

Rejoinder by Nanak Kakwani

Sabina Alkire’s gracious response even strengthens my argument that a distinction should be made between capability deprivation in general and poverty specifically. Poverty is concerned with the inadequacy of command over resources needed to generate socially determined basic capabilities, whereas capability deprivation is more general and may be caused by a host of factors. It seems that Alkire accepts our view that poverty is a subset of capability deprivations, which is generally not recognized. We define this subset as the one arising due to inadequate command over resources, whereas Alkire seems to agree with the one that can be influenced by public action. Any public action intended to reduce poverty basically provides (directly or indirectly) additional command over resources to those people who lack them. Thus, if we understand her position correctly, there is but little difference in our views.

There are two distinct problems in measuring poverty. The first is identifying the poor, and the second is aggregating poverty. My article is mainly concerned with the first issue, while for example the HPI is a response to the second. The identification problem is clearly prior to aggregation. It would be odd to identify a millionaire as poor even when suffering from a basic capability deprivation. Thus, defining poverty from the capability perspective cannot be done independently of income. In this context, the issue of establishing causality is not all that difficult. Moreover, in the formulation of public policies, we have to confront causal relationships even if they are difficult to establish.

A poverty line should not be a single number defined in income space. Since different individuals differ with respect to their ability to convert income or resources into capabilities to function, they require different resources to achieve basic capabilities. It means that different individuals will have different poverty lines to be able to enjoy the same basic capabilities. In our view the concept of poverty line is multidimensional because it takes into account people’s individual differences in the enjoyment of a set of basic capabilities. Thus, the poverty lines properly constructed can reflect different interpersonal conversion rates as well institutional differences. Sabina Alkire’s criticisms are mainly directed to a unitary income poverty line, which obviously is not our view. International Poverty Centre SBS – Ed. BNDES, 10º andar 70076-900 Brasilia DF Brazil [email protected] www.undp-povertycentre.org

Telephone +55 61 2105 5000 December 2006