Beyond Monetary Poverty 4

Beyond Monetary Poverty 4 This chapter reports on the results of the World Bank’s first exercise of multidimensional global poverty measurement. Information on income or consumption is the traditional basis for the World Bank’s poverty estimates, including the estimates reported in chapters 1–3. However, in many settings, important aspects of well-being, such as access to quality health care or a secure community, are not captured by standard monetary measures. To address this concern, an established tradition of multidimensional poverty measurement measures these nonmonetary dimensions directly and aggregates them into an index. The United Nations Development Programme’s Multidimensional Poverty Index (Global MPI), produced in conjunction with the Oxford Poverty and Human Development Initiative, is a foremost example of such a multidimensional poverty measure. The analysis in this chapter complements the Global MPI by placing the monetary measure of well-being alongside nonmonetary dimensions. By doing so, this chapter explores the share of the deprived population that is missed by a sole reliance on monetary poverty as well as the extent to which monetary and nonmonetary deprivations are jointly presented across different contexts. The first exercise provides a global picture using comparable data across 119 countries for circa 2013 (representing 45 percent of the world’s population) combining consumption or income with measures of education and access to basic infrastructure services. Accounting for these aspects of well-being alters the perception of global poverty. The share of poor increases by 50 percent—from 12 percent living below the international poverty line to 18 percent deprived in at least one of the three dimensions of well-being. Across this sample, only a small minority of the poor is deprived in only one dimension: more than a third of the poor suffer simultaneous deprivations in all three dimensions. More than in any other region of the world, in Sub-Saharan Africa shortfalls in one dimension occur alongside deprivations in other dimensions. In South Asia, the relatively high incidence of deprivations in education and sanitation imply that poverty rates could be more than twice as high when these nonmonetary dimensions are added. A second complementary exercise for a smaller set of countries (six) explores the inclusion of two additional nonmonetary dimensions. When measures of health and household security (the risk of experiencing crime or a natural disaster) are included alongside the previous three dimensions, the profile of the poor changes. In most countries, the share of the poor living in female-headed households is greater than when the nonmonetary dimensions are excluded and, in some countries, the poor also have a significantly higher presence in urban areas. 87 Why look beyond monetary various goods taking their relative prices into poverty? account, these relative prices serve as natural weights with which to aggregate those quan- Consider the following hypothetical exam- tities consumed.1 That is why they form the ple. Two families have the same income, say basis for the first three chapters in this report. US$3.00 per person per day. However, only It is why poverty has typically been defined one family has access to adequate water, sani- in terms of whether a household’s income tation, and electricity, whereas the other lives reaches or surpasses a monetary threshold, the in an area lacking the necessary infrastruc- poverty line, which represents the minimum ture for basic services, such as a power grid or amount needed to purchase a sufficient quan- water mains. Members of this second family tity of essential goods and services. will still consume water and use energy for Yet the point of the example is that lighting and cooking, but they may have to monetary-based measures do not encompass spend hours per week fetching water from all aspects of human well-being. One reason a well, or pay higher prices to obtain lower- for this is that not all goods and services that quality water from a truck. For sanitation, matter to people are obtained exclusively they may use a private or communal latrine, through markets. Consequently, the prices without the convenience or hygiene benefits necessary to cost these goods and services ei- of a sewerage connection. And with no ac- ther do not exist or do not accurately reflect cess to an electricity grid, the second family’s their true consumption value (World Bank choice set for lighting and power options is 2017b). Common examples of nonmarket severely reduced. Both households will spend goods without prices are public goods such some of their US$3.00 per person per day to as a clean environment and a secure commu- meet their energy and water needs. Yet, be- nity. Examples of goods with prices that often cause their choice sets (including the prices do not reflect true consumption value include they face) are so different, the differences in those that require large public investments their living standards arising from the access to make them available—the provision of a that the first family enjoys are not captured power grid is often necessary before a house- by a monetary measure of poverty alone. hold can access electricity. Other core services The first family clearly enjoys a higher stan- at least partially provided through systems dard of living than the second, but a welfare supported by direct government spending judgment that considers only their incomes include health care and education. General will pronounce them equally well-off. This is government health expenditure accounts for an example of when public action—or lack more than half of total global health expen- thereof—can directly affect the well-being diture. Likewise, governments on average of households by expanding—or not—their spend the equivalent of nearly 5 percent of choice sets in ways that incomes and prices fail the gross domestic product (GDP) of their to fully internalize. It is possible that, under economies on education. The presence of a broader assessment of poverty, the second such goods renders the traditional monetary family might be considered poor or deprived, welfare measure incomplete with respect to a even though its daily income is above the in- variety of core aspects of well-being. ternational poverty line of US$1.90 per day. This chapter presents a broader picture of To be clear: Income (or consumption ex- well-being than that found in chapters 1–3, penditures valued at prevailing market prices) by considering a notion of poverty that rec- is hugely important for human well-being. ognizes the centrality of the monetary mea- Indeed, income and consumption are the sure, but looks to complement it by explicitly workhorse metrics of individual welfare in treating access to key nonmarket goods as economic analysis. They summarize a house- separate dimensions of well-being. Specif- hold’s capacity to purchase multiple goods and ically, the chapter previews a multidimen- services that are crucial for well-being, such sional poverty measure derived from stan- as food, clothing, and shelter. And they do so dardized data for 119 countries that provide with one remarkable property: because con- a global picture for circa 2013. The multidi- sumers choose the quantities they consume of mensional measure is anchored on consump- 88 POVERTY AND SHARED PROSPERITY 2018 tion or income as one dimension of welfare, and national level (box 4.1). The capability and includes several direct measures of access framework inspired the development of the to education and utilities (such as electricity, first global efforts to measure poverty multi- water, and sanitation) as additional dimen- dimensionally. These were carried out by the sions. Although this multidimensional mea- United Nations Development Programme sure has wide country coverage, it still lacks (UNDP), through the Human Poverty Index information on other important dimensions in the late 1990s (UNDP 1997) and, more re- of well-being including health care and nu- cently, through the Global Multidimensional trition, as well as security from crime and Poverty Index (Global MPI), introduced natural disasters. Consequently, in a more in the 2010 Human Development Report exploratory manner, the chapter extends the (UNDP 2010), developed with the Oxford analysis by adding these dimensions for a Poverty and Human Development Initiative smaller subset of countries for which infor- (OPHI), and reported annually for over 100 mation for all these dimensions can be cap- countries. At the country level, an increasing tured within the same household survey. number of governments are choosing to ex- The two exercises—one with broad coun- pand or complement their poverty measures try coverage, but fewer dimensions than one with multidimensional indicators (see spot- would ideally like, and the other with a rela- light 4.1 at the end of this chapter). The ef- tively extensive set of dimensions, but available forts of the UNDP, OPHI, and most govern- only as a pilot for a few countries—represent ments build on influential research by Sabina the World Bank’s first steps toward including Alkire and James Foster (see, for example, multidimensional poverty indicators in the Alkire and Foster 2011). set of complementary indicators of global The efforts here are also indebted to these poverty, as suggested by the Commission on previous efforts by other researchers, gov- Global Poverty (World Bank 2017b). Going ernments, and international institutions. In forward, the World Bank will monitor prog- addition, they follow on the World Develop- ress on multidimensional poverty at the global ment Report (WDR) 2000/01 Attacking Pov- level using the three-dimensional measures erty (World Bank 2001), which recognized the presented in this chapter, while continuing its many dimensions of poverty and considered efforts to incorporate the dimensions missing deprivations in education and health alongside from the global analysis for future rounds.

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