Defining the Poverty Line: Too Much Credit for a Bankrupt Tool?

What's a poverty line and what's the problem with it? David Satterthwaite gave a very good summary of the situation, by defining poverty lines as:

“The main means by which poverty is defined and measured. The income level at which these are set is often too low in relation to housing costs in urban areas. For example, most poverty levels don't take the cost of transports in big cities into account. They also tend to neglect the great cost of water for those who are not connected to piped systems and have to pay high prices to water vendors or kiosks. They often have unrealistic assumptions regarding the cost of meeting children’s needs in urban areas.” (David Satterthwaite, 2004)

Common flaws of poverty lines

In order to build a poverty line that will allow for comparisons over time and space (which region got poorer, when did that one got better), specialists need to set a minimum income level below which people will be deemed poor. To do so they will usually assume that all prices and consumption habits are the same in the whole country. Any person on this planet living in a country can tell you that's never true.

Within virtually any country there are differences in price and even more in consumption habits depending on which region, which city or rural area you’re talking about. Having regional or city-specific poverty lines would indeed be quite a pain, but considering the state of current technology it wouldn’t be the end of the world to build comparative systems integrating the differences. But that does represent more organization and money.

Another common critique of poverty lines lies on how they set the income level above which people will are supposedly able to meet their own needs. For foodstuff, poverty lines will generally refer to a basket of food that corresponds to the calories an adult every day (2000 cal.), notwithstanding the type of work that adult is doing. But with poor people being often involved in farming or constructing work, the required amount of calories may be a lot higher. As for the goods and services they need, poverty lines only rely on an income basket that low income households actually consume.

But what they consume is by no means equal to what they need, precisely because they’re already among the low income group (i.e. almost in poverty). And yet this depends on how this group is identified, it would be fairly easy to manipulate the statistics by taking a poverty-stricken group as the norm and thus prove that there is no poverty for there is no one poorer than this group. It’s like thinking that they don’t send their children to school out of personal choice, or live with restricted access to water or electricity for the sake of austerity (I’m not saying that’s impossible though, but there are different degrees of austerity).

In the paper mentioned earlier, Satterthwaite (2004) shows that since the bulk of urban poor in developing countries are homeless or live in “illegal settlements and cheap boarding houses”, there is no way to keep track of them, “no maps, no official addresses and no household records”. As a consequence, many cities proudly display numbers “scientifically” proving that their poverty level do not exceed 10%, while in fact 1/3 or a half of the population cannot enjoy a decent housing or access to water or education.

Distorting the reality of poverty

Because poverty lines are established according to the mean income of the lower class population, the most affected and neglected groups (also because of homelessness and informal housing) are those living in cities where everything is more expensive and where needs and requirements are more diverse than in rural areas. This is the biggest misrepresentation caused by distorted poverty guidelines. To better represent a nation’s poverty level, there is dire need of data and documentation.

As hard as it can be to reform a system so as to keep a record on a population and its living conditions, be it because they don’t pay any housing, water, electricity or even job tax, there is nonetheless a point where you go out in the street and see millions, if not dozens of millions stacked right outside (or sometimes inside) your city.

Once this point is reached, you might expect politicians to acknowledge the problem and take action. But there is by no means an easy fix to this, the wrong is done, and it takes quite a bit of political will to find a solution. The Chinese government had early on prevented massive rural exodus from 1958 with the Hukou system that allowed it to control flows of population, but morally and economically speaking, it has also permitted a segregation between urban and rural inhabitants.

This quote from David Satterthwaite (2004, iv) colors the argument:

“Walking through informal settlements in Dar es Salaam and listening to the inhabitants discuss their difficulties with accessing water and sanitation makes it difficult to take seriously the official statistic that 98% of Tanzania’s urban population have access to ‘improved’ sanitation. Sitting in on discussions by women pavement and slum dwellers in Mumbai about the difficulties they face getting water makes it difficult to accept the official statistic that 100% of the city’s population has access to piped water”

The risk with a poverty line is to focus only on income level, and forget about the different aspects of poverty, from infrastructure to education and social norms. If there is no water pipe system, no school in the district or no hospital, then is doesn’t really matter if you can afford it or not. The obsession with the monetary side of a poverty level neglects living conditions at large and issues of corruption, absence of rule of law, discrimination and such.

Since the definition and implementation of poverty lines has remained the exclusive activity of experts, it has some of a technocratic smell. It seems never discussed and even less questioned in public debates (and experts’ debates are ignored) or by the media, which on the contrary tend to cite the numbers without reflecting on them, thereby entrenching the status quo.

Yet there is much to win by raising public awareness on the issue and strive to put it on politicians’ agenda. Politicians, who in the end are often chosen (depending on the political regime) for their potential to represent a people’s will. The recent revolts in Tunisia, Egypt and Libya show the risks of not addressing and ignoring those needs.

Inherited flaws

There is in fact a very good reason for all these aberrations with poverty lines. When rich, developed countries started using them, they had already reached their goal of providing universal access of basic needs (from telecommunications, to schools, electricity and water) to their populations. So there was no need in taking those factors into account! All the more since other departments were in charge of monitoring the provision of other services, such as the internet or education.

This became a problem when this system was passed on to developing countries which need a much broader measure of poverty. The often all-pervasive state of poverty in poor countries requires entirely different tools, policies and definitions. But since international agencies have often thought it’d be trendy to be created by rich countries, they have often inherited from their methods and therefore measure poverty lines as they have always been measured in richer environments.

Improving the way we measure poverty

At the national level

While the flaws mentioned above are for any country, it's all the more crucial for developing ones to correct them. There, huge poverty gaps exist within the populations, especially in the countries that have been doing better and better, to begin with the BRICS (Brazil, Russia, India, China, South Africa). In those countries the income gap between the new middle class, the new rich, and the rest of the country is only getting wider and any poverty line has to take this into account.

Several studies have been insisting on how different poverty levels are from region to region within any country, and with that, how different people’s needs are in each and every place. Prices always vary from the capital to other major cities, mid-size ones, small towns and the countryside. This is just plain observation and fairly common knowledge, but it is yet to be integrated into the measurement of poverty lines.

Overall issues with measuring poverty

Politics being tied up with the problem of poverty, the use (and easy manipulation) of poverty lines comes in very handy. Not only can a government do so that millions are not counted within the poor, but also can it target specific groups with an income right below the poverty line to give money to.

That way it appears a certain number of people are indeed saved from poverty, but this is often just a temporary strategy and money stops coming to those people once they live somewhat above the line. Quite a use of a population’s money (taxes), poor included. This is why the use of poverty lines has to remain one tool among others and cannot be taken as the one and only holy measure by which governments are held accountable.

David Satterthwaite therefore proposes a way to improve the functioning of this system: looking at the degree (or intensity) of poverty by measuring the gap to the poverty line. So considering a $1 a day poverty line, somebody with $1.5 could be “rated as 0.5 of the poverty gap, while someone at $1 or below would get a value of 1”. All depending on the depth you want to give to the gap. He then suggests that definition be open to the public to examine and question, in particular “urban poor organizations and the professionals who work with them” (Satterthwaite 2004).

It is all the more important to broaden definitions and measurements of poverty to include causes of poverty other than low income, e.g.

• Poor sanitation
• Lack of infrastructure: such as water, energy
• Lack of basic civil rights.

This way the people and policymakers alike can be informed of the many sources of poverty and many possible ways to tackle them, including by relying on local businesses and NGOs, urban poor organizations, and local authorities.

This very much implies a radical shift in the way poverty is understood. The poor have to be considered as actors in this process, from data gatherers to helpers on the ground, just as local and foreign businesses should be included in the war on poverty. Each group will bring invaluable insights and improvements to the system, be it in terms of bureaucratic efficiency, stronger democratic participation at the local level from all actors and necessary reforms of flawed poverty lines and poverty reduction policies.

REFERENCES

• ‍Defining Poverty Lines As a Fraction of Central Tendency, Christophe Muller, Southern Economic Journal 2006
• Determining Semi-Normative Poverty Lines Using Social Survey Data, Christopher Deeming, Social Policy & Administration 2006
• How Precisely Can We Estimate Vulnerability to Poverty?, Yuan Zhang & Guanghua Wan, Oxford Development Studies 2009
• Poverty Comparisons with Absolute Poverty Lines Estimated from Survey Data, Kenneth Simler, Review of Income and Wealth 2007
• Poverty Lines Around the World: A New Methodology and Internationally Comparable Estimates, Richard Anker, International Labour Review 2006
• Poverty Measures and Definitions, H. T. Suchard, Development Southern Africa 1984
• Quantity Constraints, Poverty Lines and Poverty Orderings, Ramses Abul Naga, Journal of Economic Inequality 2004
• Region-Specific versus Country-Specific Poverty Lines in Analysis of Poverty, Magne Mogstad, Audun Langørgen, Rolf Aaberge, Journal of Economic Inequalities 2007
• Testing Poverty Lines, Martin Ravaillon, Michael Lokshin, Review of Income and Wealth 2006
• The Under-Estimation of Urban Poverty in Low- and Middle-Income Nations, David Satterthwaite, Working Paper on Poverty Reduction in Urban Areas / IIED 2004
• Defining Poverty Lines As a Fraction of Central Tendency, Christophe Muller, Southern Economic Journal 2006