Economists have quarrelled for centuries about the true definition of wealth. Perhaps a more pertinent question, in these globally troubled times as more people risk sliding into poverty, is the one they are asking now: what is the best measure of poverty?
It used to be simple: you were poor if you did not have enough money to live on. The World Bank, which has been tracking poverty by income since 1990 in its World Development Report, reckons a quarter of the developing world scrapes by on $1.25 a day or less.
Yet economists have long agreed that income alone tells only part of the story.
Instead, measuring things people lack – such as access to education or healthcare – provides insight into chronic poverty down to the household level and “illuminates people’s lives for policymakers” according to Sabina Alkire, director of the Oxford Poverty and Human Development Initiative, a research centre at Oxford University.
With fellow economist James Foster, she has devised an approach that is being launched this month and used in the UN Development Programme’s annual Human Development Report in October. The method draws on data from household surveys by national statistics offices to give a detailed insight into what it means to be poor.
“It’s not as if income measures do not have validity but this gives a much more fine-grained picture,” says Bill Orme of the UNDP’s Human Development Report Office.
The approach goes deeper than other aggregate measures such as the unsatisfied basic needs index, developed by the UN in Latin America, because it reveals not only what proportion of the population is poor, but also the extent of their poverty, adds Ms Alkire.
“This is important because in countries with high inequality there may be high average welfare or a high human development index because of incredible wealth among an elite, masking the fact that a lot of people are poor – for example, oil-rich states,” she says.
An OPHI study of India illustrates how income measures can mislead: despite strong economic growth and falling income poverty rates, it found 46 per cent of children under three were malnourished in 2005-06, compared with 47 per cent in 1998-99.
UNDP, through its human development reports, has for 20 years been tracking an average of indicators of health, education and living standards. This year’s report will use the Alkire-Foster approach to complement its own Human Development Index.
Although the report does not set UN policy, Mr Orme said its authors considered the approach “extraordinarily valuable ... We hope that it is used by national governments and UN agencies and others”.
In Mexico, elements of the Alkire-Foster method have been incorporated, along with others, into a poverty index introduced last December. In Bhutan, OPHI’s approach is used to generate the country’s Gross National Happiness Index, which helps to steer government policy.
Several countries in Latin America, where the UN thinks one in three people is poor and the rate of poverty reduction is slowing, are looking at it with interest. Ms Alkire says her method can highlight what drives poverty among different groups, such as a lack of education in rural areas or health in cities, and can aid corporate social responsibility programmes by giving them a way to track their effect.
“Per capita income doesn’t help us,” says Andrés Peñate Giraldo, vice-president for corporate affairs for Latin America at brewer SABMiller. His company’s social responsibility programmes are focused on helping foster entrepreneurism and autonomy among poor people, and a more rounded picture of poverty in communities “interests us and would help”, he says.
In Mexico, the Alkire-Foster approach has shown that poverty among indigenous groups is almost four times the national average.
Gonzalo Hernández Licona, executive secretary of Mexico’s National Council for the Evaluation of Social Development Policy, likened the index to a doctor using a battery of tests rather than basing a diagnosis just on blood pressure. “There are many combinations of criteria – some people say it’s confusing. But I think the benefit of richer information to be able to tailor policies makes up for that.”
Copyright The Financial Times Limited 2010. You may share using our article tools. Please don't cut articles from FT.com and redistribute by email or post to the web.
Return to the list <<<<<