The myths of dollar-a-day poverty

A multi-billion dollar industry has developed around the concept of absolute poverty as living on a dollar a day.

It turned out to be a brilliant marketing ploy by the World Bank and since it was coined in 1985 has spawned a huge global business based on government-funded and philanthropic aid.

Yet the biggest decline in poverty has occurred in a country that has hardly been touched by the aid industry – except in disaster relief – and has done it without any handouts.

This raises the question, and some experts have asked it, whether the aid industry actually perpetuates poverty rather than cures it.

This is certainly the conclusion one could reach from a recent BBC World Service radio documentary by Tim Harford – the Undercover Economist – when reporting the World Bank’s latest report.

It confounded some experts by finding that the global recession did not increase poverty but in fact reduced it.

Furthermore, the bank found the proportion of people living in extreme poverty — on less than $US1.25 a day (the inflation-adjusted version) — fell in every developing region between 2005 and 2008. Preliminary data from 2010 indicates this trend has continued.

The kicker is that most of this poverty reduction has been in China, which has moved nearly 700 million people out of poverty between 1981 and 2008, with the proportion of its population living in extreme poverty falling to 13% from 84% during that period.

Dr Harford picks up on this and poses questions to his interviewees. Unfortunately, I cannot find a transcript but, with the right softare program, you can listen here.

In a 2007 column, Harford quoted the work of MIT economists Banerjee and Duflo on the spending habits of the very poor in 13 countries. They concluded, Harford wrote,

that about a third of household income is spent on stuff other than food. The alternatives to simply trying to consume more calories include tobacco, alcohol, weddings, funerals and religious festivals. Radios and televisions are also popular.

Empty desk is waiting
The countries where poverty is still a major issue – such as India and Brazil – are pushing for a greater say at the World Bank, if not actually running it.

This is topical because Robert Zoellik, the latest in a string of mainly Americans, will step down in June, providing an opportunity to break the long-standing tradition that only the US is trustworthy enough to run the World Bank and Europeans doing the same at the IMF.

However, the problem is finding someone Brazil, India, et al, can agree on.

“I am sure the US will nominate an excellent candidate, but it is imperative that the process this time be contestable,” Reuters quotes Amar Bhattacharya as saying.

He is director of the G24 Secretariat, whose members include major developing and emerging economies. He hopes they will come up with a list of candidates by the deadline for nominees on March 23.

Hats off to Larry
One name on President Obama’s potential list is bound to be former Treasury Secretary Lawrence (Larry) Summers, who served in the Obama administration as director of the president's National Economic Council.

Now a Harvard professor, he will be best remembered for his evasion in the documentary The Inside Job on the causes of the global financial meltdown. He was also depicted in Too Big to Fail, the HBO re-enactment shown recently on Sky’s Rialto channel.

Mr Zoellick is no stranger to speaking his mind and did so on his recent visit to Beijing, where he described China's economic growth model as "unsustainable" He also urged deep reforms to avoid a sharp downturn in growth over the coming two decades.

The warning was issued at a conference where the World Bank and China’s government-backed think tank Development Research Centre presented a report, China 2030, that recommends sharp economic reforms.

In an executive summary, the report calls for "further reforms of state enterprises," including "separating ownership from management." This basically means asset managers will run state-owned firms.

It also says China should build several "world-class research universities," focus heavily on environmental technology, spend more heavily on social programmes, reform its fiscal system and play a central role in international economic issues.

Mr Zoellick told westerner reporters he thought China would engineer a "soft landing" in the next year or so, so growth would remain strong for now.

He was also hopeful the China 2030 report would be carried out by new leaders due to take office by next year, while noting powerful domestic interests would resist these reforms.

"There's a momentum behind reform in China," he said. "I think that in some form you'll see this [report] move ahead."

Putin and beyond
Western observers will wishing their benign reading of China’s future could replicated in Russia, where Vladimir Putin has engineered a successful, and probably popular, return to the presidency.

Mr Putin has come in for strong media criticism. Not the least have been highly unflattering profiles in Newsweek (a chapter on his youth from a longer biography) and the New Yorker (by its editor and one-time Moscow correspondent David Remnick).

An exception to this wave of commentary came from former UK foreign minister Sir Malcolm Rifkind, who provides a balance between Mr Putin’s few positives – stability and predictability – and his weaknesses – lack of imagination, blind nationalism and toleration of corruption.

Sir Malcolm threw up some surprise gems, too, such as the possible release of Mikhail Khodorkovsky, who was jailed on trumped up charges, and a realisation that Russia's backing for the brutal Assad regime in Syria has turned off many allies in the Arab world.

However, more than a few will have noticed that recent events in Syria have been modelled on Russia’s crackdown on Chechnya.

Ironically, events since the overthrow of repressive regimes in Egypt, Tunisia and Libya may have give some solace to those who advocate stability at all costs.

The Muslim vandals who attacked the war cemeteries in Libya are just the tip of anti-western developments there that had been suppressed until now.