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Last Updated: 10/21/2005
Measuring Poverty
Benjamin Hess

The United Nations has declared in its Millennium Development Goals that it hopes to halve extreme poverty rates between 1990 and 2015. Unfortunately, the aim itself is flawed because it measures extreme poverty in a way that is misleading. Currently, the World Bank and United Nations define extreme poverty as those living on $1 a day and poverty as those living on $2 a day. A universal definition of poverty based solely on income does more harm than good. In order to understand and combat poverty more effectively, one must analyze the Four A’s: access, assets, abilities, and the accountability of the state.

When the World Bank first began to measure global poverty rates, it encountered great difficulties in defining a universal poverty line for those living in extreme poverty and those living in poverty. The World Bank decided upon reference poverty lines set at $1 and $2 per day. Today, the World Bank calculates the poverty lines on a purchasing power parity basis that attempts to measure inflation and the relative purchasing power in different countries for the same basket of goods and services. The current poverty lines in Purchasing Power Parity terms are set at $1.08 and $2.15.

World Bank statistics show that the number of people living on less than $1 a day decreased from 1.5 billion in 1981 to 1.1 billion in 2001. This instilled a sense of optimism within the international community, but a region-by-region analysis indicated that the majority of those who left extreme poverty lived in China or India, two nations that have made rapid economic progress over the past two decades. At the same time, the number of people living on less than $1 a day in Africa soared to 313 million in 2001 from 164 million in 1981.

The World Bank also reported that the number of people living on less than $2 a day increased from 2.4 billion in 1981 to 2.7 billion in 2001. The United Nations Development Programme (UNDP) estimates that an additional 1.7 billion people might be living on $2 a day by 2015.

The World Bank, while acknowledging the shortcomings of its definition of poverty, sticks by it nonetheless. It insists that the only way to measure poverty worldwide is to establish the same reference poverty line as a common standard for all countries. However, as numerous scholars have pointed out, this oversimplifies poverty in a way that misleads analysts and practitioners. This does more harm than good.

While the eradication of poverty is an admirable goal that must be pursued, a global definition of poverty is hazardous and should be avoided. To understand poverty, one must understand its relationship to the Four A’s: access, assets, abilities, and accountability.

1. Access: It has been shown that access to clean water, food, social support, education, health care, and a variety of other factors all influence poverty levels. For example, a person living on $1 a day in a Bangladeshi slum with access to water, basic health care, and a social support structure might be better off than someone living on $3 a day in a shantytown in Buenos Aires, Argentina, without access to these services.

2. Assets: The Peruvian economist Hernando de Soto emphasizes the importance of assets in the determination of poverty. This includes physical capital, such as land, housing, cars, or livestock, and human capital, including labor potential, education, health, and training. (Deepa Narayan affirms that two other types of assets are social, as in social networks, and environmental, which refers to water, trees, soil, and so on.) De Soto also maintains that access to formal financial and legal institutions that provide credit and protect property rights and human rights is a key issue related to assets.

3. Abilities: Abilities are related to human capital assets. Nobel laureate Amartya Sen writes that poverty should be viewed as the “deprivation of basic capabilities” rather than the result of low incomes. He argues that a strong link exists between income and capability due to a person’s age, gender, location, education, and additional aspects that he or she may be unable to control, such as illness or disability.

4. Accountability: Often, when analysts examine poverty, they focus on the poor themselves rather than the state’s role. However, the state’s accountability to the poor is a decisive factor that must be contained within any definition of poverty. The state’s level of responsiveness to its poorest sectors and poor people’s access to the political process are critical elements in the eradication or deepening of poverty.

Although the United Nations and the World Bank use the dollar-a-day measurement, the UNDP has also developed the Human Poverty Index (HPI) and the Human Development Index (HDI) to measure poverty. The HDI measures a nation’s progress in improving life expectancy, adult literacy, school enrollment rates, and per capita income. The HPI measures the percentage of the population not expected to live to age 40, the percentage of adults who are illiterate, the percentage of the population without access to safe water, and the percentage of children under age 5 who suffer from malnourishment. While both of these models more accurately reflect the many dimensions of poverty than the $1 per day mark, they apply to a nation-state rather than the individual.

The best way to fight poverty is on an individual level, taking into account each person’s access to basic needs, human rights, and services; assets, both physical and human; physical and mental abilities; and the state’s accountability to the poorest sectors in a particular area. Placing a focus on the individual rather than a nation or region is much more time-consuming and costly, but in the long run our understanding of poverty’s causes and effects and how we can eradicate it will be far more advanced. Poverty affects real people; it is important that we treat it as more than a set of statistics.

While the Four A’s are closely linked, I have resisted the attempt to propose a universal definition of poverty. The poor can describe it better than any analyst. In the World Bank’s study, Voices of the Poor: Can Anyone Hear Us? (World Bank 2000), a destitute woman from Moldova says: “Poverty is pain; it feels like a disease. It attacks a person not only materially but also morally. It eats away one’s dignity and drives one into total despair.” Poverty is an all-consuming, vicious cycle that tears away at the victim’s humanity and dignity. This is the principal threat to peace in today’s world, but we cannot eradicate poverty if we do not understand its complex dimensions and the multiple ways that it can affect people.