Assessing Strategies for Reducing Global Poverty

This study is part of a project exploring the “Prospects for Human Development.” The project will produce a series of volumes patterned after the annual Human Development Reports of the United Nations, but more consciously forward looking. The initial focus is on the first of the Millennium Development Goals (MDGs), the reduction of the global poverty rate by half. The project uses the International Futures (IFs) global modeling system for the exploration of the possible benefits of incremental human intervention. Among the findings of the analysis of poverty reduction are that: • Both global numbers in poverty and rates of poverty will likely fall sharply even without incremental human intervention. The regional exception to the generalization is Sub-Saharan Africa, where it appears most likely that numbers will rise and rates (portions of the population who are poor) will fall. • Humanity has considerable potential incremental influence on poverty levels and rates, especially in the longer term. Packages of interventions appear unlikely to reduce global poverty rates relative to a Base Case by more than 2% before 2015 (much less than the levels of uncertainty in measurement and forecasting), but can potentially move more than 200 million additional people from poverty by 2050. • There are no silver bullets. Economic liberalization, improved governance, and many other interventions reduce poverty, but significant reductions require extensive packages of actions. Interventions have mostly additive effects, rather than trade-off effects, and they also have some synergies. Assessing Poverty Reduction Strategies.doc ii 1. From Assessment to Forecasting to Action The project of global human development is now better defined and organized than ever in human history, not least because goals have become increasingly explicit and focused. An important early statement of goals, in Article 25 of the 1948 United Nations Universal Declaration of Human Rights, was highly qualitative: Everyone has the right to a standard of living adequate for the health and wellbeing of himself and of his family, including food, clothing, housing and medical care and necessary social services, and the right to security in the event of unemployment, sickness, disability, widowhood, old age or other lack of livelihood in circumstances beyond his control. Over time human development goals became more quantitative (and more genderneutral), but they frequently were more oriented towards input or process than toward output and goal accomplishment. For instance, in 1974 the UN General Assembly declared support for a New International Economic Order (NIEO). The NIEO called for financial aid at 0.7% of donor GDP, debt relief, industrial strategies, and increased savings. Yet over time a set of accomplishment-oriented and specific, measurable goals has emerged for the reduction of hunger, of infant mortality, and much else. The global community took an especially large step in September 2000, when at the United Nations Millennium Summit 189 countries committed to the eight Millennium Development Goals (MDGs), the first integrated set of development goals with elaborated targets and quantifiable indicators. For instance, the first goal, targeting reduction of poverty, specifically called for halving by 2015 the proportion of people around the world who live on less than $1 per day (relative to levels in 1990). The pursuit of such goals requires three sets of interacting activities (see Figure 1). First, measuring and assessing current conditions and the trajectory of change provides foundational knowledge concerning the specific targets of intervention and the urgency of action. Goals can only be achieved in a process of constant evaluation of actual, changing conditions. Second, framing strategies for action help determine the efforts needed by specific actors to accomplish established goals. Third, forecasting of alternative futures, with and without specific actions or interventions, provides a basis for understanding the potential leverage of human effort with respect to the goals. Assessing Poverty Reduction Strategies.doc 1 Figure 1. The Framework for Policy Analysis Each of the three activities is underway in the global project to reduce global poverty. Yet there remains room for improvement, perhaps most significantly with respect to forecasting and its explicit use in the packaging of action strategies. All policy analysis is based at least implicitly on forecasting of outcomes with and without action, but very often the forecasting remains implicit and therefore underdeveloped. The primary contribution of this study to the global development project will be to make forecasting more explicit and integrated.. 1 Support for the project on Prospects for Human Development has been provided by Frederick S. Pardee. This analysis heavily uses the International Futures (IFs) modelling system. Additional funding for IFs comes from the U.S. National Intelligence Council and the United Nations Environment Programme. Thanks also to TERRA project of the European Commission, the Strategic Assessments Group of the U.S. Central Intelligence Agency, the National Science Foundation, the Cleveland Foundation, the Exxon Education Foundation, the Kettering Family Foundation, the Pacific Cultural Foundation, the United States Institute of Peace, and General Motors for funding that contributed to earlier generations of IFs. None of these institutions bears any responsibility for the analysis presented here. IFs also owes much to the large number of students, instructors, and analysts who have used the system over many years and provided much appreciated advice for enhancement. The project further owes great appreciation to Anwar Hossain, Mohammod Irfan, Jonathan Moyer, and José Solórzano for data, modeling, help system and programming support within the most recent model generation. Haider Khan and Krishna Kumar will be co-authors on the first volume of the series on Prospects for Human Development. Assessing Poverty Reduction Strategies.doc 2 2. Poverty Reduction and Human Development The first and in many respects foundational goal of the MDG set is to “eradicate extreme poverty and hunger.” Two more specific, quantitative targets accompany the goal: 1. Halve, between 1990 and 2015, the proportion of people whose income is less than $1 a day. 2. Halve, between 1990 and 2015, the proportion of people who suffer from hunger. The apparent clarity of goal, target, and indicators is remarkable and laudatory. It is exactly what is needed for the assessment leg of the assault on poverty. Unfortunately, the clarity is also somewhat more apparent than real. Were it fully realized, there would be no difficulty in answering the following two questions: 1. What were the proportions of population globally and in different countries/regions around the world in 1990 that had incomes less than $1 per day? 2. What progress has been made in reducing those proportions since 1990? The answers to these critical questions are somewhat contested. There is also uncertainty around the measurement of malnutrition, but the larger debates have focused on poverty. The rest of this section explores what we know and do not know about poverty levels. 2.1 The World Bank’s Foundational Approach The World Bank has taken the lead in measuring poverty and providing data on change in its level. Ahluwalia, Carter, and Chenery (1979) first identified an international “absolute poverty” measure for comparison across countries. In doing so they used the International Comparison Project (ICP)’s earliest version of purchasing power parity (PPP) data to explore global levels (see Kravis, Heston and Summers 1978a and 1978b). They based the level primarily on data from India. The level chosen was $200 per capita, the 45 percentile of income in India in 1970 ICP dollars, which in 1985 dollars is quite close to the more contemporary $1/day level. That initial specification of poverty level corresponded roughly also with access to 2250 calories per day, something close to a survival minimum. Since 1990 the World Bank (see Ravallion, Datt, and van de Walle 1991) has relied upon that head-count measure of poverty. One dollar per day was subsequently converted to $1.08 per day at 1993 prices measured at PPP, but the short-hand reference to $1 per day 2 To assist with assessment of the human condition and progress towards the targets of the MDGs, the UN, International Monetary Fund (IMF), World Bank, and Organization for Economic Cooperation and Development (OECD) have identified quantitative indicators and developed a database. 3 Bhalla (2002), questions whether a price differential of only 8% between 1985 and 1993 is reasonable. Ravallion (2003) has strongly defended it. Assessing Poverty Reduction Strategies.doc 3 remains common. A second international measure of poverty, somewhat further above the basic survival level, is set at $2.15 per day at 1993 PPP. The core of the World Bank’s empirical approach to determining how many people earn less than $1 per day is the use of country-based surveys. The number of surveys has steadily expanded, reaching 454 across 97 developing countries in the Chen and Ravallion (2004) analysis that provided much of the poverty data used by the Millennium Project (2005) in its elaboration of proposals for meeting the MDGs. Such surveys allow the construction of distributions of income or consumption levels across national populations and the specifications of shares associated with various percentiles of population. The attention of the World Bank to distribution of income and consumption is fundamentally important. For instance, it matters much whether the bulk of those in a country below the extreme poverty line of $1 per day cluster just below that level or find themselves significantly below the line. In the latter case the poverty is clearly deeper. The Bank and other analysts