[Paleopsych] NYT: U.N. Aims to Cut Poverty in Half as Experts Wonder How to Measure It

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The New York Times > Business > World Business > Economic Scene: U.N.
Aims to Cut Poverty in Half as Experts Wonder How to Measure It
http://www.nytimes.com/2005/02/03/business/worldbusiness/03scenes.html
5.2.3

    ECONOMIC SCENE

    By ALAN B. KRUEGER

    ONE of the United Nations' top goals is to cut in half the proportion
    of people living in extreme poverty by 2015, compared with 1990. The
    World Bank is responsible for keeping track. Accurately monitoring
    poverty is essential for knowing whether the goal is achieved and
    whether antipoverty strategies are working.

    But measuring poverty is difficult for a particular country, let alone
    the world. The movie star Angelina Jolie challenged celebrities at the
    World Economic Forum in Davos, Switzerland, last week to know
    "absolutely what they're talking about" when it comes to poverty, yet
    even experts would have trouble meeting her standard. Knowing the
    extent of the rise or fall of worldwide poverty is difficult because
    poverty is not easy to define or measure.

    First, establishing a poverty line - or level of consumption below
    which one is considered impoverished - involves an element of
    arbitrariness. For many poor families, not having enough money amounts
    to not having enough food. But there is no particular threshold level
    of income or expenditures above which people automatically become
    fully functioning, nourished members of society.

    "Poverty lines are as much political as scientific constructions,"
    said Angus Deaton, a Princeton economist and expert on economic
    development. In such places as different as the United States and
    India, the poverty line was initially set with reference to minimum
    standards of food consumption. Yet over time, Professor Deaton noted,
    the poverty lines in both countries were adjusted to keep pace with
    overall price inflation, not the price of food or the share of food in
    the average family's budget. Despite straying from its original
    conception, the poverty line survived because of its political and
    administrative usefulness.

    The U.N. has set the line for extreme poverty at living on less than
    $1 a day. This threshold has obvious rhetorical appeal and surely
    qualifies as extreme poverty by any standard in developed countries;
    it is also not far off the poverty line used by many of the poorest
    countries themselves.

    Once an international poverty line is set, it must be converted to
    local currencies. This is trickier than it sounds. Currency exchange
    rates are inappropriate because most of the items that the poor
    consume are not traded on world markets. Living expenses are much
    lower in rural India than in New York, but this fact is not fully
    captured if prices are converted with currency exchange rates.

    To convert the $1 poverty line into foreign currencies, the World Bank
    uses indexes of "purchasing power parity." Simply put, these indexes
    reflect the cost of buying a standard bundle of goods in each country.

    Although it is desirable to use purchasing indexes, they are not
    available for all countries and are skewed toward representing the
    purchases of the wealthiest households, not the poorest, when they are
    available. Another problem is that the bundle of goods that poor
    families actually buy varies from country to country because of
    differences in tastes and availability.

    Thus, the $1 poverty line is best viewed as an approximation.

    Once the poverty line is set in local currency, the consumption of a
    representative sample of households must be compared with the line to
    determine the percent of people getting by on less than $1 a day.
    (Each household's consumption is spread equally among its members,
    another leap of faith.)

    Again, this is harder than it sounds. The World Bank typically relies
    on whatever government surveys that countries routinely produce.

    But there is no uniform standard in the way countries collect and
    process their data, which is important because the poverty rate is
    sensitive to how consumption is measured.

    Consider India, home to 33 percent of the world's poor - or 20
    percent, depending on how the data are collected.

    India was a pioneer in social surveys and has one of the best
    government statistical agencies in the world. Still, uncertainty
    shrouds the level of poverty in India. In one experiment, India's
    national survey organization asked half of the households it surveyed
    to report their spending on certain items over a 30-day period and
    half over a seven-day period. Households reported 30 percent higher
    food consumption per day in the shorter interval, enough to cut the
    poverty rate in half. It is not certain which measure is more
    accurate, although follow-up work points toward the longer interval.

    Perhaps the best one can hope for is consistency of measurement within
    countries to detect changes in poverty over time. But continuing past
    practices can prolong the use of misleading poverty counts that are
    not comparable across countries. Clearly, there is a need for Latin
    American countries, which usually measure poverty by income rather
    than consumption, to collect reliable household consumption data
    because consumption is a better measure of living standards.

    The herculean measurement problems aside, careful research by Shaohua
    Chen and Martin Ravallion of the World Bank indicates that much
    progress has been made toward the goal of halving poverty in China and
    India. But, they found, little progress has occurred in Latin America
    and Africa, and the former Soviet states are slipping into deeper
    poverty. Because China and India accounted for 60 percent of the
    world's poor in 1990, the goal of halving poverty may be achieved a
    decade from now, even while many regions see no progress.

    Despite the progress in China and India, 18 percent of the world's
    population still somehow survives on less than $1 a day.

    The United Nations has recently held a number of brainstorming
    sessions to gather proposals for the secretary general's report to the
    General Assembly on achieving the development goals, which will be
    delivered next month.

    An essential prerequisite is to improve poverty statistics and ensure
    their integrity.

    Although the process of setting a poverty line is necessarily
    political, the task of measuring poverty should be insulated from
    political influences. The World Bank, however, is an inherently
    political institution.

    Yet no other international body currently has the expertise or
    resources to monitor worldwide poverty, so it is important for the
    next president of the World Bank to value and protect the impartiality
    of the statistical and research staff. The U.N. could also help by
    working with statistical agencies around the world to develop uniform
    standards for poverty surveys and then to ensure that their data are
    adequately documented and publicly archived. To this end, the U.N.
    could restart its Household Survey Capability Program, which supported
    statistical offices in developing countries in the 1980's.

    This may not be a cause that celebrities are ready to line up for, but
    improving poverty data will put the world in a better position to
    monitor progress and evaluate poverty reduction strategies by the time
    the poverty line is moved up to $2 a day.

    Alan B. Krueger is the Bendheim professor of economics and public
    affairs at Princeton University. E-mail: akrueger at princeton.edu