People's Democracy

WIDESPREAD poverty and excessive inequality remain the principal challenges to the legitimacy of the process of globalization that has been underway during the last two decades. Even as economies and governments adjust to afford a larger role for markets and a smaller role for the State in development, the importance of public action to deal with poverty and vulnerability has only increased. It is for this reason that the 1995 World Summit for Social Development called upon countries not just to set "time-bound goals and targets" to substantially reduce overall poverty and eradicate extreme poverty, but to implement national anti-poverty plans to achieve these targets. This task is indeed daunting in the Asian region, where in 1998, 800 million people, amounting to 67 per cent of the world’s poor, were below the international poverty line of 1 dollar per day per capita at 1993 prices.

This measure focuses on the lack of monetary means to meet a specific set of needs, and usually takes the form of identifying consumption poverty. Within that definition, absolute poverty is identified as an income or expenditure level at which the food component of expenditure is inadequate even to meet the physiological needs for survival. That is, the poverty line is defined "as the total consumption expenditure at which one can expect a person to be adequately nourished in the specific society under consideration." The identification of "needs" being subjective, the latter definition, which ties the required need down to a calorific requirement essential for subsistence, is seen as having an element of objectivity about it. Many "national" poverty line figures derive from such a notion of poverty. The arbitrary international poverty "standard", which identifies the poor as those earning less than 1 dollar or 2 dollars per capita per day in purchasing power dollars, also derives from a similar notion.

Once need and its relevant monetary equivalent are arrived at, a number of measures on the incidence of poverty can be worked out. The most widely used is the head-count ratio, which estimates the numbers below the poverty line and their proportion to the relevant total population. The problem with poverty lines tied to a specific calorific requirement is that they presume that at the point when expenditure is adequate to meet that requirement, the non-food component of expenditure is adequate to cover required "basic needs". In reality, of course, it does not. In as much as a decent subsistence requires that other "basic needs" such as clothing, shelter, safe drinking water, adequate sanitation, and accesses to health and educational facilities are also met, over time the definition of poverty was expanded to include these, even though this involved some loss in measurability in the form of a single number capturing incidence. Poverty now was reflected not just in the per capita income of households being inadequate to meet specified consumption needs, but also in the inadequate access to a range of services that impacted on crucial indicators of health and morbidity.

With income and consumption surveys hard to come by in the case of most countries, assessments of the gains registered in the reduction of income poverty must necessarily be spotty. However, World Bank figures, based on national surveys from which comparable estimates have been computed, indicate that between 1990 and 1998, while poverty reduction in East Asia, including China, has been quite significant (from 27.6 per cent to 15.3 per cent), it has been slow in South Asia (42.4 per cent to 40 per cent) and the incidence of poverty has risen in East Europe and Central Asia (3.95 to 5.14 per cent). The sharp reduction in the incidence of poverty in East Asia as a whole, as well as in China in particular, has meant that the number of income poor in these countries has also fallen quite substantially during the 1990s. However, in South Asia, which includes India that is characterised by a large population and a high incidence of poverty, the smaller reduction in poverty incidence has not helped prevent an increase in the number of income poor. Moreover, between 1996 and 1998, during which time East Asia was afflicted by the financial crisis of the late 1990s, poverty in fact rose marginally in the whole of East Asia and significantly in China, resulting in an increase in the number of income poor in those countries.

Needless to say, within the region and its sub-regions, individual countries have performed very differently in terms of the record of reduction in income poverty. Figures on poverty computed by the World Bank using three different poverty lines in 8 countries in the East Asian sub-region, yield a number of pointers. First, the World Bank’s poverty line of 1 dollar-a-day delivers in most countries poverty incidence figures that are far lower than that yielded by country-specific poverty lines. Second, poverty incidence is extremely sensitive to the poverty line, with poverty incidence rising dramatically when the poverty line is doubled to 2 dollars-a-day. Third, poverty in the rural areas tends to be far higher than in urban areas in all East Asian countries, with the exception of Mongolia. Finally, within East Asia, poverty differs substantially, falling from a high of 26 per cent to a low of 0 per cent on the basis of the 1 dollar-a-day poverty line in five countries for which figures are available.

Given the higher incidence of poverty based on country-specific or "national" poverty lines, some indication of trends in poverty based on such figures would be useful. Poverty estimates based on country-specific poverty lines in 12 selected countries of the Asian region indicate that with the exception of Mongolia, Nepal and Sri Lanka, poverty was declining in the remaining nine countries during the 1980s and early 1990s. During the 1990s however poverty has increased in Indonesia, Mongolia, Pakistan and Thailand and remained constant in Nepal, while no comparable figures are available for Sri Lanka. What is more, the rate of poverty reduction has slowed during the 1990s in Bangladesh, India, the Philippines and Korea. In the event, in six of the 12 countries, the number of income poor in the last reported survey relating to the 1990s was higher in the immediately preceding survey. Thus, trends in the incidence of poverty as revealed by the country-specific figures tally with the idea that during the 1990s, which were the years of globalisation, the advance registered in the war against poverty in some parts of the Asia-Pacific has either weakened or been partially reversed.

Answering the question, "Why was there not more progress against poverty?", World Bank analysts argue: "In the aggregate, and for some large regions, all our measures suggest that the 1990s did not see much progress against consumption poverty in the developing world. Yet this was a period of aggregate economic growth; the overall rate of growth in real per capita private consumption for the low- and middle-income countries over 1990-97 was 2.6 per cent per year.

What went wrong? Rising inequality was one factor… the world distribution

of consumption in 1985 was such that it would not take much of an increase in

overall inequality to wipe out the benefits to the world’s poor of modest growth in consumption per capita (and) There is now evidence of quite sharply rising inter-personal income inequality in the world during this period...

Why was world inequality rising? Very few individual countries have

experienced a trend increase in inequality over the longer term (a few decades,

say)… The more important factor in rising global inequality has been rising

inequality between countries…The unconditional growth divergence we have

seen in the 1980s and 1990s — whereby growth rates have tended to be lower

in poorer countries — appears to be a far more important reason for the low rate of aggregate poverty reduction than rising inequality within poor economies."

The argument that it is growing inequality between countries rather than within countries that accounts for slow progress in the war against poverty in the Asia-Pacific region, is however, difficult to sustain. This is because the two countries that have the largest population and the largest number of the poor, namely China and India, were also countries which registered high or creditable rates of growth by international standards during the 1990s. Thus both globally and in the Asia-Pacific region in the aggregate, the burden of the explanation for the low overall rate of poverty reduction in the 1990s must fall on either persistent or rising inequality or on factors that neutralised whatever positive effect that growth in these countries had on poverty reduction.

In China and South Asia, which are the areas that have contributed to the weakening of the war against poverty in the Asia-Pacific, rising internal inequality does seemed to have played a role. Though recent data on inequality is difficult to come by, the available evidence does suggest that the years of reform are worsening inequality in China. Before the start of reform in 1978, the ratio of urban to rural income had declined to 2.36 from 3.48 in 1978. Price and production reform in agriculture, ensured that this trend continued till 1985. However, after 1985, the ratio began to rise again and stood at 2.61 in 1994. Further, within rural and urban areas the gini coefficient of income distribution rose from 0.31 and 0.19 respectively to 0.41 and 0.37 between 1986 and 1994. This worsening of income distribution which appears to have continued since then has neutralised some of the significant benefits in terms of poverty reduction ensured by the rapid rates of growth in aggregate income China has managed to ensure since the beginning of the reform.

The adverse effects of rising inequality resulting from the process of structural adjustment and reform are visible in a country like Pakistan as well. The move to encourage exports during the 1980s, with the removal of export restrictions, devaluation of the currency and provision of a range of export concessions to the textile sector, did result in a rapid expansion in textile exports. As a result cotton textile manufactures such as yarns, fabrics, apparel and clothing accessories, which accounted for 35 per cent of Pakistan’s exports in 1980, registered an increase in share to 75 per cent in 1998. The profitability and rapid growth of these exports rendered cotton cultivation an extremely lucrative activity, resulting in resumption and leasing in of land for self-cultivation by large farmers. Cotton output tripled between 1980 and 1992. Simultaneously, farm holdings of size greater than 50 acres, which accounted for 0.3 per cent of farms and 8.4 per cent of area in 1981, came to account for 8.4 per cent of farms and 23.8 per cent of area. This increase in inequality would have adversely affected progress on the anti-poverty front. Further, this inequality would have made the consequences of the slowdown of growth in the 1990s particularly adverse for the poor.

These trends indicate that it is not enough to have a combination of growth and a supplementary poverty alleviation plan to deal with the problem of persisting poverty. What matters is the process of growth itself. The nature of growth during the years of liberalisation and globalisation, which results in an increase in inter- and intra-country inequality, is the greatest obstacle to victory in the war against poverty in Asia and elsewhere.