Poverty post-2015: New Understandings and Strategies

Photo By: Alen John

2015 marks the climax of the period of Millennium Development Goals and commencement of the new era of Sustainable Development Goals, both of which target massive global poverty reduction. Time is ripe for exploring new understandings of poverty and strategies of poverty alleviation. Two recent publications offer fresh perspectives in these areas.

The World Development Report 2015: Mind, Society, and Behavior penned by the World Bank takes help from a variety of disciplines such as neuroscience, behavioral economics, and cognitive science to understand poverty. One of the key arguments of the report is that poverty exerts influence over people’s mindsets; hence the poor make better decisions when they are under less financial stress.

An IMF Staff Discussion Note published in June 2015 titled Causes and Consequences of Income Inequality: A Global Perspective presents the remarkable finding that the rich becoming richer pulls down the GDP growth rate while the poor becoming better off accelerates the same. The report proposes that a rise in the income share of the poor and the middle class could be an effective way to bring down inequality, at the same time enhancing economic growth.

An in-depth reading of the above reports gives hints about how the post-2015 poverty-alleviation strategies should be. Policies aimed at lifting people out of poverty without hampering the growth prospects of the economy have become indispensable. It is interesting to note that most of the conventionally prescribed measures of poverty alleviation have been proved to contribute to GDP growth. This displaces the common apprehension that poverty alleviation hinders economic growth. The June 2015 IMF Staff Discussion Note suggests a few combination measures.

Redistribution through taxation is good for GDP growth in most countries. Better employment security for temporary workers, which can reduce inequality while promoting better market flexibility, is beneficial for the poor and the market. Raising skill levels substantially improves employability and earnings of the poor. This simultaneously provides impetus to skill-intensive industries which are poised to emerge as principal drivers of economic growth. An OECD Economics Department working paper published in January 2015 titled Raising the Economic Participation of Women in India: A New Growth Engine? shows that in India, strong female economic participation can boost GDP growth by 1.5% to 2.4%. A 2014 IMF Working Paper titled India: Defining and Explaining Inclusive Growth and Poverty Reduction presents the findings that high social spending and initial education levels are positively associated with higher average growth of household consumption expenditure and economic growth, respectively.

Multidimensional needs to become the key word in fighting poverty. Conceptualizing poverty as deprivations in multiple dimensions is not enough. Instead, the lives of the poor amidst multiple impediments have to be fully grasped to design constructive poverty alleviation measures. For instance, preventing polio, measles or mumps requires not only vaccines but also refrigerators with reliable power supply, which implies that poor health is not just a health issue but also a power issue. Similarly, a closer look at the lives of the poor tells that child marriages among the poor occur not only due to lack of education and economic pressure. The insecurity of the parents attached with leaving young girls at home alone while they go out to the fields or elsewhere for work also plays a crucial role. This implies that there is a psychological driver behind child marriages. The inter-disciplinary approach taken by the World Development Report 2015 becomes compelling under such circumstances.

"Experience teaches the poor that compulsion to contribute instils financial discipline."

In support of the findings of the report, the book Portfolios of the Poor presents similar evidence based on empirical studies. It observes that the poor households prefer joining savings club where weekly or monthly contribution is mandatory, to opening savings bank accounts where contribution can be made at will. Experience teaches the poor that compulsion to contribute instils financial discipline. This is one of the ways in which the poor apply mind strategies to mitigate poverty.

Global poverty reduction achievements during the recent decades have been remarkable. The World Bank’s Poverty & Equity Databank and PovcalNet data show that between 1993 and 2011, the number of people living under $1.25 per day has fallen from 1.93 billion to 1.01 billion, marking a decline of 48%. The proposed Sustainable Development Goal of eradication of extreme poverty – currently measured as living on less than $1.25 per day – by 2030 is promising and challenging at the same time. Considering the previous record of commendable poverty reduction, this target may look achievable. However, conventional wisdom tells that running the last mile is always difficult; the remaining poor may face the toughest barriers to escape poverty. The updated and new understandings of poverty can contribute greatly towards designing policies for a world free of extreme poverty.