Globalisation: measuring poverty

Guyana the wider world
by Dr Clive Thomas
Stabroek News
April 1, 2001

Last week we looked at the size of the problem of global poverty. The statistics presented were based on the two widely used standard international benchmarks of persons living with an income less than US$1 and US$2 per day. In the case of the former there are as many as 1.2 billion persons in this situation. And, for the latter, the figure is 2.8 billion persons. When we take into account that the world's population is presently 6 billion persons, these are huge numbers. This week we shall try to understand the reasoning that lies behind these benchmarks. As we shall see, at the very best, they represent crude and approximate measurements of the magnitude of the problem of global poverty. This weakness is recognised in the literature. But, as we shall see over the course of the next couple of weeks, these benchmarks are still routinely used and increasingly complemented with the use of other related indicators.

The poverty line

The measurement of poverty based on these benchmarks is the process of determining what a household or person needs to survive in a physiological sense. This is comprised of nutritional requirements and absolutely essential related services like shelter, transportation, water supply, and medical attention. We shall use Guyana as an example to illustrate how this is done.

The first requirement in measuring poverty in this way is to establish what is a representative basket of food items that would provide minimum nutrition (measured in terms of calories per day) for a typical Guyanese household given our dietary preferences. Typically, this information is provided by medical and nutritional experts. The typical household would of course have male and female adults as well as children of different ages. Because of this it is therefore necessary to arrive at a measure that takes into account the different consumption requirements of each person in the household. To do so, an adult equivalent standard is set for an adult household member, i.e., a person aged 18 years and over. For the children in the household, the calorie requirements are converted on a fixed scale. Thus for example, children aged 0-6 are treated as requiring one-fifth or 0.2 of the adult standard. For children aged 7-12 the fraction is three-tenths or 0.3. And, for children 13-17 it is one-half or 0.5.

Having established what constitutes the representative basket of food items that meets the minimum nutritional standard, the next task is to cost it. This is usually done on the basis of prices prevailing in the markets. This task may sound straightforward, but in practice it can be quite complicated. For example, we all know that prices for the same food items vary across Guyana, even sometimes in the same locality. Indeed, prices for many food items are seasonal, reflecting the fact that agricultural supplies vary over the year, because of the nature of their cultivation.

Having established the cost of a representative basket of food items that meets minimum nutrition and dietary requirements for this reference household consisting of male and female adults and children of different age, the next task is to determine the necessary non-food expenditure that would be required by this reference family. This can also be an exceedingly difficult thing to do accurately. The practice has been to use the ratio of food to non-food expenditure found in surveys of households at the levels of income where the incidence of poverty is likely to be highest. In Guyana this ratio of food to non-food expenditure is 65:35.

Having then arrived at the cost of the food basket, it is a simple thing to add to it an additional 35 percent for non-food expenditure. The resulting figure is known as the poverty line. The poverty line is sub-divided into critical and absolute poverty lines. The absolute poverty line is the total line which covers both food and non-food items. This indicates that persons who are not living at the level of this poverty line are absolutely poor. The critical poverty line is the line that covers the food portion of the line only. Persons are therefore critically poor in the sense that if they fall below this line, theoretically they cannot survive. The US$1 and US$2 global benchmarks roughly relate to the critical and absolutely poor, respectively.

Income or consumption?

With the poverty line established, a sample survey is done of households to determine their income and consumption expenditures. A household whose total income or consumption falls below the value of the poverty line is classed as poor. It should be observed that the results we get would vary since usually income and consumption levels are not necessarily the same. Two examples would help clarify this point. A household may be saving hard and so deliberately restricting consumption, so that consumption does not reflect income fully. Or, the household may be borrowing in order to maintain a level of consumption it cannot afford from its income. This can occur, if for example, an adult member is out of work. The other example is that researchers have found a definite reluctance of households to declare their incomes accurately. The expectation is that they will give a more accurate representation of what they consume than what they earn. This, however, may not always be the case.

In 1999 the Bureau of Statistics conducted a Survey of Living Conditions in Guyana through the auspices of the UNDP. I was responsible for writing the Report on that survey, and some of the information provided there would be useful to note at this point. First, the representative basket of food was costed at G$5,463 per person per month or G$65,556 per year. This was equivalent to US$364 per year or US$1 per day at the then exchange rate. This measure is of course the critical poverty line, which for Guyana was drawn at the same level as the international standard. Second, the cost of both the food and non-food expenditure placed the absolute poverty line at G$7,639 per person per month or G$91,668 per year. This was equivalent to US$1.40 per day, which is sixty-cents per day below the US$2 standard. Based on these two lines, 36.3 percent of the population was in absolute poverty and 19.1 percent in critical poverty.

This approach to the measurement of poverty has many shortcomings. However, it is still not possible to find a superior replacement. My own view is that these measures of income or consumption poverty as they are called, should be complemented with the use of other indicators. It is impossible in the complex circumstances of day-to-day living in a global environment to find a single unique measure of poverty that is adequate for all circumstances and all countries.

Next week we shall continue this discussion and go on to observe what efforts have been made to refine these poverty measures. We shall also note the use of other complementary measures, which help to assess the impact of globalisation on world poverty.