VI. Poverty and Hunger

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The Nature of Poverty

Poverty is pronounced deprivation of well-being. But what is "deprivation," and how can it be measured? Traditionally poverty was understood primarily as material deprivation, as living with low income and low consumption, characterized primarily by poor nutrition and poor living conditions. However, it is easy to observe that income poverty in most cases is associated with so-called human poverty—the low health and education levels that are either the cause or the result of low income. Income and human poverty also tend to be accompanied by such social deprivations as high vulnerability to adverse events (for example, disease, economic crisis, or natural disaster), voicelessness in most of society's institutions, and powerlessness to improve one's living circumstances. This multidimensional nature of poverty is revealed by interviews with the poor themselves and confirmed by special sociological studies.

The broader definition of poverty as a multidimensional phenomenon leads to a clearer understanding of its causes and to a more comprehensive policy aimed at poverty reduction. For example, in addition to the issues of economic growth and income distribution, it brings to the fore equitable access to health and education services and development of social security systems. Poverty reduction strategies also must allow for the fact that different aspects of poverty interact and reinforce each other. For example, improving social security not only makes poor people feel less vulnerable, but also allows them to take advantage of higher-risk opportunities, such as moving to another location or changing qualifications. And increasing poor people's representation and participation not only helps them overcome the feeling of being excluded from society, but also contributes to better targeting of public health and education services.

Note that this chapter is devoted only to income poverty and hunger while the other dimensions of poverty are discussed, in more or less detail, in some of the following chapters.

Measures of income poverty are different in different countries. Generally speaking, the richer a country is, the higher its national poverty line. To allow for international comparisons, the World Bank has established an international poverty line of $1 a day per person in 1985 purchasing power parity (PPP) prices, which is equivalent to $1.08 a day per person in 1993 PPP prices. According to this measure, the portion of extremely poor people in the world’s population—those living on less than $1 a day—fell between 1990 and 1999, from 29 percent to 23 percent. But, owing to the fast growth of the world’s population, the absolute number of people living in extreme poverty decreased by only 123 million in that time period.. For middle-income countries, an international poverty line of $2 a day, $2.15 in 1993 PPP prices, is closer to a practical minimum. Of the 6 billion people living on Earth at the end of the 20th century, almost half—about 2.8 billion—lived on less than $2 a day, and about one-fifth—1.2 billion—lived on less than $1.

The Geography of Poverty

Most of the world’s poor live in South Asia (over 40 percent), Sub-Saharan Africa (almost 25 percent), and East Asia (about 23 percent). Almost half of the world’s poor live in just two large countries--China and India.The highest incidence of poverty is observed in Sub-Saharan Africa, with almost half of its population living below the $1 poverty line (see Data Table 2). Sub-Saharan Africa is followed by South Asia, where over the 1990s the incidence of poverty went down from about 41 percent to about 32 percent (see Figure 6.1), although the absolute number of poor people decreased very modestly. Using Map 6.1 and Data Table 2, you can identify the developing countries with the highest percentages of their population living below the international poverty line.

Analysts have found a strong positive relationship between economic growth and poverty reduction. For example, East Asia (including China), which contains the world’s fastest-growing economies, reduced the share of its population living below the international poverty line from about 29 percent in 1990 to about 15 percent in 2000. In China alone, nearly 150 million people were lifted out of poverty. But in Sub-Saharan Africa, where negative growth of GNP per capita predominated during that period, both the incidence of poverty and the absolute number of poor people increased--from 47 percent to 49 percent and by 74 million. In relative terms, the fastest growth of poverty took place in the region of Eastern Europe and Central Asia that lived through the acute economic recession associated with market-oriented reforms. Between 1987 and 1998, the incidence of poverty in this region increased from 0.2 percent to 5.1 percent and the number of poor people from about 1 million to 24 million.

The Vicious Circle of Poverty

Economists generally assume that people’s willingness to save for future consumption grows with their incomes. It seems natural that the poorer people are, the less they can afford to plan for the future and save. Thus in poor countries, where most incomes have to be spent to meet current—often urgent—needs, national saving rates tend to be lower. In combination with the small size of poor countries’ economies, lower saving rates account for a much smaller pool of savings available for desperately needed domestic investment in both physical capital and human capital. For example, Sub-Saharan Africa consistently has the lowest saving rate and the smallest pool of savings. By contrast, high-income countries in 1996-2000 saved a smaller share of their GDP than some developing countries, but their pool of savings was about three times as large as all the savings of developing countries combined (see Figure 6.2). But without new investment, an economy's productivity cannot be increased and incomes cannot be raised. That closes the vicious circle of poverty (see Figure 6.3). So are poor countries doomed to remain poor?

The data on saving and investment in East Asia over the past two decades suggest that the answer is no. Despite low initial GNP per capita, the rates of gross domestic saving and gross domestic investment in the region were higher than in any other region and resulted in some of the highest economic growth rates (see Figure 6.2 and Figure 4.4). Experts are still trying to explain this phenomenon. Generally speaking, however, many of the factors that encourage people to save and invest are well known. They include political and economic stability, a reliable banking system, and favorable government policy.

In addition to domestic investment, foreign investment can help developing countries break out of the vicious circle of poverty, particularly if such investment is accompanied by transfers of advanced technology from developed countries. The opportunity to benefit from foreign investment and technology is sometimes referred to as the “advantage of backwardness,” which should (at least theoretically) enable poor countries to develop faster than did today’s rich countries. However, many of the conditions needed to attract foreign investment to a country are the same as those needed to stimulate domestic investment.

A favorable investment climate includes many factors that make investing in one country more profitable and less risky than in another country. Political stability is one of the most important of these factors. Both domestic and foreign investors are discouraged by the threat of political upheaval and by the prospect of a new regime that might impose punitive taxes or expropriate capital assets. As a result a country can fall into another vicious circle, one seen historically in many African and some Latin American countries (see Figure 6.4). Political instability scares away new investments, which prevents faster economic growth and improvements in people’s economic welfare, causing even more dissatisfaction with the political regime and increasing political instability. Falling into this vicious circle of political instability can seriously impede efforts to boost economic development and reduce poverty.

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