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The Ethical Poverty Line: A moral definition of absolute poverty

By Peter Edward.Judge Business School,
Cambridge, UK

The first Millennium Development Goal (MDG) to halve ‘extreme’ poverty by 2015 has been justified as a moral duty. However, this morality is only
partial if absolute poverty is defined by the $1-a-day poverty line. We need a morally defensible poverty line.

Poverty defined as a lack of well-being is clearly multidimensional. The MDG and World Bank $1-a-day poverty line, being a solely monetary measure, has therefore rightly been criticised as inadequate and monodimensional. Yet, it is the most widely recognised poverty estimate in use today. The objective of this article is to demonstrate that, even if we accept a monetary measure of poverty, the $1-a-day poverty line is unrealistically low thus misleading policy makers and the public on the extent of global poverty and the scale of redistribution needed to remove it.

The basis for the $1-a-day poverty line is simply that it is the median of 10 of the lowest national poverty lines in the world.
It is not derived from any consideration of well-being or basic needs. The World Bank economists most involved in this area, recently called it ‘frugal’, stating that it ‘must be deemed a conservative estimate whereby aggregate poverty in the developing world is defined by the perceptions of poverty found in the poorest countries’. The implication is that the $1-a-day poverty line is unreasonably low. Almost certainly it is lower than developed world populations would consider morally justifiable. Indeed, the World Bank does increasingly quote poverty indices for a $2-a-day line that seems to be based simply on a doubling of the $1-a-day poverty line.

World income distribution curves show the highest population density betweenhe $1-a-day to $2-a-day poverty lines.
Thus, the poverty headcount is very sensitive to changes in the poverty line,
especially around those levels. If the public and policy makers are to recognise
just how much poverty there is in the world, a clear, relevant and morally
justifiable basis for setting the poverty line becomes essential.

The ethical poverty line (EPL) proposed here is derived from globally standardised and ethically justifiable wellbeing outcomes for which sufficient data already exist in the World Development Indicators (WDI). The EPL does not overcome the inherent problem of all income poverty lines, namely that they oversimplify and reduce the complexity of global poverty to a monodimensional monetary measure. However, the EPL at least provides a morally defensible basis for setting the line.

The intellectual background to the EPL draws on two specific areasof research; first by economists on wellbeing measures and their determinants; and second on public health, relating individual life-expectancy to individual income levels. These two areas can be combined to derive an international
poverty line directly from aggregate life-expectancy (i.e. wellbeing) outcomes. The association between life-expectancy and income was first explored by health economists who showed how  national average life-expectancy falls rapidly when average income levels fall below a critical level . A similar correlation was found by public health researchers between  individual income and life-expectancy, indicating a maximum life-expectancy around 73 to 75 years beyond which increases in income have little or no further effect.

If poverty is best defined in terms of low levels of wellbeing rather than income, and life-expectancy at birth is the indicator of well-being, then an ethical poverty line can be developed by modelling the relation between national average life-expectancy outcomes and their underlying source in individual absolute poverty levels. The model assumes the observed fact of a “kink” in the correlation curve indicating the critical consumption level.

Applying the model to national populations disaggregated by consumption level, the statistical correlation was established between modelled life-expectancies and the actual ones published in WDI. Similar correlations
were achieved from the best of the functions investigated for the model.
Collectively these results set the kink consumption at between $2.7-a-day and
$3.9-a-day, and probably around $3-a-day. To err on the side of caution, the
following discussion of the results is entirely based on the function that sets
kink-consumption at its lowest and hence least challenging level, namely $2.7-a-day.

The results can be interpreted as showing that, given the current state of
world development, it is reasonable to expect to live to 74 years if you have
‘adequate’ consumption. Based on average performance across the world
(excluding the worst distorting effect of AIDS in Africa), $2.7-a-day (in 1993 PPP prices) should be ‘adequate’. Consumption above this level adds only
nominal years to expected lifespan. Consumption below this level reduces
expected lifespan dramatically.

Applying an ethical dimension to the kink model assumes that none of us
would wish to be born into such a low consumption level that our lifespan risked dramatic shortening solely as a result of that poverty. Invoking the
Golden Rule—‘Do unto others as you would have them do unto you’—we
might argue that every community should be entitled to achieve a minimum
consumption level sufficient for all individuals to expect to live a reasonably
full lifespan. On this basis 74 years could be considered to be a reasonable
lifespan and $2.7-a-day would be the global ethical poverty line (Global EPL).
In this sense the kink consumption becomes not only an absolute poverty
line but also an Ethical Poverty Line (EPL).

This Global EPL is obviously significantly higher than the established $1-a-day line. However, it is not unreasonable. The World Bank increasingly uses a $2-a-day poverty line which is considered to be more representative of the poverty lines of middle-income countries. The average national poverty line in the developing world is is reported to be close to $2 per day , providing a further  argument for raising the international poverty line to around this level.

This analysis still includes a significant number of countries in sub-Saharan
Africa, where problems such as AIDS and civil war lead to premature death. While these problems are undoubtedly associated with poverty, they are not directly caused by a lack of consumption and they certainly cannot be resolved merely by increasing the consumption of the poor. Consequently their inclusion in the analysis introduces an upward bias into the EPL calculation that some might argue was unreasonable.

Recognising this, the EPL has also been recalculated separating out all of sub-Saharan Africa. The results are striking. As expected, this Minimum EPL is lower than the Global EPL at around $1.9-a-day.
The kink lifespan (72 years) is little altered and stands in stark contrast to sub-Saharan Africa. There, the kink lifespan falls to 48 years, whilethe very lowpoverty line ($0.6-a-day) may well indicate that, only for those in the
most extreme poverty, do the risks of premature death from lack of
consumption outweigh the very high risks of death from other causes. This
may well be striking evidence of the dramatic impact of AIDS in the region.

What then are the implications of using the EPL to define absolutepoverty? The table summarises a number of poverty indicators for the $1-a-day poverty line, the $1.9-a-day Minimum EPL and the $2.7-a-day Global EPL. Compared with the $1-a-day line, the Minimum EPL more than doubles the number of people considered to be in poverty to 2.5 billion, or 40% of the world’s population, while the Global EPL lifts this to 3 billion, or 50% of the world’s population. To remove poverty at the Minimum EPL level, the share of the world’s output that these poor consume would need to increase by 70%. Yet this is still only a poverty gap of 5% of global consumption.

This may look like a fairly small proportion of global consumption.
It is put more clearly into perspective, however, by estimating the extent of
redistribution that would be required if we wanted to eliminate global poverty
today. For example, the cost of ‘merely’ removing $1-a-day poverty would be
equivalent to a 30% global tax on the consumption of roughly the richest 1%
of world population, affecting one in 10 people  in the USA and one in 20 in the UK.

Raising the poverty line to the EPL both puts many more people in poverty and
raises the threshold that each poor person has to climb over to get out of
poverty. The redistribution implications of the EPL are huge. For example, the
cost of removing ethical poverty today (conservatively based on the Minimum
EPL line) would be comparable to an additional global tax of 30% on all
consumption above US median levels.
As a tax levied on anyone, anywhere in the world, it would affect 6% of world
population, including half the US population and one in three people in
the UK. If we wanted to remove ethical poverty at the higher Global EPL level,
this tax would extend to four-fifths of the US population and almost three-quarters of the UK population.

The EPL, therefore, reveals that the price to be paid for accepting a moral duty to remove poverty today is one that would cut deeply into the pockets of developed world populations.

Are you interested in reading more about this issues? Please refer to the following IPC- IG Publications:

What is poverty? Concepts and measures.

Global Poverty Measurement: A Reassessment

Poverty, Inequality and Social Policies in Brazil, 1995-2009

 

 

Short URL: http://pressroom.ipc-undp.org/?p=12361

Posted by on Sep 11 2012. Filed under Inclusive Growth, Inclusive Growth around the world, News, Thematic Areas. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry

1 Comment for “The Ethical Poverty Line: A moral definition of absolute poverty”

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