May 29, 2016

World Poverty

Prabhat Patnaik

THE International Labour Organisation (ILO) brings out every year a publication called World Employment and Social Outlook. The current year’s report, released on May 18, is sub-titled “Transforming Jobs to End Poverty”. It provides estimates of the level of world poverty and of the amount of income transfers to the poor required for ending world poverty.

Before getting to these estimates, it is worth discussing how poverty is defined by the ILO. It uses the World Bank’s measure for the year 2011 that living below $1.90 per person per day is the definition of “extreme poverty” and living between $ 1.90 and $3.10 per person per day constitutes “moderate poverty” in “emerging and developing countries”. These poverty lines are converted to local currencies of these countries by using the “purchasing power parity” (PPP) exchange rates for 2011, and not the nominal exchange rates.

The difference between the two exchange rates can be understood as follows. The nominal exchange rate between the rupee and the US dollar today is roughly around 67 rupees to a dollar; but if we take a basket of goods and services, say the basket consumed by the lower income groups, then that basket does not cost 67 times in Indian rupees compared to what it costs in US dollars. It may cost say 20 times as much in rupees as it does in dollars, in which case the PPP exchange rate is Rs 20 to a dollar and not Rs 67. The PPP rate used in converting the poverty line to rupees from dollars is, as already mentioned, the one that prevailed in 2011.

Figures like $1.90 and $3.10 are themselves arrived at by taking the various national poverty lines in 2011, converting them to US dollars at the PPP rates of 2011, and then taking an average of these different dollar poverty lines. This is then reconverted to national currencies at the 2011 PPP rates to find out from national data how many people live below these figures. The total population living below poverty is thus estimated for the base year 2011. One can then work out figures for subsequent years, ie, for years after 2011, by bringing the 2011 poverty line forward with a price-index.

The ILO finds that, for the year 2012, two billion persons, or 36.2 percent of the total population of “emerging and developing countries”, was afflicted by extreme or moderate poverty. Of these around 15 percent were afflicted by extreme poverty and the rest by moderate poverty. Taking the world population as a whole, which was around seven billion at that date, those afflicted by extreme or moderate poverty in the emerging and developing countries alone (poverty is defined and estimated for the developed countries in an altogether different manner and has been rising of late, but we shall ignore this poverty for the present), constitute around 30 percent of the world’s population.

The ILO claims of course that this poverty has been declining, but since the poverty line used by the ILO (and obtained from the World Bank) is derived ultimately from the national poverty lines, and since, on the basis of these national poverty lines, countries, like India, have been claiming a significant decline in poverty, it is not surprising that the ILO too echoes this claim. In other words no more credence can be placed on the ILO’s claim of declining poverty in the “emerging and developing countries” as a whole, than one can place on the Indian government’s claim of declining poverty in this country. Since the latter claim is completely untenable, and the truth happens to be just the opposite, exactly the same can be said of the ILO’s claim.

Let us however leave this issue aside for the moment. The ILO estimates what it calls the “income gap” which is the sum, taking all the poor people together, of the difference between per capita consumption expenditure (or of income, if data are available on income) and the poverty line. In other words this is the amount of money which, if transferred to the poor, in accordance with how much each poor person’s income falls short of the poverty line, will eliminate poverty altogether. The figure that is required for eliminating both extreme and moderate poverty, comes to $600 billion in 2012, which is 0.8 percent of the world GDP for that year.

If we divide $600 billion by the number of the poor, which is two billion, then we get $300 per annum, which works out to $0.82 per day. The average poor person in the emerging and developing countries of the world in other words had an expenditure every day that fell short of the poverty line of $3.10 by 82 cents, or by just about one-fourth of the poverty line. If this amount was made available to the average poor person every day either as a direct income transfer or through social protection measures, then the world’s poor will be lifted out of poverty.

To be sure, a mere transfer may not be the best way of eliminating poverty; it is always preferable to ensure that better quality jobs are made available to the poor. But the point is not what is the optimal way of eliminating poverty; the point is how little is required to eliminate poverty from the face of the earth. A mere 0.8 percent of the world’s income is all that is required to be handed over to the world’s poor to lift them above poverty. And yet the remarkable thing is that no voices are being raised for effecting such a transfer. Even the ILO report, having mentioned the minuscule level of the income gap relative to the world GDP, promptly moves to compare this gap with the GDP not of the world as a whole but of the emerging and developing countries, as if the latter alone should be left with the responsibility of eliminating the poverty that resides within their economies.

No doubt there would have been some basis for suggesting that the countries afflicted by poverty are the only ones on whose shoulders the burden of removing it should fall, if the different countries of the world were unconnected with one another, if each was a separate island to itself. Such however is obviously not the case. The “emerging and developing countries” are precisely the ones who had been subjugated as colonies and semi-colonies, their economies systematically drained of surplus for centuries, their local crafts destroyed through the import of metropolitan goods, making a surplus population out of the masses of dispossessed artisans and craftsmen, and thereby engendering modern mass poverty. Even to this day they are being enchained through “globalisation”, their economies open to the depredations of speculative finance, their natural resources thrown open to multinational corporations, and their peasantry and petty producers subjected to a process of primitive accumulation of capital by metropolitan corporations and the local corporate-financial oligarchy that is integrated with it. Even the slightest effort on the part of these countries to make any provisions for the poor, would be resisted, and would trigger capital flight; and capital controls to restrict such flight would invite sanctions and arm-twisting by metropolitan powers.

In short, since we live in a world of “globalisation” and are supposed to feel gratified by that fact, poverty itself should be seen as a global problem and its removal a global responsibility. What the ILO report suggests is that this responsibility represents at the most a minuscule “burden”.

In fact however it does not constitute a burden at all. Since the world economy is in a crisis, the 0.8 percent of the world GDP that has to be made available to fill the “income gap” does not have to come by curtailing anyone else’s absorption. It can come merely by producing this extra amount through putting into use the existing unemployed labour and unutilised equipment. And what is more, if 0.8 percent of existing output is transferred to the world’s poor as a grant, then not only will this amount itself come from capacity that is currently lying idle, but a multiple of it will be produced from the utilisation of idle capacity.

An example will make the point clear. Let us assume that the current world output is 100. Now, if 0.8 units of goods are produced, they would generate an equivalent amount of income, a part of which will be spent, generating further output and income, and a part saved. This output in short will produce a chain of expenditure, and hence output, through what is called the “multiplier process”. If, say, a quarter of income generated is habitually saved, then, for making 0.8 units available to the world’s poor, the world output has to increase by 3.2, of which savings would be 0.8 (which the government(s) could borrow for financing transfers to the world’s poor), and 2.4 additional consumption by the world’s non-poor. In other words, the elimination of world poverty, far from requiring a restriction of the consumption of the world’s non-poor, will actually enable an increase in the consumption of the world’s non-poor.

Of course, since the world does not have one single government but many, how exactly the 0.8 percent of world output is to be contributed to by the different governments has to be worked out. In short, the logistics of how poverty is to be overcome has to be worked out. But in principle, no sacrifice is involved on the part of anyone for overcoming world poverty. On the contrary, doing so will make others better off.

What prevents the overcoming of world poverty is neither the unwillingness of the non-poor to make sacrifices (since no sacrifices are needed), nor even the problems of logistics arising from the fact of there being many governments (these too could be sorted out); what prevents it is capitalism itself, whose ethics, as Kalecki had put it, “require that ‘You shall earn your bread in sweat’—unless you happen to have private means.” Closing income gaps is anathema for capitalism. And it is a symptom of the current hegemony of these ethics, that, unlike decades ago when the Brandt Commission had asked developed countries to contribute one percent of their GDP towards “aid” to the underdeveloped countries, even such a social democratic demand, rooted in “Global Keynesianism”, is not being voiced today.