Poverty in the Global Economy

1
Poverty in the Global Economy
Module 6

• Snarr Snarr, Chap 8

2
What is poverty?

• Read lists of points at beginning of chapter 8
  and think about them.
• Poverty is multi-dimensional
• Poverty the involuntary lack of sufficient
  resources to provide for basic necessities
• Everyone needs food, shelter, water, healthcare,
  clothing, education, and opportunities to work
  and to develop the human spirit
• Continent with the highest number of poor people
  Asia
• Continent with the highest proportion of poor
  Africa
• Poverty exists in EVERY country

3
Types of Poverty

• There are two types of poverty
• Relative Poverty
• When someone is poor in comparison to others in
  their society
• Less severe form of poverty
• This is the poverty found in MDCs
• Absolute Poverty (Extreme Poverty)
• When someone lives on less than 1.25 a day
• Formerly we used less than 1 a day
• Absolute poverty means you can not meet your most
  basic needs
• Food, water, shelter
• Some studies and agencies use a threshold of 2 a
  day

4
Poverty Thresholds

• This set of graphs shows both the total number
  and the percentage of people living below a
  certain poverty threshold.
• For example Look at the 1.00 bar.
• 0.88 billion (880 million) people live at or
  below 1 a day
• 5.58 billion live on more than 1 a day
• About 15 of the world lives on less than 1 a day

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Poverty Thresholds (continued)

• Besides the World Bank thresholds, countries set
  their own national poverty thresholds
• MDCs set much higher thresholds, since they
  measure relative, not absolute poverty
• Some LDCs set lower thresholds to hide the
  severity of their poverty
• US poverty threshold is defined as earning less
  than 3 X the value of the Dept. of Agricultures
  (USDA) Thrifty Food Plan
• Varies by family size (2009 thresholds)
• 22,050 per year for a family of four (60.41 a
  day)
• 10,830 per year for an individual (29.67 a day)
• Chinas poverty threshold much lower than 1.25 a
  day
• 2009 threshold is 1,196 yuan per year or about
  0.48 per day
• Using 0.48 a day means only 40 million live in
  poverty
• Using the higher international threshold reveals
  over 150 million in poverty

6
Measuring Poverty

• Poverty is difficult to measure on a national or
  global level
• Household surveys are the most accurate, but
  time-consuming and expensive
• Macro level statistics and averages are easier,
  but less valid
• Commonly used measures
• Gross Domestic Product (GDP) the value of all
  goods and services produced in a national economy
• Gross National Income (GNI) the sum of GDP and
  all monetary transfers in or out of an economy
• GDP GNI are national-level statistics. They
  must be divided by the total number of people to
  produce an individual average. This is termed
  per capita
• Purchasing Power Parity (PPP)
• An adjustment to GNI, GDP, that estimates the
  amount of money it takes to buy comparable goods
  in different countries
• Makes cross-country comparisons more accurate and
  realistic
• If you are comparing incomes in different
  countries be sure you are using PPP!

7
GNI per capita adjusted for PPP
8
Measuring Poverty (continued)

• Problems with using GDP or GNI per capita
• These are measures of wealth, not poverty.
  Lacking wealth is not always the same as being
  poor
• These measure ALL formal economic activity
  social goods and social bads all count toward
  GDP
• The informal economy is not included
• Important activities such as caring for children
  or the elderly are usually not included in GDP
  calculations
• Illegal activities are also not included
• These are averages. They do not take into account
  inequality
• A few wealthy individuals can skew the average
  and hide poverty
• Example 1 millionaire in a room with 9 extremely
  poor people makes the average wealth in the room
  over 100,000.

9
Global Inequality

• While the US has the second widest gap between
  rich and poor of any industrialized nation, the
  global gap between rich and poor is much greater
• Ratio between incomes of the richest and poorest
  20
• Japan 3.4 to 1
• US 8.4 to1
• Singapore 9.7 to 1
• China 12.2 to 1
• Brazil 21.8 to 1
• Sierra Leone 57.6 to 1
• World 85 to1

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Better Measures of Poverty

• Hunger or Malnutrition
• The UN Food and Agriculture Organization (FAO)
  estimates the proportion of people who go hungry
• Unfortunately, after several decades of steady
  improvement, a Global Food Crisis was declared in
  2008. FAO reports that food prices nearly doubled
  from 2006 to 2008 and have fluctuated widely
  since. Thankfully, prices have recently
  stabilized

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• But still

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Global Number and percentage of undernourished
persons
Year Number Percent of total population Year Number Percent of total population Year Number Percent of total population
1990-1992 1015 million (19)
2000-2002 957 million (15)
2005-2007 907 million (14)
2008-2010 878 million (13)
2011-2013 842 million (12)

• We are making progress
• Source

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Better Measures of Poverty (continued)

• Human Development Index (HDI)
• Human development is the opposite of poverty, so
  high HDI low poverty
• An index is a variable or statistic that is
  composed of two or more related variables
• HDI combines three measures
• Health (Life expectancy at birth)
• Education (Adult literacy and school enrollment
  rates)
• Standard of living (based on GDP per capita PPP)
• HDI was developed in 1990 and has been used ever
  since by UNDP and other agencies

14
World HDI Map 2011
Source
15
The Virtuous Circle of Poverty Reduction

• Make investments in healthcare and education
• Worker productivity increases
• Women gain reproductive rights
• Well-educated, productive workers earn more
• Fewer children means more household income for
  each individual
• Individuals invest in their own and childrens
  healthcare and education
• The cycle repeats

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Globalization Poverty

• World trade has increased job opportunities in
  LDCs
• Many good jobs have been created and living
  standards improved in some cases
• But many jobs are poorly-paid, unskilled
  positions that trap people at subsistence-level
  wages leaving no money for investments in health
  or education
• World trade has also caused the loss of low and
  semi-skilled positions in MDCs
• Solid, middleclass, manufacturing jobs of the
  past have been outsourced to countries with lower
  wages, less democratic governments, and fewer
  safety and environmental regulations

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Sustainable Development

• Development that meets the needs of the present
  generation without compromising the ability of
  future generations to meet their own needs
• Takes into account social and environmental costs
  of current development
• Usually leads to smaller-scale projects that
  involve the affected community in decision-making
• Realizes that many aspects of development are
  interconnected
• The chapter section on Millennium Development
  Goals (MDG) will be covered in a later module.

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Fighting Poverty is Like Running a Businesssort
of
Jacqueline Novogratz is the founder and CEO of
Acumen Fund and the author of The Blue Sweater.
Acumen Fund seeks to prove that small amounts of
philanthropic capital, combined with large doses
of business acumen, can build thriving
enterprises that serve vast numbers of the poor.
Its investments focus on delivering affordable,
critical goods and services like health, water,
housing and energy through innovative,
market-oriented approaches. Acumen Fund currently
manages more than 40 million in investments in
South Asia and East Africa, all focused on
delivering affordable healthcare, water, housing
and energy to the poor. (source)

• Watch this video of Novogratz on Patient
  Capitalism
• Be prepared to discuss in forum.
• Write 4-5 paragraph summary analysis of her
  presentation
• Be sure to discuss the following
• What are her main points?
• How does she view the poor?
• What is patient capital/capitalism?
• Explain a few of her examples/success stories.
• Submit in Assignments

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OECD and Development

• Organisation for Economic Cooperation and
  Development
• Australia Austria Belgium Canada Chile Czech
  Republic Denmark Estonia Finland France
  Germany Greece Hungary Iceland Ireland
  Israel Italy Japan Korea Luxembourg Mexico
  Netherlands New Zealand Norway Poland
  Portugal Slovak Republic Slovenia Spain
  Sweden Switzerland Turkey United Kingdom
  United States
• Organization of the wealthiest countries in the
  world. They have come together to support
  anti-poverty programs and to help LDCs develop.
• Official Development Assistance (ODA) is what the
  OECD calls foreign aid (and some loans) given to
  other countries.
• OECD has repeatedly pledged to give 0.7 GNI for
  ODA
• Actual Amount of ODA

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Acronyms to Know

• FAO
• GDP
• GNI
• HDI
• MDG
• OECD
• PPP
• UNDP
• USAID
• USDA

• Find them in the chapter, power point, or the
  list of acronyms on p.329 in the text
• Once you know what each acronym stands for, go to
  Assignments and complete the Acronym 4 assignment

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Assignmentsdue 7/19

• News Summary and Analysis on Poverty
• Summary Analysis of Novogratz Lecture Video
• Acronym 4 Assignment
• Module 6 Discussion in Forum