Despite its obvious centrality in the ‘study of the production, distribution and consumption of wealth in human society’, the concept of ‘poverty’ remains elusive. Conceptualizing and measuring it, is still a matter of contestation in the academic and policy arenas. The purpose of this essay is threefold. First, I intend to draw a distinction between two main views of ‘poverty’: on the one hand the traditional, money-metric approach with its emphasis on monetary income and consumption; on the other the so-called ‘capabilities approach’, as developed by Amartya Sen and put to practice by the United Nations Development Programme (UNDP) in the 1990s. In the second part of my essay I will assess the impact of this debate at an institutional level. I will argue there that although the Bretton Woods institutions ostensibly endorsed a multidimensional approach to poverty at the turn of the century, they have maintained a decisive emphasis on income-based measurements of poverty. Finally I will examine the political implications of each view. While defending the soundness of the capabilities approach I will argue that the reason behind the World Bank’s (WB) insistence on money-metric measures is closely linked with its profound endorsement of a neo-liberal approach to poverty and development at large.
The traditional way of identifying the poor focuses on generated income, consumer preferences and command over commodities. As a recent WB report notes -with an ill-deserved degree of pride- ‘though separated by a century Seebohm Rowntree’s classic study of poverty in the English city of York in 1899 and the World Bank’s current estimates of global income poverty share a common approach and a common method’. Clearly presented in the 1990 World Development Report, the money-metric consumption method consists of two main steps. First, an International Poverty Line (IPL) -the minimum level of income that is sufficient to provide for the basic needs of an individual or a family- is chosen by means of Purchasing Power Parities (PPPs) which are calculated by an appropriate basket of goods. This is followed by the ‘Headcount’, whereby household income and expenditure surveys determine what percentage of the nation’s population earns less than the IPL. This group consists of the absolutely poor, the people who face extreme adversity in providing themselves with basic commodities such as food, clothing and shelter. Based on nationally representative samples, this method is praised for allowing ‘inferences about the conditions and evolution of poverty on a national level’. Its supporters further argue that the relative straightforwardness of the process and its continuous use for many decades make it a technically valuable and universally accepted proxy for researchers and policy-makers: it is easily quantifiable, allows for comparative analysis with statistical data from previous decades, and can be utilized to test hypotheses on the effects of poverty-reducing policies.
Nevertheless, money-metric consumption measures attracted articulate criticisms in the 1990s. First of all, its alleged ‘straightforwardness’ was rightly disputed. Choosing an appropriate basket of goods and drawing the IPL are highly complicated and -some would argue- highly political processes. Second, the ‘universality’ of the measuring method was also exaggerated. At some point the WB decided to change its methodology for calculating the IPL making it impossible to compare 1980s with 2000s statistical data; nor have the technical designs of household surveys been standardized, with discrepancies in the reporting periods (30 days vis-à-vis 7 days) accounting for a large margin of error in poverty estimations in countries like India and China . Third, measures based exclusively on income suffered from a generalist tendency: different types of poor -i.e. people who are poor because of different reasons- where aggregated in a deceptively homogenous group. Some causes of poverty such as issues of age, unemployment, lack of access to publicly provided services and goods, ethnicity, gender and seasonal income fluctuations where obscured by the headcount. And most importantly exclusively money-metric approaches were insensitive to income inequality within households and within and across different countries.
Such criticisms have deeply influenced the formulation of an alternative paradigm for defining and measuring poverty, known as ‘the capabilities approach’. Working on an Aristotelian moral framework, influential writers like A. Sen (1999) and M. Nussbaum (2000) have evoked a holistic theory of human well-being or ‘human flourishing’ involving health, longevity, freedom, security and education. In this light, poverty was identified as a ‘capability deprivation’, the inability to enjoy this ‘human flourishing’. While inadequate income was recognized as a significant reason behind poverty Sen also emphasized the importance of non-income dimensions of poverty such as malnutrition, insecurity, social exclusion and inequality. For example, the fact that African American males have a shorter life-expectancy than Chinese or Indian men brings attention to a series of factors such as public healthcare, school education, law and order and criminality. Thus focusing on increasing the income of the poor became just one of an array of instruments in the fight against poverty.
Sen’s idea of poverty as a multidimensional concept was the cornerstone of the UNDP’s Human Development Report (HDR) since its first issue in 1990. The 1996 HDR was clear that ‘human development is the end - economic growth a means’ and that ‘determined efforts are needed to avoid growth that is jobless, ruthless, voiceless and futureless’. The series featured a Human Development Index (HDI), a composite of life-expectancy, access to education and average income, reflecting a multidimensional conception of poverty and development for which income and consumption were not the sole criteria. Even though the HDI is not problem-free it provides a valid alternative to the WDR’s monopoly of expertise which had remained unchallenged for decades.
The WB’s take on global poverty did not survive this rivalry completely intact. Faced with competition with the UNDP and under pressure from NGOs and governments of developing countries the Bank has reluctantly accepted that poverty is multidimensional. Thus the WB’s Poverty Reduction Strategy (PRS), launched in 1999 was supposed to increase external accountability, while the Poverty and Social Impact Analysis (PSIA) professed to be focusing on the participation of the ‘poor and vulnerable’, and guarantee greater transparency. The WDR (2000/2001) is similarly thronged with the newly endorsed vocabulary of ‘social risk’, ‘social exclusion’ ‘health-care’, ‘well-being’ and ‘social capital’ and goes as far as actually quoting Amartya Sen. But this is little more than rhetoric. In practice the Bank’s Reports still ‘overemphasize income measures’ and ignore disparities of power, gender, ethnicity and healthcare. A privileged position is reserved for money-metric consumption measures by means of a clearly drawn distinction between ‘measures’ (monetary income and consumption) and ‘indicators’ (healthcare, education, inclusion, etc). For the Bank, the superiority of the first over the latter as a source of hypotheses and policy recommendations is as strong as ever.
Why is the Bank so adamant about prioritizing money-metric consumption measures? The obvious policy implication of a truly multidimensional approach to poverty and development is that it would be equally legitimate for governments in developing countries to prioritize pubic spending over the growth-intensive policies, typically recommended by the WB. Technical considerations aside, the Bank cannot afford this because of operational, political and ideological reasons. At an operational level the Bank suffers from a dual mission problem, as an analyst and a lender. Wilks & Lefrancois (2002:18) rightly argue that ‘despite all its rhetoric about participation and about poverty reduction being its overriding objective [the Bank] is still geared primarily towards large volume lending’. This is further supported by the feeling that over the years the Bank has given up on the Sub-Saharan region and tolerated the underfunding of its concessional window (IDA) while the heavy lending EBRD grew ever stronger.
Political reasons are also at stake. Due to the current voting system, policy-creation is firmly under the control of the cream of the crop of its members. Most developed countries tend to have an active interest in preserving the neo-liberal status quo. This is closely linked to the neo-liberal ideas that have always been governing policy-generation within the Bretton Woods Institutions. Their insistence on income and consumption should be understood alongside their persistent promotion of trade- and financial liberalization, privatization and openness, e.g. in the form of Structural Adjustment Programmes. As long as the WB retains its hegemonic position as the Knowledge Bank -i.e. the greatest authority on development issues- money-metric approaches will prevail in the research and understanding of poverty.
Bannock, G., R.E. Baxter & E. Davis (1998): ‘The Penguin Dictionary of Economics’, London: Penguin
Little, D.(2003): ‘The Paradox of Wealth and Poverty’, Cambridge: Westview Press
Milanovic, B. (2002): ‘True World Income Distribution, 1998 and 1993: First Calculations Based on Household Surveys Alone’, Economic Journal, 112, (476): 51-92
World Bank (2000/1): ‘World development report: Attacking poverty’, New York : Oxford University Press for the World Bank
Ravallion, M. (1997): ‘Good and Bad Growth: The Human Development Reports’, World Development, 25 (5): 631-638
Sen, A. (1999): ‘Development as Freedom’, Oxford: Oxford University Press
Sender, J.(2003): ‘Rural Poverty and Gender: Analytical Framework and Policy Proposals’ in Chang [ed], Rethinking Development Economics, Series: Anthem Studies in Political Economy and Globalization, London: Anthem Press
Thirlwall, A.,P.(2003): ‘Growth and Development: With Special Reference to Developing Economies’, New York, NY : Palgrave Macmillan
United Nations Development Programme (UNDP) (1990): ‘Human Development Report’, New York: Oxford University Press
—— (1996): ‘Human Development Report’, New York: Oxford University Press
Wade, R. H.(2004): ‘On the Causes of Increasing World Poverty and Inequality, or Why the Matthew Effect Prevails’, New Political Economy, 9 (2), June: 163-188
White, H. (2002a): ‘Combining Quantitative and Qualitative Approaches in Poverty Analysis’, World Development, 30 (3): 511-522
—— (2002b): ‘The measurement of poverty’ in V. Desai
and R. Potter [eds],The Companion to Development Studies, London: Arnold
Wilks, A. & F. Lefrancois (2002): ‘Blinding with Science or Encouraging Debate: How World Bank Analysis determines PRSP policies’, London and California: Bretton Woods Project & World Vision, available at http://www.ucl.ac.uk/dpu-projects/drivers_urb_change/urb_economy/pdf_glob_SAP/BWP_Alex_Wilks_Science.pdf, accessed on 17/01/2006
 Definition of ‘economics’ in the Penguin Dictionary of Economics.
 World Development Report, 2000/2001, p 16.
 Currently set by the WB as anything below $1 a day for extreme poverty and $2 a day for moderate poverty.
 WDR (2000/2001: 16)
 For an articulate example of this line of this argument see Ravallion (1997)
 Wade (2004)
 Milanovic (2002)
 WDR (2000/2001:18); for a list of erred prediction by the WB see Wilks&Lefrancois (2002:9)
 Wade(2004:182); Little (2003:56-57)
 Sen (1999:87)
 Sen (1999:22)
 For a detailed discussion see Ravallion (1997).
 WDR (2000/2001:15)
 WDR (2000/2001: 15)
 Wilks&Lefrancois (2002:27-28)
 WDR (2000/2001:16)
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