World Bank views on poverty “econocentric”

5 April 2012

As the World Bank released its latest global poverty estimates, critics warn of the data’s shortcomings and how it compromises the understanding of the issue.

In late February the Bank updated its estimates of global poverty in the developing world with data from 2005 to 2008, based on over 850 household surveys conducted in nearly 130 countries. It found that the percentage of people living below the $1.25 a day poverty line – “the average for the world’s poorest 10 to 20 countries” – and the number of poor declined in every region for the first time over a three-year cycle since it began monitoring extreme poverty in 1981 (see Update 78, 62, 59). According to the Bank, 1.29 billion people lived below $1.25 a day in 2008, compared to 1.94 billion people in 1981. The Bank also claimed that the first Millennium Development Goal of halving extreme poverty from its 1990 level by 2015 has already been achieved, since “preliminary survey-based estimates for 2010 – based on a smaller sample size than in the global update – indicate that the $1.25 a day poverty rate had fallen to under half of its 1990 value by 2010.”

However, Robin Broad from the American University and John Cavanagh from the Institute for Policy Studies warned on the Triple Crisis blog that the Bank’s figures are “highly unreliable … and typically over-optimistic”, as the 2010 estimates “are extrapolated from significantly smaller samples. Hence, the data cannot back up the Bank’s confident claim because … the real data end in 2008.” They also noted that the figures do not account for the impact of the recent recession since actual data is only available until 2008, and disputed the Bank’s claim that extreme poverty is declining around the world: “Between 1981 and 2008, the entire drop in the number of people … who live below $1.25 a day, is accounted for by China — where the number of extreme poor fell by 662 million. Over this period … the number of people living below $1.25 a day outside China actually rose by 13 million, and hovered around 1.1 billion people throughout this period. More people fell into poverty in South Asia over this period … and in sub-Saharan Africa.”

Laurence Chandy and Homi Kharas of the US think tank Brookings Institution also noted methodological issues with the Bank’s estimates, which shows that, between 1981 and 2008, the population groups of Sub-Saharan African, India and China have consistently accounted for three-quarters of the world’s poor. “Yet poverty estimates for each of the three suffer from glaring problems: insufficient survey data, flawed surveys, and faulty [purchasing power parity] conversions”, they said. “If we cannot believe the poverty estimates for Sub-Saharan Africa, India and China, then we cannot believe the World Bank’s global estimates, and we must admit that our knowledge of the state of global poverty is glaringly limited.” Chandy and Kharas noted that the “Bank’s numbers for country and global poverty matter. They can affect the allocation of aid dollars. … They define areas of focus. … And they are used to justify funding expansions of the concessional windows of the multilateral banks and capital increases for these aid agencies.”

The Bank’s classification of countries (see Update 78) into four income categories – low-income, lower-middle-income, upper-middle-income and high-income – is also a key factor. “Whether a country is low income (LIC) or middle income (MIC) affects many things, from eligibility for concessional lending from the multilateral banks, to donor aid policy … to trade access”, wrote foreign policy analyst Seth Kaplan on the Policy Innovations website. Arguing that the recent decline in the number of low-income countries “presents a distorted picture”, Kaplan claims that “[u]sing just one number – income per capita – to determine a country’s status … produces results that do not reflect real-world situations. Ignoring issues such as inequality, human development, social exclusion, and government capacity – all of which matter tremendously to the robustness of states and the lives of the poor – does a disservice to the organisations and people who use the system”.

According to a paper Antje Vetterlein of the Copenhagen Business School, who has analysed the Bank’s position on poverty over the past 40 years by contrasting its discourse and policies with operational and organisational data, “the Bank continuously falls into discredit when it comes to the qualitative meaning of the ‘social’ … for its continuing econocentric culture … [and] for only dealing with issues that can be quantified, often offering standardised policy solutions based on technocratic economic modelling”. She found that in the Bank “economic knowledge … wins over social and more complex knowledge about poverty. … It is more manageable for the Bank to measure poverty in terms of income, life expectancy, school enrolment and so on than employ social knowledge”. Vetterlein recommended that “distinguishing between the normative and organisational dimension of the problem and acknowledging that economic growth and poverty reduction are not causally linked might help to improve the Bank’s dealing with poverty and social issues.”