Rethinking Poverty Reduction

Last year, the United Nations Food and Agriculture Organization announced that the number of hungry people in the world increased over the last decade. In 2008, the World Bank announced a significant decline in the number of poor people up to the year 2005. But if poverty is defined principally in terms of the money income needed to avoid hunger, how can announcements such as these be reconciled?

According to the World Bank's much cited "dollar-a-day" international poverty line, which was revised in 2008 to $1.25 a day in 2005 prices, there are still 1.4 billion people living in poverty, down from 1.9 billion in 1981. However, as China has accounted for most of this decline, there were at least 100 million more people living in poverty outside China in 2005 than in 1981.

In Sub-Saharan Africa and parts of Asia, poverty and hunger remain stubbornly high. International agencies estimate that more than 100 million people fell into poverty as a result of higher food prices during 2007-2008, and that the global financial and economic crisis of 2008-2009 accounted for an increase of another 200 million. Delayed job recovery from the global downturn remains a major challenge for poverty reduction in the coming years.

Meanwhile, measurement controversies continue to cast doubt on actual progress. With the 1995 Social Summit adopting a wider definition of poverty that includes deprivation, social exclusion, and lack of participation, the situation today may be even worse than suggested by a money-income poverty line.

Inequality appears to have been on the rise in recent decades at the international level and in most countries. More than 80 percent of the world's population live in countries where income differentials are widening. The poorest 40 percent of the world's population account for only 5 percent of world income, while the richest 20 percent account for 75 percent.

The mixed record of poverty reduction calls into question the efficacy of conventional approaches. Countries were advised to abandon their national development strategies in favor of globalization, market liberalization, and privatization. Instead of producing sustained rapid growth and economic stability, such policies made countries more vulnerable to the power of the rich and the vagaries of international finance and global instability, which has become more frequent and severe due to deregulation.

The most important lesson is the need for sustained rapid growth and structural economic transformation. Governments need to play a developmental role, with implementation of integrated policies designed to support inclusive output and employment growth, as well as to reduce inequality and promote social justice. Such an approach needs to be complemented by appropriate industrial investment and technology policies, and by inclusive financial facilities designed to support them. In addition, new and potentially viable production capacities need to be fostered through complementary developmental policies.

By contrast, the insistence on minimal government and reliance on the market led to precipitous declines in public infrastructure investment, particularly in agriculture. This not only impaired long-term growth, but also increased food insecurity.

Advocates of economic liberalization policies cited the success of the rapidly industrializing East Asian economies. But none of these economies had pursued wholesale economic liberalization. Instead, governments played a developmental role by supporting industrialization, higher value-added agriculture and services, and improvement of technological and human capabilities.

Structural transformations should promote full and productive employment as well as decent work, while governments should have enough policy and fiscal space to enable them to play a proactive role and to provide adequate universal social protection.

The last three decades also saw the divorce of social policies from overall development strategies as a consequence of the drive for smaller government. National economic development strategies were replaced with donor-favored poverty-reduction programs, such as land-titling, micro-credit, and "bottom of the pyramid" marketing to the poor.

Such fads have not succeeded in significantly reducing poverty. This is not to deny some positive consequences. For example, micro-credit has empowered millions of women, while important lessons have been learned from such schemes' design and implementation.

Meanwhile, universal social programs have improved human welfare much more than targeted and conditional programs. However, conditional cash-transfer programs have been quite successful in improving various human-development indicators.

Unfortunately, poverty remains endemic, with more than a billion people going hungry every day. Urgent action is needed, as the recent financial and economic crisis, following hard on the heels of the food-price crisis, is believed to have set back progress on poverty reduction even further. There are also growing fears that climate change will more adversely threaten the lives of the poor.

The United Nations biennial Report on the World Social Situation (RWSS 2010), entitled Rethinking Poverty, makes a compelling case for rethinking poverty-measurement and poverty-reduction efforts. For the world's poor, "business as usual" has never been an acceptable option. Nor have the popular trends of recent decades proven to be much better. There will be no real poverty eradication without equitable and sustainable economic development, which deregulated markets have proved unable to deliver on their own.