The measure of poverty

We’ve both got a dozen loaves. On average of course.

The economic crisis recedes in the rear-view mirror, but its impact on people’s lives remains visible. Two groups show particular signs of lingering economic hurt – the poor and the young. According to the OECD, poverty rose by 2 percentage points in rich countries between 2007 and 2011, and by rather more in countries like Spain and Greece.

Now, if you’re a regular reader, you may be asking yourself, what sort of poverty? The answer is a little complicated, but it helps to illustrate an important idea: Standard measures of poverty don’t always tell us what’s really happening in people’s lives. That can be especially true during a recession in developed countries and, as we’ll see later, for people living in – or on the edge of – poverty in developing countries.

For OECD countries, the most widely used poverty measure is “relative poverty,” or the proportion of people earning less than half their country’s median income. (Median income is the point that separates the top half of earners from the bottom half.)

But there’s a problem with “relative poverty”– it’s … eh, relative. It tells you only how a person or a group is faring compared to the general population. That can become an issue during a recession, when there may be a general decline in people’s income (and, thus, in median income). As a result, even if poorer people are suddenly earning a lot less, they may not be very much worse off in relative terms.

And that’s pretty much what happened in the wake of the financial crisis. Poverty certainly deepened between 2007 and 2011 in OECD countries, but relative poverty didn’t change all that much.

This explains why OECD inequality data also looks at what’s called “anchored poverty”. In effect, instead of looking at how low earners are doing compared with the current median income it looks at how they’re doing now compared to sunnier economic times, in this case 2005.

This anchored measure reveals sharp rises in poverty in a number of OECD countries between 2007 and 2011. It rose by almost 15 percentage points in Greece and by around 8 points in Ireland and Spain. According to the OECD, the rise in poverty during the crisis in recent years erased “a significant part of the gains in living standards achieved by low-income households over the past 20 years.”

What about young people? The OECD data show that they suffered the biggest income losses during the four years of the recession. Based on household disposable income (essentially, income minus taxes paid to, and benefits received from, the state), the young saw their incomes fall by 1% compared with a drop of 0.7% for older adults (25 to 65). In some countries, most notably Greece, Iceland and Ireland, the losses were much higher. The only group that didn’t suffer was the over-65s. They actually saw a rise in income, 0.9%, that was only slightly smaller than the loss among the young.

This data add to a picture of a long-term economic slide among young people. Today, they are the age group at the greatest risk of income poverty while the over-65s are least at risk – a reversal of the situation 25 years ago.

The OECD isn’t alone in trying to dig beneath the usual measures of poverty. Recently, the OPHI, a development research centre at Oxford University, released the latest edition of its Global Multidimensional Poverty Index. This seeks to measure deprivation not in traditional monetary terms – the famous “dollar a day” – but in terms of people’s ability to meet their basic needs, such as nutrition, and their access to what most of us would regard as basic services, such as clean water and schooling. As Oxfam’s Duncan Green notes, “being poor and sick is very different from being poor and healthy”.

Judged by this multidimensional measure, the number of people living in poverty in developing countries is not the widely cited figure of 1.2 billion but rather 1.6 billion. More than half of these live in south Asia with 29% in sub-Saharan Africa. What’s perhaps most striking is that most of them – about 71% – live not in “poor” countries but middle-income countries. Just as with the widening income gaps in the rich OECD countries, this continuing poverty amid growing prosperity raises a nagging question: Why isn’t economic growth benefiting more people?

Useful links

OECD Income Inequality Update (June 2014)

OECD work on inequality and poverty and inclusive growth.

OECD work on development.

We’re all free to be poor

That's one way to help the poor
That’s one way to help the poor

According to the CIA World Factbook, political parties are prohibited in Bahrain, but don’t despair, freedom lovers, the “constitutional monarchy” formerly known as an emirate is the 13th freest country in the world according to the 2014 Index of Economic Freedom. Economic freedom? According to the Heritage Foundation, co-publisher of the Index with the Wall Street Journal, that’s “… the fundamental right of every human to control his or her own labor and property”, plus aspects such as “the ability of individuals and businesses to enforce contracts”. The CIA, always looking for something to moan about, claims that “Bahrain is a destination country for men and women subjected to forced labor and sex trafficking; […] domestic workers are particularly vulnerable to forced labor and sexual exploitation because they are not protected under labor laws; […] the government has made few discernible efforts to investigate, prosecute, and convict trafficking offenses; […] most victims have not filed lawsuits against employers because of a distrust of the legal system or a fear of reprisals.”

If it’s like that in one of the freest countries in the world, you can imagine what it’s like in hell-holes such as Norway, 20 places down the list from Bahrain. And what about those poor souls living in Italy, the least free OECD country? Italy ranks 70 places lower than Bahrain, just behind Kyrgyzstan (where’s the CIA’s continuing concerns include: “the trajectory of democratization, endemic corruption, poor interethnic relations, and terrorism.”).

Still, the Index’s “two decades of advancement in economic freedom, prosperity, and opportunity” haven’t been wasted on everybody. Oxfam says that 210 people have been lifted out of poverty in the past year, helping bring the world’s total number of billionaires to 1426, with a combined net worth of $5.4 trillion. And as you’d expect, some billionaires have more billions than others: the world’s 85 richest individuals own as much wealth as the poorest 3 billion people.

That’s worrying the World Economic Forum, finishing in Davos today. The WEF’s annual Global Risks Report ranks “severe income disparity” at number 4 in a list of ten global risks of highest concern. (The top three are fiscal crises, unemployment, and water crises.)  The WEF doesn’t go into detail, but it does point out that beyond the immediate impacts, income inequality interacts with and reinforces other socioeconomic and political trends.

Oxfam provides many concrete illustrations of what that means. For instance, their poll of low-wage earners in the US showed that two-thirds of them believe that Congress passes laws that predominately benefit the wealthy. And that was before last week’s news that most members of Congress are now millionaires (and to think, some people accuse the OECD of being a rich man’s club!). In another Oxfam survey in Spain, Brazil, India, South Africa, the UK and the US, a majority of people (8 out of 10 in Spain) believe that laws are skewed in favour of the rich. Similarly, the majority agreed that “The rich have too much influence over where this country is headed”.

You would have to be particularly naïve to imagine that the rich and powerful don’t use their wealth and power to influence governments, whatever the consequences for the rest of us. An IMF working paper  concluded that “prevention of future crises might require weakening political influence of the financial industry and closer monitoring of lobbying activities to understand the incentives better”.  The financial industry spent over $1 billion lobbying against regulation in the US after the crisis, but, please don’t tell anybody. In an OECD survey, only around 5% of lobbyists thought that “overall lobbyist expenditure” should be disclosed.

A crisis can have an immediate, long-lasting impact in terms of people losing their jobs and houses, but income inequality can cause less spectacular, but no less damaging, losses too. Oxfam quote an OECD report on Mexican telecoms on the consequences for the country of the monopoly position of América Móvil, owned by the world’s richest man, Carlos Slim. “Mexico, with the lowest GDP per capita in the OECD, a high inequality of income distribution, and a relatively high rural population, needs the socio-economic boost provided by greater access to more   services, in particular high speed broadband. The welfare loss attributed to the dysfunctional Mexican telecommunication sector is estimated at USD 129.2 billion (2005-2009) or 1.8% GDP per annum.”

What can be done about all this? The OECD’s answer is “inclusive growth”. Have a look at last year’s OECD Forum to find out more about what that is. Or consider this to find out what it isn’t: the richest 1% increased their share of income over 1980-2012 in 24 out of 26 countries for which data are available. Calculations using figures from the Paris School of Economics’ World Top Incomes database suggest that if income shares had stayed the same over this period, the 99% would have an extra $6000 each in the USA today.

Useful links

OECD work on inclusive growth

OECD work on income distribution and poverty in OECD and non-OECD countries

Growing Unequal? Income Distribution and Poverty in OECD Countries

Never too early to join the rat race …

He's late for algebra bootcamp
He’s late for algebra boot camp

Maybe it’s just middle-age nostalgia, but it feels like summer was once so simple for kids. The front door opened early in the morning, you ran out into bright sunshine, galloped around safe suburban streets, got hungry, and ran back home for dinner, tired but happy.

Things are different today. For one thing, few parents would dream of leaving children unattended for so long. And, among ambitious and well-off parents, fewer still would look on such aimless days as time well spent. Why waste the day kicking a ball around the park when you could be at algebra boot camp? Or learning Chinese in Shanghai? Or exploring self-expression through origami?

Enrolling kids in summer courses and programmes isn’t just a way of keeping them out of parents’ hair. More and more, it seems, this sort of “enrichment” is part of a year-round arms race aimed at ensuring kids get the best possible start in life. And, increasingly it seems, that race is being won by the well-off.

One sign of this is the difference in how much well-off and poorer families spend on their children. The data comes from the United States, and covers a period (from the early 1970s to the middle of the last decade) that saw rising income inequality. According to researchers Sabino Kornrich and Frank Furstenberg, in the early 70s, the poorest 10% of American families spent around $607 a year per child; by 2006/07, that had risen to $750, an increase of about 23% (the figures are adjusted for inflation). By contrast, the wealthiest 10% of families spent $2,832 in the early 1970s, rising to $6,573, an increase of about 132%.

It’s not as if the poorest families didn’t try to keep up: They more than doubled their spending on children as a share of their income, but that was nowhere near enough to match the investment – and “investment” is probably the right word – of wealthier parents.

Of course, parenting is not just about money. But, here again, better-off families – in the U.S. and, possibly, elsewhere – may have the advantage, as Sabrina Tavernise noted last year: “While wealthy parents invest more time and money than ever before in their children … lower-income families, which are now more likely than ever to be headed by a single parent, are increasingly stretched for time and resources.”

So, what’s the impact of all this on the kids? According to Stanford researcher Sean Reardon (pdf), it’s contributing to a widening social gap in American education. Today, he writes, “the achievement gap between children from high- and low-income families is roughly 30 to 40% larger among children born in 2001 than among those born 25 years earlier.” He also notes that research suggests these patterns are set early in life: “The income achievement gap is large when children enter kindergarten and does not appear to grow (or narrow) appreciably as children progress through school.”

In short, what appears to be happening is that – from children’s earliest years – the income levels of their parents are increasing linked to how well they do in education and that, in turn, determines how well they do in life. Or, as Nicholas Lehman wrote last year, “Opportunity is increasingly tied to education, and educational performance is tied to income and wealth.”

In the face of such research, it’s hard not to feel a little sad, not just for the kids who risk being left behind but also for those who are being “hothoused” for success. As Chrystia Freeland reported in May, some may be paying a price for their parents’ ambitions in terms of increased risk of substance abuse, depression and anxiety. But, as she also noted, you can’t blame families for wanting the best for their kids: “… the truth is that these parents are responding rationally to a hyper-competitive world economy”.

Can the opportunity gap be bridged? Probably not entirely, but many people believe government policies could do more to narrow it. As an OECD paper pointed out earlier this year, the U.S. is “one of only three OECD countries that on average spend less on students from disadvantaged backgrounds than on other students”. It also points out that, unlike in some other countries, the best teachers rarely work in the most disadvantaged schools. “These resource allocations,” says the OECD paper, “reinforce the disadvantages of social segregation, which results in children in poorer schools having lower educational expectations and outcomes.”

Useful links

Inequality and Poverty in the United States: Public Policies for Inclusive Growth   (OECD)

A Skills Beyond School Review of the United States (OECD)

OECD work on inequality and on education

OECD Programme for International Student Assessment (PISA)

Making education more equitable Marilyn Achiron on OECD educationtoday blog

Born a girl: bad karma?

international women's dayThe ILO estimates that at least 2.45 million trafficking victims are currently working in exploitative conditions worldwide, and that another 1.2 million are trafficked annually, both across and within national borders. Of these, up to 80% are women and girls according to the UN.

A widely-quoted UN estimate says that human trafficking and slavery is the third most lucrative illicit business in the world after arms and drug trafficking, although the UN doesn’t actually give any source for this claim. That could be because of the inherent difficulty in obtaining data on criminal activity or because the estimate includes other activities like taking money to smuggle illegal immigrants into a country. The US Department of State definition of trafficking is “all of the criminal conduct involved in forced labor and sex trafficking, essentially the conduct involved in reducing or holding someone in compelled service.”

Why does it still happen, and why are women the main victims? Economics, culture and tradition are all to blame.

Economically, you can look at it on the global or local level. Trafficking and the modern slave trade are driven by the same factors that encourage other aspects of globalisation such as increased mobility, cheaper travel and the ease of organising international networks. They are also reinforced by economic misery and absence or removal of social protection in countries opening up to the international economy, and the illusions engendered by images of a better life elsewhere on satellite television and other easily accessible mass media.

It sounds cynical, but you can also look at trafficking of women in terms of supply and demand factors, as the World Bank does here. For instance, on the demand side, employers want cheap labour, and not just in the sex industry. In 2004, the Council of Europe drew attention to the fact that domestic slaves are predominantly female and usually work in private households, starting out as migrant workers, au pairs or “mail-order brides”.

The supply of women and girls is maintained by poverty (some UN estimates say that nearly 70% of the world’s poor are women) and lack of opportunity. But social norms that consider women as inferior play a role too. Religion is one of these, and the World Bank report linked to above says that one of the factors pushing women into prostitution in the Mekong region is that under Theravada Buddhism, “women and girls are thought to be unable to achieve enlightenment. Thus, while men can show gratitude and respect to their parents by becoming monks and pursuing the spiritual life, many girls feel that they must make sacrifices for the benefit of their families, villages and their own karma.”

In addition, as this short guide published by the OECD points out, trafficking often emerges where many human rights violations are prevalent already. The most common violations are the right to personal autonomy, the right not to be held in slavery or servitude, the right to liberty and security of person, the right to be free from cruel or inhumane treatment, the right to safe and healthy working conditions and the freedom of movement. Governments can be guilty too, even towards people who have escaped from trafficking. Policies often give priority to detention, prosecution and expulsion of trafficked persons for offences related to their status, including violation of immigration laws, prostitution or begging. Victims may be treated as “disposable witnesses” whose sole value is their ability to assist in prosecuting traffickers.

What can be done?

The 2003 “Protocol to Prevent, Suppress and Punish Trafficking in Persons” is the leading international instrument. It goes beyond trafficking for forced prostitution and takes into account other forms, including forced domestic work and commercial marriage. These aren’t just problems in developing countries. The slaves referred to by the Council of Europe were working in its member countries. Earlier this week, the UK’s Forced Marriage Unit reported that a two-year-old girl was among the victims it helped last year.

The 2003 Protocol recommends that governments allow victims of trafficking to remain in the destination country, temporarily or permanently. Governments should also ensure their safety and protect their privacy and identity. It also recommends that governments establish legal measures to award victims compensation.

At national level, efforts in source countries to tackle poverty and lack of rights would strike at the root of the problem, but a number of measures can have more immediate impacts, such as awareness-raising campaigns, given that many victims are deceived into migrating. Given the importance of poverty in fuelling trafficking, funding to start small businesses could help women.

Destination countries can contribute to such programmes. They can also help victims by protecting them even if they are not prepared to help the authorities investigating the trafficking networks, and not deporting them back to the country they were trafficked from.

Useful links

A Women’s Day Challenge, article on the educationtoday blog by Barbara Ischinger, OECD Director for Education and Skills

OECD work on gender

OECD work on gender equality and development

Evaluation of the International Organization for Migration and its Efforts to Combat Human Trafficking  

Sahel and West Africa Club (SWAC) Regional conference to combat child trafficking

Cornflakes at the soup kitchen

Click to see what poverty means to Amira and other children

Amira, the little girl in the photo, had her picture taken as part of a Save the Children campaign against poverty. Unfortunately, we’re used to similar images and actions, except that Amira lives in London and the campaign is the first in the charity’s history to help children in the UK. In the text she wrote to go along with her portrait, Amira explains that it’s great when there’s money to pay the electricity bill because then you can enjoy a long list of things, starting with lights, and ending, well down a long list of things most of us take for granted, with TV. There are 3.5 million children living in poverty in the UK according to figures from the Institute for Fiscal Studies quoted by It shouldn’t happen here, Save the Children’s report on child poverty. One in eight of the poorest children go without at least one hot meal a day, and one in ten of the UK’s poorest parents have cut back on food for themselves to make sure their children have enough to eat.

It’s not just in the UK. According to the US Department of Agriculture, 50 million people lived in food-insecure households last year, 12 million adults lived in households with very low food security (what they used to call food insecurity with hunger), and 8.6 million children lived in food-insecure households in which children, along with adults, were food insecure. The charity Feeding America says that hunger is a reality for 1 in 6 people in the United States. They serve 14 million children including 3 million under-fives, but this may not reflect the whole picture. My colleague Kate Lancaster says that in her home state of Vermont,  there are numerous small local-based groups that probably wouldn’t be known outside the immediate community also providing meals.

I had a look on to see if we had any data, but our reports about hunger only seem to be about developing countries. That said, the general argument that hunger is a problem of poverty rather than availability is even more true in the rich countries than elsewhere. France is the world’s fifth largest exporter of farm and food products, but earlier in the summer a soup kitchen I pass on my way home was serving cornflakes. Maybe it was all they could afford once the winter surge of donations was used up. And cornflakes may not be so affordable next year, given the recent surge in cereal prices following the US drought and poor weather in other major exporting countries.

The OECD participates in the Agricultural Market Information System (AMIS) set up by the G20  “to enhance food market transparency and encourage coordination of policy action in response to market uncertainty”. The Rapid Response Forum, AMIS’s main body for reacting to abnormal conditions, may meet once an updated forecast of US harvests is available later this week. Or they may not. The FAO Food Price Index averaged 213 points in August 2012, the same as July, but 18 points less than a year ago and 25 points below the peak reached in February 2011.

According to this statement from the French Ministry for Agriculture, following a videoconference with the US, Mexico (current G20 president) and various international organisations, the present situation is worrying but there’s no threat to global food security. They probably meant no additional threat. The USDA’s July report on global food security estimates the number of food insecure people in the 76 developing countries covered at 802 million in 2012, and projects that number to rise by 37 million over the next 10 years.

There’s no projection for the OECD countries, but almost a hundred years after Save the Children was set up to tackle hunger in post-World War I Vienna, who would have predicted that it would be turning its attention to Europe again?

Useful links

Price Volatility in Food and Agricultural Markets: Policy Responses

China’s spoilt brats and America’s disappearing middle class

She's got her own BMW too

Regular Insights blogger Brian Keeley is in Beijing, from where he sends this dispatch.

A recent afternoon brought one of those classes that all lecturers dread: Glazed eyes from one side of the room to the other, and mouths opening and closing in syncopated yawning. Time to tear up the lesson plan and throw out a question: “Hey, did you see the story about the rich kid who beat up that nice couple?” Dull eyes sharpen, slack jaws tighten. Yes, the students have heard about it and, what’s more, they have something to say.

In case you missed the story, here’s what happened: On a recent evening, a middle-class couple was driving home in Beijing. Quite reasonably, they slowed to take a corner, forcing a couple of cars behind them to stop. Incensed, the drivers of the two following cars got out and beat them up.

Road rage, but that was only the half of it: It turned out that one of the drivers was just 15 years old, which meant he was driving his car – a BMW – illegally. Not only that, he warned onlookers against intervening: “Who dares to call the police?” he supposedly shouted. His cockiness can probably be explained by his family connections: The boy is the son of a celebrity army general, Li Shuangjiang, who shows up regularly on TV to sing patriotic ditties.

In the wake of the incident, Major-General Li was put through the media wringer. He visited his son’s victims in hospital, apologized abjectly, and said of the boy, “I didn’t him give a good upbringing.” As for Li junior, Chinese media reports that he’ll go to a correctional facility for a year, but will escape criminal charges because of his age.

The affair was startlingly reminiscent of another incident last year, when the well-connected son of a senior security officer knocked down and killed a university student. That young man, too, shouted a warning to onlookers: “My father is Li Gang.” His words became a national catchphrase, epitomizing what many Chinese seem to feel is the attitude of an arrogant elite that feels itself above the law. 

Certainly, that was the feeling of most of my students. But there was a second strand of opinion: They felt that media reporting of these incidents, and subsequent online commentary, was sensationalist and served no bigger purpose than stirring up bitterness and resentment. “The media should ask itself, ‘why are we reporting this?’,” said one student. “It should think about the bigger social question, and try to make China better.” That, of course, was one of the traditional role assigned to the media by the Chinese Communist Party. But in today’s China, it’s sensationalism – not worthiness – that sells papers.

As for the “bigger social question,” the student isn’t alone in seeing the incident as symptomatic of more than just Beijing’s awful road manners. Many in China worry about the impact of widening inequality on social stability, even if these concerns are expressed in careful language. But whenever you hear China’s leaders referring to the need for a “harmonious society,” it’s usually inequality that’s being talked about.

China was not the only country that got a reminder last week of the risks of “unharmoniousness”. In the United States, there was fresh evidence of how society there has been reshaped over the past decade or so. The middle class, once the solid core of American life, is being hollowed out, leaving a class structure that’s now shaped more like an hourglass. Indeed, some retailers have reportedly rejigged their product lines to focus on either the top, or the bottom, of the economic pile.

The impact of this social shift goes beyond determining what’s on Walmart’s shelves. As the historian John Gray notes, there’s a real danger in undermining the middle class (a risk first identified by Karl Marx): “In the process of [capitalism’s] creative destruction,” says Gray, “the ladder has been kicked away, and for increasing numbers of people a middle-class existence is no longer even an aspiration.” The result, he argues, is the destruction of “the way of life on which capitalism in the past depended”.

That’s not true of China, or at least not yet. The middle class may be under pressure in many developed countries, but in China it’s growing by leaps and bounds. But as Gray suggests – and as the financial crisis of the past few years has shown – the economic impact of capitalism’s forces are less easy to tame than we might wish. And as recent news from both China and the United States suggests, their effect on our societies can be just as tricky to manage.

Find out more

OECD work on income distribution and poverty

Growing Unequal

Perspectives on Global Development