Welfare, Poverty and Inequality: Is there a true measure?

A country can be very rich in conventional economic terms, that is in terms of the value of commodities produced per capita, and still be very poor in the achieved quality of human life. The trend in poverty is considered the litmus test of the social quality of the mixed economy. If poverty remains in spite of economic growth, the market is flawed. Typically, literature highlights three popular aspects of poverty: 1. choice of welfare measure, such as money metric either with income or consumption, 2. The setting of the poverty line, that is absolute poverty roughly based on Cost of Basic Needs (CBN), Food Energy Intake (FEI) and 3. The poverty index, which is often a simple Headcount Poverty Index. From MDG 1.1 Proportion of population below $1.25 (PPP) per day and 1.2 Reducing Poverty gap ratio, the former deals with indications of poverty lines while the latter defines the multidimensional poverty. This report on Bangladesh will begin with a discussion of the two goals, evaluations of the poverty measures in relation to literature, and finally concluding with further recommendations of sustainability. 

Measures of poverty remains dynamic and diverse, and income is only one of the many factors in recognizing the poor. The ‘Dollar a day’ was average of poverty lines in 22 developing countries, mostly in the 1980s (Ravallion et al. 1991). In 2015, World Bank updated these estimates to $1.90. Households surveys are able to capture trends in poverty to an extent; the households survey of 2000 and 2005 show a decline in lower poverty line by 27%. Furthermore, there was increase in the absolute Gini Index of 13% from 2000 to 2005 for the national population. (Narayan and Zaman, 2008). Arguable, poverty line estimate may not remain consistent across regions. Recent of Cost of Basic Needs (CBN) use by Bangladesh Bureau of Statistics indicate an alarming urban poverty in the capital city of Dhaka. From 1995-1996, the percentage of urban population below both upper and lower poverty line had increased by 7.2% and 5.4% respectively (Hossain, 2004). 

While head count method remains easily interpretative it does not indicate how poor the poor are. Recent development in poverty analysis owe a great deal to the pioneering work of Sen (1976). Millennium Development Goals (MDG) 1.2 enlightens the various dimensions of poverty, one of which is Sen’s capabilities approach. It is a moral framework that proposes that social arrangements should be primarily evaluated according to the extent people have freedom to promote or achieve functioning they value. It provides a challenge to the money-metric concept of welfare and urges us to look beyond the headcount as well. Hence, we need to assess different branches of deprivations and distributions (Ringen, 1988). Khandaker, 2012 brings forth a measure that looks into ‘Seasonality of Income’. It has been seen that household poverty due to seasonal variability affecting rice production is higher in Rangpur than any other region in Bangladesh. The paper uses HIES 2000 and 2005 data and its findings resonates with earlier findings of Sen (1981). This research identifies that households in Rangpur are worse off than any other region in Bangladesh, as other regions are able to draw more income from non-farm sources, including remittances.

Another influential study analyzing measurements of poverty in Uganda is by Appleton (1998). Often it is important to assess aggregate poverty indices. Using the p-alpha indicators (Foster, Greer and Thorbecke, 1984), Appleton compares poverty measures between p-aplha relative to the total poverty line and the food poverty line. The FGT index reduces to more familiar indicators. P0 is the headcount: proportion of people living below the poverty line. P1 is per capita aggregate poverty gap; one measure of the minimum cost of eliminating poverty through perfect transfers. P2 is poverty squared; p1 is not sensitive to transfers among poor (money that is passed on from less poor to the very poor); while the p2 is and hence is of interest. Such measurement can evaluate the core areas of poverty reduction in Bangladesh.

While Sen challenges the money metric measure of poverty in his capabilities approach, it is safe to rebuttal his claim by asking what are the valued and how aggregate are the functioning of an individual over time. Non-money metric measures contain serious biases and often cannot capture the different dimensions of poverty (Glewwe and van der Gaag 1990). Dimensions of poverty move into intra-household, gender, race and ethnicity inequality. Furthermore, when assessing poverty, we need to address the issues of transient and chronic poverty prevailing in Bangladesh. There needs to be a re-establishment between definition and measurement directly. Often we look into horizontal measures of poverty; while Bangladesh has achieved gender parity in primary and secondary education, surveys take place on a count basis of girls and boys enrolled in classes. Often it has been that girls do not enroll after class 5, as they hit puberty and are restricted by family to continue. Furthermore, improper sanitation in schools also restrict their right to hygiene. A key finding of recent poverty research that there is significant mismatch between poverty measured using an income approach and poverty measured directly in terms of observed deprivation or other indicators of acceptably low living standards. Poverty traps are hard to escape, because you do not choose poverty, you are born into it.