Who are the poor? Why and how they feel poor
Director of Analysis & Research, BBVA Microfinance Foundation
Ancient Rome at the time of Julius Caesar was the first metropolis with over a million inhabitants. It was a multicultural city where rich, poor and slaves lived together; with overcrowded neighborhoods on the margins, multiple occupancy housing … the first major benchmark for a concentration of urban poverty that we know about.
"Every year, millions of people throughout the world fall into and escape from poverty, so it is not a static condition but a dynamic one, going beyond lack of money"
Today, 2000 years later, 14% of Rome’s inhabitants are at risk of poverty, demonstrating that this is a complex concept that is still relevant now despite all the progress we have made. The concept of poverty is not a modern creation, and its meaning has changed over time, with poverty in the ancient world very different to that of today.
However, what has not changed is that poverty in general terms is a sign that something is not right, it is the “sickness” of societies and an unacceptable form of deprivation, brought on by many factors and dimensions. It is a layered social and economic phenomenon with many facets and causes, that entails shortcomings in terms of both individual and group wellbeing.
Around 11% of the world’s population currently lives on less than USD 2.15 a day at purchasing power parity (ppp), a threshold based on an average of the poorest countries’ national poverty lines. This works out at 847 million extremely poor people. If we use a threshold of USD 5.5 at purchasing power parity, based on the poverty lines of middle- and high-income countries, around 3.3 billion people, accounting for 43% of the world’s population are in a situation of poverty.
This is generally the most widely used marker and it employs an income threshold known as the poverty line, which assesses whether someone has reached a level that enables them to consume a pre-established minimum basket of goods and services.
This approach is known as monetary poverty. The second line (USD 5.5$ at ppp) is a global measure of poverty, while the first indicates extreme poverty. Another step in this direction is to apply this measurement to the reality of the baskets of each country and establish national poverty lines, breaking them down by geographical regions as well, to determine the differences between rural and urban areas.
However, the measuring process is much more complex. Every year, millions of people throughout the world fall into and escape from poverty, so it is not a static condition but a dynamic one, going beyond lack of money. Monetary poverty only shows part of the phenomenon and assumes that households with the same incomes have similar standards of living; although income is a good indicator of living standards, it does not reflect all the possible scenarios.
Poverty is not homogeneous. Someone who is poor may suffer multiple disadvantages at the same time. They may have had little formal education, have a precarious job, poor health, no clean water or electricity. This can happen to many people who are classified as non-poor, so focusing on just one factor, such as income, is not enough to capture the true reality of poverty.
That is why it is necessary to assess the multidimensional nature of poverty, which enables us to build up a more complete picture, not only identifying who is poor, but also the full nature of their shortfalls, not just whether they can afford to buy a particular basket of goods. It helps to identify the multiple deprivations facing households simultaneously, in dimensions such as education, healthcare, work, housing and their environment, among others.
It enables us to directly measure the living conditions of households that go beyond lack of income, and looks at many facets of human development, bearing in mind the privations in different dimensions that affect what people can be and do with their lives. These perspectives take as their conceptual theoretical basis the capability approach first developed by the economist Amartya Sen.
The most innovative proposals have been driven, among others, by the United Nations Development Program (UNDP) and the Oxford Poverty and Human Development Initiative (OPHI), targeting two key issues: on the one hand, to recognize poverty as a form of social shortfall, instead of seeing it as a physiological deprivation, and on the other, to understand it as a multidimensional phenomenon insofar as it is not only a question of income, and that to measure it one needs to take other variables into account.
The way to explore this measurement is to construct a series of indicators for each of the dimensions being assessed. Indicators are selected for each dimension, determining that a household and therefore its members are considered poor if they are deprived along at least 33% of all the indicators being assessed, and in extreme poverty if they suffer shortfalls along at least half of these indicators.
This approach means that both the incidence of poverty, i.e. the proportion of people in a population who are multidimensionally poor, can be measured, as can the intensity of that poverty, by looking at the average number of shortfalls that each poor household and the people in it are experiencing at the same time.
These definitions allow us to determine absolute poverty, the situation in which not all an individual’s basic needs are met, enabling us to set a standardized criterion, given that someone who is poor on this definition is classified in the same way throughout the world. They also let us determine relative poverty, where someone is considered poor when they find themselves at a clear economic and social disadvantage compared to the remaining people in their environment. This final concept is closely connected to the notion of inequality.
There is another, more complex, dimension, the subjective view that individuals or households have about their economic position, which can be included in the analysis: the assessment that people make of their own situation. Who better than they themselves to know their needs and how they perceive them, that is, why and to what extent they feel poor. This additional analysis serves to characterize the phenomenon and contributes to designing efficient, appropriate policies to combat poverty.
Finetuning how poverty is measured is essential to draw up public policy that proposes to fight it. Understanding its nature and intensity helps to provide and better target not just the design of these policies and programs, but also the inclusive initiatives that private-sector actors implement in their activities within society. That is why their target population must be identified accurately, household by household and individual by individual, as well as the multiple dimensions of their deprivations, so as to generate the greatest impact possible in mitigating them.
Poverty is a multidimensional phenomenon, that needs to be tackled on many fronts to counteract its impacts, both among people who are suffering it now, and to prevent it being transferred to future generations. That is why all approaches to measuring complement one another, allowing us to understand more comprehensively this age-old situation suffered by many within our societies.