“Poverty is a political choice”

The final report by UN Special Rapporteur on extreme poverty and human rights, the Australian Philip Alston (70), Professor of International Law and Human Rights at the New York University School of Law, opens an urgently needed debate. We are repeatedly told by governments, the media and development organisations that recent decades have seen a massive decline in global poverty, thanks not least of all to the generous aid of the wealthier countries.

The narrative regarding a substantial decline in poverty is generally based on World Bank parameters, which set the extreme poverty threshold at 1.90 US dollars per day. This arbitrary figure is derived from the average of the national poverty thresholds established for 15 of the world’s poorest countries. On this basis, the number of people living in extreme poverty is thought to have declined from 1.895 billion in the year 1990 to 736 million in 2015, or from 36 to 10 per cent of the world’s population. What is often left unsaid is that this by no means indicates a global trend — in sub-Saharan Africa and the Middle East, the number of people living in poverty even increased by as many as 140 million during this period. What is better known is that poverty reduction occurred predominantly in China where, by World Bank measurements, the number of people living in extreme poverty dropped from 750 million to 10 million over the period concerned.

A closer look at the statistics behind these estimates is warranted. The aforementioned poverty yardstick makes no allowance for the differing basic needs of individual countries or regions, but is treated as an absolute and constant value – adjusted only for purchasing power parity.[1] Hence, the purchasing power-adjusted poverty threshold in Portugal, for example, is 1.41 euros, which of course is hardly enough for mere survival. But in most developing countries as well, national poverty thresholds are set well above the World Bank’s 1.90 US dollars, with the result that national statistics show poverty rates much higher than those based on World Bank calculations. Two examples are Thailand and South Africa: the former has no extreme poverty by World Bank standards, whereas the national statistics show 9 per cent; for the latter, the difference is 18.9 per cent versus 55 per cent.

If we take a more realistic but no less arbitrary poverty threshold of 5.50 US dollars per day, global statistics look less rosy. The number of people affected by poverty will have fallen from 3.5 to 3.4 billion between 1990 and 2015 (or from 67 per cent to 46 per cent of a world population that grew strongly over that period). This reckoning too overlooks the fact that many people affected by poverty such as the homeless, migrant workers, refugees or domestic workers are not even included in poverty statistics, which are derived essentially from household surveys. Nor do the statistics reflect gender-specific poverty differences.

Climate change, the corona crisis and the accompanying sharp economic downturn in many countries are compounding extreme poverty even further. The World Bank anticipates that climate change will plunge an additional 100 million people into extreme poverty (measured by 1.90 US dollars per day) and that the corona crisis will cause as many as 60 million people to fall back into extreme poverty. With more realistic yardsticks these figures would be considerably more depressing.

Has development cooperation failed?

One could conclude that development cooperation has failed if there is a persistently high level of extreme poverty. This argument, however, credits development cooperation with power and influence that it simply does not have. The Alston report shows that for the year 2019, OECD countries disbursed 152.8 billion US dollars in the form of grants or favourable loans to developing countries. At the same time, the poorest countries as well as middle income ones made annual debt repayments of 969 billion US dollars. Some 22 per cent of that amount, or 213 billion, represented interest alone, which therefore produced no development benefits at all. Perhaps even more dramatic are the billions that developing countries lose each year as a result of profit shifting by multinational corporations[2] and illicit financial flows, or losses that they suffer as a result of unequal trade relations.

Development cooperation has demonstrably helped many people escape dire poverty and considerably improved living conditions for the most needy. Much has been achieved over recent decades, especially in education, healthcare and the reduction of maternal mortality. But all this means very little if at the same time, rising numbers of people are losing their livelihoods to make way for commercial agriculture, the extraction of raw materials or the building of gigantic infrastructure projects most often one-sidedly oriented towards export promotion. Countries are still being compelled through World Bank and International Monetary Fund (IMF) loans, or more precisely the attached conditionalities, to cut back social spending, deregulate their trade and guarantee fiscal privileges for foreign investors. Even in today’s post-colonial era, most developing countries continue to be commodity suppliers to the rest of the world, finding themselves trapped in a web of debt, unequal trading relations, tax flight and corruption. In these circumstances, the relatively modest resources of development cooperation remain woefully inadequate.

UN Special Rapporteur Alstom puts it succinctly: “Poverty is a political choice”. People remain in poverty as long as others continue to profit from it. Companies domiciled in the rich countries are still allowed to generate massive profits on the backs of the poorest, and we consumers are expected to buy goods produced cheaply elsewhere (such as food, clothes, or electrical appliances).

Focussing on inequality

Alston logically advocates placing not just poverty but also inequality at the centre of the debate. Alston is by no means the only one making this call. In a recently published paper, German World Bank Executive Director Jürgen Zlatter urged the Bank to focus more strongly on inequality within and between countries. He cites the economist Thomas Piketty, for example, to illustrate the appreciable worsening of inequality over the same period in which the World Bank measured a massive decline in poverty. Hence, between 1980 and 2014, the post-tax incomes of the bottom 50 per cent of the world’s population grew by 21 per cent, while those of the upper 10 per cent rose by 113 per cent. Over the same period, the incomes of the top 0.1 per cent of the world’s population skyrocketed by as much as 617 per cent! The upshot is that today, the world’s richest 1% have more than twice as much wealth as the poorest 6.9 billion people.

Zlatter highlights how the policies pursued in many countries during the 1980s and 1990s weakened trade unions, curtailed social benefits and reduced the progressivity of income taxes. The ever greater liberalisation of trade and the emergence of global value chains are believed to have significantly boosted the market power of individual companies and sparked a global race to the bottom with respect to wages. At the same time, the liberalisation of the financial sector did much to exacerbate inequality, writes Zlatter. Although the author stops short of any direct criticism of the World Bank, these are the very liberalisation and deregulation measures still being imposed on developing countries by the World Bank and IMF.

World Bank economist Zlatter and UN Special Rapporteur Alston both agree that inequality and social redistribution must be placed at the centre of the debate – not only within the World Bank, but also in the broader debate on poverty. For them, the main starting point is a strong focus on tax justice. The alternative looks gloomy: not only will the accelerating climate change and the disastrous economic impacts of the corona crisis plunge huge numbers of people into poverty, but we must also expect mounting social unrest, conflicts and protest movements.

[1] Purchasing power parity is calculated starting with what 1.90 US dollars can buy in the USA and determining how much money is needed in other countries to purchase the same things.

[2] According to a Research project in which the economist Gabriel Zucman was a key participant, in 2017 multinational enterprises shifted 741 billion dollars to tax havens, of which 98 billion flowed into Switzerland. Unfortunately, we have only insufficient data on most of the profit shifting from developing countries – the data available, however, are disturbing. Nigeria, for example, loses about 18% in profit and tax revenue each year, South Africa 8% and Brazil 12%.