The rich get richer ... poor do, too

The poor always seem to be with us, because, to a certain extent, poverty is as much a relative assessment as it is an absolute one.

Discussions about poverty are laden with value judgments and often motivated by political rather than humanitarian concerns. Perhaps the only thing worse than politicizing poverty measurements to serve partisan ends is manipulating them for the betterment of certain interest groups.

As it turns out, some nongovernmental organizations (NGOs) and national or international bureaucracies may overstate poverty measures because their funding depend upon an impression of extensive suffering by others. In effect, most aid or charitable organizations suffer a conflict of interest because they'd need many fewer employees or smaller budgets if the world was convinced they've done their job. They have an incentive to provide stark images of people in distress who depend upon them.

One problem with measuring the extent of worldwide poverty by international agencies is that they use earnings benchmarked in US dollars. With this approach, depreciation of a local currency could increase the number of poor. One in every 5 of the world's 6 billion people live in abject poverty; another 1.2 billion survive on less than $1 a day. But this information provides limited information about local conditions and costs.

For evidence of the exaggeration of poverty, it's instructive to examine the UN Conference on Trade and Development (UNCTAD) publication "The Least Developed Countries 1999 Report." The introduction asserts that after a "lost decade" for developing countries in the 1980s, these nations in the 1990s are increasingly marginalized and have greater inequality, poverty, and social exclusion. The report also indicates astonishing improvements. Per capita GDP (in 1997 US dollars) of the world's poorest countries, identified by UNCTAD as the least-developed countries (LCDs), rose from $163 in 1980 to $235 in 1997 - a 44 percent increase on average. Secondary-school enrollment rose from 15 percent to 19 percent of the relevant age groups - a 26 percent increase. Primary-school enrollment rose from 66 percent to 70 percent of the relevant age group. For the same period, mortality rates dropped from 116 to 108 per 1,000 live births in the least-developed countries, and food supply rose from 2,050 to 2,145 calories per capita per day.

As evident from the experience in Hong Kong and Singapore, there is no correlation between poverty and high population density. The barren islands that are home to these city-states also prove that poverty does not necessarily arise from a lack of natural resources.

If poverty can't be literally eliminated, there are things that can alleviate the burden on the poor that don't require throwing more money at NGOs or aid agencies.

There is considerable evidence poverty is the outcome of inappropriate policies and poorly designed legal institutions. Resistance to change and poor choices by politicians and government officials are the principal source of the suffering of their own citizens.

Ironically, policies that are intended to redistribute income or wealth from the haves to the have-nots can be counterproductive. If taxes become confiscatory, the destruction of work incentives will make the relatively better-off members of the community less productive or they will be more inclined to avoid or evade taxes. These actions will deprive governments of the revenues they sought to pass on to the poor. Lower government revenues would mean less money for schools, social security spending, and so on.

Institutional structures meant to soften the impact of market realities can also be self-defeating. For example, labor laws that make it hard to fire workers also make it costly to hire them. This is painfully evident in Western Europe where labor-market rigidities contribute to high unemployment rates and slow job growth.

One advisable remedy is for governments to review their policies and institutional infrastructures to determine which changes are in the best interest of citizens. A good place to start is to find ways to depoliticize the determinants of economic and social life. Besides making changes in policies and institutions, governments should pursue strategies to ensure rapid economic growth.

Contrary to some popular opinions, economic growth benefits the poor because it allows prosperity to be widely shared. "Growth Is Good for the Poor" - a World Bank report released in March - suggests each percent increase in economic growth will cause the incomes of the poor to rise by the same proportion. This one-for-one ratio was observed as a general relationship between incomes of the bottom fifth of the population and per capita GDP in 80 countries over the past 50 years.

Another finding is that the incomes of the poor suffer no greater declines during economic crises than other income groups. And policy-induced growth benefits the poor as much as the entire economy, as measured by per capita GDP. This means the beneficial impact of growth on the income of the poor is the same in poor countries as in rich ones.

In particular, openness to foreign trade provides the poor with similar benefits enjoyed by the rest of the economy. Similarly, following the rule of law and engaging in fiscal discipline benefit poor individuals as much as others. However, avoiding high inflation is a policy that serves the poor even better than the economy as a whole and, conversely, high inflation has a more harmful effect on the poor than overall per capita GDP. The study found no systematic effects on incomes of the poor from implementation of formal democratic institutions or from public spending on health and education.

In absolute numbers, more people have been lifted out of poverty in the last five decades than the previous five centuries.

It appears most of this success comes from the economic growth brought about by increased trade and capital flows. Those who truly want to see fewer poor people should encourage governments to adopt policies that promote sustainable growth through increased access to markets.

*Christopher Lingle is global strategist for eConoLytics and author of 'The Rise and Decline of the Asian Century' (University of Washington Press, 1998).

(c) Copyright 2000. The Christian Science Publishing Society