Fighting Poverty Together: Rethinking Strategies for Business, Governments, and Civil Society to Reduce Poverty - Hardcover

Karnani, A.

Hardcover

ISBN 10: 0230105874 ISBN 13: 9780230105874

Publisher: Palgrave Macmillan, 2011

Synopsis

In this hard-hitting polemical Karnani demonstrates what is wrong with today's approaches to reducing poverty. He proposes an eclectic approach to poverty reduction that emphasizes the need for business, government and civil society to partner together to create employment opportunities for the poor.

About this title

About the Author

ANEEL KARNANI Associate Professor of Strategy with the Ross School of Business at the University of Michigan, USA.

Excerpt. © Reprinted by permission. All rights reserved.

Fighting Poverty Together

Rethinking Strategies for Business, Governments, and Civil Society to Reduce Poverty

By Aneel Karnani

Palgrave Macmillan

Copyright © 2011 Aneel Karnani
All rights reserved.

ISBN: 978-0-230-10587-4

Contents

Chapter 1 Fighting Poverty, 
Part I Failure of the Libertarian Approach, 
Chapter 2 Microcredit Misses Its Mark, 
Chapter 3 Mirage at the Base of the Pyramid, 
Chapter 4 Romanticizing the Poor, 
Part II Effective Strategies, 
Chapter 5 Selling Beneficial Goods to the Poor, 
Chapter 6 Employment Is the Solution, 
Chapter 7 Government Intervention, 
Chapter 8 Civil Society, 
Chapter 9 Rage Leading to Action, 
Notes, 
Index, 

CHAPTER 1

Fighting Poverty

Despite the tremendous economic growth around the world in the last thirty years, the number of people living in poverty has gone up, except in China. Thus, it seems clear that, while economic growth is necessary for poverty reduction, it is not enough: Prosperity has not "trickled down" to the poor. About two-fifths of the world population can be classified as poor, living on less than $2.00 per day, and about a fifth is considered extremely poor, living on less than $1.25 per day. UNICEF reports that 24,000 children die each day due to poverty, that is about 9 million children a year. The impact of poverty on children is heartbreaking.

Sidebar 1.1 Global Poverty

• 2.6 billion people live on less than $2 per day.

• The poorest 39% of the world's population accounts for 2% of global consumption.

• 1.2 billion people are hungry.

• 1 billon people are illiterate.

• 884 million people have inadequate access to clean water.

• 2.6 billion people lack basic sanitation.

• 1.6 billion people live without electricity.

Sidebar 1.2 The Impact of Poverty on Children

• About half the children in the world live in poverty.

• 9 million children die every year before their fifth birthday due to poverty.

• 4 million newborns die in the first month of life.

• 22 million infants do not get routine immunization.

• 101 million children (more girls than boys) are not attending primary school.

• 148 million children under the age of five are underweight.

• 1.8 million children die of diarrhea every year.

• 2 million children under the age of 15 are living with HIV.

• 150 million children under the age of 14 are engaged in child labor.

Policies and actions directed at reducing global poverty have not been effective, despite the considerable attention and resources such efforts have garnered. Developed countries, international institutions such as the World Bank and United Nations, various aid agencies, and civil society have all contributed trillions of dollars to the fight against poverty. Local governments in less developed countries have contributed even more resources. Academics, consultants, government officials, and many experts have brought intellectual energy to the fight. In September 2000, building upon a decade of major United Nations conferences and summits, world leaders came together at UN headquarters in New York City to adopt the United Nations Millennium Declaration, committing their nations to a new global partnership to reduce extreme poverty and setting out a series of time-bound targets—with a deadline of 2015—that have become known as the Millennium Development Goals (MDGs). While the agreement has galvanized unprecedented efforts, poverty persists on a large scale. Some progress has been achieved, but not enough.

Sidebar 1.3 Millennium Development Goals

Goal 1: Eradicate extreme poverty and hunger

• Halve, between 1990 and 2015, the proportion of people whose income is less than $1 a day.

• Achieve full and productive employment and decent work for all, including women and young people.

• Halve, between 1990 and 2015, the proportion of people who suffer from hunger.

Goal 2: Achieve universal primary education

• Ensure that, by 2015, children everywhere, boys and girls alike, will be able to complete a full course of primary schooling.

Goal 3: Promote gender equality and empower women

• Eliminate gender disparity in primary and secondary education, preferably by 2005, and in all levels of education no later than 2015.

Goal 4: Reduce child mortality

• Reduce by two thirds, between 1990 and 2015, the under-five mortality rate.

Goal 5: Improve maternal health

• Reduce by three quarters the maternal mortality ratio.

• Achieve universal access to reproductive health.

Goal 6: Combat HIV/AIDS, malaria, and other diseases

• Have halted and begun to reverse the spread of HIV/AIDS by 2015.

• Achieve, by 2010, universal access to treatment for HIV/AIDS for all those who need it.

• Have halted and begun to reverse the incidence of malaria and other major diseases by 2015.

Goal 7: Ensure environmental sustainability

• Integrate the principles of sustainable development into country policies and programs, and reverse the loss of environmental resources,

• Reduce biodiversity loss, achieving, by 2010, a significant reduction in the rate of loss.

• Halve, by 2015, the proportion of the population without sustainable access to safe drinking water and basic sanitation.

• By 2020, to have achieved a significant improvement in the lives of at least 100 million slum dwellers.

Goal 8: Develop a global partnership for development

• Address the special needs of least developed countries, landlocked countries and small island developing states.

• Further develop an open, rule-based, predictable, nondiscriminatory trading and financial system.

• Deal comprehensively with developing countries' debt.

• In cooperation with pharmaceutical companies, provide access to affordable essential drugs in developing countries.

• In cooperation with the private sector, make available benefits of new technologies, especially information and communications.

Defining Poverty

Nobel Prize–winning economist Amartya Sen has eloquently argued that development can be seen as a "process of expanding the real freedoms that people enjoy." Conversely, poverty is the lack of those freedoms. Reducing poverty implies expanding the "capabilities of persons to lead the kind of lives they value—and have reason to value." Poverty is a multifaceted phenomenon having three main dimensions. First, poverty is the lack of income and assets needed to attain basic necessities, such as food, shelter, clothing, and fuel. Second, poverty means the lack of access to basic services that directly affect the material welfare of the poor, such as public health, education, safe drinking water, sanitation, infrastructure, and security. Third, poverty means the social, cultural, and political exclusion of its victims, and includes such issues as gender, racial and ethnic discrimination, and a lack of civil rights. These multiple aspects of poverty are intertwined. Sen believes that "economic unfreedom can breed social unfreedom, just as social or political unfreedom can also foster economic unfreedom." He emphasizes that these multiple freedoms are important on their own and do not have to be justified by their effects on the economy or individual income.

Ultimately, poverty cannot be measured only in monetary terms. Nonetheless, it is easy to argue that income is a very important, perhaps the single most important, measure of poverty. In a modern market economy, income enables people to fulfill their basic needs. With improved material conditions, poor people might eventually become less powerless and less vulnerable in their relations with their families, the community, and the state. Moreover, income is relatively easy to measure quantitatively and is thus the starting point for public debate and political action. It is not surprising that income statistics attract the greatest interest and commentary within the development community.

Poverty is therefore most often measured in monetary terms and defined as consumption below a certain benchmark, but such measures are, of course, matters of degree and involve subjective judgments, and there are intense debates about where to draw the poverty line. Richer countries tend to place it at higher consumption levels than do poorer countries. Since 1990, the World Bank has measured poverty by the standards commonly used in low-income countries, which generated the widely accepted "$1 a day" definition of poverty.

To measure global poverty, it is necessary to compare incomes across countries. It is well known that income comparisons based on market exchange rates tend to understate real incomes (or, real purchasing power) in developing countries. Market exchange rates can be expected to eventually equate purchasing power only over internationally traded goods. But there are also nontraded goods, such as services, which are cheaper in countries with lower wages. Purchasing power parity (PPP) rates adjust for this difference, allowing more valid income comparisons, and are therefore used instead of market exchange rates in measuring global poverty. The poverty line is then converted to local currency using the PPP rates, and the local consumer price indices are then used to adjust for inflation.

People below the "extreme poverty" line of "$1 per day" cannot meet basic needs for survival: nutrition, health care, safe drinking water, sanitation, education, adequate shelter, and clothing. Yet, this definition of extreme poverty is probably too conservative. Another commonly used standard, which is more representative of middle-income countries, is "$2 per day." At this level, basic survival needs are met, though just barely. Both of these measures are widely used in the development economics and public policy fields. The World Bank uses both $1/day and $2/day lines. Virtually all research on poverty uses either one of these two poverty lines or something in between. The MDGs use the $1/day standard.

In 2008, the World Bank significantly revised its poverty measurement, largely because of biases detected in the previous estimates of PPP exchange rates. The old data had underestimated the cost of living in poor countries, and therefore, the extent of poverty. The new global estimates of the numbers of people living in poverty are significantly higher, for some countries dramatically higher, than the previous estimates. The estimated number of people living on less than $1/day in 2005 was revised upward, from 931.3 million to 1,376.7 million worldwide; for China, the estimate was revised from 73.1 million to 207.7 million.

In 2008, the World Bank also updated the international poverty line to $1.25 per day in 2005 prices; this is quite consistent with the definition of poverty underlying the prior $1/day standard. The new line is the average of the poverty lines for the poorest 15 countries in terms of per capita consumption. By way of comparison, India's official poverty line for 2005 was $1.03/day. However, it seems too harsh to base global poverty on a standard representative of the 15 poorest countries. Another commonly used poverty line is $2/day, which is the median poverty line found among all developing countries. Many researchers agree that the $2/day criterion is the more realistic one because the $1.25/day standard is too low and results in poverty reduction goals that are not ambitious enough. In a world where many people spend $3 for a cup of coffee, it is unacceptable to set the poverty line at $1.25/day. Many researchers prefer the less harsh $2/day standard.

The Numbers

If we use the $2/day criterion, the number of poor people in the world has remained fairly constant at about 2.5 billion for the last 30 years. Regional trends over the same period, shown in figure 1.1, are even more distressing. The number of poor people has gone up since 1981 in every region of the world except East Asia. The three big pockets of poverty are China, India, and sub-Saharan Africa, which together account for about 75 percent of total global poverty figures. Figure 1.2 shows the poverty trends in these three places over the same time period. Poverty declined dramatically in China, increased significantly in India, and increased dramatically in sub-Saharan Africa. When China is excluded, the number of poor people in the rest of the world increased from 1.6 billion in 1981 to 2.1 billion in 2005. This is unacceptable.

The situation is even more deplorable when the definition of poverty is expanded to include indicators besides income. Development experts Sabina Alkire and Marina Santos present new data on multidimensional poverty using household surveys for 104 developing countries. Their Multidimensional Poverty Index (MPI), which "reflects deprivations in very rudimentary services and core human functionings for people," takes into account the following:

1. Health

• Child mortality: If any child in the family has died

• Nutrition: If any adult or child in the family is malnourished

2. Education

• Years of schooling: If no household member has completed five years of schooling

• Child enrollment: If any school-aged child is out of school in years one to eight

3. Standard of living

• Electricity: If household does not have electricity

• Drinking water: If quality does not meet MDG definitions or is more than a 30-minute walk away

• Sanitation: If it does not meet MDG definitions or the toilet is shared

• Flooring: If the floor is dirt, sand, or dung

• Cooking fuel: If cooking is done with wood, charcoal, or dung

• Assets: If a household does not own more than one of: radio, TV, telephone, bike, motorbike

The data show that while income is an important indicator of poverty, having income above the poverty line is "no guarantee of being nondeprived in core aspects of well-being." Particularly in poor countries, income does not imply access to basic services. "In most countries, more persons are MPI poor than income poor." Thus, estimates of poverty based on income alone tend to underestimate the extent of real poverty. Poverty is not just a problem, it is a global crisis.

The Fight

If poverty is defined using the $1.25/day criterion, then the picture gets rosier because this lowers the bar. The number of people living on less than $1.25/day fell from 1.9 billion to 1.4 billion over the 1981–2005 period. Simply projecting the current trend forward to 2015 puts the developing world as a whole on track to achieve the MDG of halving the 1990 poverty rate by 2015. However, the developing world outside China is not on track to achieve the MDG for poverty reduction. Using the more humane $2/day target, based on current trends, significant poverty reduction will not be achieved in the foreseeable future. Eradicating poverty in the intermediate future is a desirable goal, but the current strategies will not accomplish it.

The fight against poverty so far has been, at best, a draw. To win, or to at least make substantial progress, it is necessary to rethink strategies, to analyze which approaches do not work well and which are effective. The objective of this book is to contribute to the analysis of the current approaches, as well as to the rethinking and development of strategies for poverty reduction going forward. Given limited resources—financial, human, and political—indiscriminately pursuing all approaches simultaneously is inefficient and wasteful. There is a need to prioritize and to focus on what works. Besides analyzing the poverty reduction strategies that do not work well and why, this book proposes some that have the potential to work much better. More widespread public debate is clearly needed if we are to achieve greater success in the future.

Moral Imperative

It has been argued, especially by political leaders, that eliminating poverty is essential for reducing war, civil conflict, and terrorism. For example, German chancellor Gerhard Schroder stated, in 2001, "Extreme poverty, growing inequality between countries, but also within countries themselves, are great challenges of our times, because they are a breeding ground for instability and conflict." The UN Millennium Project notes that "poor and hungry societies are much more likely than high-income societies to fall into conflict over scarce vital resources, such as watering holes and arable land ... Poverty increases the risks of conflict through multiple paths." Laura D'Andrea Tyson, former chairperson of the Council of Economic Advisors during the Clinton administration, wrote that "we live in a world of unprecedented opulence and remarkable deprivation, a world so interconnected that poverty and despair in a remote region can harbor a network of terrorism dedicated to our destruction." After the terrorist attacks of September 11, 2001, politicians and policy experts were quick to draw an intuitive line connecting poverty and terrorism. From this perspective, poverty is seen primarily as a political challenge.

While this argument is plausible, it is also debatable. There are many other causes of violent conflict, including religious fanaticism, sectarian or ethnic strife, alienation, and perceived humiliation. Empirical research by economist Alberto Abadie explores the connection between poverty and terrorism in depth and finds that the risk of terrorism is not significantly higher for poorer countries once other country-specific characteristics are considered. Some of the world's best-known terrorist groups, such as the Irish Republican Army, the ETA in Spain, the Baader-Meinhof Gang in Germany, Hamas in Israel, Hezbollah in Lebanon, the FARC in Colombia, and the Tamil Tigers in Sri Lanka have neither been rooted in poverty nor had poverty reduction as a goal. Moreover, while global poverty has remained constant or in some cases declined in recent years, terrorist attacks have increased. It is possible that the causality between poverty and conflict runs in both directions. In the end, it is unclear whether poverty directly causes violent conflict.

(Continues...)

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Edition details

• Publisher: Palgrave Macmillan
• Publication date: 2011
• Language: English
• ISBN 10: 0230105874
• ISBN 13: 9780230105874
• Binding: Hardcover
• Number of pages: 302