Poverty and the paradox of average income

| Updated: October 18, 2017 02:59:41

Poverty and the paradox of average income

Global poverty has definitely declined. According to the findings of the UN's Millennium Development Goals (MDGs) poverty has halved globally in around a decade or so. This means that there are fewer poor countries in the world today than there were a decade ago. The number of low-income countries during the period has come down from 63 to 34 -- a considerable drop by nearly 50 per cent!
This, no doubt, is an inspiring information that should motivate many countries to work on how efficiently to steer poverty alleviation programmes. On the other hand, prosperity of many countries in a span of two/three decades speaks a lot about how they have become international donors from what they were-recipients of foreign aid and grants. China is the best-known example. South Korea, which received enormous amounts of aid after the Korean War, is now a net donor. Optimists, including Bill Gates, believe that by 2030, there will be almost no poor countries left.
In one of his weekly blogs, Bill Gates has recently made an important observation. While expressing his hope for a poverty-free world by the year 2030, he raises the question that under the garb of an apparent complacency, there are important issues that are getting less than due attention. "Even though there will be fewer poor countries, there will still be very poor people", he writes with a note of agony that does not seem to go well with countries claiming to shed poverty and lifting themselves to middle-income level. He calls this a silver cloud with a dark lining. He adds, these 'very poor people' will be concentrated in fewer places-many of them the very same countries that are moving out of the low-income tier and into middle-income status.
"Today, 70 per cent of the world's poorest people live in middle-income countries, and that percentage will likely go up in the coming years", writes Mr Gates with an obvious hint at a situation that will disqualify most of these countries from seeking foreign aid -- because of their elevation. As  the indicators determining the 'qualifications' are too broad-based, usually reliant on the overall macro-economic conditions, chances of countries being left out of donors' aid is not only high but this may eventually weigh too heavy in pursuing many of their development agendas.     
This is the result of the practices followed by most development agencies. The World Bank, for example, uses a country's average income as the main factor in deciding whether it qualifies for aid. So, countries that are moving into middle-income status risk losing much of the aid they've been getting (which includes grants, low-interest loans, technical assistance, and other kinds of support). In the next few years countries like India, Ghana, Nigeria, Pakistan and Vietnam stand to lose as much as 40 per cent of their total development assistance.
Ideally, this is how things should work. It is quite natural that as countries improve their economic condition, they should be able to take care of their own. But in a situation where benefits of economic growth are not evenly distributed -- the case with most developing countries aspiring to gain middle-income status - there remains huge gaps created by income inequality lending a less than true -- at times even deceptive -- picture of the state of the common people. This is because average income is not a good indicator of improvement in people's lives. In countries with more or less even distribution of income, the case may be different -- a rarity though in most of these countries. 
The reality is that in most developing countries, it is the average income that puts out of view pockets of extreme poverty. Mr Gates has cited India as a glaring example. In 2011, he writes, India's average income was more than $1,400 a year, enough to qualify as middle-income. But in the Indian state of Uttar Pradesh, home to 200 million people, the average was less than a third of that-only $436 a year. In the neighbouring state of Bihar, with another 100 million people, it was just $249 a year. That's about 68 cents a day.
Designating a country as low-income or middle-income on the basis of average income may be alright. But if average income continues to be the key yardstick for a country to qualify or disqualify for donors' aid, then many of the middle-income countries may  find it  too difficult to get  along with their growth programmes and in sustaining what they have been able to achieve to reach the hard-earned elevation. There is thus the critical need to determine the criterion for foreign aid in a situation when it can further bolster growth and also solidify anti-poverty programmes. 

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