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How far can poverty alleviation go?

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Photo: Aprilio Akbar/ Antara.

Three economists — Esther Duflo, Abhijit Banerjee and Michael Kremer — were awarded the Nobel prize for their experimental approach to poverty alleviation and their promotion of evidence-based policy to combat poverty worldwide. These progressive movements in research and policy advocacy, along with sustained and stable economic growth in recent decades, have contributed to a global decline in poverty.

In 1990, there were 1.9 billion people — 36 percent of the world population — living under the international poverty line of US$1.90 a day. This figure has decreased over time, leaving 650 million people, or roughly 8.6 percent of the world population, in poverty in 2018, according to the World Bank. However, this progress has been distributed unevenly.

The highest concentrations of poverty have shifted from Asia to sub-Saharan Africa. The World Bank stated the number of poor in sub-Saharan Africa actually rose from 278 million in 1990 to 437 million in 2018. This region alone made up more than half of global poverty in 2018. The situation may worsen under the ongoing trade war between the United States and China, which has led to hesitant investment worldwide. Lower investment will induce slow economic growth, which will, in turn, slow global poverty eradication.

Thus a better policy to boost economic growth is not the only strategy governments need. Governments and NGOs should work collaboratively to provide direct support programs like conditional financial assistance for households in the worst-off regions, after testing to establish the real benefits of the programs.

Otherwise, the benchmarks of the global Sustainable Development Goals to end extreme poverty by 2030 will remain a dream for millions.

In Indonesia, poverty reduction is on the right track. The considerable economic growth in the last two decades has helped the country reduce its poverty rate from 24.2 percent in 1998 to a single-digit poverty rate of 9.41 percent in March 2019, according to Statistics Indonesia (BPS). Nevertheless, several challenges remain.

The first is high income inequality. Studies conducted by Oxfam in 2017 and Smeru Research Institute in 2018 confirmed that higher income inequality leads to slower poverty reduction. Income inequality in Indonesia, as measured by the Gini coefficient, decreased only slightly from 0.389 in March 2018 to 0.382 in March 2019, but this is still relatively high compared to other countries in Southeast Asia.

A second major challenge is the heterogeneity of poverty reduction across regions. In 2019, 16 provinces had poverty rates above the national rate. Provinces in the eastern part such as Papua, West Papua and East Nusa Tenggara had poverty rates above 20 percent, a small change from previous conditions. The poverty rate in Papua and West Papua, for example, stood at almost 28 percent and about 22 percent respectively in 2019. The share of people living below the poverty line in regions like Jakarta and Bali was just below 4 percent.

Therefore in addition to maintaining stable economic growth, there should be strategies beyond the basic social assistance of rice for the poor (Raskin) or the Smart Indonesia Card (KIP), a financial assistance program for education expenses.

Poverty worldwide tells the same story: a lack of resources to fulfill basic needs. But does this mean each case of poverty requires the same treatment? In the words of a 1998 Nobel prize winner in economics, Amartya Sen, “A small peasant and landless laborer may both be poor, but their fortunes are not tied together.

In understanding the proneness to starvation of either we have to view them as members of particular classes, belonging to particular occupational groups, having different endowments, being governed by rather different entitlement relations. The category of the poor is not merely inadequate for evaluative exercises and a nuisance for causal analysis, it can also have distorting effects on policy matters.”

This means that treating the poor as a homogeneous group that needs uniform social assistance will not help to reduce poverty. Michael Lipton and Martin Ravallion argued in 1995 that poverty actually occurs in two different forms: chronic and transient poverty.

Chronic poverty refers to those who experience long-term poverty, while transient poverty is a more temporary condition. The first type of poverty is caused by unequal access to infrastructure, resources and information. This requires structural reform like human resource investment in education and health care, as well as the redistribution of assets such as land and housing.

Transient poverty, however, results from negative economic shocks like crop failure, illness or the death of the head of household. For this type of poverty, establishing and augmenting social safety nets like insurance and other income-stabilization policies is more appropriate.

Mapping regions based on the type of poverty to establish whether they are dominated by chronic or transient poverty may help policymakers determine what type of antipoverty policy they should prioritize.

Then they can encourage local governments to work proactively, based on each region’s particular situation, to reduce poverty more efficiently.

 

This article was published on thejakartapost.com


Article written by Wahyu Wisnu Wardana
Deputy Director for Research & Programs of RISED.

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