Where are the poor?

The points for debate are in the outline below. The next paragraph is a digression, but an important one.

We looked at PPP per capita and (in passing) the HDI. Two notes in passing. As (i) a general feature of price indices, the function is not transitive. That is, the US-India PPP calculated using US quantities and US vs Indian prices does not give the same result as using Indian quantities and US vs Indian prices. In practice the number reported is a geometric average. The tables in the above Wikipedia link provide PPP per capita income to 5 significant digits. Bullshit. One digit, almost two if countries are similar. The relative ranking of two nearby countries on the list is not statistically meaningful.

The other (ii) is to expand from the HDI to look at the Millennium Development Goals, listed in the book. Some of the MDGs are subdivided. Is such a long list helpful? To rephrase, if your boss gave you the list and said “here are your priorities,” he/she has given you no guidance at all about what you’re to actually do. If your boss is competent, then you’ve just been set up for failure, and had better start job hunting. And if your boss doesn’t understand what he/she has just done, you’d better start job hunting.

Now to the chase. I used to know where the poor people were: in the countryside, closed tied to agriculture and likely directly dependent on what they could wrest from the soil. That had a lot of implications. Here is what I see – I won’t argue why, and I’ve likely missed things. Of course now in some countries, the majority of the poor no longer rural (let’s avoid trying to define “urban”, leave it sloppy for now).

  1. Political economy
    1. peasants don’t matter: so what if they are unhappy, or rebel – that won’t affect you as president-for-life, sitting in the capital. dictatorships are long-lasting
    2. economic policy can focus on urban interests.
  2. Prices
    1. higher agricultural prices help the poor
      1. that is not necessarily true for monocrop cultivators, as they may be net food purchasers – coffee growers in Brazil, sisal growers in Bangladesh
    2. better cultivars and better roads drive down prices and squeeze out the poor
  3. Education
    1. basic literacy and numeracy are good life skills, and can improve public health
    2. middle school and above is pointless – high costs no benefits
  4. Healthcare
    1. public health measures are useful: teaching about safe water
    2. direct provision is impossible. trying to put doctors in rural areas is a poor use of scarce resources
  5. industrialization
    1. irrelevant
    2. if it leads to higher rural taxation to fund it, undesirable

OK, this list should stimulate debate.

Note these PPP GDP per capita (left) and HDI (right) maps correlate closely. The HDI map has 12 categories, the GDP one only 7, so it’s at best a casual, visual observation.

About Mike

Prof of Economics, Wms School of Commerce, Washington and Lee University, Lexington VA
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18 Responses to Where are the poor?

  1. inglism18 says:

    Let’s discuss the first point on your list regarding the political economy and the poor. As you note, the majority of the poor are no longer rural, but let’s examine the case through the lens of a developing China – one where the majority of the poor were indeed rural. Then peasants don’t matter. Even if rural subsistence farmers are dying off in high numbers due to lack of opportunity and resources, from a dictator’s perspective, there is no bearing on his/her rule. Perhaps on the whole, food supply is decreasing, but in reality, on the margin, one subsistence farmer not providing his/her yearly crop will not dramatically affect the supply. And without roads to urban areas or technology to connect farmers/the poor across the country, a mass rebellion will not come to fruition. There is no incentive for the dictator to alleviate the pressures on the marginalized then. He/she could simply improve the urban areas and get more ‘bang for the buck.’ This does not bode well for the country’s poverty statistics, as many in the country are not doing well, but from the leader’s position, it doesn’t matter. The rule will continue. Additionally, if the ruler decided to indeed build infrastructure and promote technology improvement – while it may drive down prices and squeeze out the poor as you mention in your second point – it takes away from the argument that the ruler is not doing enough to help them (that may still be the case though).

    • the prof says:

      I can make a counter-argument – give you a reference to an entire book, from which I drew the core claim, which argues it no longer applies to China. But let me see first what others have to say, and not be a spoil-sport. Assuming (majorly, pardon the syntax) that I can in the end convince you that today peasants in China matter, for the first time in Chinese history.

      • ferrise20 says:

        Is it fair to suggest that economic development in China could ultimately affect political change and lead to more democratic institutions? As the country continues to modernize and grow richer, will Chinese demand more democratic freedoms? Does it matter if they do? In regards to 1.b, even if economic policy does focus on urban interests, is it possible that urban interests and a growing middle class will simply demand greater political change anyway, and won’t such sentiments inevitably spill into rural areas?

        • the prof says:

          Are Chinese actually demanding more “freedom” as opposed to an end to specific abuses? With incomes still rising, are people really interested in rocking the boat?

          In addition, those who are politically active (or potentially so) are in (or urged to join) the Communist Party. This does provide political voice, albeit in smoke-filled rooms. Closed elections vs only white propertied men having the vote – there are more similarities with our experience than we may want to admit.

  2. ferrise20 says:

    It seems like the implementation of many policies that promote development cause suffering or seem somehow harmful in the short run but may be beneficial for the country’s long-term development. In regards to your point in 2.b, I’m just curious – If these implementations squeeze out the poor, does that promote urbanization? Does further contributions to the modernization of the economy in the long run outweigh the costs of that suffering in the short-run? In regards to 3.b, isn’t it much more valuable to have a skilled, educated labor force in the long-run, even if it seems like middle school and above might be pointless to the rural poor? Countries need educated workers to be more productive and to quickly adopt technological advances, so wouldn’t it be better if some higher education (ie. a high school diploma) was the norm?

    • the prof says:

      2b: we may want to think about “pull” vs “push.” More later this term.
      3b: do those in power think about such long-run issues (yes, sometimes)? don’t you want your son/daughter to help with the farm – what incentives would change that decision? countries don’t “need” educated workers though over time they may benefit from that

  3. fleckj20 says:

    On the topic of educating the poor, it’s important to consider how each additional level of education affects the poor. Primary education can do a lot to help the poor as it teaches basic skills like reading and mathematics. These skills may not be enough to make them rich, but they could help alleviate the poverty they face. Education can do much as an equalizer and opportunity-provider. In response to the idea that education is a waste of time for the poor, that may hold true for higher levels of education, but primary education still helps raise incomes. The more relevant problem with education is the issue of access. If the poor have access to education, they can take advantage of it to the extent they are capable. Education can then help to erode the issue of poverty by helping out those who are willing to sacrifice time working to learn. The ability to invest in human capital then can lead to growth in productivity and GDP. Increased productivity can lead to an improved standard of living for the poor.

  4. platerb18 says:

    In my opinion, I see industrialization as a relevant factor by acting as a pull mechanism from rural areas. More industrial operations occur near large population centers where workforces are available. Population centers offer a more useful place for healthcare operations to be carried out because the marginal benefit of a doctor in a populated place is higher than a rural one. Workers who enter higher population areas will likely suffer hard working conditions, but can provide for their families who do not leave their rural area. Political and macroeconomic stability factors are important to evaluate when making the decision to leave rural areas. Without stability, the country as a whole cannot develop along with its industries and residents. In almost all cases, especially in areas like sub-Saharan Africa, political unrest leads to negative growth in average per capita income while destroying infrastructure, institutions and economic activity. From a leadership perspective of a developing nation, avoiding war is a crucial initiative during the promotion efforts of nation-wide growth. There are larger factors at play that influence a countries growth, but industrialization still plays a prominent role in how that growth is achieved.

    • the prof says:

      Phrase this as an urban economics question: are there economies of scale in cities (healthcare)? positive externalities (more ability to specialize)?

  5. willinghamt19 says:

    The overarching question of this post is simple: where are the poor? The two maps given to us attempt to answer this question in differing ways, with GDP per capita and HDI specifically.

    I tend to lean away from GDP per capita and other input-based metrics when attempting to characterize poverty. They often struggle with measuring inequality, and, especially in extremely impoverished communities, they do not illustrate a complete picture. Why would we utilize an input-based metric, like GDP per capita, when an output-based metric, such as health or education outcomes, could better illuminate the situation?

    The point about the political economy is an interesting one. It shows how crucial good political institutions are and how bad institutions can completely stymie potential (relatively) egalitarian growth.

    Additionally, the point about healthcare is especially important to me. From my understanding, one of the best areas from which poverty may be analyzed and to focus on when addressing poverty is health. There is a very high correlation between life satisfaction and health outcomes. Moreover, income notwithstanding, is an area truly impoverished if the individuals in that area experience very positive health outcomes? It is important to not just characterize poverty through income-indicators. These tools are useful, but a low-income, high-health community could be significantly better off than a higher income, lower-health community.

    • the prof says:

      I’ll stick just to your last paragraph: isn’t that the value of HDI, in that it is higher if people have better health? Of course we can keep adding components to HDI, but the more we add the less it helps us focus (and, I suspect, the more it would correlate with PPP GDP per capita).

  6. lencionik19 says:

    I believe the most important thing to look for when considering where poor people live is the political institutions across the globe. Leadership of countries is where all the other factors begin. Education, healthcare, and industrialization are all driven by the government of each nation. Countries with inclusive political and economic institutions allow economic growth and promote shared wealth across the country. On the other hand, governments that practice extrusive (or extractive) institutions are only concerned with themselves and attempt to keep all of the wealth among few. Dictatorships most often have extractive institutions and where we find this form of government we find poor people.

    • the prof says:

      As we go along this term we can think about that: do good politics and good outcomes go hand-in-hand? Or do geography, natural resources, rich neighbors (or post-colonial ties) and other legacy effects dominate?

  7. khanm18 says:

    I believe better roads can play a huge role in rural areas. Creating roads can lead to large incremental productivity and production. In addition to this, without adequate roads, agricultural traders will have a hard time to travel and commute with remote rural areas, limiting the ability to trade. In addition to this, it is estimated that 15% of crop produce is lost between the farm gate and consumer specifically due to poor roads, directly impacting the income of farmers and those who live in these rural areas.

    Studies have shown that investments in rural roads can ultimately give higher access to markets, expansion of agriculture land, and lowered transportation costs. Although it may make prices lower in a sense, it could also be offset by the other advantages of better road infrastructure in rural areas

    Source: http://ageconsearch.umn.edu/bitstream/204501/2/04-Keynote%20Paper-Satish.pdf

    • the prof says:

      Let me not speak of the bottom line once all these effects are considered. But if 15% of food is lost en route to market (in India the figure I heard was 40%), then that’s equivalent to a 15% increase in supply. Is demand for food elastic? If not, what happens to aggregate farm revenue? Add in the access to fertilizer that comes from roads, and isn’t the price effect that much bigger?

  8. bryantc18 says:

    To comment on your first point, perhaps an unhappy rural poor is irrelevant to a dictator–their lack of power may pose little to no threat to the rule of a government. However, it seems that such a dictatorial system that ignores an entire sector of people will hinder development prospects. Rural poor could serve as potential for growth in human capital given the correct conditions–simply overlooking their struggle does little to grow the productivity and thus economic prosperity of a nation. It may be true that growth does not have to reach all parties of a nation to occur, hence leaving the possibility that a country can develop without any significant attempt to alleviate rural poverty. But, the long-term success of a country and the stability of its political institutions may be hindered if an entire class of people is left behind. Perhaps there could be grassroots political opposition. In economic terms, leaving a group to subsistence farming could limit the ability of a nation to specialize in a factor that it has a comparative advantage in. On some level, sound economic policy will need to account for the interests of many groups, not just a few.

    • the prof says:

      All true. But if you have an urban authoritarian polity with most people still in subsistence agriculture, well, what’s it matter for the dictator & friends if the country doesn’t “develop”?

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