Info Service on Finance and Development (May13/05)
30 May 2013
Third World Network
Bank seeks to eradicate poverty... by lowering the bar
Published in SUNS #7590 dated 24 May 2013
Montevideo, 23 May (Roberto Bissio*) -- In a highly publicised speech,
World Bank President Jim Yong Kim (a Korean-born American health specialist)
announced in April that the new "highly ambitious" target
of his institution will be "ending extreme poverty in the world
This would require three factors: "an acceleration of the growth
rates", "efforts to enhance inclusiveness and curb inequality"
and "it will require that potential shocks - such as climatic
disasters or new food, fuel, or financial crises - be averted or mitigated."
This would be a "historic opportunity in front of us", the
World Bank President said, and the announcement was made at Georgetown
University, an institution "engaged in preparing the leaders
of the future".
Those future leaders were reassured by Kim that "we are at an
auspicious moment in history" and that developing countries have
"a chance -- for the first time ever -- to end extreme poverty
within a generation."
Historical optimism is healthy, especially when it comes to inspire
youth, but to claim novelty when there is none is like tripping twice
over the same stone.
In 1973, forty years ago, then World Bank President Robert McNamara,
former president of Ford Motor Company and former defense secretary
to Presidents John Kennedy and Lyndon Johnson, delivered in Nairobi,
Kenya, a solemn speech in which he proposed to the Board of Governors
of the Bank a "new strategy".
The "ambitious objective" (sic) of McNamara was "to
eradicate absolute poverty by the end of this century" (i. e.
2000). This goal is possible, McNamara explained, because "if
the courageous decisions are made, then the pace of development can
Kim adds ethical arguments to his economic analysis: "Is there
anyone here today who would not want to erase this stain from our
McNamara had said the same in 1973: "Should we not make the moral
precept our guide to action? The extremes of privilege and deprivation
are simply no longer acceptable."
Four decades apart, the discourses of Nairobi and Georgetown are very
similar. It has been argued that now the World Bank will pay more
attention to inequalities and Kim said that, because of unequal distribution,
"even if rapid economic expansion in the developing world continues,
this doesn't mean that everyone will automatically benefit from the
But McNamara had already noticed, in 1973, that "despite a decade
of unprecedented increase in the gross national product of the developing
countries, the poorest segments of their population have received
relatively little benefit (because) rapid growth has been accompanied
by greater maldistribution of income in many developing countries."
Kim argues today that "ending extreme poverty is not enough.
We must also work to boost the incomes of the poorest 40 percent of
the population in each country."
Along the same lines, McNamara said four decades ago that "the
growth of GNP is essentially an index of the welfare of the upper
income groups. It is quite insensitive to what happens to the poorest
40%, who collectively receive only 10-15% of the total national income."
While 40 years ago the World Bank president criticized as "shortsighted"
the "politically privileged elites" that "are rarely
enthusiastic" over fighting poverty, the present World Bank President
hails that "US President Barack Obama and UK Prime Minister David
Cameron endorsed the vision of ending extreme poverty globally."
"I cannot believe," said Robert McNamara, "that the
people and governments of the rich nations will turn away in cynicism
The role that the richer nations would not turn away from, was clearly
spelled out forty years ago. McNamara said then: "If the governments
of the developing world
-who must measure the risks of reform against the risks of revolution
- are prepared to exercise the requisite political will to assault
the problem of poverty in the countryside, then the governments of
the wealthy nations must display equal courage. They must be prepared
to help them by removing discriminatory trade barriers and by substantially
expanding Official Development Assistance."
Yet, in the following decades, a development-friendly trade system
never materialized and ODA never surpassed, in global terms, half
the benchmark (also promised in 1973), of 0.7% of the GDP of developed
Thus, Kim presently only promises that poverty eradication is a goal
"which our partners - our 188 member countries - will achieve,
with the support of the entire global development community."
But no detail is given as to what developed countries ought to do.
ABSOLUTISTS VS. RELATIVISTS
Considering the past experience, why is the Bank now so confident
in reaffirming the old promise? When McNamara introduced the concept
of "absolute" poverty, he set the line at 30 cents of a
US dollar a day and he emphasized that "eradicating poverty means
in practice the elimination of malnutrition and illiteracy, the reduction
of infant mortality, and the raising of life-expectancy standards
to those of the developed nations."
Adjusted for inflation, those 30 cents would amount to $1.60 in today's
dollars, but the new line is set at $1.25. And this will certainly
not provide education and health, but will only be enough to keep
a person from starving, which is the new definition of "extreme
According to the World Bank's own projections, if current growth rates
are maintained and inequality does not get worse, there would be a
90 percent chance of achieving this goal by 2015. The message to the
governments of the world is that nothing needs to change to win this
Why are the bells not ringing? Where are the fireworks celebrating
that humanity is (or will soon be) finally free from want? People
are not rejoicing around the world because the poverty measured by
the Bank under a fixed line, that does not move as people rise above
it, is not the poverty that the public perceives.
"By necessaries I understand, not only the commodities which
are indispensably necessary for the support of life, but whatever
the custom of the country renders it indecent for creditable people,
even of the lowest order, to be without..." wrote Adam Smith,
the founder of modern economics, in the eighteenth century.
Smith included a pair of leather shoes and a linen shirt among those
goods that "the rules of decency" had made essential, even
when in ancient times the rich paraded happily in toga and sandals.
Smith argues that poverty is relative, but neoclassical economists
who proclaim themselves as his followers are now supporters of an
"absolute" poverty line.
According to Martin Ravallion, who crunched for more than a quarter
century the poverty estimates of the World Bank, "those who argue
that globalization is good for the poor tend to be overtly 'absolutist'."
But ordinary people are 'relativistic'. Since 1949, the Gallup Poll
has been asking Americans. "What is the smallest amount of money
a family of four (husband, wife, and two children) needs each week
to get along in this community?" The average amount goes up systematically,
year after year, in proportion to national income.
That means that if the $1/day line was correct in 1990, this line
should now be located far above two dollars, as the world per capita
income has more than doubled between 1990 and 2010. Those who live
on less than two dollars a day are currently more than half of the
world's population. To eradicate this poverty is still possible, because
the average global income now equals about $30 per day per person.
But wealth is very unequally distributed, as the Bank already knew
decades ago, and to fight against relative poverty does require major
changes in societies.
Gordon Fisher, a leading statistical expert from the US Department
of Health, has analysed the evolution of the poverty lines in a dozen
countries and his conclusion is that they all moved historically in
proportion to income.
In 1938, Carroll Daugherty explained that "a standard budget
worked out in the [1890's], for example, would have no place for electric
appliances, automobiles, spinach, radios, and many other things which
found a place on the 1938 comfort model. The budget of 1950 will undoubtedly
make the present one look as antiquated as the hobble skirt."
Paradoxically, the advocates of globalization celebrate the speed
of technological change it brings, on the one hand, and on the other
insist to count as "not poor any more" those who exceed
a fixed line of minimum consumption, which is less and less in relation
to total consumption.
Fisher observes that "before about 1965, the people who developed
(and studied) poverty lines were largely advocates of the disadvantaged
rather than theoretical social scientists; they included social workers,
employees of state bureaus of labor statistics, labor union representatives,
home economists, and employees of federal social agencies, with economists
being only one of a number of elements in the mix. However, that situation
changed with the beginning of the War on Poverty in 1964. Poverty
studies became a distinct field as such, and economists began to get
involved in poverty line studies in large numbers. People who had
been involved in poverty line studies during the earlier period gradually
retired and/or died. As the earlier groups were gradually replaced
by economists, it appears that the history and traditions of the earlier
groups tended not to be transmitted to the newcomers. As a result,
much of the knowledge about the income elasticity of the poverty line
was lost to those who are now studying poverty lines."
Thus, the well sounding goal of "poverty eradication in a generation"
is only forecasting that by 2030 there will be less than 10% of the
global population living under an income that 60 years before (in
the 1970s) would have been a bare minimum.
Meanwhile, Christine Lagarde, managing director of the International
Monetary Fund, the sister institution to the World Bank, seems to
align herself with the relativists in this debate, and she announced
last May 15, during a major speech on poverty eradication, that the
top 0.5% of the population now holds 35% of the wealth of the world.
And inequalities are still rising.
(* Roberto Bissio is the Executive Director of the Third World Institute
based in Uruguay and coordinator of Social Watch. He contributed this
comment to the SUNS.) +