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Poverty is about more than a lack of money

November 29, 2010
When is the person with more money poorer than the person with less money? This is not an ancient Greek riddle or the beginning of an African folk tale. It is a question the United Nations Development Programme has tried to answer in this year’s Human Development Report.

The report answers the question by using a new index that Canada helped to create, the Multidimensional Poverty Index. This new tool for understanding what being poor really means gathers data on 10 indicators, ranging from child mortality and nutrition levels, to years of schooling, access to electricity, clean water and proper flooring. The 10 factors are combined, and the resulting score for each country is compared to the standard monetary measure of poverty, life on less than $1.25 a day.

The differences between the new and the standard monetary measure are revealing. In many cases, those differences show that there are indeed countries where people who have some cash in their pockets are actually poorer than people in other countries who have less money. China and India, the giants of the developing world, can help us to understand why.

In India, despite strong social cohesion and a tradition of some publicly funded services, the poverty rate based solely on how much money people have is actually less than the multidimensional rate. And the difference is not trivial: India’s poor population grows by 135 million people when you count it the multidimensional way.

By contrast, in China, a strong state has ensured rising incomes and social services to the masses. That means that monetary poverty and poverty measured using the multidimensional criteria are about the same in China (though the difference still amounts to about 50 million people.)

At the extremes, perhaps as a lingering Communist-era legacy, the central Asian country, Uzbekistan, contains very many income-poor people who, nonetheless, are at least decently literate and healthy. In Ethiopia and Mali, on the other hand, the poor may have more cash in hand, but that money does not buy them very much in the way of access to health and education.

Why are such distinctions important? Precisely because different approaches produce different results. The Multidimensional Poverty Index results tell us which countries are better than others in getting clean water and good schooling to their citizens. In a significant number of countries even money in hand does not translate into better access to such services.

Breaking down the new index into its components also reveals the concrete sources of poverty. In India, the poor tend to have relatively higher levels of education than they do good health. In China, it is the lack of education that dominates this measure. Such information should lead to better policies. And so this new index helps us to understand that confronting the challenge of poverty lies in creative thinking and different ways of doing things rather than just throwing more money at it.

When introduced 20 years ago, the United Nations Development Programme’s by now famous Human Development Index was considered revolutionary. The Human Development Index added life expectancy and literacy to the income measure, and the result has been that countries with lower per capita income are often ranked much higher than others with higher incomes.

This year, for example, Singapore, which has one of the world’s highest per capita incomes — $48,893 — is ranked 27th, while New Zealand — with a per capita income of only $25,438 — is ranked third. (Canada’s per capita income is $38,668 and we’re ranked eighth.) Historically, a relatively poor country such as Cuba would place well above its per capita income ranking, because of its impressive schooling and health systems.

Leading up to this year’s report, Canada financed underlying work at Oxford University and in partner institutions throughout the developing world. This new measure is meant to supplement the Human Development Index by drilling further down into the real life facts of poverty, as experienced by billions of people.

Ultimately, no single index can provide a complete guide to well-being across countries. In this respect, the authors of this year’s Human Development Report are spot on in suggesting that what is needed is not a single “meter reading” but a human development “dashboard.” Future work should address innovation strategies (or, more broadly, future productive capacity); environmental degradation; and — perhaps foremost — the role that freedom and democracy play in determining the quality of life.

It is only through the careful background work that the Human Development Report so capably summarizes each year that we will all be better informed about how we as a global community are doing, and how we might do even better in future.

A version of this op-ed first appeared in The Globe and Mail on November 5, 2010.

Rohinton Medhora is the Vice President, Programs, of the International Development Research Centre (IDRC).