Chapter 26 Review Questions Answer Key

Measuring and Evaluating Poverty

The “capability approach” was developed by Indian economist and philosopher Amartya Sen. He first articulated his ideas about the concept of capability during a lecture in 1979 and elaborated them further in the 1980s and 1990s. Sen’s influence on thinking about development and poverty reduction was so groundbreaking that he was awarded the Nobel Prize in Economics in 1998. The capability approach continues to inform conceptual and methodological innovations in poverty measurement. [p. 469]

Monetary poverty remains the most prominent approach in measuring poverty and is based on a number of assumptions about how monetary resources can be translated into fulfillment of basic needs. What makes the monetary approach so appealing is its intuitive nature and that the use of money as the main indicator makes for a very versatile measure that can provide information about the number of people living in poverty but also about how poor they are and where they are. [p. 470]

A simplified and more intuitive version of PPP exchange rates is the “Big Mac Index.” The Big Mac Index was invented by The Economist in 1986 as a light-hearted and simplified version of the PPP principle, calculating the price of a highly standardized product—the Big Mac—in US dollars using market exchange rates. The Big Mac PPP exchange rate between two countries is obtained by dividing the price of a Big Mac in one country (in its currency) by the price of a Big Mac in another country (in its currency). This value is then compared with the actual exchange rate; if it is lower, then the first currency is under-valued (according to PPP theory) compared with the second, and conversely, if it is higher, then the first currency is over-valued. [p. 474]

While the capability approach was mostly developed in the 1980s and 1990s, Amartya Sen’s Development as Freedom (1999) provides helpful insight into the meaning of the approach. He specifically sets the capability approach apart from the monetary approach by stating that the “capability approach” addresses poverty as “the deprivation of basic capabilities rather than merely as lowness of incomes.” The space it operates in is “that of the substantive freedoms—the capabilities—to choose a life that one has reason to value” (Sen 1999, 74). Capabilities thus refer to being able to do or be according to someone’s values, thereby taking into account a complex combination of an individual’s set of valued choices and degree of freedom and agency to act upon such choices. Sen writes that “[c]apability is thus a kind of freedom: the substantive freedom to achieve . . . various lifestyles. For example, an affluent person who fasts may have the same functioning achievement in terms of eating . . . as a destitute person who is forced to starve, but the first person does have a different ‘capability set’ than the second (the first can choose to eat well and be well nourished in a way the second cannot” (Sen 1999, 75). Given the focus on individual values and freedom to live up to such values, Sen has always been opposed to formulating a universal set of capabilities. Other scholars operationalizing the capability approach, most notably Martha Nussbaum, advocate a more prescriptive approach that includes the establishment of context-specific lists of basic capabilities. [p. 476]

Conceptual and normative dissonance between monetary and multi-dimensional poverty approaches is increasingly corroborated by empirical findings. The evidence base regarding incongruent outcomes when using different measures is rapidly expanding. Studies investigating the mismatch of poverty outcomes often explore two elements, namely, the extent to which measures report different headcount rates and to what extent they identify different groups as being poor or deprived. Findings from existing studies largely suggest that the use of monetary and multi-dimensional measures results in different pictures of poverty, pointing towards a modest, even limited, overlap of results. Evidence originates from high-income countries and low- and middle-income country settings and indicates that monetary and multi-dimensional poverty measures do in fact lead to different headcount rates and that these different approaches identify different groups as being poor. Such differences are exemplified even further when asking people about their own experiences of living in poverty. [p. 479]

The first comprehensive poverty studies were undertaken in England around the turn of the 20th century. Charles Booth mapped living conditions in London by investigating various areas of people’s lives, including work and working conditions, housing conditions, urban environment, and religious life. Benjamin Rowntree conducted a similar study in York a few years later to highlight that urban poverty was not a phenomenon exclusive to the metropolis of London. He focused on whether city dwellers were able to acquire basic necessities such as food, fuel, and clothing and calculated a minimum weekly sum of money necessary to enable families to secure the necessities of a healthy life, thereby becoming one of the founding fathers of what remains the dominant approach in poverty measurement. [p. 468]

Studies focusing on people’s living conditions and comparing them to a threshold of basic necessities were replicated in many different areas and countries in the first half of the 20th century. As living conditions in Europe and other Western countries improved, notions of the meaning of poverty shifted toward thinking about poverty as the inability to live lives that are considered the norm or appropriate in that time and place rather than the inability to secure a minimum level of basic needs. This led to a shift in thinking from absolute poverty to relative poverty. One of the first scholars to consider this concept was Peter Townsend, who said that poverty was about: “The absence or inadequacy of those diets, amenities, standards, services and activities which are common or customary in society” (Townsend 1979). In other words, poverty was no longer about being able to meet a basic minimum level of living standards but about being able to live and do as others in society. [p. 468]

In 2010, the UNDP extended its set of indicators by including the Multidimensional Poverty Index (MPI) in its annual Human Development Report (HDR). The MPI was developed by the Oxford Poverty and Human Development Initiative (OPHI) and is distinct from the HDI because it captures information at the household level rather than the national level. This means that one can analyze the extent to which households suffer multiple deprivations at the same time. The MPI includes information on the same three domains included in the HDI—education, health, and living standards. The range of indicators within domains is more extensive, however, with two indicators in the education domain, two indicators in the health domain, and six indicators in the living standards domain. There is a threshold for each indicator determining whether a household is deprived with respect to that indicator or not. If a household is deprived in more than 33.3 per cent of the weighted dimensions, it is considered poor. The MPI poverty rate simply reflects the proportion of people living in households that do not meet this threshold. The measure has been found to be rigorous, easy to disaggregate by domain and demographic group and useful for policy, and adaptable to different contexts. [pp. 477-8]

The issue of poverty measurement and the “right” approach to measurement remains the subject of extensive academic research and policy debate. Although somewhat crude, the division between monetary and multi-dimensional approaches to poverty measurement is widely maintained, largely informed by normative, conceptual, and empirical underpinnings. Monetary approaches focus on the availability of monetary resources as the main indicator of living standards, while multi-dimensional approaches take into account a broader spectrum of living conditions. Monetary poverty measurement is therefore also referred to as an indirect approach to poverty measurement because it considers the means to an end rather than the end itself; by contrast, multi-dimensional poverty measurement is deemed a direct approach because it focuses on outcomes. [p. 469]

Qualitative and participatory studies of poverty that engage more directly with people living in poverty have become increasingly commonplace. They serve as important complements to quantitative studies that focus on putting the issue of poverty into numbers by providing a more “human face” to such numbers as well as serve an important purpose in their own right by offering understandings of the lived experiences of poverty. For example, a multi-country study that asked people across the globe—including the UK, China, Pakistan, and Uganda—about the day-to-day reality of living in poverty highlighted the pervasiveness of shame and stigma in their lives. Poverty assessments premised on participatory approaches can also be categorized within the school of subjective poverty measures, which distinguishes itself from objective measures by asking people about their own perceptions of their state of poverty as opposed to relying on more objective and observable indicators. [pp. 481-2]