Asia Isn’t as Rich as it Thinks it is

Asia generally has made huge advances in the fight against poverty, illiteracy and ill-health. But the advances have not been as large as imagined, according to a just published report from the Asian Development Bank.

The bank concludes that the income definition of poverty needs significant upward adjustment, and must take into account factors other than income alone which are keeping hundreds of millions at a very low level of existence.

The implication from the data is the (unsurprising) fact that income inequality has worsened in a way which makes the lower-income groups more vulnerable by raising prices of food and essentials faster than incomes.

The most fundamental assertion in the paper, published as part of “Key Indicators for Asian and the Pacific 2014,” is that the conventional US$1.25 a day cutoff for defining extreme poverty is now inadequate, at least for most Asian countries. It suggests that the base should be raised to US$1.50. It notes that several countries including India had raised their own poverty levels to above US$1.25.

Applying this new income level has a dramatic impact on the numbers of poor as a percentage for Asia as a whole, from 20 percent to 35 percent, bringing another 343 million into the very poor bracket. The impact is especially marked for India, who poverty rate rises by 15 percent and Indonesia by 9.9 percent. That for China is less – 4.9 percentage points.

This tells us that the claims of success in lifting hundreds of millions out of extreme poverty would not be recognized by many who are supposed to have benefited as apparent income gains have not translated into better food or living conditions. The new calculations take account of changes in consumption patterns including the likes of mobile phones, a work necessity for many of the poorest, and relative price changes.

In particular it notes that in most countries food prices, the major ingredient in lower income household expenditure, have risen faster than overall prices.

Indeed, success in improving incomes further up the income scale sometimes has the effect of creating additional demand and raising food prices, for example as grains are used to produce animal protein. The most vulnerable are rural landless laborers and unskilled workers in the informal urban sector.

The food security issue adds another 140 million to the ADB’s calculation of numbers in extreme poverty, numbers in China and Indonesia rising by especially large amounts while in India the impact was relatively small due to government subsidies. For the future the ADB suggests pegging the extreme poverty rate more closely to food prices. If this were done now, an additional 40 million would be ranked extremely poor.

Another issue to which paper draws attention is the particular vulnerability of the lowest income groups to natural disasters – floods, typhoons, earthquakes, etc. It says the frequency and severity of these has been increasing as east, south and southeast Asia have seven of the world’s top 10 countries for vulnerability to natural calamities. The poorest are usually the worst housed and have the least savings so the impact is greater and the recovery time longer. Those at risk add another 417 million to those considered extremely poor.

Adding all these factors together, the number of extreme poor rises from 773 million to 1.02 billion. Of course many of these are potential rather than current sufferers from extreme poverty but the data does underline how income gains which look impressive at the macro level often hide static or worsening situations at the bottom of the income scale.

The “Key Indicators” looks too at other aspects of progress and problems in Asian development. It notes that the Millennium Development Goal (MDG) of 95 percent enrolment in primary education has been met by most countries but Pakistan was a notable laggard in correcting gender bias against girls. It also noted that the Philippines and Sri Lanka, once in the van of mass literacy, have shown declines in primary enrollment rates. Goals for completion of primary education were not being met in many countries, and India as well as Bangladesh and Pakistan had low levels of women in non-farm employment.

Most countries were showing marked improvement in many health indicators, such as maternal and child mortality, malaria and HIV prevention, and access to safe drinking water. However, CO2 emissions continued to rise rapidly everywhere – as too – though this in not in the report – are diseases such as diabetes arising from higher incomes.

The weaknesses in primary education and employment for urban women appear to be key problems in reducing extreme poverty, especially in south Asia where the problem is most severe.

Generally, the ADB report shows Asia overall to be continuing to make good progress both absolutely and relative to other regions. But it also pinpoints how marginal improvements have been so many. Hopefully a change in the calculation of extreme poverty will prompt policy makers to pay more attention to the 1 billion out of 3.6 billion who are at the bottom of the Asia income scale in developing Asia (excluding West Asia).