A FEW days ago, the World Bank released the latest edition of Malaysia’s Economic Monitor (MEM). Entitled “Towards a Middle Class Society”, the report expounded the idea that to become a high-income country, the bulk of our society must be middle class.
The report, as always, provided policy recommendations on how to achieve this aspired state. From strengthening the social safety net to improving educational attainment and access, all recommendations point to a common cause — to reduce inequality and eliminate poverty.
Inequality and poverty, indeed, are the flavours of the day. Apart from the MEM, other recent publications drawing on the same theme include the National Human Development Report (NHDRM) for Malaysia, which, after a long delay, was finally published last month, and Colours of Inequality by Dr Muhammed Abdul Khalid.
There is a general consensus that in measuring poverty, relative is favourable to absolute. In simpler terms, it is better to benchmark the population against the guy earning exactly at the middle than to measure how many people earning below a certain level of income, because the former captures the impact of inequality while the latter doesn’t. NHDRM uses the term relative deprivation, while the World Bank introduces a new income group: the aspirational group, which essentially are the people who are close to being middle income, but are not quite there.
Whatever name is used, median income is still the common yardstick. While the topic is highly relevant, one cannot ignore the following recurring criticisms against either method.
First, what is the right level of income below which one is considered poor? According to NHDRM, 11.5 per cent of households are poor, if the threshold is 0.4 times the median (or RM1,132). Obviously, the number rises with a higher threshold. The figure is 19.3 per cent for 0.5 times the median (RM1,415) and 26.4 per cent for 0.6 times the median (RM1,680). If absolute poverty rate is used, only 3.8 per cent live below the poverty line. The same logic applies; as we revise the poverty line upwards, the figure grows.
In other words, the poverty rate is a result of subjective judgment and the choice of minimum income. Whether we use 0.4, 0.5 or 0.6 times the median, they are all reflections of the consultants’ or policymakers’ appetite to poverty and inequality.
Second, does one size fit all? How do we balance the need for a representative figure to aid policymaking with the need for a sufficient capture of regional variations without getting lost in messy figures?
Could these questions arise too often because of both metrics’ materialistic nature? Whether we use the income or the consumption approach, should we allow ourselves to be continuously enslaved to the materialistic notion of wellbeing?
While the reports draw on the works of Amartya Sen — a Nobel Prize laureate and welfare economist — have they done him justice and fully understood the essence of his work?
If inequality and poverty are about social justice, then the definition of deprivation should be revisited. It is less about ownership of material objects and more about rights and access to services that facilitate social mobility.
For example, prosperity should not be measured by ownership of a car and an air-conditioner, but by access to a mode of transport — public or private, and protection from extreme weather. Other measures of prosperity include the ability to set aside one's income for savings (which has recently become a point of contention between two prominent personalities), access to quality basic services — education, healthcare and credit — and adequate access to opportunities to escape from poverty and to legal and civil representation.
There are benefits in using these metrics instead. The “real” poverty line is spatial-specific, but the rights are universal. They solve the regional variation problem and account for personal choice.
Some of these metrics are included in the Multidimensional Poverty Index, which was mentioned but not fully explored in NHDRM. The Malaysia Wellness Index, which replaced the Malaysia Quality of Life Index since last year, also captures some of these indicators. But more needs to be done.
Apart from refining the indicators in the Wellness Index, we need to stop associating unsustainable practices with prosperity. We cannot continue adopting a Third World notion of prosperity when our aspiration is to become a developed country.
Ownership of cars and air-conditioners, using these examples again, not only ignores personal choice; they are also environmentally damaging.
Fortunately, most of MEM’s policy recommendations — boosting opportunities for social mobility and enhancing our social protection system — have not been invalidated, despite the criticisms. But the implicit recommendations from the indicators certainly require some fine-tuning.
As Sen has argued, policymaking must shift from the emphasis on actual state to opportunity and from goods to functionings. The first step is to re-evaluate our definition of poverty, lest we implement the wrong policies.