ONE of the most daunting tasks that policymakers have to grapple with in dealing with the rise of new technologies is how to manage its negative externalities or unintended consequences to ensure that the benefits are distributed fairly.
Those who are unable to keep up with the challenges risk being left out in the cold, and without doubt would face the wrath of the market. Without a steady income, individuals and families can easily fall into the poverty trap.
Economists, multi-lateral institutions — such as the World Bank — and policymakers have been using poverty line income (PLI)
to estimate the number of poor households at a point in time. If the household income falls below a certain level, then they are further classified as either living in abject poverty or relative poverty.
Individuals or families living on less than US$1.90 a day are considered as living in extreme poverty by global standards. While the World Bank regularly revisits its definition of poverty, the current estimates of poor households rely primarily on the basic requirements of living.
That basket of goods and services may be too basic and quite inconsistent with the pattern of consumption by the whole population, including the poor. Applying the conditions of decent standards of living while adjusting PLI to the price level and inflation may not produce accurate estimates of a living means.
This is primarily due to the fact that the current set up of liberal capitalism has a consequence of deepening inequality. The answer to the current malaise in a capitalistic society is not to continue with revising the PIL upwards, but to move towards a more equitable sharing of wealth.
As we know, social development is a dynamic matter and not a static one. Any measure of development or progress has to be appropriate to the conditions of the time. Thus, the defined minimum standards of living that a society has to achieve must be reconfigured. This would require broadening PLI beyond the current standards.
Taking the discussion even further, even though World Bank has suggested that the international poverty line (IPL) should be higher — US$3.20 and US$5.50 per day — the discourse on poverty is still stuck on measures to eliminate poverty, but not on ensuring that individuals and families are able to live as dignified human beings.
This calls for states to embrace the World Bank’s shared prosperity initiative. The World Bank defines shared prosperity as the growth in the average consumption or income of the poorest 40 per cent of the population (the Bottom 40).
Introduced as one of two twin goals by the World Bank in 2013 along with ending extreme poverty, fostering shared prosperity embodies notions of economic growth and equity. Put in another way, shared prosperity is meaningful as a gauge of how well prosperity is shared within each country.
Thus, even in higher-income economies where extreme poverty rates are low, the shared prosperity goal is still highly relevant. To make the World Bank’s shared prosperity initiative more meaningful, we are proposing that a new indicator of living standards that aims to measure wealth way beyond the current PLI.
A living means index should aspire to measure a different kind of equality; instead of focusing on redistributing income, this index would seek greater equality in assets, both financial and in terms of skills. Unlike PLI, it would require the inclusion of multidimensional variables that go beyond monetary wealth.
Thus, a living means index has to capture important aspects of wellbeing, such as access to quality healthcare or a secure community. It is therefore important to acknowledge that the monetary wealth measure alone is not able to gauge wellbeing, and what is really needed is a paradigm shift on how we tackle the issue of inequality.
For starters, a living means index should move beyond the minimum basic needs. In order for a human being to enjoy a dignified life, aside from monetary wealth, access to formal education is of utmost importance, while access to basic infrastructure — such as to clean water, electricity and the Internet — is crucial.
In addition, health is widely considered to be a core dimension of wellbeing, and household security, whereby the population is free from the fear of violence and crime, have to be included in the living means index. Any measure of wellbeing has to be multi-dimensional and contain sufficient information to assess household wellbeing.
Moving forward, a reconceptualisation of how we measure poverty is urgently needed. What is more, the world has to move away from measuring wellbeing by focusing solely on monetary terms to conceptualising wellbeing from a multidimensional perspective.
The writer is associate professor and director, Centre for Policy Research and International Studies, Universiti Sains Malaysia
The views expressed in this article are the author’s own and do not necessarily reflect those of the New Straits Times