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ACADEMIC TOPIC OVERVIEWS
Absolute & Relative Poverty
Global Stratifcation > Absolute & Relative Poverty
Abstract
On a global scale, poverty is measured two ways: in absolute and
relative terms. The focus of absolute poverty is the individual;
the World Bank defnes absolute poverty as having access to no
more than one dollar a day of purchasing parity power. Rela-
tive poverty measures the individual against a larger group; how
much of a gap is there between those at the very bottom of the
economic ladder and the rest of the cohort? Central to under-
standing the issue of poverty is a consideration of the solutions.
The World Bank is the institution with the most responsibility for
addressing global issues of poverty. Their economic philosophy
has long been dominated by neoliberal thinkers who advocate
for good government, based on Western style democracy, open
markets and structural adjustments to the economy. As global-
ization has come to dominate the world economy, its effects on
poverty are the subject of heated debate.
Overview
Poverty seems like a fairly simple, commonly understood con-
cept, but in reality, it is not. When trying to understand the
problems faced by those attempting to change the dynamics of
poverty, there are three interrelated terms to consider: absolute
poverty, relative poverty, and the poverty threshold. Absolute
poverty is measured in individual terms; the primary focus is
on those who cannot afford to meet the most basic needs of
human existence. Relative poverty measures how people on the
lowest rungs of the income ladder compare to the remainder of
the population. The poverty threshold is a measurement of how
much income is required in a given locale to meet the basics of a
minimal standard of living. Adding to the complexity is the fact
that not everyone agrees on which measure should be used when
addressing the problems of poverty.
Two very different world views on the nature and cause of pov-
erty are in confict. Proponents of the absolute poverty model
understand that "humans are individual beings by nature, that
human individuality gives rise to organizing economic affairs on
the principle of competition, which rests on the social value of
individual freedom, and that holding that premise lead[s] them
instinctively to embrace [the absolute] standard" (Unwin, 2007,
p. 938). Those who emphasize the need to eliminate relative
poverty instead see that "humans are social beings by nature,
that human sociality gives rise to organizing economic affairs on
the principles of cooperation which rests on the social value of
teamwork or solidarity" (p. 938). Unwin suggests that people are
both: individuals and social creatures. Thus, it is impossible to
tackle poverty from just one or the other perspective.
Ravallion (2003) posits that the choice of focus between abso-
lute or relative poverty as the unit of measurement is critical in
forming a perception about the merits of globalization. Those
who support a globalized economy tend to stress a reduction in
absolute poverty while opponents look more to trends in rela-
Abstract
Overview
Origins of the World Bank
Further Insights
Eliminating Absolute Poverty
Neoliberal Policies
The Impact of Disease
Defning Absolute Poverty
Defning Relative Poverty
Inequality
Viewpoints
Has Globalization Increased Poverty?
Conclusion
Terms & Concepts
Bibliography
Suggested Reading
Table of Contents
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Absolute & Relative Poverty
tive poverty. If the poverty threshold is measured in proportion
to mean income, it becomes a measure of inequality, and thus
can show rising poverty levels even as the standard of living
increases. Ravallion's position is that individual welfare can't
be measured only by one's relative position and not at all one's
income (2003). One additional factor that can help to form the
perception of observers can be garnered by watching the reaction
of once isolated people who now must deal with global forces
to survive. Friedman argues that globalization can create a reac-
tionary response from villagers, "rooted in the 'ancient forces of
culture, geography, tradition and community' that fear the loss of
identity" (in Merrett, 2001, p. 69).
Origins of the World Bank
The twin economic disasters of the Great Depression of the
1930's followed by World War II (1939 - 1945) led the economic
powers of the day to meet at Bretton Woods, NH to create an
institution that might help to stabilize the world's economy, and
play a role in mitigating poverty. Out of that meeting emerged
the World Bank in December of 1945. The philosophical under-
pinnings of the World Bank have often fowed from Washington,
D.C.: "A core assumption is that good governance, in the form
of 'Western'-style liberal democracy, is essential if countries are
to become economically successful" (Unwin, 2007, p. 933).
Understanding neoliberal economics is critical to grasping the
philosophy that has driven development for decades, and though
in retreat during the 1990's, still holds sway in the World Bank.
If the goal is good government, the critical function of the newly
improved government is to get out of the way of the markets,
allowing them to get the price right. This is the central tenet
of the "Washington Consensus" which grew out of the founding
ideals of the World Bank (Oniz & Senses, 2005, p. 264). Inherent
in a policy of a reduced role for the state is "the privatization of
public enterprises and services, and government spending cuts
to social services such as health care, education, social security
and public housing" (Hale, 2007, pg. 149). These are referred to
as Structural Adjustment Policies (SAPs); neoliberal economists
see them as a necessary precursor to growth.
Further Insights
Eliminating Absolute Poverty
Jeffrey Sachs' work The End of Poverty focuses on how absolute
poverty can be eliminated. Unwin strongly disagrees with his
central premise, arguing that focusing on absolute poverty leads
development programs to miss the more essential work on rela-
tive poverty. The U.N. Millennium Development Goals (MDG),
agreed to in 2006 by leading members of the body, set targets
for 2015 for dramatic declines in poverty "through interventions
in education, health, gender inequality, environmental sustain-
ability, and the creation of a new global partnership in which the
private sector will have a particularly prominent role" (Unwin,
2007, p. 930). At the core is a belief that economic growth is the
only path out of poverty; this is an understanding, according to
Unwin, based in the need to eliminate absolute poverty, rather
than reducing relative poverty.
Neoliberal Policies
Unwin's concern with economic growth is that most propo-
nents are wedded to a neoliberal economic outlook, with an
emphasis on the need for "macro-economic discipline, a market
economy and an openness to the world" (2007, p. 930). Neo-
liberalism emerged in the 1970's, emphasizing the "primacy
of individualism, market liberalism, outward-orientation, and
state contraction" (Oniz & Senses, 2005, p. 263). Sachs played
a signifcant role in the development of the goals set by the UN
Millennium Project, serving as the head of the project. His mes-
sage resonates with the economic elite of wealthy nations, for he
argues that we can eliminate poverty without causing ourselves
any great economic distress; indeed, we can do it while barely
noticing the process unwind (Unwin, 2007).
Hale suggests that we must also be cognizant of another driver of
the divide between the rich and poor; neoliberal SAPs have had
a far more severe impact on women. The World Bank stipulates
that "'targeting women can be an effective strategy for reducing
poverty. Where gender differences are wide, targeting, for exam-
ple, the availability of stipends so girls can attend school, may be
needed to capture social gains and increase internal effciency'"
(Hale, 2007, p. 150). Tsikata and Kerrargue insist that the World
Bank does "not accept that the economic policy framework is, in
many instances, reinforcing existing inequalities" (cited in Hale,
2007, p. 149) that disadvantage women.
Petras and Veltmeyer (2007) use Latin America as a test case
for neoliberal economic policies. These policies have dominated
much of Latin America for the last two decades; two very distinct
societies have resulted. In many Latin American cities, 15 - 20%
of the population has a high end, developed-world lifestyle,
complete with servants, private schools and clubs, gated commu-
nities and many opportunities for travel. Petras and Veltmeyer
argue that this group is the sole benefciary of the neoliberal
agenda. The rest of the population faces cuts in social spending
and food subsidies, often pushing rural farmers off of their land
and into dangerous living conditions in the cities. Frequently,
services that protect public health, such as water and sewer treat-
ment also face cuts, or in many cases, privatization (2007).
Although Oniz & Senses (2005) tend to oppose the neoliberal
prescription, they concede that it can work to alleviate pov-
erty, pointing to South Korea and Taiwan as key examples.
Within a non-protectionist, low statism model, both countries
achieved employment expansion and poverty reduction. Post-
Apartheid South Africa provides different view: a 2000 Poverty
and Inequality Report found that two distinct countries co-exist
within one. In the black South Africa, the Human Development
Index (HDI) is comparable to Swaziland, while white South
Africa's fts in-between Israel and Italy. Clearly, the poverty
threshold will be complicated to generate in a country with such
divergent standards of living (Adato, Carter & May, 2006). Fur-
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Absolute & Relative Poverty
ther, it is obvious that the issue of alleviating poverty must still
be addressed in South Africa, along with every other country in
Africa.
Sachs lists eight critical causal agents of poverty; while his
focus is Africa, their application is more universal. Poverty
itself is the frst; without income for investment, the economy
stagnates. Physical geography can be a trap; because of the
geography, some countries need to make extra infrastructure
investments, but lack the resources to do this. Governments do
not always provide the preconditions for investment, the most
essential being peace and security. Cultural barriers interfere
with economic development; a critical issue here is women's
rights. Trade barriers can restrict development. Innovation is
often missing, especially in inland areas. Finally, very poor
countries are apt to have some of the highest fertility rates in
the world (Unwin, 2007).
Adding to this more general list are factors more pertinent to
Africa. Specifcally, malaria, population density in the conti-
nent's interior, reliance on agriculture that is sustained through
rain rather than irrigation, and soil that is badly depleted all
complicate the situation. These factors are intractable enough
that "good governance and economic reform are insuffcient by
themselves to enable growth in Africa" (Unwin, 2007, p. 933).
Although Sachs often argues for policies that neoliberals support,
he is adamant that there is not a causal link between democracy
and economic growth.
The Impact of Disease
Farmer's central argument is that we have the economic and sci-
entifc resources to address many of the most common killers
- AIDS, malaria, tuberculosis - yet "' the reach of science and of
globalization has stopped short of bringing reasonable oppor-
tunity for survival within the grasp of the [most deprived]'"
(cited in Ryan, 2008, p. 149). Farmer suggests that any analysis
of needless death from illness be considered acts of 'structural
violence'. He uses the term broadly, including an understanding
of both absolute and relative poverty. Structural violence is a
matter of ""power and connections' that can take the form of
a 'lack of access to lifesaving medical resources'' (Ryan, 2008,
p. 150).
Defning Absolute Poverty
The defnition of absolute poverty is less than concrete. The
World Bank uses a formula based on access to income of no
more than $1.25 per day, measured at 'purchasing power parity'.
Unwin takes issue with this concept since he sees a bias in the
measure of parity in purchasing power as an indication that the
US economy should be a model for the wider economy if we
hope to eliminate extreme poverty. There seems to be wide-
spread agreement that absolute poverty is decreasing; it is the
rate of decrease that is contentious. Bhalla argues that rates of
absolute poverty decreased so rapidly in the 1990s that the MDG
of halving the 1990 'dollar per day' by 2015 was reached by
2000. The World Bank's estimates are less sanguine; they see
the goal being reached by 2015 only if the rate of progress since
1990 is maintained (Ravallion, 2003).
The $1.25 a day goal itself is open for debate, with some seeing it
as a measure of absolute poverty as one that is absurdly low, set
to ensure that the number of poor will be artifcially depressed;
others, of course, argue the opposite (Ravallion, 2003). Petras
and Veltmeyer (2007) suggest a disingenuous way that the goal
of absolute poverty reduction is being achieved: through migrant
remittances. They point out that although the absolute wealth of
the family is increased, there is no way to measure the social
cost of having a family member living in a foreign land for long
periods of time.
Petras and Veltmeyer add another dimension to the debate;
they reject the validity of using the $1.25 per day measurement
as one that ignores social and historical context, and doesn't
grapple with the very complex problem of measuring "living
standards and poverty across societies with very different modes
of production, types of societies and cultures - and radically dif-
ferent social defnitions of basic needs and desirable conditions"
(2007, p. 182). They go on to forcefully argue that the World
Bank's focus on income (as diffcult as that is to measure) is
far too narrow when defning poverty. Instead, researchers must
consider:
conditions that change over time, place and context such as
seasonality and precarious employment practices; changes in the
power of employers to fre and hire workers; the leverage of real
estate speculators to displace and relocate the urban poor from
their slums; the increase of livelihood-destroying cheap imports
under reforms dictated by the new world economic order of capi-
talist development (Petras & Veltmeyer, 2003, p. 183).
Defning Relative Poverty
There is a growing body of literature that rejects the validity of
absolute poverty as a measurement all together, arguing instead
that poverty is a relative notion (Unwin, 2007). The greatest
poverty is found where there is the greatest difference in wealth
levels. In richer countries, the poverty threshold is higher. There
is also a key debate over how the poor perceive their own depri-
vation. Economists have long argued that people care only about
what they, themselves can consume; however, a growing body of
research demonstrates that relative deprivation is also critical to
one's sense of wellbeing (Ravallion, 2003). When the population
of a country is truly poor, "absolute consumption needs" are dom-
inant (Ravallion, 2003, p. 745). As overall income increases, so
does the standard of what is the minimum needed, so the poverty
threshold increases as mean consumption goes up. Thus, Raval-
lion argues for a poverty threshold that is relative, rising with
mean income, and shows an "empirical relationship between
actual poverty lines and mean consumption across countries"
(Ravallion, 2003, p. 745). Petras and Veltmeyer argue that using
income alone is hardly adequate for measuring improvements in
the standard of living. They cite Cuba as an example of a country
with low income, but a relatively high standard of living; even
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Absolute & Relative Poverty
the World Bank agrees that Cuba is outside of normal develop-
ment standards (2007).
Inequality
Another dimension of the debate is the issue of relative and abso-
lute inequality. Substantial research documents that open trade
seems to increase incomes across the board at a relative level.
For example, if one person made $1,000 and another $10,000,
their new income levels, after a period of openness, might be
$2,000 and $20,000. Relatively speaking, they are in the exact
same place; advocates of globalization can take heart in the
increase in absolute income. On the other hand, originally, there
was a $9,000 wealth gap; through globalization, relative inequal-
ity has greatly increased, with the new wealth gap at $18,000.
Opponents can accurately claim that the gap is growing. Clearly,
the wealthier person gained substantially more from globaliza-
tion (Ravallion, 2003).
Viewpoints
Has Globalization Increased Poverty?
There is a widespread perception that globalization of the
economy has led to an increase in poverty, in both absolute and
relative terms. Supporters of open trade argue the opposite, and
both struggle to fnd neutral data to support their positions. The
World Bank claims that in 1990, the number of people living
in absolute poverty made a very modest decline (Ravallion,
2003). There is similar disagreement about the rates of relative
poverty. Ravallion argues that this is due to methods and mea-
surements that are not standardized, making any conclusions
less than concrete. He suggests that a necessary frst step is to
agree on a defnition of poverty and inequality. He writes that
poverty is "about absolute levels of living - how many people
cannot attain certain predetermined needs." Inequality is
about "disparities in levels of living - how much more is held
by rich people than by poor people" (Ravallion, 2003, p. 740).
He also argues that confusion over the differences between
absolute and relative poverty play a key role in clouding per-
ceptions.
One further factor that is part of the debate over globalization
is the question of measuring the amount of inequality within or
between countries. Because the between-country measurement
is weighted for population, the fact that India and China are both
growing in population and in wealth has meant that this indica-
tor shows a beneft to globalization. It was during a conversation
with a CEO in India that Friedman coined his famous book title:
"The World is Flat." The CEO had pointed out to him that "the
playing feld is being leveled," meaning that people from all over
the world can compete in the information based economy that is
the result of globalism (Abowitz, 2007, p. 472). Yet there is also
evidence of rising inequality within countries, including China
and India. Overall, while it is impossible to establish a trend in
relative inequality, absolute inequality is "almost certainly rising
all over" (Ravallion, 2003, pg. 743).
Tightly connected to the debate over the linkage between wealthy
and poor nations is a broader question about the possibility of
addressing the issue of relative poverty without signifcant asset
reallocation. Oniz and Senses (2005) posit that growth alone can
never provide signifcant poverty alleviation without also con-
sidering ownership structures. They see the need to challenge
the "structures of power at the global level" if the World Bank
is ever to become an institution capable of fulflling its mission
(Oniz & Senses, 2005, p. 265). Donor countries, most especially
the United States, also garner a large share of the blame in Sachs'
analysis of the persistence of world poverty. Aid packages fall
short in magnitude, timing, and predictability (Unwin, 2007).
He is even more forceful in his critique of U.S. policy, with its
emphasis on military action "'rather than other approaches to
international relations'" (cited in Unwin, 2007, p. 934). Sachs
stresses that popular opposition to increased foreign aid levels
must be countered by a careful explanation of its importance and
potential benefts.
Unwin is convinced that it is not possible to address the root
causes of absolute poverty without also attacking relative pov-
erty. Essential to this issue is the question of responsibility: did
rich nations have a role in creating the poverty found throughout
the world, and if so, what is their responsibility for eliminating
not just absolute poverty, but relative poverty as well? Although
Sachs argues for increased foreign aid, he denies the connection:
Many people assume that the rich have gotten rich because the
poor have gotten poor. In other words, they assume that Europe
and the United States used military force and political strength
during and after the era of colonialism to extract wealth from the
poorest regions, and thereby to grow rich. This interpretation of
events would be plausible if gross world product had remained
roughly constant, with a rising share going to the powerful regions
and a declining share going to the poorer regions. However, this is
not at all what happened (cited in Unwin, 2007, p. 937).
Unwin sees the relationship between the rich and less developed
countries as far more intertwined. Although he agrees that all
economies can expand, he believes that it is still possible for the
rich to create situations in poor locales where they can continue
to expropriate resources and profts. Unwin sees this as critical to
current economic growth models:
Indeed, there is a strong argument that one of the key drivers
for increasing total world product is very specifcally through
the deliberate exploitation of poor people in many parts of the
world, by enforcing low labour rates, by creating unequal terms
of trade, and by preventing them from engaging in the commer-
cial economy (2007, p. 937).
Conclusion
Understanding poverty at the global level is an immensely
complex task. The problems of absolute and relative poverty
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Absolute & Relative Poverty
are tightly intertwined. Only those most committed to neolib-
eral economic philosophy see the solution as a zero sum game;
everyone else believes that the only solution lies in resource real-
location to some degree. There is no consensus on which side of
the equation should be tackled frst: absolute or relative poverty.
The only agreement seems to be that the issue of poverty is a
critical one. Its impact goes far beyond just those who are actu-
ally poor, and thus it is in the interest of all humankind to work
toward a solution.
Terms & Concepts
Absolute Poverty: The World Bank contends that people who
live on less than the purchasing parity power of $1 per day live
in absolute poverty.
Human Development Index: A survey of factors such as literacy,
infant mortality, and access to clean water that is used by the
United Nations and other institutions when comparing countries.
Inequality: Concerns "disparities in levels of living - how
much more is held by rich people than by poor people" (Raval-
lion, 2003, p. 740).
Neoliberal Economics: A belief that Western style democracy,
combined with free markets and an open trade policy will lead to
economic prosperity (Unwin, 2007).
Poverty: is "about absolute levels of living - how many people
cannot attain certain predetermined needs" (Ravallion, 2003,
p. 740).
Poverty Threshold: A measure of the bare minimum necessary
to live at a basic standard of living within a given population,
which varies based on local conditions.
Purchasing Parity Power: Regardless of the currency, the deter-
mination of purchasing power is based on how much can be
purchased if the local currency was exchanged into US dollars.
Relative Poverty: Measures poverty based on a poverty thresh-
old that varies with the mean income of some relevant reference
group.
Structural Violence: Violence that is broadly defned to include
a range of offenses against human dignity: "extreme and rela-
tive poverty, social inequalities ranging from racism to gender
inequality, and the more spectacular forms of violence that are
uncontestedly human rights abuses" (Ryan, 2008, p. 150).
Structural Adjustment Programs (SAPs): As envisioned by neo-
liberal thinkers, governments should adjust their economies by
cutting social, health, and educational programs and by privatiz-
ing natural resources and services in order to allow the markets
to set prices for goods and services.
U.N. Millennium Development Goals (MDG): Agreed to in
2006 by leading members of the body, sets targets for 2015
for dramatic declines in poverty "through interventions in edu-
cation, health, gender inequality, environmental sustainability,
and the creation of a new global partnership in which the pri-
vate sector will have a particularly prominent role" (Unwin,
2007, p. 930).
World Bank: Founded in 1945 out of the Bretton Woods Con-
ference, its purpose is to help developing countries build the
infrastructure necessary to reduce poverty.
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Essay by Cheryl Bourassa, M.A.
Cheryl Bourassa earned a Master's Degree in early American History in 1991 from the University of New Hampshire. She worked as
a certifed Social Studies teacher in the Concord, NH public schools for twenty years, before leaving to pursue a writing and research
career. She is involved in refugee and political activities in her home town of Concord.