Poverty Reduction in U.S., China and the World

1. Poverty Reduction in U.S., China and the World Robert Mundell University Professor and Professor of Economics Columbia University and Chinese University of Hong Kong Global Poverty Reduction and Development Forum Sustainable Urbanization and Poverty Reduction Beijing International Convention Center, China 17 October 2013

2. Causes of Poverty • Age-related • Unemployment • Lack of human capital, skills • Rural/urban divide • Inadequate sources of funding for education • Minorities, ethnic groups • Regional economic underdevelopment

3. Poverty Reduction • Poverty reduction did not receive much attention from policy makers before the 1960s. • The conventional wisdom was that the best way to help low-income people was to ensure full employment and economic stability. • Policy should concentrate on maintaining one maintaining effective demand to avoid another great cataclysm like the great depression.

4. Robert Lampman • The modern notion had its roots in the United States in the 1960s, following an important submission to the Joint Economic Committee in 1959 by Robert Lampman(1921-1997) . • Lampman was a professor at the University of Wisconsin who spent his career studying inequality and the lives of people with low incomes.

5. New Program Needed • Lampman noticed that the great progress in raising incomes of the general population had not been matched by an equivalent reduction in the number of low-income people. • He conjectured that specific programs to help poor people might be able to raise incomes at the low end of the income scale.

6. “Handicapping Factors” • He asked what are the socioeconomic characteristics of the group that remains in low-income status and how do they differ from the total population? • To what extent do “handicapping” characteristics of old age seem to explain the persistence of low incomes?

7. Handicapping Characteristics • Non-white color • Loss of breadwinner • Low education • Old age

8. Beginnings of the US “War on Poverty” in the 1960s • In the 1960s Lampmanwarned the White House that rapid economic growth alone would not eliminate poverty. • He wrote the chapter on poverty in the 1964 Economic Report of the President, which provided the blueprint for the Johnson Administration's antipoverty initiative.

9. Millie Orshansky (1915-2007) • Millie Orshanskyin the early 1960s had been studying the problem of poverty while she worked at the US Social Security Administration. • In 1963 she developed the first outline of a poverty threshold concept and applied it to families with children.

10. Calculation of Poverty • Orshansky knew from the Department of Agriculture's 1955 Household Food Consumption Survey that families of three or more persons spent about one third of their after-tax money income on food in 1955.  • She took the cheapest (most economical) food plan, and calculated poverty thresholds for families of three or more persons by taking the dollar costs of the economy food plan for families of those sizes and multiplying the costs by a factor of three — the "multiplier." 

11. Poverty Thresholds • She derived poverty thresholds for three-person, two-person and one-person families by using a multiplier for each.   The base year for the original thresholds was calendar year 1963. • Her analysis was accepted and her definition of “poverty” was accepted as a tentative norm for what became the poverty program.

12. Johnson’s War on Poverty • As of result of these initiatives, a poverty program—called the war on poverty—was adopted by the Johnson administration. • Lampman and other economists forecast that the poverty program could bring about its eventual elimination!

13. Disappointment • Lampman had predicted a substantial cut in the number of the poor in a state of poverty. • These predictions did not turn out. • In 1992, poverty was 13%, up from the 1960s. • No single factor could account for it. • It's all pretty disappointing, I'm afraid," said Mr. Lampman in 1992. "I'm pretty pessimistic,

14. Research! • What did increase was knowledge! • That, he said, was 965 discussion papers, 44 books and 52 special reports ago! • Today there must thousands of discussion papers on the subject. • But we haven’t learned how to eliminate poverty!

15. Three Theories of Poverty

16. Theories Three theories show ways in which our system selects poor: • Risks—subject to probability and insurance • Barriers—exclusion from solutions • Personal Differences—innate or environmental Some remedies for poverty are suggested by this three-point analysis.

17. 1. The “Risk” Theory • “Risk" theory implies that poverty will be minimized to the extent that frequency of disability, premature death, family breakup, loss of savings, and unemployment can be reduced. • In this case, individuals, private groups, and governments can take steps to insure against the loss of income associated with the risk.

18. Risk and Life Phases • Another framework for consideration of risk is suggested by what might be called the life-cycle classification of causes of poverty according to phase of life. • Some persons are born into poverty. Others enter it in childhood because of death or disability of a parent. Some enter it in adulthood because of a personal disaster or failure to insure against all risks. • In this "risk theory" the emphasis is upon randomness and historical accident.

19. 2. The “Barriers” Approach • The "social barriers" theory says that if poor people are different from the non-poor, it is because of the fact of poverty rather than because of innate traits. • According to this theory, poverty itself is what is transmitted. It is an inheritable disease. • The observable personal differences which are asserted to be symptoms rather than causes will abate if the conditions of poverty are remedied.

20. Breaking Down the Barriers • Breaking down practices of racial discrimination in hiring, housing, and education; • Improving mobility of labor from rural to urban occupations; • Bettering chances for women and elderly people to work in a wider range of occupations. • Improving the environment of the poor and integrating the poor with the rest of the community.

21. 3. Personal Differences • People are poor because of personal differences (which may or may not be transmissible) of ability, of motivation, of moral character, of will and purpose. • Some philosophers consider life a matter of survival of the fittest and a contest which rewards the morally as well as the financially elect, and appropriately visits the punishments and rewards unto the second or third generation. • If the focus is on poverty rather than productivity of the entire community, we could takes steps to reduce personal differences of ability and motivation.

22. Poverty and Race/Ethnicity • About half of those living in poverty are non-Hispanic white (19.6 million in 2010),[but poverty rates are much higher for blacks and Hispanics. • Non-Hispanic white children comprised 57% of all poor rural children. • In FY 2009, black families comprised 33.3% of families, non-Hispanic white families comprised 31.2%, and 28.8% were Hispanic.

23. Marriage and Poverty • Among married couple families: 5.8% lived in poverty. • This number varied by race and ethnicity as follows:5.4% of all white persons (which includes white Hispanics)9.7% of all black persons (which includes black Hispanics), and14.9% of all Hispanic persons (of any race) living in poverty.

24. Single Parent Families • Among single parent (male or female) families: 26.6% lived in poverty. • This number varied by race and ethnicity as follows:22.5% of all white persons (which includes white Hispanics),44.0% of all black persons (which includes black Hispanics), and33.4% of all Hispanic persons (of any race) living in poverty.

25. Individuals Living Alone --19.1% lived in poverty.--18% of white persons (which includes white Hispanics)--27.9% of black persons (which includes black Hispanics) and--27% of Hispanic persons (of any race) living in poverty

27. Note that poverty rates among 65+ started out higher than under 18 or 18-64 years but ended up lower than both. Seems to suggest success in reducing poverty among the elderly.

28. Poverty and Old Age in China

29. A Study at Peking University in 2013 • Researchers at the China Health and Retirement Longitudinal Study (CHARLS) concluded a new comprehensive survey on the proportion of elderly people in China who live below the poverty line.

30. By  Zachary Keck June 3, 2013 inShare Nearly a quarter of elderly people in China live below the poverty line according to a new comprehensive survey conducted by researchers at the China Health and Retirement Longitudinal Study (CHARLS) at Peking University in Beijing. Th 28 Provinces • The survey is based on face-to-face interviews with 17,708 individuals over the age of 45 across 28 of China’s provinces. • The interviews were conducted in 2011 and 2012.

31. Nearly 23% Below Poverty Line • When measuring poverty by consumption per capita, the researchers found that 22.9 percent of individuals over the age of 60 lived below the poverty line. • This compared to just 15.1 percent for those between the ages of 45 and 59. • With about 160 million people over the age of 60 living in China, this equates to over 42 million elderly people living in poverty.

32. 28.5% in Poverty Using Income Data • The numbers were even steeper when the researchers calculated poverty on the basis of income. • Using this indicator, the elderly poverty rate rose to 28.5 percent and 19.6 percent for those between the ages of 45 and 59. • This measurement is less accurate for elderly people, however, given that many don’t have a steady income.

33. Includes Urban as well as Rural • China’s official poverty rate for rural areas is 13.9 percent. • The CHARLS survey included respondents from both rural and urban areas. • In theory this should have lowered the poverty rate as urban areas in China typically have relatively fewer poor than rural areas.

34. Relation to Health • The high level of poverty among the elderly is especially alarming because of the relationship between health and wealth. • For example, the percentage of elderly people needing assistance with daily activities was 26.2 percent among the poor compared to 22.7 percent among the non-poor.

35. Health Insurance • Furthermore, people living below the poverty line who were over the age of 60 in both rural and urban areas were less likely to have health insurance. • More than 90% of respondents reported having some kind of health insurance (92.1 percent of elderly in urban areas and 94.0 percent in rural places.)

36. Women Less Healthy but Live Longer • Women in China are on average less healthy despite ultimately having a longer life span. • This is consistent with findings from other countries.

37. Expected Growth in Elderly from 8% in 2010 to 25% in 2050 • Overall, the survey underscored the enormous challenge the Chinese government will face in caring for its growing elderly population. • Elderly will grow from 8 percent of the population in 2010, to over 25 percent by 2050.

38. Similar Challenges for Europe, North America and Japan, but less Urgent • Similar demographic challenges are facing highly developed nations in Europe, North America and Japan. • But China will be forced to confront an aging population at a point much sooner in its development. • This is because of the sudden shift in population policies in 1980.

39. Pro-Growth Poverty Policies The study based on 14 developing countries forms part of a joint work programme sponsored by The World Bank, AgenceFrançaise de Développement (AFD), German Development Policy (BMZ, GTZ, KfWEntwicklungsbank) and the UK Department for International Development (DFID). Report: Pro-Poor Growth in the 1990s: Lessons and Insights from 14 Countries

40. Lower Transactions Costs • Better access to markets through: • investments in roads • encouraging contract farming and producers’ organizations • strengthening property rights to improve land access for smaller farmers • enhancing investment incentives • supporting opportunities for out-migration.

41. Incentive Framework • Expand technology available to smallholder producers in arid climates • Help poorer and smaller producers deal with price and climate risk • Create an incentive framework that benefits all farmers. • Take into account the differential impact of price and trade policy reforms on poor households.

42. Liberalize Markets • Help poor households take advantage of nonagricultural and urban employment opportunities. • Expand access to secondary education given the rising skill premium that accompanied strong nonagricultural growth in the 1990s. • Enhance access of girls to all levels of education. • Design labor market regulations to create more formal employment for poor workers. • Improve access to infrastructure, particularly roads and electricity, to better link rural areas to small towns and urban centers.

43. Thank You