Question

Compare the basic needs approach to poverty measurement with the alternative approach pursued by the World Bank known as the $1-a-day measure. In what ways are these approaches similar? How, specifically, do they differ? Describe in detail how a basic-needs approach to defining poverty can be converted into a monetary poverty line, using the case of poverty lines in India as an example.

Answer 1

Poverty is a multi-dimensional and extremely relative concept. In general, poverty is a state of unacceptable deprivation, but this ‘unacceptability’ and the gravity of poverty varies from society to society. In a society which is not otherwise deprived of any comforts, let alone basic needs, a person with a good income and standard of living might also feel poor if that person doesn’t own a car like the rest of the members in the society does. However, in certain countries, the problem of poverty is much more serious and amounts to people not being entitled to a house, or even two square meals a day. This is where the concept of “Basic Needs Approach” stems from.

The Basic Needs Approach, as the name suggests, deals with the bare minimum requirement of resources, for a long-term security, especially in terms of the ability to consume goods. This concept was born in 1976 at the International Labour Organization. In order to live rather than struggle to survive, one needs access to basics like food, clothing, shelter, sanitation, clean water, etc. The Basic Needs Approach caters to these needs, without which a person will not be able to survive. This approach can easily be termed as a consumption-based deficit model, addressing consumption deficits in cases of ‘extreme poverty’.

As opposed to the aforementioned concept, an alternative way of measuring poverty was “the $1-a-day” measure. This $1 was taken as the global poverty line, where, any person living below this threshold would be classified as ‘extremely poor’. This measure allows for cross-country comparisons of poverty when calculated following the PPP exchange rate method. This $1 has inflation-adjusted over time, but this measure of poverty also received its fair share of criticisms.

Both the Basic Needs Approach and the $1-a-day approach only measure the number of people who are poor. That is, the number of people either not having access to basic needs, or living below a Dollar a day. But neither of these approaches deals with depth of poverty. In countries where poverty is severe, the depth of poverty is an important concept. It categorises people based on how poor they are, giving each of them separate weight, instead of classifying them as poor in general. It is very easy to alleviate poverty by pulling up people who are just near the threshold and not improving the lives of those, way below the threshold. Secondly, both these approaches give unnecessary power to the bureaucrats to decide exactly what or how much a person needs. A basic need for someone can just be food, clothing and shelter, while the same for another person can be food, clothing, shelter and clean water. These basic needs vary from person to person and from society to society. Similarly, $1 a day might not be enough for a person to purchase his/her basic needs. Thirdly, both these approaches are measures of absolute poverty- where a person either doesn’t have the basic necessities or the income to purchase those basic needs. Lastly, neither of the two approaches aims at productive activities for the society to self-sustain its standard of living. Instead, they play short-run by somehow addressing the needs of the poor and giving them what they need to survive.

However, these approaches do differ in their use. One plus point of $1-a-day approach is that, unlike the basic needs approach it gives the person the freedom to choose what basic needs he will divide that dollar among. The basic needs approach imposes certain pre-defined needs as basic. It doesn’t take into account an individual’s preference and choice and doesn’t respect that fact that basic needs do essentially differ in reality. Secondly, the basic needs approach does not allow for cross country comparisons, for the same reason that basic needs are very relative. But the $1-a day approach when computed with PPP exchange rates, does allow for cross country comparisons of poverty.

When one talks about getting access to basic needs, immediately one should relate it to the costs associated with those needs. In order to meet those costs, one would require income. Either way, the basic needs approach directly translates into a monetary poverty line. Many a times, in developing countries like India, data on income and price might be missing for one to infer from surveys. That is when the country uses a Calorie-based approach to measurement of poverty. This monitors the per capita expenditure on food intake and determines the income required to have access to enough food. This is known as the ‘Food Intake Method’. Alternatively, when price data is available, “The Cost of Basic Needs Method” is used to compute the poverty line. This method not only takes into consideration the intake of 2100 Calories per person per day, but also takes into account other relevant basic needs for life to sustain, such as clothing, shelter, etc. This method directly follows from the Basic Needs Approach. The costs of fulfilling these basic food and non-food needs and the amount of income required to do that, is what the poverty line is composed of. Functionally, according to Ravallion, poverty line can be expressed as follows:

Zi=e(p,x,u_z)

This can be interpreted by the minimum income or consumption (Zi) needed to achieve the minimum level of utility (u_z), given the price level (p) and demographic characteristics of the person in question (x). This function specifically takes demographic characteristics as a separate factor because this is what causes basic needs to vary from person to person.

India as a country collects from National Sample Survey (NSS), data related to consumption patterns of households from time to time. It closely monitors the basket of goods consumed by different households, from which ‘most essential’ goods are identified. The income needed to have access to these ‘most essential’ commodities, thus become the poverty line in India.