What should aid focus on, poor people or poor countries?

October 6, 2010

     By Duncan Green     

Finally got round to reading the paper that’s been making waves in wonk-land, ‘Global poverty and the new bottom billion: Three-quarters of the World’s poor live in middle-income countries’, by Andy Sumner from the UK’s Institute of Development Studies. In a classic bit of number crunching, Andy takes a fresh look at where poor people now live, and comes to a striking conclusion:

‘In 1990, we estimate that 93 per cent of the world’s poor people lived in low income countries (LICs). In contrast, in 2007-8 we

wonk of the month

wonk of the month

estimate that three-quarters of the world’s approximately 1.3bn poor people now live in middle-income countries (MICs) and only about a quarter of the world’s poor – about 370mn people – live in the remaining 39 low-income countries, which are largely in sub-Saharan Africa.’

So much for Paul Collier’s ‘bottom billion’, living in Africa and/or fragile states. In fact most of them live in stable, middle-income countries, and that finding applies across economic, nutritional and multi-dimensional poverty measures (although intriguingly, not to education, where underperformance remains more weighted towards the LICs).

So what? On one level, most of the change results from former LICs graduating to MIC status (the paper also provides a really useful overview of the ridiculously complicated world of overlapping but slightly different country classifications – low income, least developed etc). Over the last decade the number of LICs has fallen from around 60 to just 39. In particular, the graduation of India, Nigeria, Indonesia and Pakistan account for most of the change in poverty distribution.

So the finding is to some extent an artifice of country classification  – poor people live in roughly the same countries as in 1990, but those countries have got a little bit richer, and so joined the bottom tier of MICs. But there are at least two ways that the paper challenges our thinking on development:

1. Direction of travel: the upward march of countries like India doesn’t stop when they graduate to MIC status. GDP per capita is likely to increase steadily over coming years. If poverty persists, it will become much more the result of internal inequality, and the solution one of internal redistribution. In those circumstances, the paper asks ‘whose ‘responsibility’ are the poor in MICs – donors or governments or both?’ The challenge for aid becomes dual – how to catalyse mass poverty reduction in the remaining LICs, but how to support and stimulate that struggle for redistribution in the MICs. In Andy’s words:

‘This might mean that long-term poverty reduction requires more focus on structural economic transformation (assessed perhaps by the percentage of employment in agriculture) or a social transformation to a low level of inequality (assessed by gini coefficient and implied emergence of a middle/consuming class), or political transformation (assessed by tax revenue as percentage of GDP and the implied accountability that follows).’

2. Stability: the paper finds that 61% of the world’s poor live in stable MICs. Only 23% of the world’s poor lie in fragile states, roughly evenly split between LICs and MICs. So if you are using poverty as your compass, the development industry’s increasing focus on fragile states (and attention to issues of security and stability) looks a bit overdone. Two thirds of poor people live in stable settings where issues such as politics, inequality, livelihoods, essential services can be debated and resolved without the threat of civil war.

What does all this mean for DFID? Well, in recent years it has focused much more on LICs and conflict-affected countries, and that process is likely to continue with the findings of the current bilateral aid review, which is expected to lead to DFID’s withdrawal from dozens of countries, many of them MICs. Andy’s paper suggests that might not be the right answer, at least in terms of poverty reduction. Andy’s boss at IDS, Lawrence Haddad certainly thinks so, judging by his recent defence of giving aid to India.

On the other hand, working in MICs is not so much about money as influence, and aid donors (not just DFID) have always found that a much harder nut to crack. Maybe DFID should be prepared to abandon 75% of the world’s poor to their domestic political processes, and focus instead on the 25% where it can make a difference?

For more on the paper see the Economist, Global Dashboard and Lawrence Haddad

October 6, 2010
Duncan Green