The Ugly Secret About Needs-Based Poverty Eradication: It Doesn't Work

Nicholas Freeland takes us through the preconditions needed for poverty targeting to work (excerpt):

Poor targeting: a response to Pathways’ paper on how best to reach those in poverty

In an ideal world, poverty targeting would be sensible, which is why it intuitively appeals to those who are new to social protection, or who don’t understand the true complexities of poverty. I would even go so far as to accept that, if all of five conditions were met, there are circumstances in which poverty targeting might be the optimal choice. But we don’t live in an ideal world, and Development Pathways’ paper clearly demonstrates how very unlikely it is – in the real world – to fulfil each one of those five conditions, let alone meet all five simultaneously!

For poverty targeting to be the best option, all of the following five assumptions need to hold true:

• The poor represent a small residual group;
• The poor will remain poor (and the non-poor will remain non-poor);
• Inequitable outcomes are acceptable;
• The resource envelope is fixed; and,
• You can accurately identify the poor.

Food Stamps Don’t Work

I remember, when the debate over BR1M was getting started years ago, some people thought that food stamps or vouchers would be preferred. Two reasons were given for this: first that any assistance should be in a form that directly assists the poor, and second so that they don’t spend it on anything else (such as cigarettes or worse).

I preferred a cash transfer – conditional if possible, but unconditional if that couldn’t be done. My suggestion at the time (in response to the criticisms) was to only give cash to the women of the households. Obviously, that suggestion won’t fly in our society. An alternative would be to make food vouchers (or any other kind of vouchers) freely tradeable or convertible into cash. That didn’t get any kind of reception either.

But having read the following (the first is a working paper, the second is a book on US poverty), I’m now convinced more than ever that food stamps were a bad idea, and possibly worse than no assistance at all (abstract):

Poverty, Corruption and Economic Growth

One of the puzzling things I’ve found in the empirical data is that corruption doesn’t seem to have any impact on economic growth (I found instead that corruption primarily impacts the variance of growth, but not growth itself or the level of development). It appears to matter what type of corruption is involved, and the institutional framework that a country has.

Here’s Ricardo Hausmann on the same subject (exceprt):

Fighting Corruption Won’t End Poverty

CAMBRIDGE – Countries are poor because governments are corrupt. And, unless they ensure that public resources are not stolen, and that public power is not used for private gain, they will remain poor, right?

It certainly is tempting to believe so. Here, after all, is a narrative that neatly aligns the promise of prosperity with the struggle against injustice. As Pope Francis said on his recent trip to Latin America: “corruption is the moth, the gangrene of a people.” The corrupt deserve to be “tied to a rock and cast into the sea.”

Perhaps they do. But that won’t necessarily make their countries more prosperous.

Malaysia Human Development Report 2013 [UPDATED]

I attended the launch yesterday, which included commentary by the authors, led by YBhg Tan Sri Kamal Salih, and a very lengthy panel discussion.

You can download the full copy here.

This has been a looong time coming as publication was held up for a year. though I’m not a liberty for revealing why. In any case, if you want the very short version, this video explains everything in 2 minutes and 34 seconds:

UPDATE:

Due to bandwidth limitations (too many people have tried to download the report), the MHDR site has been overwhelmed. You can try this alternative link instead to download the report. Warning: it’s a massive 66MB file, so the download could take a while.

Breaking The Poverty Trap

From my point of view, one of the biggest problems with the whole ideological debate about equal outcomes (“affirmative action”) versus equal opportunity (“meritocracy”) is that it’s really a false dichotomy.

In many ways, you can’t have one without the other. A meritocracy that truly rewards merit only works if you assume everyone starts off equally. If you want to be wonkish about it, it’s a one-generation, equal-endowment model of lifetime income.

Visualising Poverty

What does it mean to be poor?

Statistics only tell part of the story, and often miss the human dimension of poverty. Here’s two people’s unique take on the subject:

Shopping on the poverty line - what can you eat?

What happens when a photographer and an economist work together to document poverty around the world? When Stefen Chow and his wife, Hui-yi Lin, set out to answer that question, they came up with a photo project, The Poverty Line.

Ms Lin calculates how much money people living at the poverty line have to spend on food each day. In the US, that figure comes to $4.91 (£3.24) a day, while in Madagascar, it amounts to 64 cents.

Mr Chow then documents how much food that money buys in each country, placing the food against a local newspaper.

The award-winning project's website has just been relaunched, making it more interactive for users to learn what it means to be poor and hungry from Tokyo to Rio de Janeiro.

The project website can be accessed here. Malaysia’s visuals are here.

Each separate photo shows what food can be bought for the daily maximum outlay (USD1.36) implied by our official poverty line and you can drill down by food type through the menus on the left.

It doesn’t look that bad unless you happen to know that Malaysia’s poverty line is based on household income and not individual income.

A note on international comparison however – in Malaysia as in much of the developing world, poverty lines typically measure absolute poverty. In advanced economies relative poverty measurements are used instead, so incidences of poverty (and thus the photos on the project website) aren’t directly comparable.

At The Feet Of A Master

I had a good time this weekend, professionally speaking that is. Why? Muhammad Yunus was in town to deliver a lecture. If you don’t know who he is, Prof Yunus is an economist who has devoted his life to helping the poor, pioneered microcredit in the 1970s, a firm advocate of women’s rights (no small thing in the highly patriarchal society of his homeland of Bangladesh), and the winner of the Nobel Peace Prize in 2006. While he has no big presence academically, the pragmatic approach he took in dealing with poverty and its related issues sets a benchmark for effective poverty eradication policies, and not just ones that read well in the press.

The occasion was his appointment as “Nobel Laureate in Residence” at Universiti Kebangsaan Malaysia in Bangi, for which there was a big do last Friday, with the Minister of Higher Education in attendance. There was also a follow-up dialogue at UKM’s Faculty of Economics and Management the next day with a much smaller group. I’m already familiar with his work (and his books), so I learned nothing really new at either session. But the impact of hearing the same thoughts straight from this highly articulate man, with his very obvious passion and devotion to his calling, has a far greater impact than the written word.

Measuring The Many Dimensions Of Poverty

A new paper from the Oxford Poverty and Human Development Initiative discusses a new way to measure poverty (abstract):

Acute Multidimensional Poverty: A New Index for Developing Countries
Sabina Alkire and Maria Emma Santos

This paper presents a new Multidimensional Poverty Index (MPI) for 104 developing countries. It is the first time multidimensional poverty is estimated using micro datasets (household surveys) for such a large number of countries which cover about 78 percent of the world´s population. The MPI has the mathematical structure of one of the Alkire and Foster poverty multidimensional measures and it is composed of ten indicators corresponding to same three dimensions as the Human Development Index: Education, Health and Standard of Living. Our results indicate that 1,700 million people in the world live in acute poverty, a figure that is between the $1.25/day and $2/day poverty rates. Yet it is no $1.5/day measure. The MPI captures direct failures in functionings that Amartya Sen argues should form the focal space for describing and reducing poverty. It constitutes a tool with an extraordinary potential to target the poorest, track the Millennium Development Goals, and design policies that directly address the interlocking deprivations poor people experience. This paper presents the methodology and components in the MPI, describes main results, and shares basic robustness tests.

Economic Data on Malaysia: Where You Can Go

[Update 09 August 2010: This post has been deprecated. I’m maintaining a permanent page for everybody’s reference with updated links here]

I’ve noticed that I’ve gotten quite a few hits through Google looking for data on the Malaysian economy. As a reference point, I’m going to compile in this post the major online-only references that I know of for the basic time series data on Malaysia. If there’s anything readers are looking for that they can’t find, let me know in the comments, and I’ll do my best to oblige. I'd also appreciate it if any broken or wrong hyperlinks are reported.

The one exception to this summary will be historical stock market data, as Bursa Malaysia thinks it can make money off this. In any case, you can get daily KL Composite Index data (from about 1993) from Yahoo! Finance.

I’m listing this by category, rather than by location, as that would probably be more useful. The main sources are:

1. Bank Negara Malaysia (BNM)
2. The Department of Statistics (DOS)
3. The Economic Planning Unit (EPU)

...although I'm also including some international sources. Most reports are either bilingual (English and Bahasa Malaysia) or English only.

One comment before going forward with the list of references: you can get fairly extended time series through Bank Negara’s online version of the Monthly Statistical Bulletin beyond what’s ostensibly published. From about 2004, BNM published the MSB in both Acrobat Reader and MS Excel formats. In the Excel version, older data points are in hidden columns and rows. Just highlight a whole sheet, right click on a column or row header, and click unhide. In most cases, monthly and quarterly data go back to at least 1998-2000, unless there’s been a change in the price series. For 1996-1997 data, it helps to download the older pdf versions of the MSB circa 1997-1998. Enjoy!

Money and Banking
Bank Negara’s Monthly Statistical Bulletin (MSB) is available online from the April 1998 issue, with Sections 1 and 2 covering balance sheet items, while Section 4 covers interest rates. Series covered include banking system asset and liabilities, loan direction, loan sectors and purpose, loan disbursements, repayments and approvals, non-performing loans, with breakdowns for commercial (deposit taking) banks, merchant/investment banks, and the now defunct finance company sectors. On the monetary side, series on M1, M2 and M3 plus their components are available. Interest rate series are available for interbank, government securities as well as deposit and lending rates.

BNM also offers more up-to-date interbank rates for both conventional and Islamic markets.

Gross Domestic Product (real and nominal)
The Economic Planning Unit (EPU) of the Prime Minister’s Department has a summary of GDP tables for annual series (1987 for constant prices, 1947 for nominal prices) and quarterly series (from 2000). Reports are released two months after each quarter end, and are available through DOS (numbers) and BNM (statements). MSB (Section 5) also carries the annual and quarterly series, but not as extensively as EPU.

You can also get both through IMF International Financial Statistics (annual from 1970, quarterly from 1980), plus the volume index which I tend to use as it means you don’t have to deal with the different price bases. IFS is subscription only, but you can get a 5-day free trial which allows full access to the database (discounts available for middle-income countries; free for developing countries). I’d suggest if you’re doing a one-off project like a dissertation or thesis, to register for the trial and download everything.

Annual and quarterly data is also available through the World Bank WDI and IMF World Economic Outlook database, which also have the advantage of carrying PPP-adjusted measures.

Apart from the above, for international comparison purposes, you can also try the Penn World Tables.

Industrial Production
As with CPI, initial reports are carried on the DOS website, while time series can be found in the MSB (Section 5). EPU carries longer time series.

Prices (PPI and CPI)
First reports for CPI are available from DOS, while BNM’s MSB (Section 5) carries the time series. EPU also carries longer annual series. If you need longer monthly series, I suggest the International Labour Organisation, which provides a linked series across different base years (which saves you the trouble of doing it yourself).

PPI is far more troublesome. First DOS does not issue online reports, while the MSB only carries annual and monthly changes (not the index numbers themselves). In short, you have to reconstruct the index yourself if you use MSB as a source. EPU however does carry the annual index series (and monthly series from 2003), although you’ll have trouble with the fairly frequent change of base year.

Employment/Unemployment
You’re out of luck.

Employment/unemployment stats have the worst online coverage of any of the major economic statistical categories for Malaysia. DOS carries a monthly manufacturing survey that only covers wages and employment in that sector. MSB is more comprehensive, covering retrenchments, active job seekers and employment offerings by sector, but not an overall unemployment number. The EPU offers annual unemployment statistics, which aren’t terribly useful for current analysis.

Population
Population estimates are available from EPU. DOS also has a population clock on its homepage (MSIE only), with an explanation of the assumptions here.

Poverty
Poverty estimates are also available from EPU. Poverty Line Income data however is unfortunately not readily available, nor are income inequality measures. I have a compilation of Gini coefficient numbers lifted from this book, but since I can’t reconcile the numbers with those published in the various Economic Reports, I’d hesitate to place too much reliance in them.

Government Finance
BNM’s MSB, section 6, covers breakdowns of quarterly and annual of federal government revenue sources, expenditure, and composition and holders of government debt. EPU provides annual series going back to 1970, and more interestingly, annual consolidated accounts for the public sector from 1991.

Forex (Ringgit) spot rates
Believe it or not, the best source I’ve found is the Federal Reserve – they carry daily currency fixes against the USD for a whole bunch of currencies (report H.10*). In the case of MYR, this extends back to 1971. For shorter periods, I use the Pacific Exchange Rate Service, which carries four years of daily data and monthly averages for more extended periods. I find it especially useful since you can download cross-rates directly instead of having to calculate them yourself. BNM also carries daily currency fixes (from 1997), and 3-month and 6-month forward rates (from 1999).

*2000 to present, 1990-1999, pre-1990

Balance of Payments
Balance of Payments are reported quarterly. The latest data is available through DOS, and more extensive quarterly and annual series are available from MSB (Section 7). A longer annual series is available from EPU.

International Investment Position
The IIP is a relatively new metric designed by the IMF to track holdings of foreign assets: don’t expect extensive time series on this. The numbers from 2005 are available from DOS or IMF IFS database.

External trade
The actual report is issued by MATRADE, which DOS mirrors. Time series and detailed breakdowns are available with a lag through MSB (Section 7) or through EPU. If you need deeper breakdowns, I suggest (unless you want to wade through DOS’ veeerrryy thick annual trade reports) the United Nations Commodity Trade Database. It’s not comprehensive*, but reasonably complete enough for most purposes.

*Like almost all multilateral institutions, the UN doesn’t carry data on Taiwan – an example of politics getting in the way of common sense.

International Reserves
Reserves are reported biweekly and detailed reports are available from BNM. MSB Section 7 carries the time series.

Leading, Coincident and Lagging Indicators
DOS provides the latest data, with an archive available here. EPU also has much longer monthly series available. The Malaysian Institute of Economic Research’s quarterly Business Conditions Index and Consumer Sentiment Index and MIDA’s investment approval statistics are also available through the latter link.

Miscellanea
1. The annually published Economic Reports, prepared in conjunction with the tabling of the government budget, are available through the Ministry of Finance. Extensive statistical tables are available at the back of each edition.

2. BNM’s annual reports provide useful overviews of monetary and financial sector developments. Quarterly reports are also available.

3. Links to Malaysia’s 5 year plans (current and archived from 1995) are available through EPU's homepage. You'll find here, among others, income, poverty and inequality data.

4. The Financial Sector Masterplan outlines the program of financial sector reform 2000-2010.

5. The Capital Markets Masterplan does the same for debt and equity markets, and is available through the Securities Commission.

6. Information on Malaysia's countercyclical stimulus pacakages are available here.

7. Malaysia's National Summary Data Page is available through BNM.

Recommended Reading

I’m a big fan of audiobooks – there’s little better to pass the time in traffic jams than to listen to a good book or novel, especially with a talented narrator. I get all of mine from Audible.com, which also has the virtue of providing free of charge the audio version of the Wall Street Journal with some of its membership plans. Membership isn’t cheap, but if you read/listen as much as I do, then it pays for itself in the long run.

The latest book I’ve read (or is that listened to?), is Muhammed Yunus’ “Banker to the Poor: Micro-Lending and the Battle Against World Poverty”, which describes the founding of the Grameen project in Bangladesh and the success it has had in opening up access to credit and economic opportunities for the absolute poor.

Prior to Grameen, there was little the poor could do to improve their circumstances, especially under the conservative Muslim society – or to be more accurate, conservative patrician society – that existed in Bangladesh. Banks, as conventional banks do everywhere, were and are only interested in lending to those with collateral, rather than to those who have business ideas or have willingness to work. That’s a fairly common complaint I hear, and not just from the poor. What money the poor received was generally through charity or ill-run government projects, and didn’t harness the energy or the labour of the poor in any meaningful way – neither for the country nor for the poor themselves. Some of the stories of the poor, quite frankly, brought a lump to my throat.

But Grameen offered a way out of the poverty trap, albeit one that depended on one’s own willingness to take a chance. By offering tiny loans with no collateral (because the poor didn’t have any), no documentation (since many of the borrowers were illiterate), and relatively low interest rates (compared to money lenders), Grameen helped the absolute poor work for themselves, earn enough to if not prosper then at least survive, and gain a measure of self respect. Just as important, and probably the vital key to its success, Grameen also pushed forward an agenda for social change by concentrating on women borrowers, and encouraging education, family planning and basic personal healthcare. All common sense stuff, but nothing the market economy would attempt on its own left to its own devices.

The book is part autobiography, part microlending manual, and part polemic (with some justice) against multilateral development agencies. If there’s a note of self-congratulation in some of the passages, its well deserved. Probably the best evidence of the effectiveness of Grameen has been the explosion of interest and thousands of copycat organizations across the globe, including in advanced economies. In Malaysia, Amanah Ikhtiar Malaysia conducts microlending operations – I don’t count the micro-finance program run by BNM as equivalent as it doesn’t target the absolute poor.

If there’s a criticism I have, is that microlending is only one aspect of the fight against poverty. I think Grameen’s approach acknowledges this since it explicitly incorporates social reengineering within its operational framework. The problem of course is that all the other methods – education, infrastructure, healthcare, technology transfers – don’t work without access to credit. On that score Prof Yunus has probably stumbled on the one thing that can lift desperately poor places like Sub-Saharan Africa, despite a flood of aid money.

If anyone’s interested in obtaining a copy, the book is available through Amazon.com and locally through MPH.