Defining poverty, extreme poverty and inequality

Poverty and well-being

Poverty is defined by the World Bank (Haughton and Khandker, 2009, p. 1) as a ‘pronounced deprivation in well-being’. It can be defined narrowly or more broadly, depending on how well-being is understood.

Narrow definitions of well-being are typically linked to commodities, i.e. whether households or individuals have enough resources to meet their needs. In this case poverty is seen largely in monetary terms in relation to household’s income or consumption (Haughton & Khandker, 2009. Income and consumption are generally defined at household level and do not take account of intra-household variations which obscures individual poverty, see Sen in Chant, 2010; Coudouel-et-al-2002). Broader definitions of well-being include items such as physical and mental health, close relationships, agency and participation, social connections, competence and self-worth, and values and meaning (Wellbeing & Poverty Pathways, 2013).

Absolute poverty is poverty below an official line set at the ‘absolute standard of what households should be able to count on in order to meet their basic needs’ (Coudouel et al., 2002, p. 33). Poverty is often defined this way in developing countries, as it focuses attention on vital human needs, and helps with measurement and cross country comparisons (Hulme, 2010). However, it does not account for differing nutritional needs and costs per person of acquiring food and other essential needs, or of human’s needs as social actors (Hulme, 2010). The most commonly used global comparative poverty lines were USD 1.25 (updated in October 2015 to USD 1.90) and USD 2.00 (updated to USD 3.10) a day.

Relative poverty is defined in relation to other people in that society at the same time (Hulme, 2010). Poverty is often defined this way in high-income countries to acknowledge that people are part of a society and to take into account broader quality of life issues (Hulme, 2010).

Well-being can also be linked to the lack of a specific type of consumption good. People can be shelter poor, food poor, asset poor or health poor, for example, and thus poverty can also be concerned with people’s educational or nutritional levels for instance (Haughton & Khandker, 2009). Women can be especially time-poor as they spend so much time on domestic and caring work (Grown, Floro, & Elson, 2010).

Poverty as capability deprivation, as articulated by Amartya Sen (1987), looks at well-being arising through people’s ability to function in society. Poverty arises when people lack key capabilities and so have ‘inadequate income or education, or poor health, or insecurity, or low self-confidence, or a sense of powerlessness, or the absence of rights such as freedom of speech’ (Haughton & Khandker, 2009, p. 2-3). Viewed in this way, poverty is a multidimensional phenomenon and less amenable to simple solutions. For instance, while higher average incomes will certainly help reduce poverty, these may need to be accompanied by measures to empower the poor, or insure them against risks, or to address specific weaknesses such as inadequate availability of schools or a corrupt health service.

There is increasing understanding that poverty is multidimensional, although there is a tendency to focus on human development outcomes such as health, education, and nutrition when looking beyond income measures (Poverty Analysis Discussion Group, 2012). This may underplay the significance of socio-cultural difference and more qualitative elements (powerlessness, stigma, discrimination and isolation, for example) (Poverty Analysis Discussion Group, 2012).

Some people are chronically poor (poor for years at a time or even their whole lives), while others can be transiently poor (move in and out of poverty) (Coudouel et al., 2002; CPRC, 2009). Poverty can be seasonal or nonseasonal. For example, people can fall into poverty if the end of the dry season exhausts food stocks and then recover later (Coudouel et al., 2002). Poverty dynamics help explain why people move into and out of poverty and why some people are trapped in it (Shepherd, 2011).

Child poverty refers to the deprivation of the material, spiritual and emotional resources children need to survive, develop and thrive, and to enjoy their rights and achieve their full potential. It can have different causes and effects to adult poverty, and its impact has ‘detrimental effects on children which are irreversible’ (UNICEF, 2011, p. 1).

Inequality

Poverty is related to, yet distinct from, inequality (Haughton & Khandker, 2009). Inequality is concerned with the full distribution of wellbeing; poverty is focused on the lower end of the distribution only – those who fall below a poverty line (McKay, 2002). Inequality can be viewed as inequality of what, inequality of whom and inequality over what time horizon (McKay, 2002).

Inequalities are ‘fundamentally about relational disparities, denial of fair and equivalent enjoyment of rights, and the persistence of arbitrary discrepancies in the worth, status, dignity and freedoms of different people’ (UNICEF & UN Women, 2013). Inequality can exist in a variety of different spheres such as income, wealth, education, health and nutrition.

Vertical inequalities are a measure of inequality among individuals and households, often focused on income or consumption; and horizontal inequalities occur among groups who share a common identity, and often have economic, social, political and cultural status dimensions (Stewart, 2010, p. 6).

Economic inequality is often found in conjunction with other social inequalities faced by people marginalised because of identities such as gender, disability, race, ethnicity, caste, religion or language – resulting in intersecting – and mutually reinforcing – inequalities (Kabeer, 2010; World Bank, 2013). These socially excluded groups often suffer from spatial inequalities as they tend to be concentrated in disadvantaged locations. The social, economic and spatial inequalities also contribute to political inequalities (UNDP, 2013).

There are two prominent perspectives on inequality (de Barros et al., 2009; UNDP, 2013; UNICEF and UN Women, 2013; World Bank, 2006):

• inequality of outcomes, which include level of income or level of educational attainment; and
• inequality of opportunities as a result of differences in background, social treatment and conditions, indicated by unequal access to employment or education, for example.

Opportunities are harder to observe and measure than outcomes, and are seem to be more as a result of ‘circumstances’ than outcomes, which may arise from people’s own efforts (World Bank, 2006). Inequality of opportunities is generally regarded as ‘unfair’, while the ‘fairness’ of inequality of outcomes is more contested (de Barros et al., 2009). A rich literature asserts that this focus on the direction of causality between outcomes and opportunities ignores that the two are highly interdependent (UNDP, 2013; UNICEF and UN Women, 2013). For those born into relatively disadvantaged households, increasingly unequal outcomes mean fewer opportunities to live a fulfilling life (UNDP, 2013).

Inequality can be understood at different levels (Milanovic, 2012). It occurs within countries, and between different countries, either taking into account population weighting or not (Milanovic, 2012). Global inequality, on the other hand, looks at the differences in income between all individuals in the world rather than between countries, recognising the different levels on inequality within countries. Each different understanding of inequality has different consequences for establishing changes in inequality levels (Milanovic, 2012).

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