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Whether it’s at the country, corporate or individual level, this blog considers how to gauge and measure impact.

Friday, November 16, 2012

The Poor Measurement of Poverty: The Chilean Case

By Hector Jorquera

This post originally appeared on NextBillion en Español. 

 

When the Chilean government announced a decrease in poverty and extreme poverty rates  earlier this year – from 15.1 percent to 14.4 percent and from 3.7 percent to 2.8 percent, respectively – the response was incredulity. Several civil society organizations and prominent economists, academics and researchers, armed with analyses, challenged the figures. In their view, there was no significant decrease and the actual reduction could coincide with the statistical margin of error, which skirts 0.7 percent.

Beyond the variance in politics (the current government previously stated that poverty increased and the opposition stated that the government pressured ECLAC, the entity that conducts the measurement, to lower the numbers), leaders and academic experts pointed out at least three areas of concern in the numbers and the way they were displayed.  

a)  Since 1987, poverty has been measured only on the basis of a given line for a basic food basket, i.e. one-dimensionally (more on this metric below).  

b) Although poverty measurement is one-dimensional, there is basic political consensus behind it. For this reason, the measurement could not be politicized. 

c) Socio-economic changes brought about in the country made ​​it unfeasible to continue with the current way of measuring poverty.

A few months after the controversy came about, the government announced two important measures:  It would not use the National Socioeconomic Characterization, or CASEN, an instrument used to carry out the measurement and instead would create a new, more autonomous and technically reinforced institutional framework to handle it. The president made the announcement to representatives of civil society institutions, revealing their importance and revealing that coordinated and visible technical work by civil organizations can influence public policy decisively.

Chile is seen not only as a successful country in terms of poverty reduction, but also as serious and honest in statistics, and the measurements were, until this episode, thought to be reliable and valid. Nevertheless, the discussion lifted the veil on what was being measured. We measure poverty from a line based on the cost of satisfying minimum food and non-food needs vs family income.  

According to the income poverty paradigm, to which the Chilean measurement subscribed, a poor person is designated as having a monthly income of less than $144.  Nevertheless, as we already cautioned, the composition of the basket dates back to 1987, despite the enormous demographic and socioeconomic changes in the country.  That is to say, if you adjust the indicators, poverty could be double what was reported, something in direct conflict with the country’s $17,812 GDP per capita, its inclusion in the OECD and a host of other solid macroeconomic indicators exhibited today.  

The measurement of poverty, and in general, in any field that involves assessing the human development of a nation, cannot be limited to purely economic figures. At the same time, the construction of indicators to measure it multidimensionally is not only the task of technocrats, but requires multiple views, discussion and consensus.

Since 1990, the United Nations Development Program (UNDP) measures the Human Development Index (HDI) using three dimensions, in regions or cities of several countries. These include: 

a) long healthy lives, measured by life expectancy, 

b) knowledge, as measured by the adult literacy rate and coverage of primary and secondary education, 

c) decent standards of living, as measured by per capita GDP (measured in dollars adjusted for purchasing power parity).

As a derivative from this metric, the UNDP introduced the HPI, Human Poverty Index, a multidimensional approach aimed at measuring deprivations in health, education and income – the same dimensions evaluated in the HDI. Considering the level of economic development in what is measured, the HDI seeks to establish the gaps in each dimension and thus deliver specific information to focus public policy regarding each dimension.

Personally, I subscribe to this paradigm, within which, for example, measurements of environmental variables associated with health and personal income could be included. A polluted urban environment decreases life expectancy; an environment with overexploited natural resources, for example, makes income generation difficult in rural areas, such that both the HDI and HPI are directly impacted.

Undoubtedly, the Chilean civil society has taken a step in its effort to improve the country's human development, broadening the myopic view of neoliberalism, by putting in the center of the debate “what multidimensional poverty is,” and how to measure it, an essential question when focusing social policies, public investment and the efforts of social entrepreneurs.

 

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