The moving poverty line

By bne IntelliNews November 25, 2011

bne -

A rich man in London is rich in New York, but is a poor man in New York still poor if he moves to Moscow? Comparing poverty rates across devel- oped countries is not hard, as incomes are roughly the same for most of the EU countries and the US. But once you start looking at emerging markets, the poverty line varies widely.

"You're not poor if you own a car," scoffs Lilia Omelyanenko, a Moldovan housekeeper living in Moscow," referring to America's poor, many of whom have cars despite earning less than the minimum level of income deemed necessary to achieve an adequate standard of living. Omelyanenko earns €1,300 a month, about half as much again as the average salary in Russia, but if she moved to London this would be below the poverty threshold. Poverty has always been relative: if you are the only boy in the playground with 10 cakes when everyone else has one, you are rich.

In absolute terms, there are clearly big differences. Americans living at the poverty threshold are a bit better off than the average Russian: poverty in the US kicks in at an income of less than $11,139 a year for a single person, which is slightly more than Russia's average annual income of about $9,600. Still, in absolute terms just over 20m Americans are now living in "deep poverty" with an income of less than half the official poverty threshold and would be poor even by Russian standards.

As you move eastwards, the threshold starts to drop dramatically. The poverty line in the UK is a bit less than the American cut-off at £5,980 ($9,447) a year, but in Turkey it is only $1,460 a year. China and India give particular problems because their people are really poor by any standards. According to the Chinese state, poverty has fallen from 85% in 1981 to "only" 16% now. But the state uses a poverty line of $144, whereas everyone else follows the UN threshold of living on $1.25 a day or less to estimate the number of poor. No-one in the West lives on a dollar a day, but then neither does anyone in Russia or Turkey. However, 8% of Brazilians and a massive 42% of Indians do live on a dollar a day, according to the UN. That means 15.6m Brazilians, 176m Chinese and 546m Indians are currently living in a state beyond what our Despair Index can reasonably measure.

Against this deep poverty in the rural regions of some countries is the rapid growth in income that most of the emerging markets are enjoy- ing. At the nadir of Russia's transition in 1998, per-capita income fell to $8,000. Over the following 12 years, per-capita income has nearly doubled to $15,700 now, about half the average US income. China and India have much further to go: China's per-capita income today is about $7,000 whereas India's is $3,000.

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