The World Bank Mired in Contradictions About Poverty

Eric Toussaint

 October 25, 2024

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On 15 October 2024, the World Bank stated in a press release: ‘The global goal of ending extreme poverty – less than $2.15 per person per day – by 2030 is out of reach: it would take three decades or more to eliminate poverty set at this threshold, which is most relevant in low-income countries.’ [2] This is a terrible acknowledgement of helplessness for an institution that is supposed to contribute to reducing poverty in the world.

The truth is that instead of helping to reduce poverty, the policies financed by the World Bank and its twin, the IMF, reproduce and exacerbate it.

The leaders of the World Bank and the IMF never acknowledge the eminently negative role of the recipes and model that they recommend or even impose on the countries that call on their credits.

This article aims to show that the World Bank has tended for decades to underestimate the number of people affected by poverty. It is worth revisiting an event that occurred more than fifteen years ago, when the World Bank admitted that it had been wrong about the number of people living in extreme poverty. Indeed, in 2008, the World Bank admitted that it had made major errors in its calculations regarding worldwide poverty. While at the same time claiming that its estimations of poverty are becoming more accurate thanks to ‘new and better data’, the Bank discovered in a working paper that ‘an extra 400 million people [are] living in poverty’. [3] An ‘extra’ 400 million people? That is more than half the entire population of Sub-Saharan Africa at the time!

Such an error, even if admitted, reflects the fact that the statistics published by the World Bank are anything but reliable – which is not surprising since those statistics serve primarily to support the neoliberal policies the Bank’s own experts are forcing on countries all over the world.

According to the working paper, ‘For 2005 we estimate that 1.4 billion people, or one quarter of the population of the developing world, lived below our international line of $1.25 a day’ whereas previous estimations had given a figure of around one billion people.

Yet the Bank still congratulates itself on what it sees as a positive trend, because what is important in its view is not the number of poor people, but the proportion of people who are poor. Why? Because with the increase in the world population, a proportional figure hides the truth. If, for example, the number of people living in poverty stagnates, the proportion of poor people will automatically fall over the years in line with the increase in the world’s population. Which explains why the stated ‘millennium’ goal for the period 1990 to 2015 was to reduce the proportion of the population whose revenue is below $1.25 per day.

But with the World Bank’s enormous miscalculations on poverty, the entire edifice of international poverty reduction policies collapses. The structural adjustment policies imposed by the IMF and the World Bank since the early 1980s – cutting social programmes, recovering costs in the health and education sectors, an agriculture geared towards exportation and reduction of food crops, the abandonment of food sovereignty, etc. – have in fact worsened living conditions for hundreds of millions of people around the world.
And there has been no lack of criticism of the Bank regarding this. Thomas Pogge of Columbia University, for example, wrote in 2008:

The World Bank’s approach to estimating the extent, distribution and trend of global income poverty is neither meaningful nor reliable. […] there is reason to believe that the Bank’s approach may have led it to understate the extent of global income poverty and to infer without adequate justification that global income poverty has steeply declined in the recent period. A new methodology of global poverty assessment, focused directly on what is needed to achieve elementary human requirements, is feasible and necessary.’ [4]

The lack of reliability inherent in the World Bank’s methodology is evident in a 2010 declaration by Martin Ravallion, one of the Bank’s main experts on the issue of poverty: ‘The latest poverty estimates draw on 675 household surveys for 116 developing countries, representing 96 percent of the developing world’. [5] How is it possible to claim to be publishing reliable figures on the situation of several billion people on the basis of a survey limited to 675 households surveys? How can such ‘experts’ expect to be taken seriously! The same author also admits that in the early 1990s, the Bank’s sources on poverty were limited to studies conducted in only 22 countries.

Adopting a diplomatic tone, the same Martin Ravallion writes: ‘Our latest revision of poverty numbers is the largest revision yet because of important new data revealing that the cost of living in the developing world is higher than we thought.’ [6]

As this is being written, in 2024, the World Bank considers that a person is not living in extreme poverty if they live in a developing country and have more than $2.15 per day to live on. Such a figure is obviously highly debatable. It sets an extremely low borderline for extreme poverty. The figure of $2.15 per day is not a reliable indicator, and the methods used to extrapolate the number of poor people on the planet cannot be taken seriously.

As British economist Michael Roberts wrote, if instead of taking 2.15 dollars a day, we set the extreme poverty threshold “at $5 a day there were still 40% of the world’s population in poverty; at $10 a day it was 62% and at $30 it was 85%.” [7]

Note that in its recent publications, the World Bank announces that as a result of the crisis related to the Coronavirus, more than 100 million human beings will be added to the ranks of those living in extreme poverty in 2020–21. Referring to a Bank report published in 2020, worldbank.org states: ‘Now, for the first time in a generation, the quest to end poverty has suffered a setback. Global extreme poverty rose in 2020 for the first time in over 20 years as the disruption of the Covid-19 pandemic compounded the forces of conflict and climate change’. The authors add: ‘New research estimates that climate change will drive 68 million to 132 million into poverty by 2030.’ [8]

While these estimates need to be taken with a grain of salt given the methods the Bank uses in making its calculations, they nonetheless point to dramatic developments that urgently call for radical solutions to ensure the protection of human rights.

The press release issued by the World Bank on 15 October 2024 was entitled: ‘Ending Poverty for Half the World Could Take More Than a Century’. In the 2008 World Bank article quoted above, one of the sub-headings stated: ‘Developing world still on track to halve poverty from its 1990 level by 2015 compared to 1990 levels’. [9]

It is high time we got rid of the World Bank-IMF duo and replaced it with other institutions at the service of humanity.

Footnotes

“[1] Source: https://www.worldbank.org/en/topic/poverty/overview#1 [accessed 22/10/2024].

[2] World Bank, “Ending Poverty for Half the World Could Take More Than a Century”, 15/10/2024, https://www.worldbank.org/en/news/press-release/2024/10/15/ending-poverty-for-half-the-world-could-take-more-than-a-century[accessed 22/10/2024].

[3] Shaohua Chen and Martin Ravallion, The Developing World Is Poorer Than We Thought, But No Less Successful in the Fight against Poverty (World Bank: Policy Research Working Paper 4703, August 2008) https://documents1.worldbank.org/curated/en/526541468262138892/pdf/WPS4703.pdf [accessed 22/10/2024].

[4] Sanjay G. Reddy and Thomas W. Pogge, ‘How not to count the poor’, 29 October 2005 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=893159 [accessed 22/10/2024]. For an overview of the question see Thomas Pogge, Politics as Usual: What Lies behind the Pro-Poor Rhetoric (Cambridge: Polity Press, 2010).

[5] World Bank, ‘World Bank updates poverty estimates for the developing world’, World Bank News Feature, 26 August 2008, updated 17 February 2010 https://www.worldbank.org/en/news/feature/2008/08/26/world-bank-updates-poverty-estimates-for-the-developing-world [accessed 22/10/2024]. (pas vu de mise à jour)

[6] Ibid.

[7] Michael Roberts, “Measuring global poverty”, Michael Roberts Blog, 8 October 2024, https://thenextrecession.wordpress.com/2024/10/08/measuring-global-poverty/ [accessed 22/10/2024].

[8] World Bank, “Global Action Urgently Needed to Halt Historic Threats to Poverty Reduction”, October 7, 2020, https://www.worldbank.org/en/news/feature/2020/10/07/global-action-urgently-needed-to-halt-historic-threats-to-poverty-reduction[accessed 22/10/2024].

[9] “World Bank Updates Poverty Estimates for the Developing World”, August 26, 2008, https://www.worldbank.org/en/news/feature/2008/08/26/world-bank-updates-poverty-estimates-for-the-developing-world[accessed 22/10/2024].

Cash is King: Why Cash is the Best Way to End Poverty

Lakeisha  McVey

 October 25, 2024
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Photo by Nathan Dumlao

My mom’s the hardest working person I know. She had a stable job and benefits, but that didn’t save us from homelessness.

For years, we bounced between shelters, churches, motel rooms, and apartments. Benefits programs helped us make ends meet, as they do for tens of millions of Americans. But I can’t help imagining how different my childhood would’ve been if my mom simply had access to more cash.

Most benefits programs provide one kind of aid and require you to jump through hoops to get it. For example, the Housing Choice Voucher Program (or “Section 8”) pays landlords to house low-income tenants who can’t otherwise afford the rent. But getting that help requires extensive documentation and months or even years of waiting for approval.

Many families facing housing instability also grapple with medical costs, cell phone and internet bills, transportation, basic household needs, and so on. With over 70 percent of low-income renter households spending more than half their income on rent, any of these costs can be the straw that breaks the camel’s back.

Fortunately, other programs help cover these other needs, like food. SNAP and WIC feed tens of millions of Americans. But even if you’re approved, there are frequent renewals and updates you have to make to maintain your benefits.

Any mistake in the paperwork could result in delays or loss of benefits. Then you’re turned away at the grocery store because your EBT card is declined or you have to put items back because they aren’t covered by WIC. The shame you feel from all the eyes on you at the checkout line is enough to make you give up right then.

For families like mine, who’ve been forced to juggle multiple jobs and childcare, navigating all of this feels like a full-time job in itself. It’s exhausting and dehumanizing.

What families need when we’re in a crisis is direct cash assistance. Cash empowers us to make the choices that best fit our unique circumstances. When families in crisis are simply given cash without restrictions, it’s been proven to reduce food insecurity, improve mental health, keep families housed, and drastically reduce poverty.

For example, the Stockton Economic Empowerment Demonstration in Stockton, California gave 125 families an unconditional cash stipend. Results showed participants had better financial stability, increased full-time employment, reduced reliance on payday loans and other predatory financial services, and improved mental health.

Elsewhere, the Rx Kids program provides unrestricted monthly cash payments to every pregnant mom and baby in Flint, Michigan. The program has reduced financial strain for new mothers, contributing to healthier pregnancies and early child development.

These local examples are promising. But don’t forget we just had a large, stunningly successful national example too. In 2021, the expanded Child Tax Credit provided unrestricted monthly payments of up to $300 per child to nearly every family in the country. This tax credit alone cut the child poverty rate nearly in half, lifting 3.7 million children out of poverty before lawmakers allowed it to expire.

Guaranteed income programs are simpler than traditional welfare programs. They can be designed with broader eligibility criteria and without narrow restrictions on spending. And cash reduces administrative costs, because the payments can be provided without the need for frequent paperwork renewals.

Most importantly, cash payments can be deployed faster and more efficiently to address emergencies families face in real-time.

No family should have to struggle to meet basic needs. Families deserve programs and policies that promote fair opportunities and reduce inequity to help them thrive and break the cycle of poverty. With expanded tax credits or a cash assistance program, we put the power back in the hands of those who need it most.

It’s clear the most effective tool we have to combat poverty is cash.

Lakeisha McVey is a social justice advocate and engages volunteers with lived experience of poverty at RESULTS.

Lakeisha McVey is a bereaved mother, social justice advocate, and leader of the Experts on Poverty Program at RESULTS. 

Patent Monopolies and PBMs: Protectionism Leads to Corruption

Dean Baker

 October 25, 2024
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Last week I saw a somewhat shabbily dressed man in the pharmacy trying to get a Covid booster. They told him it would cost $130. (It was the Moderna booster.) He said that he didn’t have this money. The pharmacist and a couple of people in line then suggested a few places he may be able to get it at a lower cost, or possibly even free. The man left and was hopefully able to get an affordable shot.

I was reminded of this incident when I read a New York Times piece on pharmacy benefit managers (PBMs). The gist of the piece is that PBMs often engage in sleazy practices that involve squeezing some drug stores, while overcompensating the chains with which they are affiliated. The result is higher prices and lower quality service, as many drug stores go out of business.

Years ago, Ronald Reagan ran around saying that we don’t need government to fix the problem, government isthe problem. In the case of the high cost of drugs and vaccines and other pharmaceutical products, Reagan is exactly on the mark. The problems that people face in getting the drugs they need at affordable prices is almost entirely due to government-granted patent monopolies and related protections.

The point, which I know I make endlessly, is that drugs are almost always cheap to manufacture and distribute. In a free market it would be rare that a drug would sell for more than $30 a prescription – and often for considerably less. We would not have problems paying for our drugs and vaccines if they sold at free market prices. And there would be no such thing as PBMs in a free market. Do we have “grocery benefit managers?”

Government-granted patent monopolies create this totally avoidable problem where people have to struggle to pay for the drugs they need to protect their health and possibly their life. These can cost tens of thousands or even hundreds of thousands of dollars annually. Even if they are able to get an insurer, the government, or a GoFundMe page to cover the cost, why do we want to make people struggling with serious health issues go through this effort?

Public Funding: A Better Option Than Patent Monopolies 

The rationale for patent monopolies is that they are necessary for the industry to recoup the research costs involved in developing new drugs or vaccines. If they spent hundreds of millions of dollars developing a drug, and then generic competitors could start producing it the day it was approved by the Food and Drug Administration (FDA), they would have no ability to earn back the money they had invested. If this was the situation drug companies faced, they would never invest serious money in developing new drugs since it would not be profitable.

This argument is completely true, but the problem with the logic is that we have other mechanisms for financing the research needed to develop new drugs. We could have public funding. This is not a secret. We currently spend over $50 billion a year to finance biomedical research through the National Institutes of Health (NIH) and other government agencies.

If we wanted to replace the patent-supported research currently conducted by the pharmaceutical industry, we would need to increase this amount by around $120 billion a year. That may seem like a lot of money, but we would likely save more than $500 billion a year by having all drugs and pharmaceutical products sold in a free market.

If we were to increase government funding enough to replace the patent-supported research currently done by the industry, we would likely want a different mechanism. My preferred route, which I discuss in Rigged (it’s free) is a system where the government signs long-term contracts (e.g. 10-15 years) with drug companies to support research in specific areas.

For example, a company could contract to get $40 billion to do research for the next 12 years into developing treatments and/or cures for heart disease. Another company may contract to do research on breast cancer or lung cancer. The idea would be that the government would make the initial award and then have a largely hands off approach, other than periodic audits just to make sure that work is actually being done and the company’s executives have not just run off to Bermuda.

I held up the Defense Department as a model for this sort of contracting. While there are plenty of abuses in military contracting, the fact is that we do get good weapons at the end of the day.

And, we have a huge advantage with biomedical research over military procurement. There are legitimate grounds for secrecy with military research. We don’t want to put the plans for our latest weapon systems on the web where ISIS can download them. There is no basis for similar fears with biomedical research. In fact, we should want research findings shared as broadly as possible, so that researchers around the world can benefit from the latest developments (more on this in a moment).

In fact, we can look to a better example for successful government contracting than straight military research. Former Biden administration economist Ernie Tedeschi pointed me to the example of SpaceX, which has made enormous progress in improving the efficiency of putting objects into space. In spite of the contempt its CEO seems to have towards the government, Musk’s accomplishments in this area were done on the government’s dime. It’s reasonable to assume that if a government agency can successfully find an innovative company like SpaceX to develop new rocket systems, a government agency can also find innovative companies to do good research in developing new drugs.

The lack of secrecy should help in this process. In fact, when contracting for the development of new drugs, a condition of getting the money should be that any contractor, as well as all subcontractors (most defense contracts involve many subcontractors), post all their findings on the web as soon as practical.

This will both allow for rapid dissemination, so that other researchers can quickly build on successes and learn from failures, and also limit opportunities for waste and fraud. If a company with a major contract for research in a specific area has nothing to show after six months or a year, it will be very clear to the experts in the field that something is seriously wrong. If there is not a very good story as to why the company does not seem to be making progress, or even have failures to report, then it presumably would lose its contract.

This sort of openness will require some agreement for sharing the costs of research across countries. Some may view this sort of international agreement as impossible, but in fact this is exactly what the United States has been negotiating with the TRIPS provisions of the WTO and numerous other provisions on intellectual property in trade agreements over the last four decades. Working out a deal may prove contentious, but the negotiations over intellectual property issues are already contentious.

There is another very important advantage to open research that is impossible to exaggerate. The patent monopoly financing system gives drug companies an enormous incentive to misrepresent the safety and effectiveness of their drugs. The markups on patent-protected drugs are typically many thousand percent over production costs.

This gives drug companies a huge incentive to push their drugs as widely as possible. The opioid crisis was the most extreme example of this sort of misrepresentation, where drug companies lied about the addictiveness of the new generation of opioids, but the problem arises constantly. The FDA does try to police the industry, and stronger rules on the availability of clinical trial data make deception more difficult, but when a company faces such large gains from lying, it will be difficult to ensure evidence on safety and effectiveness is presented fully and accurately.

In a system of open research, where contracts are renewed and expanded based on a big picture assessment of the value of its research quality, there would be little incentive or opportunity to lie in a way that could have adverse health outcomes. Companies will try to put their research in the best possible light. But at worst, any exaggerations would lead to a bad allocation of research funds, where a less effective company got funding in place of one that would be more effective. That’s unfortunate, we want to the money to go where it would be most productive, but that is of much less consequence than treating people with a drug that is ineffective or even harmful.

There is one other important aspect to this mode of direct public funding as an alternative to patent-financed research. There are often nutritional or environmental factors (e.g. exposure to lead) that have major effects on health outcomes. Under the current system, the pharmaceutical industry has no incentive to examine these possibilities. They are only rewarded for developing a patentable product.

Discovering that processed sugar might increase the frequency of certain types of mental illness is not going to get them any money. They therefore have no incentive to research to this sort of issue and even if their efforts to develop a patentable product might point in this direction, they would have no incentive to share that information.

By contrast, if companies are being awarded contracts based on their record for producing useful research, they would have tremendous incentive to pursue leads suggesting that nutrition, exercise, or other factors have a significant impact on health in particular areas. This could lead to a far more integrated approach to public health.

Getting From Here to There

I have been around Washington long enough to know that we’re not about to replace the mechanism for financing drug development in one fell swoop. That would look hugely risky from both an economic standpoint – pharmaceuticals is a huge industry – and also a health standpoint. We don’t want to take a risk that many important drugs don’t get developed because we have dynamited our industry.

But it is possible to envision a gradual path where we demonstrate the effectiveness of the direct funding model in two or three areas. This could mean some additional allocation of funding to NIH with the idea that it would go to directly supporting the development and testing of new drugs, which would then be available as generics from the day they are approved.

For example, we could allocate $30 billion over the next decade ($3 billion a year) to support the development of new drugs to treat specific type of cancer or diabetes. This would not prevent the industry from pursuing patent-supported research in the same area. The companies would just face the risk that if they did develop a new drug that it may be competing with one that is every bit as effective and selling for less than one-tenth of the price. Of course, if the industry is confident that government-funded research will only lead to dead ends, they need not fear this risk.

There actually is already a proof of concept that we can point to. Drs. Peter Hotez and Maria Elena Bottazzi, along with their colleagues at Baylor College of Medicine and Texas Children’s Hospital, developed a Covid vaccine, Corbevax. This vaccine has now been administered to more than 100 million people in India and Indonesia, protecting them against serious illness and death from Covid.

Corbevax was developed on an open-source model. This means that the process for producing the vaccine, as well as the data on safety and effectiveness, is entirely open and available to anyone. That means anyone in the world with the necessary manufacturing facilities can produce the vaccine. As a result, the vaccine is cheap, selling for around $2.50 a dose in India and Indonesia.

It would be desirable to have the Corbevax vaccine available in the United States. While it would likely cost somewhat more here, due to higher costs for labor and other items, we’re probably talking around $5 a shot. That compares to the $130 for the Moderna booster that my pharmacy was going to charge the shabbily dressed man.  (Most people don’t see this price tag, since insurers or the government are picking up much or all of the tab for the boosters, but we do ultimately pay this cost through one pocket or another.)

It would be a great first step if the FDA would approve Corbevax for distribution in the U.S. In addition to saving billions of dollars paying for boosters, and making them universally assessable, it would help to make the basic point. Drugs are cheap, government-granted patent monopolies make them expensive. Once people fully appreciate this fact, we can have more intelligent discussions of the best mechanism for financing research.

This first appeared on Dean Baker’s Beat the Press blog.

Dean Baker is the senior economist at the Center for Economic and Policy Research in Washington, DC.