With the increase in the general level of prices and chronic inflation stemming from the government’s financial policies, as well as the pressure of unemployment and underemployment on people’s livelihoods, the discourse on poverty has again taken center-stage in newspapers. Economic, social and occupational groups are also putting forward the poverty line to increase their bargaining power for getting higher wages and lower prices. Unfortunately, in the absence of independent research institutions, poverty studies are being carried out in a scattered, disorderly manner, and therefore ambiguities regarding poverty threshold continue to linger. These ambiguities exist in the theoretical concepts and methods employed to measure poverty and the poverty line. These were stated by Davoud Souri, an economist, in an article for the Persian economic daily Donya-e-Eqtesad. A translation of the text follows:
Poverty as Economic Concept
Poverty as an economic concept refers to the inability of a person to meet the minimum requirements of a decent life according to the standards of the society in which they live.
More than being an instruction for the measurement of poverty, this definition is an expression of a concept of lack of or low financial ability. Requirements and needs can be interpreted according to it and change over time. In the current era, needs are no longer limited to food, clothing and housing; other needs, including having access to communications tools such as the internet, freedom of expression or being recognized and playing a role in the administration of society, are also among the basic needs.
Many needs have yet to be defined, as standards change over time and place. This is why we see different figures on the poverty line and poor people even in a specific time and place. Those in power are usually apt to say poverty is low and decreasing, while the opposition groups say it is high and increasing.
It is said that if you put two independent researchers in a room and provide them with comprehensive information and ask them to calculate the poverty line, they will come out of the room with three different poverty lines. In short, a consensus must be reached on a single figure if it is going to be used in policymaking; this consensus is mostly the result of bargaining and separation of power. However, what seems important from the economic point of view is that the trend and changes in poverty over time can indicate the efficiency of the ruling economic system. In other words, we can only focus on the changes in the poverty rate over time.
Three Variables
Poverty studies often use micro-information collected from households in the form of cost-income surveys but since households’ income and expenses are directly related to current economic policies, changes in macroeconomic variables can also provide a comprehensive estimate of trends and changes in the poverty rate.
From this point of view, three variables of economic growth rate, inflation rate and per capita income can provide a comprehensive picture of the state of welfare in the society.
There is no doubt that the growth in inflation reduces the welfare of people and the increase in economic growth (provided that the income from economic growth is fairly distributed) improves their welfare. The increase in poverty is not a strange phenomenon in a society hit by years-long high inflation rates and low economic growth rates.
As you see in the graphs, over the past six decades, economic policies have led to soaring inflation (except for short periods of time).
Finding the root cause of inflation is beyond the scope of this article, but these policies definitely did not help reduce poverty. The impact of policies on economic growth has not been favorable to the poor.
Since the most important driver of economic growth in our country is income from the sale of oil and the distribution of this income via government, the effect of economic growth on poverty is more through the way oil revenues are being distributed among people than through its effect on employment and income generation. In addition, high inflation and low economic growth worsen the growing uncertainties in the country’s economic policymaking environment; that is in contrast to the growth of welfare and reduction of poverty.
Two variables of per capita income and income distribution are the outcome of economic policies being implemented in an economic system. Per capita income is the result of dividing the total income from the production of goods and services by the people of the country by their number.
Income distribution, measured by several metrics, shows what share of the income each member of the society has received. The central goal of any economic system is to increase per capita income as much as possible and distribute it more equitably among the members of the society. The graphs show a sharp, permanent decline in per capita income in Iran.
Paying attention to these three variables and their trends is enough to conclude that the increase in poverty is synonymous with the inability to meet the minimum requirements. This increase has a clear message: The economic policies of the past few decades, regardless of the logic behind their implementation, were not aimed at improving the welfare of the society. An economy that cannot produce and create welfare is doomed and need to change.
Two Final Points
Two points need to be noted in closing. First, oftentimes, uninformed officials speak of the decline in the Gini coefficient (which is a measure of income distribution) as proof of poverty reduction. That is not correct; the decrease in the Gini index and per capita income together is nothing but a fair distribution of poverty.
Second, the argument, made by the same officials, that people’s well-being has increased because they didn’t have mobile phones or electricity in the past and now they do is not a complete argument.
Knowledge and technology, as well as living standards, change continuously; people compare their economic conditions not with those who lived a few decades ago, but with people in other countries.
The foreign exchange rate is a variable that summarizes this comparison. The continuous depreciation of national currency is a perfect reflection of the fact that Iranian households are getting poorer at the international level and in comparison with households living in other countries.
