A Dollar a Day is a Poor Way to Measure Poverty

As I think about returning to Africa, I keep reading articles and hearing organizations quoting the “dollar a day” statistic. I’ve always wanted to write a response to this. Here it is

We’ve all heard it. “A billion people live on less than a dollar a day and another 2 billion live on less than $2 a day”. Intended to create shock value, I’ve heard a version of this statistic so many times it has ceased to mean anything to me. While I understand that putting poverty in simplistic terms like a dollar a day helps people in rich countries understand it better (and increase donations), I want to propose that poverty is significantly more complex and hopeful than our “dollar a day” paradigm.

First, let’s look at how a dollar a day is defined. Contrary to what I thought, the measurement does not take one US dollar, convert it to Ugandan shillings or Mexican pesos and see how much a poor person would need to live. It actually uses purchasing power parity (PPP), so a basket of goods that would cost $1 in the US might only cost 50 cents somewhere else. A person living on “a dollar a day” in Guatemala is actually living on less than 50 US cents because stuff is half the price in Guatemala.

So do people actually live on 50 cents a day? Yes and no, for two important reasons.

Social Capital and Agriculture.

The US is an individualistic and post-agricultural society. Individualism means income is personal and you can’t rely on anyone else (besides maybe your parents) in times of trouble. People who can’t pay their bills often become homeless. In a place like this, it is impossible to live on a dollar because you have to pay upfront for everything you need. Virtually no one in the US grows his/her own food anymore. We have to buy everything we eat, increasing our dependence on liquid capital, ie. Cash.

In contrast, poor countries are generally more communal, meaning income is shared to provide a social safety net. Africans who can’t pay their bills could move in with their brother, or cousin, or a dozen other family connections. They may earn less than a dollar a day, but they will not become destitute.

Likewise, a large percentage of poor people in developing countries are farmers. They may be poor, earning less than a dollar a day in cash, but at least they have avocados and banana trees. The lack of stable income does not necessarily mean you are starving. This isn’t true of cities, but cities are also the places where incomes are higher, significantly more than $1 a day.

All that to say, the average income of certain places in developing countries might be less than $1 a day, but that is changing quickly and thinking of assets only in terms of cash fails to see the entire picture. People in poor countries have more resources that they can rely on in times of trouble and they can only live on a dollar a day because they have these other resources. I’m not saying that poverty doesn’t exist. It is extremely vast and complicated and I don’t fully understand its consequences/causes. But a dollar a day is a poor way to think about poverty because it fails to consider so many intangibles. It’s a Western perspective on income applied to third-world contexts and while it tells one side, I believe it fails to tell the whole story.

Let me know what you think and subscribe to my blog if you would like updates as I return to Kenya.