In this blog, I repeatedly criticized the use of income-based indicators of well-being in rich countries. Probably the most important reason why their use is inappropriate is the so-called Easterlin paradox, viz. the fact that people seem not to become happier as they become richer in absolute terms (above a certain threshold level). In measuring the well-being of poor people or societies, income seems to be of much more merit. However, here also there are reasons to be sceptical. One of the main problems has been identified by Amartya Sen, who stressed that income (or, more generally, command over commodities) alone does not generate well-being if the individual in question lacks entitlements.
Entitlements may be understood as the real opportunities to achieve something (achievements being the actual realisations of entitlements in Sen’s terminology). For example, the entitlement to nutrition reflects the ability of an individual to acquire a sufficient amount of food and to consume it; the entitlement to education is equal to the individual’s in question ability to go to school and be actually taught there. It is much more than just the command over commodities, even though the latter is an important part of most essential entitlements.
Indeed, in his classic Poverty and Famines, Sen distinguishes between endowments and exchange entitlements. Endowments are the material possessions of an individual, also including her labour. Common indicators of poverty focus on endowments only – the question asked is whether an individual has enough money or assets to acquire such things as food, education or health care. This approach, however, leaves out the question whether the individual also has entitlements to those essential goods, viz. whether she is actually able to acquire them. Let me show in a few examples why there is not necessarily a straightforward link from endowments to entitlements and achievements (which is the implicit assumption of most poverty indicators).
One example has to do with famines. When there is a food shortage (whether real or “imagined” is unimportant), some privileged groups of society may begin hoarding it. Such groups may be political elites or metropolitan areas (as was the case in the Great Bengal Famine of the early 1940’s with Kolkata [then: Calcutta]). The hoarding, mostly accompanied by speculation, leads to changes in relative prices – essential food commodities experience price spikes and are not longer affordable for the poorest. Real wage measures may capture such effects, but since the changes are in relative prices only, they likely will underestimate the consequences of price spikes like this. So, while the endowments do not necessarily change in a meaningful way, the exchange entitlements of the poor go down significantly.
Another important aspect regards public goods. One may have, theoretically, enough endowments to be able to acquire food or education or health care. But if there is no infrastructure, for example no roads connecting one’s home to markets (where she could offer one’s products or labour in exchange for other goods) or schools or hospitals, or when there are no public facilities at all in the area in question, the endowments cannot translate into achievements of those essential human development goals. Moreover, the problems with access (entitlements) to public goods goes well beyond infrastructure. An especially fragile area is education and health care services. One may be denied them due to tradition and cultural constraints (e.g., family control or abortion), gender (girls’ education), ethnicity, class or caste. A girl in a rigid traditional society may command over resources (money, own labour), but at the same time be denied education and family planning, both of which likely reduces her well-being in a significant way – without this being captured by most common poverty indicators.
Poverty and well-being, even in poor countries, are not only about commanding over financial resources or endowments. At least as important is the ability of people to actually use those resources in ways enhancing their well-being, viz. their entitlements to essential achievements. Given this, poverty indicators of the World Bank and other agencies and organisations, while being useful to some extent, should always be treated with caution. To learn the actual extent of poverty, one needs much more information regarding culture, ethnic structure, traditions, public infrastructure, political structure and privileges etc.
- Amartya Sen, 1981: Poverty and Famines: An Essay on Entitlements and Deprivation. Oxford: Oxford University Press.
- Amartya Sen, 1987: Commodities and Capabilities. Oxford: Oxford University Press.
- Amartya Sen, 1999: Development as Freedom. Oxford: Oxford University Press.
- Martha Nussbaum and Amartya Sen (eds.), 1993: The Quality of Life. Oxford: Oxford University Press.