Department of Economics  Faculty of Economic and Management Sciences Economic and Development Problems in South Africa and Africa Poverty and Inequality in SA

Admin Micro-credit presentation and feedback… Van der Berg (2010) article Not all information is of equal value (!) DVDs next week – one per group 2

Money-metric vs multidimensional poverty Absolute vs Relative poverty Lorenz curves Gini coefficient Understand the nature of poverty/inequality in SA General knowledge of developing countries (TED video) 3 Aims for these lectures…

POVERTY… 1.What is poverty? 2.How do we measure it? 3.Why should we measure it? 4

Poverty What is poverty? “Poverty is the inability of an individual or a family to command sufficient resources to satisfy basic needs” (Fields Ch4) Money-metric or multi-dimensional framework? We are looking often look at money-metric, but MDF in brief: Income and expenditure justified as poverty measure partly because of presumed correlation with well-being and empowerment. Important to understand that money is not end in itself, but means to an end $ correlated with food, shelter, nutrition etc but not well correlated with access to public services, safety, human rights etc Amartya Sen = Godfather 5

What is poverty really? When the poor are asked to characterise what it means to be poor, they use phrases like: Isolation from the community A lack of security Low wages A lack of jobs Poor nutrition Little access to water Poor educational opportunities (May, 1998 in Finn et al 2013) 6

Multidimensional poverty 7 Figure 1: The composition of the Multidimensional Poverty Index (Finn et al 2013) NB NB  Anyone who is deprived in more than 3 of the dimensions is classified as multidimensionally poor

MDP For example, a household is classified as deprived in terms of: Schooling if no household member has at least 5 years of education Enrolment if one child of school-going age does not go to school Water deprivation is defined as not having piped water on site Deprivation in child mortality is indicated by a child having died before age 15 Nutritional deprivation is indicated if one person in the household is seriously underweight See Arden 2013 for full definitions 8

MDI 9 Comparing poverty measures for South Africa for 1993 and 2010 (Finn et al, 2013) “This means that the 8% who remained multidimensionally poor in 2010 were deprived in fewer dimensions of poverty than in 1993: roughly, in four areas instead of five (on average). When the changes in H and A are taken together, they indicate that in 2010 there were significantly fewer multidimensionally poor people; and that those who were still poor, were somewhat less poor than in 1993.” Severe poverty can be defined as being deprived in 50% or more of the indicators

Sources of deprivation? 10

Main areas of deprivation among the multidimensionally poor 11

Conclusion on MDP? “Between 1993 and 2010 the reduction in multidimensional poverty was significant and notably higher than the concomitant fall in money-metric poverty. Thus, significant increases in public expenditure to attain universal school enrolment, to reduce child mortality and expand access to services such as electricity and sanitation to poor communities have been very effective in reducing multidimensional poverty.” Finn et al

Hans Rosling 2006 TED talk… 13

Poverty Focus axiom: The only thing we need to know about the non- poor are how many there are (poverty not inequality!). Tony Blair was “intensely relaxed” about the millions earned by David Beckham (a footballer) provided that child poverty fell. Absolute vs Relative measure of poverty? $1/day or 30% mean income? 14

Money-metric poverty How do we go about calculating the number of people that are poor in a country? 15

Poverty Coudouel, Hentschel & Wodon 16

Poverty - SA (Leibbrandt et al, 2010) 17

Poverty-SA 18 (Leibbrandt et al, 2010)

South African poverty at a glance 19 Ch4 Transformation Audit 2013

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Poverty - SA 21 Impact of social grants on poverty? Labour market – focus for solving inequality? (SVDB).brief explanation of Human Capital Model

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Poverty - SA 23 Impact of social grants on poverty? Labour market – focus for solving inequality? (SVDB) “Wage inequality, deeply rooted in South Africa’s history, plays a central role in overall income distribution, and patterns of human capital development are fundamental to the future growth path and therefore to poverty and income distribution. The paper therefore concludes that reducing inequality substantially is currently unlikely without a massive increase in the human capital of those presently poor, but that prospects in this regard are inauspicious” (Van der Berg, 2010)

Poverty SA Has poverty in SA declined? It depends who you ask Survey method vs National accounts Which poverty line? Which distribution? 24

Poverty measurement - sidebar 25

Poverty - SA 26

Money-metric poverty – SA, the gist Poverty has not gone up since the transition Differing views on when and how much it came down Depends which surveys you use, also which method (Survey-method or national accounts anchoring) Common-sense methods are helpful Hunger decreased 27 Back to Beckham…

Inequality 28

Inequality Calculating the Gini coeficient Gini = (Blue) / (Red) Total equality? Total inequality? 29

Inequality 30 (Leibbrandt et al, 2010)

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Poverty and Inequality 32 (Coudouel, Hentschel & Wodon)

Inequality - SA 33

Inequality at a glance… 34 Ch4 Transformation Audit 2013

Inequality - SA < 35 Within-race inequality has grown (especially amongst Africans) Between-race inequality has declined African population important!!

Poverty & Inequality - questions Poverty Measurement issues – how to move forward? How to reduce poverty? Economic growth? / Trade? Social transfers? Education? Why hasn’t a reduction in MDP lead to an increase in employment? Inequality Is inequality a ‘national’ poverty? Implications for social/economic/political stability? 36