THE PARADOX OF RELATIVE POVERTY, VULNERABILITY AND HIGH HOUSEHOLD INCOME

Transcription

1 THE PARADOX OF RELATIVE POVERTY, VULNERABILITY AND HIGH HOUSEHOLD INCOME Chamhuri Siwar & Mohamad Ibrahim Institute for Environment & Development (LESTARI), Universiti Kebangsaan Malaysia Paper presented at MIER National Outlook conference, Kuala Lumpur, November 2015

2 Introduction The performance of Millennium Development Goal (MDG) shows the successful achievement pertaining to reducing absolute income poverty by 50%. However, still more than 800 million people are suffering from poverty and almost 50% of world s labour forces are vulnerable.

3 Poverty and vulnerability Poverty defined by some scholars as social exclusion. Social exclusion can cause multidimensional disadvantage, multiple deprivation, and exclusion from modern market economies. While vulnerability is a source of adverse shock that can causes households poverty. It is probability that a household will fall below the poverty line in future (Klasenet al. 2015). It is mixed level of a person s welfare and livelihood, which yields to risks or uncertainties.

4 Income inequality and regional disparity Inequality is believed as a bottle neck to economic growth and poverty reduction (Evelyne Huber 2006). Similarly, the rural-urban disparity is a significant factor affecting economic growth and poverty. Rural-urban disparity is highly correlated with the structure of economic sector of the respective region. Reducing inequality and regional disparity helps to promote economic growth along with reducing poverty.

5 Objective of the paper The paper aims to argue that due to dynamic nature of the life relative poverty ever exist, even if living standard of the society improved. Vulnerability and risk can be irreversible due to: Exogenous factor family crisis, natural catastrophe unexpected market shock Endogenous factors socio-cultural structure

6 Methodology The study established a conceptual framework and model that would be easy to present the main argument about the ever existence of relative poverty. Top 20%, middle 40% and bottom 40% inter-ethnic and intra-ethnic group of households income distribution are compared. Data from 1992 to 2014 of Economic Planning Unit (EPU), Malaysia, used for the analysis

7 Household income, demand and relative poverty The following conceptual framework and models show that the point or level of relative poverty either shifts or rotates based on the nature of determinants. The high households income the high level of demand and the high expenditure so the gap between income group that leads to relative poverty.

8 Dynamic nature of relative poverty Knowledge and innovation Employment New product Household income Demand Quality of life Expenditure Relative poverty

9 Cont. Malaysia has shown high commitment to the national targets of the MDGs to realize state and regional developmental goals such as poverty reduction, income equality and regional development. Accordingly, absolute income poverty rate has substantially eradicated, income inequality has reduced. Indicator Remark Incidence of poverty 3.8% 0.6% improved Gini coefficient improved

10 Cont. However, still there is poverty in relative among certain segment of society, income inequality and rural-urban disparity Looking at the race stratum across the main ethnic groups, the poverty rate: China, 0.1 Bumiputra, 0.8 Indian, 0.6

11 Median monthly gross household income by major ethnic groups

12 Income share of bottom 40% of households by ethnic group

13 Mean Monthly Gross Household Income of Bottom 40% Households

14 Median monthly gross household income across rural urban

15 Mean monthly income across rural-urban

16 Paradigm shift of poverty measurement Malaysia has been measuring poverty in one dimension namely income putting poverty line income (PLI). However, the new Malaysian plan (11 th MP ) to capture the dynamic nature of poverty using Multidimensional Poverty Index (MPI). MPI assesses poverty in the broader scope: Living standard, 0.25 Income, 0.25 Education, 0.25 Health, 0.25

17 Effect of limited capability of market b 40 households The vulnerability of bottom 40 households in all macroeconomic market types: Money Market limited access to financial and capital market Goods Market increasing prices of basic items Labour market low wage income

18 Consequences of limited capability of poor households It limits the urbanization rate creates a backwash effect of economic region Such as B40 households and vulnerable are hard to own capital It creates duality in economy rich become richer and poor become poorer Vicious circle and the ever economic elite will be created

19 11 th MP, government financial initiatives and B40 households Some scholars prefer a cash transfers than in-kind benefits to the households arguing that an in-kind benefit limits their consumption choice. Others counter argue that in-kind transfer is believed effective intervention mechanism. Because: Ø non-cash benefits are distributed equally across income distribution. Ø the impact will be insignificant as significant share of the assistance goes to the consumption

20 Rising in cost of living The marginal increase in cost of living likely offsets the financial assistance such as BR1M (one off financial assistance) to HH income of B40. The issue of rising in the cost of living will reduce the real household income and their purchasing power. The additional nominal income will push the income poverty line. The real income of the poor and the relative poverty rate remain as it is.

21 Effect of cost of living on poverty rate the price effect on the household s budget : Rotation of relative poverty reference point (rate)

22 Effect of cost of living on poverty level the income effect of the household s budget: Shift of relative poverty reference line (level)

23 The way forward: redistribution of income AS majority of B40 are Muslim Malay/Bumi, need to reemphasise the role of Islamic religious institutions. In addition to public social policy, one of the effective instrument for income redistribution is zakat and Wakaf system. In Malaysia, efficient zakat management and collection systems have been implemented in most states. However, the distribution system needs to be evaluated to make it more effective and redistribute more benefits to the needy.

24 Cont. The Wakaf system (including Business Wakaf) have been tried an proven to be a viable business approach that transfer more benefits to the ummah. In addition to the compulsory transfer, there are several kinds of voluntary transfer from rich to poor in Islamic system for social safety net. The role of Islamic microcredit schemes to alleviate poverty has been widely documented. The culture of voluntary transfer should be developed among capable households in order to enhance income equality and living standard of poor households.

25 Conclusion Since 1970, Malaysia has done well in eradicating hard core poverty and significant reduction in the poverty incidence from 49.3% to 0.6%. Since then, different policies and models have been adopted focussing on, income inequality, regional disparity and poverty eradication irrespective of ethnicity and balanced development. Absolute income poverty eradicated and income inequality has improved and yet there is an issue of relative poverty.

26 Cont. To address the inequality and relative poverty issue, 11 th Malaysian plan prepared people centric plan. The plan targets to enhance inclusiveness towards an equitable society via uplifting B40 households towards a middle-class society. In order to ensure a more equitable and inclusive society, government has taken initiatives such as addressing the increasing cost of living and raising income and wealth of B40 households.

27 Cont. Although the government policy is adequate to address the poverty and inequality issues, there could be exogenous shocks that perpetuate the issues particularly relative poverty. On the other hand, enhancing a culture of benevolent, such as zakat and wakaf, in a society along with social policy could play significant role in reducing inequality and relative poverty.

28 Recommendation Household expenditure is strongly related to household income. Normally, more affluent households spend more than poorer household. In line with this, the social policy that addresses the poverty issue should analyze the sensitivity (elasticity) of households income and expenditure.

29 End THANK YOU