I have, heretofore, generally accepted the idea that free trade, the division of labour, coordinated by what many people call “capitalism” has resulted in recent decades in a precipitous and welcome fall in the number of people on the planet living in what the UN, World Bank and co term “extreme poverty“. They define this as a minimum amount enabling people to feed, clothe and provide shelter, health and education for themselves and their families or communities, a pretty basic standard of subsistence, currently set as $1.90 per day (adjusted for purchasing power parity).
But, having only just, after nearly twenty years as a so-called “Georgist”, actually read Henry George’s magnum opus Progress and Poverty, I find myself questioning whether that bare statistic of people living under $1.90 a day is actually that meaningful.
In an under-developed country with a predominantly cashless susistence economy sets out, many of its people have more or less free access to land. They can, conditions being right, feed, clothe and house themselves for no expense, other than the labour to produce just enough for them and to trade small amounts for the simple things that help them sustain that life – a few tools mainly.
In the classical models of development economics such as developed by W Arthur Lewis and co, they are enticed away from that life as industry and commerce develop in their country by the promise of wages, education and other desirables. But in doing so, not only will they likely lose their connection to the land, but they will have to move to areas where land is more scarce, which attracts a rent, and their other susistence needs will have to be met out of cash income from the paid work.
So what I want to know, rather than just the bare figure of what they are earning and whether that technically puts them above the extreme poverty line or not, is how much of that are they having to spend on rent, for instance. Ricardo’s law says that rent will increase to absorb all the surplus between what can be produced in the best suited locations and the subsistence level at the “margin of production” (essentially where they were before). Which would suggest that, everythign else being equal, while they may have better access to other opportunities to create a stable income, for many it is still going to be eaten up by the difference in rent.
Does the World Bank try and calculate this? Is someone earning $1.90 a day in a cash based labouring economy really “out of povverty” or just paying more of what they earn to the rentiers that got there before them?