How the pandemic deepened the poverty pit

Being poor is like trying to climb out of a pit while roped together with your family. At the bottom of the pit – below the international poverty line of $1.90 (€1.63) per person a day – the water is filthy, there’s very little food and hardly any medical care.

For the first few levels the family climbs, there are no safety nets. A single shock – granny needing costly medicine, the failure of the family farm or the death of the breadwinner – can throw everybody back into the pit.

From about 1990, ever more families acquired a safety net. That might be bank savings, a sibling in New Delhi or New York sending money home or a state clinic providing free basic healthcare. They were crossing the great human divide that separates the defenceless from the protected.

Then came this year's unprecedented shock. Because Covid-19 is global, it often shreds all a family's safety nets at once. Worldwide, the disease will push 71 million into "extreme poverty", below $1.90 a day, predict World Bank economists. This will be the first annual increase in global poverty since the 1990s. The question now is how to restart the long climb to protection.

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In poor countries, Covid-19 has been an economic rather than a health shock. Deaths from the disease in these countries are undoubtedly undercounted, but experts agree that their death rates are far below those of western countries. Nobody quite knows why, beyond the obvious facts that poorer countries generally have younger populations and more outdoor life. It may be that in these countries, the cohort most vulnerable to the disease – adults with comorbidities – died long before Covid-19 came along.

Whatever the reasons, a child in Kenya probably knows nobody killed by the disease. Nonetheless, the lockdowns and the pressure on an already overstrained health system may have forced her to leave school, forgo vaccinations and skip meals, permanently damaging her life chances.

Migration

The oldest safety net is the family and recent decades of migration strengthened it. The nativist canard that poor people move to rich countries so as to laze about on welfare misunderstands family obligations. Migrants have to send money home for mum’s pension, little brother’s school fees and auntie’s market stall.

Global remittances to low- and middle-income countries hit a record $554 billion last year, double the figure for 2007, and more than the annual global total of foreign direct investment, says the World Bank. That figure is projected to plunge 20 per cent this year.

A newer safety net is state-provided healthcare. Most people in Britain acquired their protected status with the founding of the NHS in 1948. Many Asians in particular have made that step only this century. In China in 2003, just 22 per cent of the population had health insurance; this year the country intends to reach universal coverage. That should reduce the frequency of medical crises impoverishing families.

The journey has been much rockier in other low- and middle-income countries (notably India), but there is a slow upward trend. "In 2017, between one-third and half the world's population were covered by essential health services," reports the World Health Organisation. The next step is to extend healthcare to the most vulnerable people, including the world's one billion disabled, who are disproportionately likely to live in extreme poverty.

Measures as simple as vaccinating children and instituting check-ups for pregnant women can save a family. Even in dysfunctional Zimbabwe, cheap drugs to treat HIV, mostly funded by foreign donors, have raised average life expectancy by 17 years since 2004.

The most recent global safety net is private. The billions of people in the $2- to $10-a-day bracket have had their lives changed by the smartphone. Thanks largely to online banking, the number of Africans with accounts rose from 170 million in 2012 to nearly 300 million by 2017, reports McKinsey. The figure had been projected to reach 450 million– half of Africa’s population – by 2022. That’s potentially transformative: a family business’s ability to survive a shock can depend on the owner’s savings.

Until Covid-19 hit, ever more people around the world were saving a few cents a day to pay premiums of a couple of dollars a month to insure their phone, their tractor or their health. In effect, they were buying insurance against the pit.

The coronavirus will terminate many families’ climbs. Once a family falls into extreme poverty, it may never rise again, because it often has to sell assets, such as cattle, or take children out of school. How to help people survive this existential moment?

Just Give

Rather than set up expensive ad hoc aid programmes, the latest thinking in development economics is (to quote the title of a classic book): Just Give Money to the Poor. The poor know their own needs better than aid workers do. Unlike after the global financial crisis of 2008, states and NGOs can now pay directly into poor people’s bank accounts, reducing the risk of skimming. Let’s not allow Covid-19 to return people to the pit for another generation. – Copyright The Financial Times Limited 2020