Joys of Making $2 a Day in World of Billionaires: William Pesek

Commentary by William Pesek

Oct. 23 (Bloomberg) -- It says much about our time when we are more worried about billionaires than about the poor.

The obsession with those with billions in good times is understandable enough. Now it’s their misfortune that dominates the headlines: Las Vegas mogul Sheldon Adelson and investor Carl Icahn seeing their net worth drop, Russian oligarchs falling on hard times, Chinese and Indian tycoons losing a bundle in stocks.

We hear less about the so-called bottom 1.4 billion. That’s the number of people estimated to live in extreme poverty, which since 1990 has generally been defined as $1 a day or less.

Numbers like this should give markets pause, yet they rarely affect investment decisions, bond yields or stock valuations. It’s getting harder to turn a blind eye to how many consumers are below Asia’s poverty line. Why? The number is growing.

“What we forget when we look at Asia’s rapid growth is those being left behind,” Ifzal Ali, chief economist of the Asian Development Bank, told me in Manila earlier this month. “The combination of surging food prices and turmoil in global markets will significantly increase that number.”

To better understand living standards, Ali oversaw a three- year research project to produce the first Asia-specific benchmark for regional poverty. It redrew the poverty line at $1.35, the median of 16 developing Asian countries in 2005. China didn’t participate.

People at Bottom

The new goalpost is meant to reflect Asia’s rapid growth and widening disparities. Its utility lies in the ability of nations to compare their poverty-reduction progress with Asian peers.

Of course, the world has changed since 2005. The ADB data don’t account for the historic surge over the last year in food and energy prices. They also came well before today’s global credit crisis. And definitions of who is poor can be disorienting. Are we to believe that someone making $2 or $4 a day is suddenly and joyously awash in prosperity?

“In this world, we are so fascinated by the experiences of billionaires, all the while people at the bottom are doing worse and worse,” Ali said.

The need for internationally comparable poverty estimates has never been more important in Asia. It is home both to the world’s fastest-growing economies and the bulk of extreme poor. It’s quite a disconnect: The region with the greatest potential also is home to many of the world’s weakest economic links.

Commodity Prices

The ADB’s measure uses a poverty-specific “purchasing power parity” method that targets the baskets of goods and services used in each country. For example, someone making $1 or $2 a day in Mongolia or Nepal can probably get by better than someone living in Malaysia or Thailand.

Great emphasis is put on the differing quality of items such as food and shopping habits. It matters if consumers in one country are likely to get lesser-quality rice than in others. The same is true of whether they shop at so-called wet markets as opposed to Carrefour SA or Wal-Mart Stores Inc.

Even before this year’s run-up in commodity prices, many households in developing Asia spent more than 50 percent of income on food. As prices rise, more Filipinos, Indians and Indonesians are being pushed into poverty. A 10 percent increase in the cost of grains or general food prices will force tens of millions into extreme poverty.

That should concern executives at Microsoft Corp., Toyota Motor Corp., Airbus SAS and Samsung Electronics Co. relying on Asian growth to boost profits. People pushed into hardship won’t be buying many personal computers, cars, airline tickets or mobile phones.

Credit Crisis

Leaders in Asia need to work harder to make sure high growth rates are shared by all. That means reducing the corruption and economic inefficiencies that benefit the elite. It also means not letting today’s global credit crisis distract countries from spreading the advantages of growth.

Ali has two other big focal points: complacency and inflation. Now that commodity prices have come down from record highs, governments may backtrack on investments in agricultural development. He also says Asia risks losing its hard-won gains against rising prices.

“It’s so important to put the inflation genie back in the bottle,” said Ali, who is retiring this month after more than two decades at the ADB. “Over time, we may regret this. It’s putting short-term expediency over long-term thinking and that worries me.”

For someone in the U.S. or Japan making the equivalent of $50,000 a year, inflation is a challenge. For someone making $2 or $3 a day, rising costs are catastrophic. Such income may put some food on the table, but there is little left over to pay for health care or education.

The result will be slower growth, reduced productivity and less liquid markets than executives and investors would like. It’s great we now have a better way to measure poverty in Asia. It would be even better if governments were doing more about it.

(William Pesek is a Bloomberg News columnist. The opinions expressed are his own.)

To contact the writer of this column: William Pesek in Tokyo at wpesek@bloomberg.net