Depressing truth behind Cambodia’s poverty reduction

Whoever said it – Mark Twain, Benjamin Disraeli or another casualty of Churchillian Drift – it is a useful attitude to take of there being three types of lies: “lies, damn lies, and statistics.”

It is inescapable if only because the ruling Cambodian People’s Party rarely misses a chance to remind us that under its watch the poverty rate (usually defined as living on less than US$1.90 a day) in Cambodia fell from 53% in 2004 to 20.5% in 2011 and 13.5% in 2014. The government, indeed, ought to be praised for overseeing this, while we must also assign credit to the fact that this has largely been achieved thanks to the proliferation of the free market, with some redistributive elements.

But we must temper our applause. For starters, it is all too easy (and allows one to think the job is almost finished) to assume that just because most Cambodians have exited poverty it means that they have suddenly found prosperity. It does a patient some good to know his condition is critical but not terminal, but it doesn’t give him too much reason for optimism – he is still closer to death than he would want to be. It is just the same when it comes to poverty; the person who leaves the confines of monetarily defined poverty is still closer to destitution than he or she would want, and far closer to destitution than to material comfort.

Controversy broke out last October when the United Nations Development Program, working with the Oxford Poverty and Human Development Initiative, decided to judge Cambodian standards by a newer metric, “multidimensional poverty.” Rather than just income and consumption, this metric takes into consideration health, education, and living standards – and when it was applied to Cambodia, the UN’s report put the poverty rate at 35%. I wrote about this report and the government’s heated response in my Diplomat column published on October 24, 2018.

But another chance to reconsider Cambodia’s poverty rate presented itself this month thanks to a report published this month by the World Bank, “Cambodia Economic Update: Recent economic developments and outlook.” Two choice passages from the report are as follows:

“Poverty reduction continued, but the bottom 40% are doing less well than before.…Though impressive gains continued to be made, the reduction in poverty during 2013-17 was less than during 2009-13, mainly because economic growth benefited the non-poor more, while urban poverty stagnated compared [with] the earlier period. Consumption per capita for the bottom 40% grew at 13% during 2013-17, while it expanded at 22% for the top 60%.…

“There are still many households that are only just above the poverty line and have limited ability to absorb shocks, even small ones. Any negative shock reducing consumption per capita by Cambodian riel 2,000 (US$0.50) would double the poverty rate.”

The first statement isn’t too difficult to comprehend for anyone who has spent some time in Cambodia, especially in Phnom Penh. It is obvious to visitors or residents that wealth inequality is growing (the Asian Development Bank estimates that almost 70% of Cambodians still live on less than $3.20 a day) and that Cambodians have a way of making sure that inequality is as conspicuously demonstrated as possible.

Take a meander around Phnom Penh’s small Diamond Island (Koh Pich). A film released in 2016 about development on this jut of what was farmland only a few years ago, and titled after it, is not only a good indication that Cambodian art has a solid and healthy form of realism to it, but that it isn’t lost on observers that Koh Pich is a physical representation of a place the poor are intended to build but not enjoy – indeed, almost all new major buildings in Cambodia are now for private consumption by the wealthy, whereas the edifices designed by the great Vann Molyvann in the 1960s were intended for public use and enjoyment.

The second quoted statement from the World Bank report ought to be more closely inspected. It should be assumed, I believe, that this comment refers to a reduction of consumption of 50 cents per day, rather than per month or year. But it is unclear of what poverty rate it is referring to. A World Bank update from April was still quoting the poverty rate taken in 2014, which was 13.5% of the population, and which also stated: “Around 4.5 million people remain near-poor, vulnerable to falling back into poverty when exposed to economic and other external shocks.”

I cannot be certain, but it would appear that what the more recent World Bank report means is that the poverty rate could double to 27% of the population if consumption per capita falls by 50 cents a day. Yet it is unclear what this means for the 4.5 million “near-poor” Cambodians (just under a third of the population). In any case, even the most optimistic rendering of the World Bank’s assertion makes for depressing reading. At best, the loss of 50 cents, the price of a can of Coca-Cola, could see poverty levels grow from about a seventh of the population to more than a quarter. At worst, it could thrust half the population back into poverty.

A second query must be made to the World Bank statement, too. My above-stated scenarios rest on the assumption that consumption per capita is relatively equal. But we know, clearly, that it isn’t. The rich consume a disproportionate amount compared with the poor, which affects the national aggregate.

So is the situation graver than the statistics make out? Most likely. For if the rich naturally spend more on consumption, the statistics for how much the poor consume as nationally aggregated is inflated. Is it the case, then, that a reduction of consumption of less than 50 cents for the poor is likely to double the poverty rate? And how much less?

The World Bank informed us back in 2014 that “the loss of just 1,200 riel (about $0.30) per day in income would throw an estimated 3 million Cambodians back into poverty, doubling the poverty rate to 40%.” That was income; the latest statistic is about consumption, though the two might not be too far apart. Whatever the case, we’re talking about fine margins (30-50 US cents), and what most people in the richer parts of the world would consider loose change.