Thursday, June 30, 2016

What’s in a name

One might think that the countries where most poor people live would be classified as poor themselves. But they aren't. In countries recently reclassified as middle income, the majority of the population remains poor even as the country might be getting richer because wealth remains concentrated in the hands of the rich. This inequality is often further exacerbated by factors such as race, gender, caste or the rural-urban divide. This is amply illustrated when you compare the share of income or consumption of the bottom 10 percent with that of the top 10 percent in various countries. In an upper-middle-income country like Brazil, for example, the bottom 10 percent is responsible for just 1 percent of total consumption while the top 10 percent consumes almost 42 times as much. In India, the bottom 10 percent accounts for just 3.5 percent of the total consumption, while the top 10 percent accounts for 30 percent.

With a population of over 204 million, the Indian state of Uttar Pradesh would be the fifth most populous nation in the world -- after China, India, the US and Russia -- if it were a separate country. But it would also be extremely poor, with very poor development indicators and high levels of deprivation. The share of children affected by malnutrition and the infant mortality rate would be similar to or even higher than in those designated as low-income countries by the World Bank. But Uttar Pradesh is part of India, which is classified as a middle-income country (MIC).

Over 75 percent of those suffering from extreme poverty in the world live in countries that are considered middle income. India alone is home to 275.9 million of the poorest, living on less than the $1.90 per day used by the World Bank as the cut-off for extreme poverty. All other lower income countries -- located mainly in sub-Saharan Africa with a few in Asia, such as Afghanistan, Nepal and Cambodia -- have just 258.3 million put together.

The UN's 2015 report on global hunger shows that lower-middle-income countries account for over half the hungry people in the world compared to just 18 percent in low-income countries.

The classification of countries is done annually by the World Bank based on the previous year's per capita Gross National Income (GNI). In recent years, several countries have moved from the low-income group to the group called lower-middle-income countries, a sub classification of MICs. But if MICs are home to the largest number of people suffering from extreme poverty, how can they be classified as middle income? The answer is that their per capita GNI --or the total national income divided by population -- exceeds a critical threshold: per capita GNI of $1,045. MICs are those with a per capita GNI of more than $1,045 but less than $12,736. Within this category, those countries with per capita GNI of below $4,125 are further classified as lower-middle-income economies.

The re-categorization of low-income countries as lower-middle-income countries not only hides the fact that the majority of the world's poor actually live there, but the subsequent loss of concessions could lead to even higher levels of inequality, especially on something as basic as access to health care. Most major pharmaceutical companies like Merck, Pfizer and GSK have stopped providing preferential pricing or reduced prices on many important drugs to middle-income countries. "Over the last two years, lower-middle- and middle-income countries have been locked out of company discount programs and are forced to negotiate prices on a case-by-case basis, which has led to higher prices," noted Doctors Without Borders (MSF) in a 2012 press statement.
For the pharmaceutical companies, this is a good deal of course -- even if the majority of the population cannot afford the higher drug prices. Brook Baker, a senior policy analyst for the Health Global Access Project, a non-profit organization based in New York, was quoted in Nature magazine as saying that in middle-income countries with high income inequality, companies make more money selling drugs to rich people than they do selling to the 90 percent of people who are poor. After all, the richest 10 percent of the population in many of these countries often includes several million people. In Bangladesh, with a population of 156 million, for example, the wealthiest 10 percent accounts for more people than the population of countries like Belgium, Sweden or Greece.