Friday, July 22, 2011

Why a lower-middle state is still really low

A big problem with international aid is that the classifications for countries do little to reflect the reality with their boundaries.

The World Bank classifies countries from low to hi income. Once a country graduates from low to "lower -middle" they no longer qualify for some of the grants and no-interest loans provided by the bank.

Increasingly, the countries in the "lower-middle" category have horrible governments or is just a failed state. That means that the government doesn't have much control or provides very little service for their people, sometimes the government doesn't care about the people at all. This type of country contains an ever growing number of people in poverty. They also have more wars and armed conflict than any other category..

From the Economist, we find out more about how the classifications fall short.

Why should it matter that a group of countries has crossed some arbitrary line separating poor from middle-income status? Perhaps, some may say, it shows that state failure is an extremely elastic term, embracing both countries in total collapse (Somalia, Chad) and those which merely contain large ungoverned spaces. In fact, the emergence of a group of middle-income but failed or fragile states is more than a curiosity. The group—call them MIFFs—includes countries crucial to the future of west Africa and South Asia. The new state of South Sudan (see picture), which combines oil wealth with instability and underdevelopment, will surely join its ranks.

The group matters for several reasons. Although its members may be semi-prosperous when measured by income per person, they contain a large and rising share of very poor people. Geoffrey Gertz and Laurence Chandy of the Brookings Institution, a Washington, DC, think-tank, calculate* that MIFF countries account for roughly 180m of the world’s neediest people (those living on less than $1 a day). That is 17% of the total number of the world’s poorest—more than the 10% who live in poor but stable countries. Anybody concerned with alleviating world poverty must reckon with the MIFFs.

The category has also grown fast. Failed states were once poor almost by definition. The World Bank’s fund for helping fragile states is called the Low-Income Country Under Stress fund; once countries stop being low-income, they no longer qualify as “under stress”, even if they are. In 2005, MIFF countries contained fewer than 15m people living on less than $1 a day, not even 1% of the world’s poorest. Since then, the group has expanded mostly because once-poor states have grown richer, but no more functional. It is rarer to find a middle-income state in which law and order once existed but later failed.

And that points to one broad lesson from the emergence of this new group. Indigent places are often racked by chaos; but somewhat better-off ones are not necessarily more stable. This year’s World Development Report (WDR)** showed that violence plays a greater role than once thought in keeping countries poor. Yet countries do escape poverty, and do not always grow more peaceable in the process.

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