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Closing the Poverty Gap: Rethinking Targeting

October 15, 2012

Where do world’s poor live today? The surprising answer is that they live in countries which are classified by the World Bank as middle-income countries. When one looks at who is capturing what share of the gross national income (GNI) within countries across the world one sees a pattern: 50% is captured by those who are neither extremely poor nor extremely rich. If this emerging middle gets 50% of GNI, the extremely poor stands to compete with the extremely rich to get the remaining 50%. This bears the question: how one can close the poverty gap within countries? One way to look at the matter, it is that closing the poverty gap is tantamount to redistribute the income from the extremely rich and the emerging middle to the extremely poor within those countries. The most direct way to do so is taxation. Middle classes however won’t pay more taxes without getting anything in return specifically in terms of their own gains and the quality of public services. In many countries taxation remains a political taboo and therefore governments look at ways to benefit the extremely poor without impinging upon the status of the emerging middle. What concerns the poor, in other words, does not concern the middle or the top. The spin-off of such line of thoughts is that the best way to address poverty in MICs is to select the poor and target them with specific interventions. In this way, one is said, poor stand a chance to get closer to the middle.

Targeting in Practice. The rationales behind targeting are multifold. First, one is said, it is the best choice when governments face financial constraints: with limited financial resources, it is better to target the resources to the “deserving poor”. Secondly, it is redistributive insofar as it flattens the distribution of income across classes. Thirdly, and more importantly, it is allegedly cost effective. So how does targeting look likes in practice? If one looks at health, the Affordable Care Act (ACA) in the United States is the last of such examples. The main effect of the Act is to give health insurance to more people; it expands the right to have health expenses covered by an insurer. The federal government acts as insurer of last resort. The ACA utilizes scarce resources to expand insurance to deserving poor – i.e. the not insured – and it is redistributive in practice because it flattens the division between the haves and have-nots: now more people are covered in the US. These apparent benefits of targeting however conceals more fundamental flaws intrinsic in any targeting initiative.

Unraveling the Social Pact. A post on Health Affair Blog highlights the weaknesses of an approach – targeting – which by nature leads to segmentation and differentiation. Firstly, the ACA extends the right to coverage and not the right to care. Many who were not insured are now insured; however they are left with the daunting task to find the health providers who are willing to give them care. As Medicare is slow in providing reimbursement, physicians are unwilling to accept them as patients. The promise of coverage therefore does not translate into more and better care received if no care provider is available. Secondly, and more importantly, the ACA reinforces a logic whereby “benefits meant exclusively for the poor often end up being poor benefits”. ACA in fact segregates coverage by income because it expands the access to coverage for the most poor while leaving the middle and the rich to receive health coverage from employers or to purchase it privately. In this way the interest of the poor are disconnected from the interests of the well-to-do. And this talks to the fundamental pitfall of targeting: it unravels the social pact between classes in a society so that what concerns the poor does not concern the well-to-do. The immediate by-product of the unraveling of the social pact is that measures intended exclusively for the poor are bound to be unstable: as the ACA does not benefit the well-to-do they are likely to look at it as another example of social welfare program for which they pay but do not get anything in exchange.

In sum, targeting is often presented as a panacea to close the gap between the poor and the well-to-do. Its intended redistributive character makes for a strong case for those who are concerned about the poor. However, targeting by nature foster segmentation and unravels the social pact whereby everybody is in the same boat. It perpetuates a dual delivery system whereby the well-to-do access high quality, often private services whereas the poor access low quality, often public services. It creates and expands rights to poor – such as right to coverage – which are likely not to last long because the well-to-do do not have a stake in it. When cast in this light, targeting is far from being an appropriate response. So if one is concerned with closing the gap what are the alternatives to targeting?

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One Comment leave one →
  1. tom e bowers permalink
    November 17, 2012 1:43 pm

    When wealthy complain about redistribution of income they assume that the policies and laws that provided for their income are immutable laws of nature or divinely inspired rather than carefully crafted rules of men (lobbyists) that were paid handsomely to draft such legislation for their sponsors.

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