Tackling poverty

December 16, 2013
Singapore Democrats

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Jeremy Chen

Poverty is a significant problem in Singapore: senior citizens scrounging for cardboard and aluminum cans to sell to recyclers, cleaners sleeping in public to save on transport costs, and even outright homelessness. Amid the futuristic weaves of The Interlace and the iconically quirky design of the Marina Bay Sands, the prevalence of such overt poverty is shocking.

In this article, I hope to articulate the need for a coherent response to poverty and show, by way of example, that such a response is indeed possible.

What gets measured gets managed


Minister for Social and Family Development Chan Chun Sing is right that no single poverty line should be drawn; that we should not introduce policy that includes a “cliff effect”. However, Chan’s argument that poverty should not be administratively recognized on the basis of the deep flaws of a policy straw man is fundamentally unsound.

In the absence of suitable formal metrics for tracking poverty, busy public administrators monitoring a myriad of other trends are more likely to overlook poverty, which is one reason why so many senior citizens are reduced to such dire straits. It is thus important to, at the very least, track poverty at a formal level.

How to measure poverty: General ideas


It is necessary to recognise that poverty is a blanket term for a number of different sorts of deprivation stemming from low or no income. Any assessment of the depth of poverty of a household must therefore be needs-based and take into account the financial and health status of the individual members as well as their needs and obligations. At the same time, it would be neither reasonable nor practical to track all Singaporeans at too detailed a level of resolution.

A reasonable compromise would be to use coarse-grained information such as household income and the number of members of that household (and their ages) to compute estimates of the deficit between income and the cost of a “required standard of living”. For the young, this standard might be pegged to a level that permits them to escape poverty by dint of hard work, while for the older and middle-aged, it could be pegged to a level commensurate with leading a decent life. The deficit as a percentage of the total required, the “income-needs deficit”, might be used as a coarse measure of the extent to which a household is “poor”.

Example:
Suppose a household with two 30-year-old adults and a 10-year old child has a monthly household income of $1,000, and a “required standard of living” is estimated to cost $500 for each 30-year-old adult and $400 for a 10-year-old child. Then there is a $400 deficit (out of $1,400) or an income-needs deficit of 28.6%.




Example:
Suppose a household with two 73-year-old adults has no formal monthly household income but a monthly payment from their CPF accounts of $700, and a “required standard of living” is estimated to cost $450 for each 73 year old adult. Then there is a $200 deficit (out of $900) or an income-needs deficit of 22.2%.

Naturally, there are flaws associated with such a coarse-grained approach. For instance, a household saddled with massive medical bills may have a zero income-needs deficit, yet struggle to meet basic needs. Handling exceptions like this on a case-by-case basis leads to overwhelming administrative burden.

Instead, a policy solution should be in place for every large class of problems. For instance, the affordability of medical care might be addressed by a policy suite like the SDP National Healthcare Plan, and housing affordability and related issues might be addressed through policies like those proposed in the Singapore Democratic Party’s (SDP) proposals for public housing.

Once large classes of exceptions are addressed, a case-by-case approach then becomes a reasonable way to consider the tens of cases that fall through the policy cracks, requiring the household needs of only the few to be evaluated.

Poverty response: Not one size fits all

A holistic solution for assisting needy households would have to address the needs of individuals at various stages of life. Let us consider children, for example. Assistance rendered must not just address financial and nutritional needs, but also other aspects such as holistic educational needs. In addition, involving children from poor households in low-expense and team sports as well as community projects would help them build life skills.

Once a household is identified as potentially being in need of assistance, all available specific information on the household should be used to identify the best means of assistance. This might include food vouchers, free tuition, and sponsored sports activities and community projects.

By matching data on a needy household with services provided by various community organizations, efficient targeted aid can be given. (The technological expertise to develop such automated recommendation engines is readily available. The real work is in organizing the social sector in support of poverty alleviation.)

Dollar-denominated aid done right


A threshold effect with respect to benefits occurs when those on one side of the threshold obtain a benefit while others across the threshold obtain nothing even though there is no meaningful difference between the former and the latter groups. The SDP has pointed out associated negative incentive effects (for productivity) in such settings as public housing grants and public housing purchase eligibility, calling it the “income ceiling effect”.

Although the People’s Action Party (PAP) describes the cliff effect, i.e. threshold effect, as something to be avoided, it is a common pitfall in various policies set by the PAP government as seen in concessionary rental rates, grants for public housing and permission to purchase housing board flats. However, it is not a difficult problem to address while still meeting the original policy intent.

To eliminate the threshold effect in the provision of dollar-denominated aid, the Ministry of Social and Family Development should identify benchmark levels of assistance corresponding to specific levels of income-needs deficit for each household profile and provide graduated dollar-denominated aid within these reference levels, so that as household income changes, assistance should change gradually and proportionally.

Example:
Suppose a household with two adults and a child between the ages of 6 to 12 has an income-needs deficit of 25%, with an income-needs deficit of 20% for such a household profile pegged to $100 in food voucher assistance and an income-needs deficit of 30% pegged to $180 in food vouchers. Then the household in question here should be getting an intermediate level of assistance, perhaps $140 in food vouchers. Along the same lines, if, instead, that household faces an income-needs deficit of 29%, it might get $172 in food vouchers.


Viewed from the lens of equity and incentives, graduated aid makes good economic sense. Furthermore, in this day and age where such policies are rolled out via IT systems used by administrators, the implementation of graduated aid is easily accomplished.

Conclusion


Poverty is a problem we have to deal with. The first step is recognizing, formally, that we have a problem. Following which, we have to address the multi-faceted nature of poverty and take a needs-based approach to its measurement and management.

However, before tackling the problem on a big scale, a comprehensive picture of the needs and means of poor Singaporeans has to be obtained. The government will then have to co-opt the social sector in formulating a coherent and effective plan to manage poverty. The policy framework example I have described indicates that a coherent response to poverty is possible. It is perhaps time we started working on it.




Jeremy Chen is pursuing his PhD in Decision Science at the NUS and is a member of the SDP’s housing policy panel.