Rich
in Imagination
By George
Monbiot
07 May, 2003
The global economy is working.
The rich may be acquiring an ever greater share of the world's wealth,
the ecosystem may be collapsing, but, or so we believe, the poor are
emerging from poverty. This is portrayed as the ultimate test of the
great neoliberal experiment: if, as the world's resources are privatized
and its corporations deregulated, the war against poverty is being won,
then the accompanying inequality and destruction can be accounted as
little more than collateral damage.
There is only one set of
figures which provides a global view of whether the incomes of the poor
are rising or falling, and it is cited everywhere. The trend, it suggests,
is slow but significant: between 1990 and 1999, the percentage of the
world's people living in absolute poverty fell from 29 to 23. Ugly as
some of its characteristics may be, the existing economic model is helping
the poor.
The figures are compiled
by the World Bank.1 It claims to know, to within the nearest 10,000,
how many of the world's people are living below the international poverty
line. The response of those who criticize the way the global economy
works is to accept the Bank's calculations, but to argue that there
are more equitable and less destructive means of achieving the same
results. But the figures are without foundation.
A new paper by the economist
Sanjay Reddy and the philosopher Thomas Pogge demonstrates that the
World Bank's methodology is so flawed that its calculations cannot possibly
be correct.
2 Not only do they appear
wildly to underestimate the level of global poverty, but the downward
trend they purport to show seems to be an artifact of the way in which
they have been compiled. The World Bank's figures, against which the
success or failure of the entire global economy is measured, are useless.
Most of the world's people
do not use US dollars to purchase what they need, and a dollar's worth
of currency in one part of the world can buy more than a dollar's worth
in another place. So to try to discover how many people live on less
than the equivalent of $1.08 per day (deemed to be the absolute poverty
line), the World Bank employs a method called "purchasing power
parity". This measures the amount of goods or services which the
equivalent of a dollar can buy in different countries.
The Bank's calculations suffer,
the paper suggests, from several fatal deficiencies. The most obvious
of these is that its estimate of the purchasing power of the poor is
based on the measure of their ability to buy any of the goods and services
an economy has to offer: not only food, water and shelter, but also
airline tickets, pedicures and personal fitness training. The problem
is that while basic goods are often more expensive in poor nations than
they are in rich ones, services tend to be much cheaper, as the wages
of the people providing them are lower.
If, for example, one dollar
in the US can purchase either the same amount of staple foods that 30
rupees can buy in India, or the equivalent of three rupees' worth of
services (such as cleaning, driving or hairdressing), then a purchasing
power parity calculation which averages these figures out will suggest
that someone in possession of 10 rupees in India has the same purchasing
power as someone in possession of one dollar in America. But the extremely
poor, of course, do not purchase the services of cleaners, drivers or
hairdressers. A figure averaged across all the goods and services an
economy can provide, rather than just those bought by the poor, makes
the people at the bottom of the heap in this example appear to be three
times richer than they are.
3. The Bank would derive
a far more accurate view of the purchasing power of the poor if it measured
only the costs of what they buy, rather than those of what richer people
in the same economies buy. Complete figures do not yet exist, but Reddy
and Pogge's initial calculations, based on the cost of bread and cereals,
suggest that the Bank's analysis might have underestimated the number
of the world's people living in absolute poverty by some 30-40%.
As the service sector expands
in poor nations, the Bank's figures will create the impression that
the purchasing power of the poor is increasing, whether or not their
real economic circumstances have changed. The same false trend is established
by a shift to the service sector in rich nations, as one dollar there
will then buy a smaller proportion of the total of available goods and
services. The RELATIVE purchasing power per dollar of the people of
poor nations is increased by this measure, even though their absolute
cost of living remains unchanged. When house prices boom in New York,
the shanty-dwellers of Lusaka appear to get richer.
These statistical artifacts
create a downward trend in the poverty figures where no real trend exists.
The Bank has exacerbated it by recalibrating the international poverty
line to reflect the pattern of total global consumption. As the world
economy migrates towards the service sector, the poorest people in the
poorest nations appear to require less money than they might otherwise
have needed to maintain their standard of living.
Perhaps more gravely still,
the figures which appear to be so precise that we can tell to within
the nearest 10,000 how many of the world's 6 billion people are suffering
from extreme poverty are, in reality, based on a mixture of guesswork
and wild extrapolation. The first of the Bank's two principal surveys
measured price levels in only 63 countries. Embarrassingly, China was
not among them, and neither that nation nor India figured in the second
survey (from which the trend has been established). A set of global
poverty figures, presented with six-digit precision, which contains
no useful comparative data from the two largest nations on earth could
be described as imaginative.
The Bank's statistics, moreover,
do not account for changes in inequality. If a nation's total consumption
is rising only because the rich have become richer, the Bank's figures
will not show this: they will suggest, instead, that everyone has prospered.
Yet we know that in many countries, especially those in which the privatization,
deregulation and reduction in social spending introduced by the neoliberal
model have been most extensive, the rich are becoming richer at the
expense of the poor.
That the key global economic
statistic has for so long been derived by means which are patently useless
is a telling indication of how little the men who run the world care
about the impact of their policies. If they cannot be bothered even
to produce a meaningful measure of global poverty, we have no reason
to believe their claim that they wish to address it. Development on
earth proceeds at present without any reliable means of determining
whether or not it is making the poorest people poorer.
www.monbiot.com
References:
1. World Bank, 2002. Global
Economic Prospects and the Developing Countries: Making Trade Work for
the Poor.
2. Sanjay G. Reddy and Thomas
W. Pogge, March 2003. How Not To Count The Poor. http://www.columbia.edu/~sr793/
3. This example is cited
in the summary report by Pogge and Reddy: Unknown: The Extent, Distribution,
and Trend of Global Income Poverty. http://www.columbia.edu/~sr793/