What are the main issues that choices must be made on before one can arrive at clear statements about trends in world poverty and world income distribution?

1. Poverty and income inequality both have fallen on world scale over the past two decades i.e. 1980s and 1990s, which can be called the decades of declining global inequality and reduction in the number of people living under extreme poverty (The World Bank claims that since 1980 faster growth, particularly China and South Asia, has contributed to a decline in the number living in destitute poverty from 1.4 billion in 1980 to 1.2 billion in 1998).

2. These falls are due to the rising density of economic integration between countries by the vehicle of globalisation, and would have gone further had the poorer countries been more integrated into the world economy.

3. Therefore, the empirical grounds of the anti-globalisation movement collapse. Rather, its policies would cause more poverty and more inequality.

4. The governments of poorer countries should take as their top development policy objective, raising the economy’s integration into world economy, or increasing the economy’s openness.

This is the view shared by some.  For instance, Banjamin Friedman, a Harvard economist, noted that global inequality was falling. World Bank Economists, David Dollar and Aart Kraay observed a similar trend toward greater equality and tied it to

the success of globalisation. The Columbia University’s Xavier Sala-i-Martin also sees the world inequality as declining. 

 There are serious reservations on the above view.  Not only that the globalist paradigm is contended but whole of its empirical base. For instance, Sanjay Reddy and Thomas Pogge, in ‘How Not to Count the Poor’, raise serious objections to it.  According to them:

“The estimates of the extent, distribution and trend of the global income poverty provided in the World Bank’s World Development Reports for 1990 and 2000/01 are neither meaningful nor reliable.  The Bank uses an arbitrary international

poverty line unrelated to any clear conception of what poverty is. It employs a misleading and inaccurate measure of purchasing power ‘equivalence’ that creates serious and irreparable difficulties for international and inter-temporal comparisons of income poverty.  It extrapolates incorrectly from limited data and thereby creates and appearance of precision that masks the high probable error of its estimates. The systematic distortion introduced by these three flaws likely leads to a large understatement of the extent of global income poverty and to an incorrect inference that it has declined.”

There are others who share the same critical angle.  As regards the flaws in the data used for calculation of poverty and inequality, James K. Glbraith, an economist at the University of Texas, observes “it’s not consistent across the countries, it’s not consistent through time – it fails every reasonable standard of reliability”. One of the major critics of World Banks figures, Branko Milanovic, who concludes that measuring global inequality by comparing the average incomes of different countries-even weighted by population- is deeply inadequate, in that it presumes that all of a nation’s citizen earn the same income.  As regards the statistics he believes that different governments calculate the figures differently and sometimes consistent data are unavailable.  As such basing assumptions on insufficient data is a futile exercise. He, in turn, suggests that if we account for income distribution within countries as well between them, we can then measure the extent of inequality among individuals

rather than countries. Based on his own time limited study, he concludes that not only that world income distribution has become more unequal, but also, the number of world’s poor has also increased.

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Then how could be exact figures reached at. And whether these are relevant?  These are the major questions that bother one. Before spending time and effort calculating reliable figures for world poverty and world income distribution one should ask oneself, does it matter? There are many who believe that as long as the trend in global poverty is arrested it doesn’t. This is also the view at the World Bank and it is believed that rising income inequality “should not be seen as negative provided the incomes at the bottom do not fall and the number of people in poverty falls or does not rise.” Amartya Sen, on the other hand, warns that “arguing about either is not advisable as it deflects focus away from the real issue, which is the sheer magnitude of poverty and inequality on a world scale. Regardless of the trend the magnitude is unacceptable.” Similarly, economist, Jagdish Bhagwati believes that the “quest to determine the state of global inequality is a waste of time and resources”.To Robert Wade, who, like others, emphasizes the importance correct statistics and their counting in a neutral perspective, “the trend does matter.” To him what makes it relevant is the parallel polarization that is occurring between zones of peace and zones of war.  He notes that the stark dichotomy between the stability and growth that has characterised the Western nations in the last few decades -  whereby top 20% of the world’s rich have accumulated more 80% of  its resources; and, the war, famine and economic stagnation that has become consistent with many nations in view. In that the World Bank and others ignore the associated political instabilities and flows of migrants that affect the lives of those living in the developed world.

Besides the globalist assertions that free trade and free capital movements are contributing to decreasing the world’s inequality, according to Wade, the world’s

income distribution has become more unequal. What is required is a focus on the

factors that have given rise to world income inequality and re-orienting the

international public policy manifesting the basic change in policy orientation of the international institutions – the World Bank, the IMF and the WTO.

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Four contributing causes can be identified that have resulted in the rise in global income inequality in the past two decades.  As put forward by Robert Wade these are:

1. The differential population growth between poor and richer countries.
2. The fall in non-oil commodity prices - which have fallen by more than half in real terms between 1980s and 1990s, affecting especially the poorest countries.
3. The debt trap – fast growing developing economies seeking to invest and consume more, borrow more with a lurking threat of financial crisis.
4. Technological change – that tends to reinforce the tendency for high-value-added activities (including innovation) to cluster in the (high-cost) Western economies rather than disperse to lower-cost developing countries. As a result one would see the OECD countries floating well above the rest of the world in the world income hierarchy.

The income divergence following as a result of the above has sharpened the divide between the rich and poor of the world.  Consequently, there is rising proportion of the people find their access to basic necessities restricted.

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        As it has been said earlier that the World Bank and the IMF have paid remarkably little attention to global inequality.  The assertion of the World Bank’s World Development Report 2000: Attacking Poverty that rising income inequality

should not be seen as negative as long as the incomes at the bottom do not fall and the number of people in poverty falls or remains constant is highly questionable.  Not only this but also the Bank’s claim that the number of people living on less than 1 dollar a day remained constant at 1.2 billion between 1987 and 1998 is also debatable as the figures reflect a downward bias. These tendencies, according to Wade, ignore the glaring realities of in-equalities of world income distribution and poverty. In that these are unjust and oblivious of political realities, fairness and common humanity which can harm the lives of the citizens of rich world and the democratic character of states belonging to it.

        What, in fact, is required is a trade off from the globalist assertions of integration of all economies into a world economy and an overhauling of the international public policy, focussed on reduction of income in-equality and poverty rather than mere manipulation of figures.  A basic change in the policy orientation of the international organisations like World Bank, IMF, and WTO is also required allowing them to “sanction government efforts to impart directional thrust and nourish home-grown institutional innovations.” 

        In view of above, it is more important to address the problems of poverty and inequality with a sincerity of cause rather than projecting insufficient and biased figures motivated to satisfy the interests of international institutions and focussed on intended audience.

References:

Commonwealth Treasury of Australia. Global Poverty and Inequality in the 20th Century: Turning the corner? Background paper for G20 meeting on Globalization, Living Standards, and inequality. Sydney 26-28 May 2002

Ferreira, Francisco, Inequality and Economic Performance: A Brief Overview to Theories of Growth and Distribution, 1999.

Ravallion, Martin How Not to Count the Poor? A Reply to Reddy and Pogge, Sep 2002

Reddy, Sanjay G and Pogge Thomas W, How Not to Count the Poor, Version 4.4 August 15 2002

Secor, Laura, Mind the Gap, Boston Globe, 2003.

Wade, Robert Hunter, Globalisation, Poverty and Income Distribution: Does the Liberal argument hold? July 2002, Working Paper Series, DESTIN.

Wade, Robert Hunter, The Rising Inequality of World Income Distribution, Finance and Development Magazine, December 2001, Volume 38, Number 4.

 

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