India on 20 cents a day

http://www.zcommunications.org/znet/viewArticle/2670

November 26, 2006

By Aseem Shrivastava


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The World Bank - which has to be applauded for having made the first such attempt started making international comparisons of poverty only about two decades back. For obvious reasons of convenience it developed two simple notions of poverty. The US Treasury being the power behind the institution, and the dollar being the reserve currency by design, the lower poverty line was set at $1 a day per capita. Those below it were considered to be "the poorest of the poor". The upper poverty line was set at $2 a day. Those living on $1-2 a day were still poor, but not as badly off. The updated numbers today, corrected for inflation, are $1.08 and $2.15.

The vagaries of purchasing power (dis)parities

However, there was a problem. It was realized that $1 goes much farther in purchasing necessary items of consumption in a poor country compared to a rich one. (Moreover, exchange rates do not take into account non-traded goods.) Using prevailing exchange rates, Rs.45 can buy more in India than $1 can in America. So unless it was corrected for the lower cost of living in poor countries – enabling access to a bigger amount of real goods for the same amount of money – this measure of poverty was likely to give an overestimate of the number of poor people living in absolute poverty. To make purchasing power across countries comparable, economists developed what is known as the PPP (purchasing power parity) index. Taking into account the lower cost of living in impoverished countries, a conversion factor is now applied to market exchange rates to calculate what is minimally necessary to survive there.

Using widely quoted World Bank numbers on GDP, this conversion factor for a country like India (2005) can be computed to be approximately 5.3. This means that $1.08 a day in India should effectively imply a purchasing power of about 20 cents a day to an American – or indeed anyone – unacquainted with the nuances of PPP calculations. However, given how the numbers are quoted everywhere, the dominant impression that is conveyed is that the poor are living on less than $1 or $2 a day when, in fact, it would be enormously more accurate, as far as everyday English is concerned, to say that the poor are living on less than $0.20 or $0.40 a day. The reason why this is not done is obvious: it would give an even more alarming picture of the scale and depth of poverty across this enormously wealthy world. Most decent people are shocked enough by the understated numbers in the form they are widely quoted. More reality would numb and paralyze even the grittiest of activists. "Humanity", T.S.Eliot wrote, "cannot bear much reality." He had the privileged in mind.

The most recent World Bank estimates for India are based on household surveys carried out in 1999-2000. It was found that almost 80% of purported superpower India's population was surviving on less than $2.15 a day (in PPP terms). That is, about 800 million people were living on $0.40 a day or less. Nearly 35% (350 million) were found to be living on $0.20 a day or less. Even if the proportion of poor people has fallen somewhat during the past 5-6 years, the absolute numbers would not look too different today.

I have asked several non-experts abroad who have traveled to India, and are thus somewhat familiar with market exchange rates, how they interpret the $1 a day or $2 a day figure. The answer is: literally. In other words, they think that really poor Indians (35% of the population) live on less than Rs.45 and less poor Indians (another 45% of the population) live on between Rs.45-90 a day. In their imagination that is bad enough for Western countries to send aid to poor countries.

However, if their belief was in fact correct then (assuming Rs.20 a day to be the minimum needed to supply the 2200 calories of food intake – and minimal nutrition - that agricultural economists and the UN take to be the survival norm appropriately averaged across age groups, locations and kinds of labor) at least the additional 450-500 million who would be living in the Rs.45-90 a day range would be well out of poverty. In fact, a substantial proportion of the people living under the lower poverty line would be out of poverty too. There might perhaps remain some 50 to 100 million poor, malnourished Indians whose long-term welfare could easily be looked after by the prosperity all around.

Not only would Indian politicians, government officials, businessmen and heir consultants be jumping out of their seats in sheer disbelief that their superpower fantasies may actually be realized, but if this state of affairs was representative of the impoverished world as a whole, the World Bank would be out of business, their achieved goal of a "world free of poverty" having ironically led them there!

Sadly, the reality is closer to "a world free of the poor". Thanks to the subtleties of PPP calculations it may quite possibly be the case that the number of people across the world who are not able to meet the minimum standards for adequate nutrition is anywhere from 3 to 4 billion, rather than the officially estimated 2.7 billion who are estimated to be living under $2 a day. No one really knows. In other words, we could all be off by a whole continent!

Some experts in the field, such as Sanjay Reddy of Columbia University or Robert Wade of the London School of Economics advise deep skepticism about prevailing official estimates, especially of alleged changes thereof on account of globalization. Wade advocates that "the political economy of statistics" is crucial and argues for greater competition in the market for the generation of international poverty data, so far a de facto monopoly of the World Bank. No free market there! There is intense debate among economists and policy-makers as to just how much poverty there is in the world and whether it is going up or down with globalization. According to one expert Angus Deaton, "it seems impossible to make statements about changes in world poverty when the ground underneath one's feet is changing in this way."

Where do the World Bank experts go wrong? A few of them are even known to this writer, and are reliable people of otherwise unimpeachable integrity. Being a drop-out economist myself I appreciate the trials and tribulations of the economists and statisticians at the World Bank who compute the numbers on poverty. It is a harrowing mine-field of data they must negotiate on a daily basis in order to arrive at the sort of numbers the world and its policy-makers are interested in. The challenge of measuring poverty and the (changes thereof) accurately, in a world as diverse, complex and dynamic as ours, is immense. But after decades of effort by trained statisticians it should have become possible by now to arrive at somewhat reliable numbers.

The problem is, at bottom, be political, rather than one of expertise. The very fact that when making comparisons between enriched and impoverished countries, all monetary magnitudes have to be inflated significantly to get a sense of real values in the poor world should have been a matter of great ethical concern to economists, something to make them wonder as to how things got to this point. In a world of markets stretched across mountainously uneven playing fields, pricing is determined not so much by the real costs (to human labor and to nature) incurred but by historically determined economic forces like the willingness and ability to pay. Typically, the latter are shaped in profound ways by legacies of inequalities in wealth and power which mainstream economists are trained to avoid taking into account while preparing their advocacy of "free" markets. In the real world, as against the general equilibrium models microeconomists are schooled in, few things are as politically shaped and formed as the structure of relative prices. In particular, the price of labor – wages – is almost entirely a matter of bargaining, as also, we are realizing, the price of utilizing nature.

Moreover, in our increasingly packaged consumerist world even global poverty figures must ultimately arrive in a wrapping that is not unpalatably unattractive to the public. Trickle-down will ultimately work, we are repeatedly assured by growth economists. But like the late John Kenneth Galbraith is said to have remarked acerbically, faith in trickle-down is a bit like feeding race horses superior oats so that starving sparrows can forage in their dung. All indications, especially in parts of the world like rural India, are that a decade and a half of corporate globalization has left undernutrition and malnutrition all but intact, and might quite possibly have worsened the predicament for many millions.

Numbed (by the numbers)

In a world which has been brought up to regard numerical precision as a sign of scientific rigor, it easily gets forgotten (especially by mainstream economists) that poverty is not merely a matter of numbers. Numbers can only tell us about what the experts call "income poverty". Modern standards of living involve large amounts of intangibles and social consumption, known to economists as "public goods": drinking water, public sanitation, health and education are only some of the services which people in rich countries take for granted because they have been traditionally guaranteed by the state (though in recent years private corporations have queued up, often successfully – especially in impoverished countries – to take control and possession of these services). When these are taken into account it becomes clear that what the experts call the "poverty line" is actually more accurately labeled "starvation line", as some people will have it. Many Indian economists have been advocating a serious upward revision of the poverty line in order to get a better grasp of the economic reality.

Economists have tried to remedy the situation by evolving during the last few decades the Human Development Index (HDI), calculated and issued by the UNDP every year. It tries to take into account life expectancy (as an indicator of health) and levels of adult literacy and enrolment (as indicators of education), apart from considering per capita incomes. It is certainly an improvement over raw numbers for poverty. And yet, if India's HDI is 0.63 and Norway's is 0.96, busy eyes will be tempted to conclude that Norwegians live only one and a half times as well as Indians! The crushing quality of human poverty in a cruel world simply cannot be captured by numbers like this. Nor can the enormity of the environmental damage from deregulated industrial growth be captured, as the World Bank tries to do, in its Little Green Data Book, by just offering estimates of greenhouse gas emissions, depletion of forest cover and a few other measurable magnitudes. The ecosystemic effects of runaway industrial growth – the damage done to climatic balances for instance – are possible to observe now, but not as easily quantified. There are exponential and synergetic changes taking place – for the worse – which might take the best informed experts by surprise.

Perhaps, we would do well to remember Einstein's counsel: "Everything that can be counted does not necessarily count; everything that counts cannot necessarily be counted." The poverty measurement industry loses much sleep and sweat over details that do not matter much. The big picture, perhaps unsurprisingly, is inaccurately reported. The propaganda efforts of governments and corporations succeed in the end in keeping some of the more terrible effects of prevailing economic policies from clear public view, undermining democratic transparency and potential accountability.

Rather than get drowned in swirling oceans of data, we might look for the prominent ridges on the gyrating currents of the monetized economy. However, it is then important to locate them precisely and, crucially, label and flag them accurately. Busy readers don't have time to interpret the fine print. And public patience with economists wears thin.

We only count and measure what is useful, important or interesting. By measuring we indicate that we care about what is measured. The score on poverty, especially if it is shameful, is worth keeping, if only to remind us of the extent of the failure of globalization not merely to change the lives of the poor but perhaps in turning them for the worse. (If China has lifted tens of millions of families out of poverty, the secret of their success lies in the years and decades preceding globalization – in the early 1980s rural reforms were carried out, among other things, granting access to land to the rural poor. Besides, the strong foundations of the social infrastructure – education and health – were laid down in the era of communism. Globalization has only allowed the country to reap the harvest of pre-existing investments better.)

If global poverty statistics are not disseminated accurately, the facts on the ground will only get worse – thanks to misinformed policy-making among other things – and will one day command dreadful obedience from one and all. The rulers of the day risk the implications of Colin Powell's faux pas a few years back - of boasting that the number of dead Iraqi civilians did not interest him very much. And the potential consequences across the globe could be as catastrophic as what Iraq is experiencing today.

Aseem Shrivastava is an independent writer. He can be reached at aseem62@yahoo.com

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