Fun with World Bank numbers

A billion here, a billion there, pretty soon we're talking real poverty

Published July 8, 2006 12:13AM (EDT)

"In the last two decades, the percentage of the world's population living on less than $1 a day has been halved, falling from 40 to 20 percent over the last twenty years."

That's the opening line to a paper by UC Berkeley economist Ann Harrison, kicking off her introduction to a forthcoming collection of economic papers grouped together under the title "Globalization and Poverty." It's a stark statement of positive change in the world, drawn from World Bank numbers that get trotted out in almost every discussion in which globalization is debated. And it is a close relative of another popular World Bank statistic, which holds that from 1980-1998, the absolute number of people in the world living in extreme poverty dropped from 1.4 billion to 1.2 billion.

The underlying assumption among the majority of economists is that these dramatic numbers are due to the increasing integration of developing nations into the global economy. So why then, is there still such a fuss about globalization? Precisely that question is addressed by one of the papers in the volume edited by Harrison, "Why are the Critics so Convinced that Globalization is Bad for the Poor?" by Emma Aisbett, a Ph.D. candidate in the Dept. of Agricultural and Resource Economics at Berkeley.

The short answer to Aisbett's question, judging from her paper, is that there simply is no consensus on the empirical evidence, a problem that is aggravated by the fact that most economists tend to look at data in ways that are alien or incomprehensible to most critics of globalization. Measuring "poverty" or "inequality" on a global scale is very difficult. To take just one example that demonstrates how easy it is to get muddled, it is quite possible, given the increase in global population, for the absolute number of people in the world living in poverty to grow while the percentage of the world's total population that lives in poverty declines.

But wait a minute, didn't the World Bank say that the absolute number of people living in poverty has declined, to the tune of hundreds of millions? Well, that depends on how you define poverty. The World Bank says extreme poverty is defined as living on an income of under one dollar a day. But what if you go to two dollars a day? Suddenly you're talking about nearly half the people in the world, and that number appears to be growing.

And then, of course, there's oodles of disagreement as to how that one-dollar-a-day figure is calculated. The mechanism for figuring out so-called Purchasing Power Parity numbers that allow the comparison of incomes denominated in differing currencies in different countries is complex and has been called into question.

For more information on that, I strongly recommend a entertainly written and fairly devastating critique of the World Bank numbers that can be found in "Globalization, Poverty and Income Distribution: Does the Liberal Argument Hold?" by economist Robert Wade, which I found by following an Aisbett footnote.

Wade does a fascinating job of deconstructing the World Bank numbers. Among other points, he notes that the World Bank made its calculations of absolute numbers of people living in poverty using two different base years that incorporated differing calculations of Purchasing Power Parity. The numbers for 1980-1986 were based on a 1985 base year using one set of calculations, and the numbers from 1987-1998 were based on a 1993 base year using another set. So how, asks Wade, can you compare the 1.4 billion number for extreme poverty from 1980 with the 1.2 billion number for 1998?

Not only that, but the two countries whose economic growth has most likely contributed to the greatest amount of change in global poverty, China and India, did not participate in the 1993 data surveys that generated the original numbers for figuring out relative Purchasing Power Parity numbers!

I have to confess here, I've quoted the "hundreds of millions lifted out of poverty in the last twenty years" factoid in How the World Works more than once. But after reading Wade's breakdown, I can't look at those numbers again with a straight face. And that's notwithstanding the fact that Wade, who is as eloquent and vigorous a critic of free trade as I have yet found, is still willing to concede that it's likely that the percentage of people living in extreme poverty in the world has indeed declined.

No doubt Wade's takedown of the World Bank numbers has been since responded to somewhere in some similarly devastating fashion. When I find it, I'll report on it here. And one can only hope that, if economics is anything at all like the hard sciences it aspires to be, the back and forth over numbers will benefit from steadily improving data and ultimately lead to some kind of real clarity.

In the meantime, all this obsessing over numbers can get a little beside the point. At the outset of his analysis, Wade makes a pertinent observation: "In the end the question of whether or not by some statistical measure China's getting richer counterbalances Africa's reversion to barbaric misery does not matter much compared with the question of what to do about Africa's misery or narrower questions like whether protectionism is justified in country x at time y."

But the messiness of the data does give one pause. When the first line of a big book looking at globalization and poverty leads directly to a morass of statistical quicksand, it's hard to feel confidence about any assertion from the left or right or middle, about what the global economy is actually doing to the world's poor.

By Andrew Leonard

Andrew Leonard is a staff writer at Salon. On Twitter, @koxinga21.

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