Flaws in Measuring the World’s Poor May Hinder Solutions
Tuesday, June 5, 2007
But to some economists, the World Bank’s definition of poverty is flawed, arbitrary and tends toward suppressing the numbers. Sanjay Reddy, a Columbia University economist and longtime critic of the bank’s counts, says, “If their dream is a world free of poverty, they ought to know how to measure it.” “Our dream is a world free of poverty” is a slogan at the World Bank. One challenge facing Paul Wolfowitz’s replacement at the bank’s helm is how to count the world’s poor so that we might know if that dream is approaching reality.
Though it was mostly overlooked amid the controversy over alleged favoritism by Mr. Wolfowitz, the bank announced in April that 985 million people are poor world-wide, a decline of 260 million since 1990. By that count, the United Nations’ Millennium Development Goal of halving the proportion of people living in poverty in the 25 years ending in 2015 appears attainable.
But to some economists, the World Bank’s definition of poverty is flawed, arbitrary and tends toward suppressing the numbers. Sanjay Reddy, a Columbia University economist and longtime critic of the bank’s counts, says, “If their dream is a world free of poverty, they ought to know how to measure it.”
The bank defines poverty as living each day on less than the local equivalent of what $1.08 could buy in 1993. That’s the median of national poverty lines in 10 poor countries. Incomes or expenditures are measured by individual countries’ household surveys, then converted to dollars in terms of purchasing power.
Each of these steps introduces potential pitfalls. National poverty lines are set by local governments and there isn’t any standard for defining them. “It is silly to use national poverty lines to arrive at a global poverty line,” says Nanak Kakwani, an economist and visiting scholar at University of Sydney, Australia.
Internal politics might drive some countries to choose a line that would suppress or inflate poverty counts. “The biases probably go both ways,” says Martin Ravallion, who has overseen these calculations for the World Bank since their inception in 1990. Of course, that doesn’t mean they cancel each other out.
The household surveys are another imperfect instrument. Different countries use different methods. Robert Wade of the London School of Economics cites a study in India that found the number of poor could be halved — on paper, that is — merely by shortening the length of time for which survey respondents were asked to recount their expenditures.
Countries also supply the price data used to convert currencies based on purchasing power. China didn’t supply this information for the latest round of revisions. Mr. Ravallion acknowledges the omission from the world’s most-populous country, in the region responsible for all of the bank’s calculated global poverty decline, could have a big impact on the overall numbers. “Getting more-accurate estimates of purchasing power parity for China is a high priority,” he says. “But we can’t force the government to participate.”
The purchasing-power estimates, known as PPPs, were developed as broad gauges and incorporate the prices of goods and services — such as air travel or computers — beyond the reach of the world’s poor. The inclusion of services tends to make prices look lower in poor countries because of cheap labor, but poor people typically spend most of their money on goods, particularly food.
The bank has been developing a measure specifically examining the relative cost of a basket of poverty goods and will be incorporating the result into updates of the poverty counts as soon as next year.
Each revision of the PPPs necessitates a re-calculation of poverty counts for each year, so trends can suddenly be reversed. In 1999, the bank said the number of the world’s poor had increased by 300 million since 1987. In 2002, the bank said the number had declined by as much as 200 million in the previous 20 years.
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