| Wheel of misfortune
Imagine there’s no Country By Surjit S. Bhalla, Penguin, Rs 325
This tome will neither please the Vishwa Hindu Parishad nor the left of centre. Its central thesis is that from 1985 to 2000, a period of the so-called globalization, the percentage of poor people in the developing world declined by 25 percentage points, from 37.4 to 13.1 per cent. This “is not the perception of more than 99 per cent of the world’s non-governmental organizations — perhaps most important, it is not the perception of most academics, the intellectual elite”. It challenges, and indeed reverses, the interpretation of all economic literature on global poverty pertaining to the last two decades by the World Bank, the International Monetary Fund and the Nobel laureate, Joseph Stiglitz. Given all this, is the book credible' You bet it is.
The title of this perspicacious new book by an Indian economist and columnist is taken from the song by John Lennon. It is used here in the context of globalization, a wish for a world as desirable as Lennon’s imagined world without boundaries.
Largely academic in nature, the book brims with statistics and methodologies adopted by statisticians, and finally creates its own statistical methods for correcting earlier models. The lay reader will ask why we should take the author seriously. The answer, according to Bhalla himself, lies in subjecting all economic data and models to the duck-tests and smell-tests. He promulgates: “If it does not walk like a duck, and does not talk like a duck, it cannot be a duck.” “The normal tendency is to take the raw ‘facts’ at face value, and then to construct theories to fit the constructed facts — if someone drives a BMW, and it is claimed that she is poor, then she fails the duck test; that is she may walk like a duck but she does not run like a duck. Or if poor Indians are spending a considerably larger fraction of their expenditures on fruits and vegetables, and on education and health, and yet have not crossed the poverty line, that fails the smell test as well.”
In late 1999, the World Bank economist, Branko Milanovic, published an exhaustive analysis of data on income distribution, relying entirely on household surveys for more than 90 countries pertaining to the late Eighties and early Nineties, roughly a five-year period. The “seemingly incontrovertible conclusion was that the world individual inequality had significantly worsened by a massive 5.1 per cent. Because of its size, the conclusion could not be attributed to data errors. To the intellectual “left”, this was manna, and with the World Bank stamp, its colour lily-white. It quickly became the stick to beat globalization with. Bhalla, through a fascinating array of simulated statistical analyses, translates that for this massive downturn to happen, “the relative income of the Western World had to increase by 27 per cent and that too in just 5 years,” which corresponds to a 4.8 per cent each year. The actual average per-capita growth during this period in the West was 1 per cent. It does not pass the smell test!
Also, if one were to go by Milanovic’s estimates, ignoring gross national product data and not assigning incomes or consumption to the mean of the population, it would yield “these kinds of results: Ethiopia substantially richer than India in 1993; and South Korea richer than the United Kingdom, Sweden and Australia in 1993”. This smells foul!
World Bank poverty estimates, using the same method as Milanovic’s, show that there was a 5.6 percentage point decline in head-count ratio over 12 years, 1987 to 1999. In lay terms, only a net 5.60 per cent of the population went over the poverty-line during the period. Pitch it against the actual 21 per cent increase in average consumption in developing countries during the same period. “Would not social upheavals, besides those provided by the Seattle anti-globalization types, have been the order of the day in the developing world'”
Consider this: China and India, which in 1987 accounted for more than half the world’s poor people, grew collectively annually at more than 5 per cent for 12 years, which translated into a massive 82 per cent compounded growth. Yet, no dent was made in global poverty' Pundits are wrong because, as Bhalla asserts, “the consumption growth is taken from national accounts, and poverty change from survey data. It is just as wrong as taking Peter’s income to estimate Paul’s poverty.”
Why this anomaly ' Why this clarion call by “institutions inside the Washington Beltway and all left-of-centre outposts of the world” that instead of convergence in relative income between the West and the developing world, as is the case, there has been divergence, “big-time” divergence' “The intellectual basis for this conclusion [is] that the relative income of the United States of America had widened with respect to that of the poorest country, Tanzania, in 1950 and Sierra Leone in 2000”. A much better alternative, though still not correct, would have been to compare the trend in relative incomes of the richest and poorest countries benchmark to say 1960. This would have shown a trend towards convergence. Instead, we are fed with “the relative incomes of the always changing top and bottom 20 countries, with China conveniently, and perhaps deliberately, excluded from the calculation”. An even better method would be to compare “relative incomes of the 20th percentile in the United States with the 20th percentile in the developing world (the people might change, but not the percentiles) or relative incomes of the medians in the two sets of countries.” Results show “bigger-time convergence.”
Bhalla postulates that economic growth is more than sufficient to reduce poverty. But this is contrary to the conventional wisdom that “attacking poverty requires action beyond the economic domain”. Bhalla asserts, “Such actions are not needed. Growth is sufficient, period.” Amen .