Global Policy Forum

An Interview with Sanjay Reddy, Coauthor of "How Not to Count the Poor"

By Nathan Harrington

"How many poor people are there in the world? This simple question is surprisingly difficult to answer." So begins "How Not to Count the Poor," a new study published at www.socialanalysis.org by two Colombia University scholars. In it, economist Sanjay Reddy and philosopher Thomas Pogge mathematically dissect the process by which the World Bank's staff economists arrive at an estimate of the scope of global poverty each year and reach the stunning conclusion that their methodology is fundamentally flawed so as to yield results that could not possibly be accurate. The extent, distribution and trend of global poverty remains unknown, they conclude, but there is reason to believe that the World Bank has been undercounting the poor, and that it has come without sufficient justification, to the conclusion that poverty is on the decline.

The significance of these revelations begins with the fact that the World Bank is the only public institution in the world that claims to know -- down to the nearest 10,000 -- how many people suffer from extreme poverty. The estimates, Reddy and Pogge write, "are widely cited in official publications of governments and international organizations and in popular media, often to support the view that liberalization and globalization have helped reduce poverty worldwide." The discovery that these estimates are virtually meaningless, then, is highly inconvenient for the World Bank because if it is widely accepted and publicized, the World Bank would be deprived of a trump card with which to defend its neo-liberal policies -- and the configuration of the global economy itself -- against a growing chorus of protest and dissent. The World Bank has attempted to rebut Reddy and Pogge's research with an article (also available at www.socialanalysis.org) by Martin Ravallion, who manages the Bank's poverty estimation, but it has proven unpersuasive.

The many defects which Reddy and Pogge find in the World Bank's methodology range from straightforward to obscure. For one, the World Bank starts by arbitrarily designating 'one dollar per day' as the universal poverty line to be applied to all nations. But because a dollar can buy more in some countries than others, World Bank economists attempt to convert its worth using a method called "purchasing power parity" adjustment. Existing purchasing power parity adjustments identify the extent of purchasing power of the world's people according to their capacity to buy all goods and services consumed in the world economy. This is not limited to the things they need to survive, such as food, housing, clothing, and healthcare, but also includes limousine service, luxury hotels, and pedicures, which will presumably not be purchased by those without disposable income. Because services are typically cheaper in poor countries than in rich countries as a result of lower wages, purchasing power parity adjustments typically overstate the ability of the poor to purchase basic necessities that are not especially cheaper in poor countries. Furthermore, the growth of the service sector worldwide may translate over time into the appearance that the poor have increased purchasing power. In fact, the increased consumption of these services by the non-poor does nothing to reduce poverty.

Reddy and Pogge argue that the $1/day standard and the use of unrealistic purchasing power parity conversion factors not only distort the results, but reveal the failure of the World Bank to relate its estimates of poverty -- to a meaningful concept of human deprivation. Equally problematic is the fact that the most recent calculations, covering 1998, are based on consumption distribution data for a limited range of countries, with guesswork used for many of the others, including those containing the largest number of the world's poor (India and China). In place of the existing World Bank model, Reddy and Pogge have proposed what they call a capability-based approach, which would define poverty according to the fulfillment of basic human needs rather than an arbitrarily determined dollar figure. They estimate that adjusting only one aspect of the World Bank's method through the use of more realistic purchasing power parity conversion factors might lead to poverty lines that are higher by 30 to 40 percent in many poor countries, and correspondingly higher poverty estimates. However, they caution that the net effect on global poverty estimates of replacing the Bank's method with a more plausible one remains unknown.

The following is a brief interview conducted by e-mail with Sanjay Reddy, professor of economics at Barnard College, Colombia University, and coauthor of "How Not to Count the Poor."

How did you become involved in researching the World Bank's poverty estimates?

I was drawn to studying the issue by my colleague Thomas Pogge, who is a distinguished philosopher very much concerned with global justice. Thomas wanted to understand the extent of global poverty in order to formulate his philosophical arguments. However, he was unable to make full sense of the explanations that he found in the World Bank's publications concerning how it estimates the income dimension of global poverty. He approached me, a friendly economist, to help him understand what was being done. In due course, I became heavily involved in the issue, and we began to delve in to the conceptual foundations and practical aspects of global poverty estimation.

How is it that the World Bank formulated so flawed a methodology? Is it the result of technical incompetence, ideological assumptions, an intentional effort to manipulate the figures, or some combination of these?

In our view, the individuals who are directly involved have approached the exercise in a sincere fashion, and are persons of the utmost integrity. Nevertheless, their method is conceptually and practically flawed. How and why was an inappropriate method put in place, and has it endured so long? One reason is that the money-metric '$1/day' poverty line has an immediate appeal, in a world that fetishizes money values. However, we have tried to emphasize that from the standpoint of advocacy, it is at least as effective to recognize that a human being has too little income to be adequately nourished as it is to note that the value of her daily consumption is (in some sense) less than $1 per day. A further irony is that far from creating solidity, this standard has led to much confusion because of the deep difficulties that arise when it is attempted to identify equivalent purchasing power across countries and years without clearly specifying an underlying concept of human welfare or deprivation.

A second reason is that there has been insufficient transparency and external scrutiny. The lack of external scrutiny has allowed flawed methods to come in to being and to persist. Now that the institutional reputation of the World Bank is at stake, there may be a desire on the part of the institution to protect the existing methodology, and its associated '$1/day' "brand name" notwithstanding their serious flaws. However, we would prefer to leave it for others to speculate on the broader factors at play.

George Monbiot wrote in The Guardian, "That the key global economic statistic has for so long been derived by means which are patently useless is a telling indication of how little the men who run the world care about the impact of their policies. If they can't be bothered even to produce a meaningful measure of global poverty, we have no reason to believe their claim that they wish to address it." Do you agree or is Monbiot being sensationalistic?

I agree with Monbiot that it is insufficient to presume that the dominant global institutions are driven by good intentions, and that therefore they can be relied upon to produce good outcomes. External scrutiny and pressure is required in order to ensure that international institutions actually serve the ends that they ostensibly serve. The lack of adequate attention given to the need to produce reliable global poverty estimates is in my view an illustration (although perhaps a small one) of what can go wrong when such scrutiny is absent.

What reaction has your paper provoked from other economists, including those employed by the World Bank and IMF?

There has been a more limited reaction than we would like. Economists as a profession show less interest in the question than they should, often claiming that it is uninteresting or unimportant. One reason that is offered for this attitude is that we already know all that we need to know - namely that there is a lot of poverty in the world. Another reason that is offered is that all major policy choices are made at the national level, and so only poverty estimates for individual countries are of relevance. In our view, both of these arguments are mistaken. We believe that global poverty counts do influence policy analysis and policy choice, and if not then that they certainly ought to do so. There is some evidence that the Bank is responding to the concerns we raise through planned changes to the methodology that they employ, but we have not been consulted on those changes, and in our view they are unlikely to go far enough. Greater activism on the part of external stakeholders (such as member countries, non-governmental organizations and ordinary people) to press the Bank and other international organizations to produce higher quality estimates of global income poverty would be welcome.

What impact, if any, have protests against the World Bank and IMF had on those institutions' policies?

External scrutiny is essential in order to ensure that these institutions get on the right track, and stay there, as is true for any public institution. However, it is also very important for activists to educate themselves about the issues. In our view, the conceptual issues involved in global poverty estimation are not forbiddingly difficult. Anyone who really wishes to understand the issues can. Economics is too important to be left to the economists, and perhaps more to the point, the economists are not always right. The history of damaging conditionalities attached to structural adjustment lending offers one example of how policies can have harmful consequences (perhaps inadvertently). Attempting to understand the issues at stake will make activists somewhat more sympathetic to the practical dilemmas faced in policy formation, and constructive in their prescriptions. This is essential if activists are to be effective at advancing their aims. Critics of the Bretton Woods institutions are often viewed disapprovingly for what is perceived to be a preference for unnecessarily strident and unconstructive rhetoric. This charge is sometimes fair and should be a cause for self-reflection on the part of the external critics. On the other hand, the critics play an essential role in creating what John Kenneth Galbraith referred to as 'countervailing power', which is absolutely necessary if the worst outcomes are to be avoided. An increase in the quality and quantity of questioning (and at times contending) voices can strengthen both democracy and development.

Certainly some people are intimidated by the technical language and mathematics involved. But I think there is also a sense among many activists that economics as an academic field is unsympathetic to grassroots concerns about the globalization of capital. At Bates College, which I attend, for example, the student group that organizes economic justice-oriented events draws support from faculty in Political Science, History, Sociology, and Anthropology departments, among others, but not from the economists. Is there something to this?

I think that the common attitude of economists toward the demands of grassroots activists often differs from that of other social scientists for a range of reasons. One reason is that the training of economists teaches them to be respectful of markets and what they can achieve (that other forms of economic organization find very difficult to achieve). This is a viewpoint that I partially share, although I believe that economists can afford to be much more critical on this score. A second reason for economists' common attitudes is that their research methods and concerns cause them to be skeptical of what they perceive as 'merely' anecdotal evidence concerning the damaging consequences of 'globalization', and (quite rightly) to insist on clearly identifying the conceptual mechanisms by which globalization may cause harm as well as the evidence that harm is actually being caused. A third reason for economists' common attitudes is that they tend to focus narrowly on the economic consequences of globalization (and to prioritize what they typically perceive as its economic benefits) while ignoring many other types of consequences, such as its cultural consequences. A fourth reason for economists' common attitudes is that they tend to focus on what is happening to aggregate measures of well-being and to ignore the diversity and specificity of human experience, which play a more important role in other social sciences. For all of these reasons, there are differences in perceptions.

The gulf is indeed wide and it is not clear how to bridge it. At the least, it is very important to make efforts on all sides to clarify the nature of disputes, as a step in the attempt (which may very well fail) to resolve them. I do agree that economists suffer from substantial (and potentially dangerous) blindnesses, and that it is necessary to correct or limit the effects of these blindnesses through vigorous external scrutiny and involvement. In my view, activists are welcome in the debate and should play a still more substantial role, but ought also to educate themselves so as to be as constructive and effective as possible.

The extent, distribution and trend of global poverty remains unknown, but there is reason to believe that the World Bank has been undercounting the poor, and that it has come without sufficient justification, to the conclusion that poverty is on the decline.

FAIR USE NOTICE: This page contains copyrighted material the use of which has not been specifically authorized by the copyright owner. Global Policy Forum distributes this material without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. We believe this constitutes a fair use of any such copyrighted material as provided for in 17 U.S.C § 107. If you wish to use copyrighted material from this site for purposes of your own that go beyond fair use, you must obtain permission from the copyright owner.