(This article was submitted to The Washington Post on November 30, 2009 and sent as a comment to Mr. Martin Ravallion, the Director of Development Research Group and The World Bank, on his paper titled “A Comparative Perspective on Poverty Reduction in Brazil, China and India“)
The mission of The World Bank Group is to reduce global poverty. The logo of the Bank is a globe with latitudes and longitudes. It does not, however, measure poverty along the same lines.
$1.25 per day per person is the poverty line for the developing countries. On a purchasing power parity basis, it means the purchasing power of one hundred and twenty five U.S cents in its foreign currency equivalent. If a person were to live on that money, $1.25 when converted to Chinese yuan or the Indian rupee or the Brazilian rial should buy them their daily minimum needs at the same level as $30 per day would buy a poor American.
$40/day on Rachel Ray’s cooking show makes the viewers aware of the affordable eats in the various American cities, meaning $30/day is a livable poverty line. $1.25 in Brazil is about 2 reals; in India it is about 57 rupees; and in China it is about 8 yuan. The Economist magazine’s Big Mac index does not buy a meal at McDonald’s let alone take the poor in these countries on their equivalent of a Rachel Ray show.
In a recent paper by the Director of Research at the World Bank, Martin Ravallion, titled “A Comparative Perspective on Poverty Reduction in Brazil, China and India” meant to correctly point out that income disparity can have a depressing effect on efforts to mitigate poverty, the explanation for Brazil doing better than India and China falls significantly short of what ought to be expected from the Bank.
The data presented in the paper shows that income disparity between 1993 and 2005 in Brazil fell 2.1 points on the Gini index, which measures the disparity between the highest and lowest income earners in a country, toward 0 or absolute equality. But the level from which it fell in Brazil is above 50 on a scale of 0 – 100, 100 being absolute inequality. This means, Brazil was far more unequal to begin with than China or India in 1993 which measure at 35.5 and 30.8 respectively, closer to more equality, India being the best of all. China’s income disparity rose by 6 points and India’s rose by 2.6 from their 1993 levels by 2005.
The fact that Brazil fell and China and India rose conveys meaning about income disparities in each country, independent of economic growth rates, to evaluate government policies of poverty reduction, if and only if the baseline 1993 levels are taken into account. On both these counts, when economic growth rates are factored in, China and India did considerably better than Brazil because they both grew much faster while containing income disparity far better than Brazil. That Brazil could not grow as fast may have adversely impacted its ability to catch up with the level of China’s or India’s Gini index, even though far fewer people were living in poverty in Brazil and China as compared to India in 2005.
The World Bank has essentially endorsed Chinese and Brazilian policies of government redistribution to reduce the total number of people in poverty, albeit very different growth rates for both, considerably higher for China and lower for Brazil. It is doubtful if such policies are sustainable in the long run because in spite of more government redistribution, China and Brazil are less equal societies than India.
India’s policies, on the other hand, demonstrate a higher growth rate, albeit less than that of China but higher than Brazil, a more equal society and a poverty level that is gradually falling, balancing between the objectives of growth and managing income disparity, similar to the United States and other advanced economies. This has been the trajectory of India’s economic management since 1947.
The baseline year of 1993 when Bill Clinton became the American president is as arbitrary as $1.25. The objective is not a vindication of the Clinton presidency in the midst of a crisis with roots in the Clinton administration’s policies, with the current U.S supervisor of the Bank being the same people from the ‘90s. The litmus test for the Bank is to change China and Brazil to follow India’s more sensible path. Reconsidering the $1.25 poverty line could be a good start if the former president is to share a hearty meal with the poor elsewhere in his favorite restaurant on his travels abroad to reduce global poverty and obesity.