Beware of self-serving ideologies

Several recent reports from the NGO community (World Bank, UNDP, Earth Institute, Jeffrey Sachs) have commented on inequality in the world. Many of these comments are in the nature of "dog bites man", i.e. facts we have known for decades, if not centuries.

That there is inter-personal inequality, gender inequality, deep poverty, inhuman existence for millions, unequal opportunity for billions, are facts that everyone is familiar with, cognizant of, and acted upon.

Been there, seen that, done that policy. What is relevant for the international community is the identification of policies that have helped to reduce poverty, reduce discrimination and perhaps even to reduce inequality.  This can only be learnt by first looking at what has actually happened in poor countries over the last several decades.

This the above mentioned NGOs purport to do, and this is where they fall into the ideological, and dishonest, trap of selection of data, and interpretation (or as "authors' creation" or authors' manipulation", as the World Development Report candidly admits to being its "sources".)

United Nations, The Inequality Predicament and World Bank, Equity and Development: These two sister publications attempt to make the same point: world inequality has increased, inequality of opportunity has worsened, gender discrimination is continuing unabated, and therefore a major correction is needed via government redistributive policies, particularly those of the affirmative action variety. Also, that less inequality means greater efficiency and faster growth.

Unfortunately, several of these claims can be rejected as being false. The authors of the report know that to be the case, so why such tall "man bites dog" claims?

Consumption inequality in India was around 0.35 (Gini inequality index) until the early 1980s. Indeed during India's rotten age period (1960 to 1980) of declining growth and increasing poverty, inequality had steadily improved.

During the 16-year period from 1983 to 1999, NSSO (National Sample Survey Organisation) data stayed constant (real terms), or worsened by 3 per cent (in nominal terms)! During this period, Indian per capita income growth was more than twice that in the earlier equity-enhancing period.

In the last few years, per capita income growth has further accelerated by about 2 per cent per annum. The Indian data on inequality, growth and poverty reduction completely contradicts the central thrust of these sisterly NGO reports.

It is true that in China inequality has worsened with growth over the last two decades, but such is not the case with either Pakistan, Bangladesh, Sri Lanka, Vietnam, Indonesia, Thailand, or Korea. Nor is there any trend for inequality worsening in Africa, the Middle East, or Latin America.

It seems odd that the WDR (World Development Report) or UN report should generalise from the example of only China. Ironically, that is also the one country, which has reduced absolute poverty the most. So wherefrom the dishonest conclusion that inequality matters for growth and/or that inequality has been worsening and therefore should be of concern?

The two reports also document the nature of gender inequality. The consequences of gender discrimination are the bad outcomes in terms of lower education for women, higher infant mortality, and higher fertility.

Yet there is overwhelming evidence that there has been significant catch-up in education in the developing world -- girls get almost as much education as boys, and in some countries (e.g. Iran, Malaysia, and most of Latin America) the average schooling attainment of girls is more than boys. In India, the ratio of school attendance of girls and boys was close to 90 per cent in 1999-00, i.e. near equality.

Contrary to the tendentious reporting in the NGO reports, women-men wage differentials have declined rapidly in India. The average female-male wage ratio was 52 in 1983 and 58 in 1999-00.

Adjusted for education and experience (i.e. comparison of like with like) the ratio has increased from 84 per cent in 1983 to 89 per cent in 1999 -- near equality. It is likely that such results will be reproduced in most parts of the developing world -- but you would not be able to guess it from tendentious NGO reports.

The purpose of these reports seems to be to raise more money for poverty "alleviation", which in essence means more money for the NGOs and more incomes for their staff and associated consultants (like myself!). Jeffrey Sachs, in his book The End of Poverty, goes to great lengths to argue for a doubling of aid to remove world poverty.

His goals are laudable -- his mathematical calculations not so. His central calculation is that, theoretically, in order to remove world poverty on an ongoing basis, the world needs 124 billion PPP dollars. So, he asks for US$124 billion.

What's the difference? About a $100 billion, since one US dollar buys considerably more than 1 purchasing power parity dollar in developing countries. For India, $1 was equivalent to $5.4 PPP in 2003; for the average developing country, approximately 4.2. Thus, no more than $30 billion is needed to alleviate world poverty on an ongoing basis.

Actually, world poverty has been history for more than a decade, according to Mr Sachs' estimation methods. But you won't find this fact in his book.

There was a time when the World Bank and UN reports were a storehouse of knowledge. They were state-of-the-art summaries of policy problems, ideal for the education of students and policy makers alike.

The decline in objectivity set in almost a decade ago, and the present reports are more in the nature of ideological pamphlets, i.e. unlikely to be used by any academic, anywhere. The rot in institutions sets in first, and last, with ideological self-serving biases.

Populist governments in the world who find such reports palatable (such as our own!) should take note.