Slides to accompany the paper 'The Poverty of Statistics' and lectures on this topic, at https://www.academia.edu/188148/The_Poverty_of_Statistics

1. The politics of measurement
Alan Freeman

2. Passions, politics and poverty
Poor people are passionate about being poor
Rich people are passionate about being rich
Policy is influenced by both feelings and evidence
Evidence is a political football
We have to think critically about evidence
Don’t take anything as ‘true’ because it sounds convincing. Maybe
you wanted to be convinced.
Don’t take anything as ‘true’ because you trust the person who
says it. People trusted Bernie Madoff.
Critical thinking = examine presuppositions
What must we assume, if we accept this evidence?
What other viewpoints are there?
Do they lead to different answers, or the same?
If different, what assumptions lie behind the difference?

3. Hot contests
“The big lie of global inequality”
Martin Wolf (2004)
“Labour’s New Internationalism”
Jay Mazur (2000)

4. Some issues among many
‘Appears to be’
Does ‘appearance’ justify the title ‘Big Lie?
‘The World Bank Argues’ (Wolf); ’The UNDP
documents’(Mazur)
These sources differ. Does evidence reduce to authority?
Are the comparisons comparable?
What is being compared with what? Wolff: ’60th to 80th percentile’.
Mazur ‘200 richest people’
Countries or people?
Per capita or total?
Growth or absolute level?
Assets or income?
Wages or income?
$64m: What do the protagonists mean by
income?

5. A causal story is at stake: does globalisation work?
Firebaugh and Gosling 2004
“Following nearly two centuries of growth, global income inequality
declined in the last decades of the 20th century … the major equalizing
force is faster-than-world average income growth in China and South Asia,
industrializing regions where 40% of the world’s people live. Apparently
what matters most about economic globalization thus far is its role in the
spread of industrialization throughout populous poor regions of the world. If
so, then globalization most likely has reduced global income inequality.”
Similar arguments from Sala-i-Martin
Wade, Milanovic, Reddy responses (see
bibliography) on accuracy of measurement
However, a bigger issue is lurking

6. Digging deeper
Are we concerned with poverty or inequality?
Absolute or relative poverty?
Is there such a thing as absolute poverty?
Is a person without a car a poor person?
Was that true in 1920? Is it true in Bangladesh?
The ‘rights’ approach: United Nations charter, Millenium Goals
Amartya Sen (capabilities), Elson/Radhakrishnan
All suppose a ‘world’ standard of rights
If we suppose a uniform standard then
poor=unequal and unequal=poor
Cause, or effect?
If we reduce inequality will that reduce poverty?
If we reduce poverty will that reduce inequality?
Is there some third cause that will reduce both?
What was the ‘effect’ of globalisation?

7. GDP per capita as share of GDP per capita in Advanced
Countries, PPP
Inequality, using Purchasing Power Parity (PPP)
20%
18%
Third World excluding China
Third World including China
16%
14%
12%
10%
1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000
Source: International Comparison Project (ICP)
Note: data not available for 2004-2008

8. GDP per capita as share of GDP per capita in Advanced
Countries, current market exchange rates
Inequality, using MEPP
10%
8%
6%
4%
Third World excluding China
Third World including China
2%
1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008
Source: International Monetary Fund (World Economic Outlook), World Bank (world
Development Indicators)
MEPP = ‘Monetarily Effective Purchasing Power’ = current prices and market exchange rates

9. Two stories, one world
20%
18%
Including China, using PPP
16%
14%
12%
10%
8%
6%
4%
2%
Excluding China, using MEPP (current)
0%
1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008
• Two factors determine what the story is
•Is China included?
•Do we use PPPs or MEPPs?

10. What do the charts tell us?
On both measures, there is a downward trend
from 1980 followed by an upward trend. The
issue is the relative size of these effects:
If we miss out China, the trend is unequivocally
down – using both measures
If we use MEPP, the trend is unequivocally down –
with or without China
‘Good times’ story requires we use PPP
measures, and ascribe China’s success to
globalisation. But:
Is the ‘globalisation effect’ in fact a ‘China effect’?
Do PPP measures convey how the world economy
is actually evolving?

11. What’s on the tin: origins of the PPP approach
Prewar: UK board of trade, real wages of workers compared with Belgium,
France, Germany, UK and US. Then ILO-Ford UK-US
What wage to give UK workers for comparable living standard?
Colin Clark 1940 Conditions of Economic Progress
Compared of real expenditure for 29 countries. Expenditure in ‘international
units’: quantity of goods that can be purchased in each country for one US dollar
from 1925-34. Only for consumer goods and services.
How can we compare living standards between 2 countries, when prices are
‘lower’ in one than in another.
Heston and Summers, Penn World Tables
(http://www.pwt.econ.upenn.edu/)
“the number of currency units required to buy goods equivalent to what can
be bought with one unit of the currency of a base country”
Rapidly adopted
1992 IMF, World Bank, OECD
ICP now an international project, over 130 subscriber countries
SOURCE is ICP and World Bank, also OECD and ICOP
Note 1: became very popular at the same time that the IMF and World Bank
needed to demonstrate their policies were working
Note 2: statistical bodies attached to IMF/World Bank are not independent

12. Problems, problems, problems
Data shortages
Eg: India, China did not take part till 2005
IMF then revised estimates of Chinese GDP down by 15%
Representativity
what is ‘cheese’? (Roquefort ≠ Monterey Jack)
Transitivity
US/India X India/Mexico ≠ US/Mexico
We can make them transitive by averaging
The ‘average’ price is not a price that you actually find anywhere
Aggregation
GDP of Europe ≠ (UK+France+Germany+Italy+…)
Question: what is really being measured?
Claim: we are measuring ‘true consumption’
Analogy: the ‘Big Mac’ index

13. A critical approach
Accept the argument behind PPPs for now
The difference between PPP and MEPP
measure of income is then a ‘price index’
If the MEPP measure of a country is 3 times
smaller than the PPP measure, this is
interpreted as ‘prices are 3 times lower in that
country’
So what has actually happened to
prices, in the third and first world?

14. Ratio of GDP in PPP dollars to GDP in current dollars
The ICP price index (PPP/MEPP)
4
3.5
Advanced
Third World excluding China
Third World including China
3
2.5
2
1.5
1
0.5
0
1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002
(Larger= lower prices): prices have halved, and more, during ‘globalisation’

15. What’s in the basket?
‘Prices’ have fallen in the third world
Do PPPs register poverty – or just price changes?
A country needs not just to eat but to feed itself
Needs capital goods
Needs manufacturing inputs and technology
Reproduce not just humans but the means by which they
reproduce themselves
‘Give a man a fish and he will eat: give him a fishing rod and
he will feed’. Blah.
Consumption goods are cheaper in the poor countries – because
wages are low
But technology is relatively expensive
Poor countries specialise in labour-, resource-intensive products,
relying on rich countries for high-technology, capital-intensive
products - typically capital goods
Do capital goods figure in PPP measures?

16. The iPod Index
The ‘iPod index’ and the Big Mac Index
http://www.comsec.com.au/public/news.aspx?id=809
US dollar cost of an iPod Nano, January
2007
Brazil
India
Denmark
France
UK
Spain
$327.71
$222.27
$208.25
$205.80
$195.04
$192.86
Germany
China
Mexico
US
Japan
Canada
$192.46
$179.84
$154.46
$149.00
$147.63
$144.20

17. Machinery and consumption good prices compared
Table x: Price of Machinery and Capital Investment, relative to domestic consumption
First world
Country Capital Investment Machinery
Portugal
144%
205%
Korea
135%
170%
New Zealand
136%
169%
Hong Kong
155%
164%
Greece
126%
158%
Spain
129%
158%
Canada
97%
120%
Country
Sri Lanka
Pakistan
Bangladesh
Egypt
Morocco
India
Mauritius
Third world
Capital Investment Machinery
94%
389%
264%
353%
304%
352%
332%
323%
237%
321%
211%
300%
369%
290%

18. Divergence, Big Time
The two measures are diverging
The statistics are telling us something else
Labour is cheaper
Therefore, locally produced goods are cheaper
Typically low in the value chain, low-technology
‘Resource-exporting’ model of growth
Goods required for industrialisation are expensive
Does this make industrialisation – required to escape and
permanently reduce poverty – easier or more difficult?
BRIC: Industrialisation has occurred in some countries, but
is the cause globalisation or its opposite?
A further issue: vulnerability to price shocks
What will happen when the price of food goes up?

19. Are prices and poverty linked?
100.0
10.0
1.0
0.1
First World
Third World
0.0
0.00
0.50
1.00
1.50
2.00
(double-click to activate spreadsheet and scroll through the charts)

20. Check it out!
Prebisch and Singer
Dependency School
Modernity of backwardness
www.hetecon.academia.edu/AlanFreeman

21. Not covered here
Milanovic/PovCal on ‘household
incomes’ vs territorial measures
Measures of inequality (Gini, etc)

22. Quick References
ideas.repec.org
hetecon.academia.edu/AlanFreeman
… ‘Poverty of Statistics’ forthcoming, in
Third World Quarterly.
‘Crisis of Globalisation’ (Freeman and
Kagarlitsky 2004).
Bailouts and Bankruptcies’ , Fernwood
Press – out soon!

23. References
Penn World Tables 6 Technical Documentation, October 2002.
http://pwt.econ.upenn.edu/Documentation/Doc-tech.pdf.
Bart van Ark. International Comparisons of Output and Productivity: Manufacturing Productivity
Performance of Ten Countries from 1950 to 1990, http://www.ggdc.net/dseries/totecon.html, chapter 2
Ipod Index http://www.comsec.com.au/public/news.aspx?id=809
Colin Clark 1940 Conditions of Economic Progress
Heston and Summers, Penn World Tables (http://www.pwt.econ.upenn.edu/)
Firebaugh, G. and B. Goesling (2004). "Accounting for the Recent Decline in Global Income
Inequality." American Journal of Sociology, Volume 110 (Number 2 (September 2004)): 283–312.
Robert Hunter Wade. Debate about Income Inequality. UC Atlas of Global Inequality.
http://ucatlas.ucsc.edu/income/debate.html.
Wade, R. (2004). "Is Globalization Reducing Poverty and Inequality?" World Development 32(4): 567589.
Sala-i-Martin, X. (2001). “The Disturbing "Rise" of Global Income Inequality”
http://www.columbia.edu/~xs23/papers/GlobalIncomeInequality.htm.
Mazur, J. ‘Labour’s New Internationalism’, Foreign Affairs Vol 79, No. 1, Jan-Feb 2004
Milanovic, B. “The Ricardian vice: why Sala-I-Matin’s calculations are wrong”, typescript,
Development Economics Research Group, World Bank, 2002, available www.ssrn.com.
Wolf, M. ‘The Big Lie of Global Inequality’, Financial Times 8 February 2004

24. Wolf 2004 ‘The Big Lie’
“the 1980s and 1990s appear to be the first decades in the past
two centuries in which global inequality declined rather than rose.”
“There appears to have been an improvement in the relative
incomes of a large number of people in the bottom 60 per cent of
the global distribution, principally those living in Asia, relative to
those between the 60th and 80th percentiles”
“The World Bank argues, for example, that the number of people
living on less than $1 a day in east Asia fell from 418m in 1987 to
265m in 1996, before rising to 278m in 1998, in the wake of the
financial crisis.”
“As John Maynard Keynes is alleged to have said: ‘When the
facts change, I change my mind. What do you do, sir?’
I have changed my mind”
[‘It is time for comprehensive rescues of financial systems’ – Financial Times
October 7 2008]

25. Mazur 2000 ‘Labour’s New Internationalism
“The most recent U.N. Development Report
documents how globalization has dramatically
increased inequality between and within nations”
“A world in which the assets of the 200 richest people
are greater than the combined income of the more
than 2 billion people at the other end of the economic
ladder should give everyone pause.”
“Only 33 countries managed to sustain 3 percent
annual GDP growth on a per capita basis between
1980 and 1996; in 59 countries, per capita GDP
declined. Eighty countries have lower per capita
incomes today than they did a decade or more ago.”