On Feb. 29, the World Bank came out with its latest estimates on global poverty. They suggest incredible worldwide progress against the scourge of absolute deprivation. In 1981, 52 percent of the planet lived on $1.25 a day or less according to the World Bank's estimates; today it is around 20 percent. In 1990, around 65 percent of the population lived on less than $2 a day; by 2008 that number had fallen to 43 percent. This is not just a story about China -- though 663 million people in that country alone have climbed out of poverty since the early 1980s. Poverty has been declining in every region, and for the first time since the World Bank began making estimates, less than half of the population of sub-Saharan Africa lives in absolute deprivation.
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That may seem like news too good to be true, but in fact it's probably too pessimistic. First off, many experts argue that the World Bank's poverty numbers are too high -- not due to any conspiracy, mind you, but just because poverty is very hard to measure. Calculating a global poverty rate takes two steps: first, using surveys to calculate how much households consume a day in their local currency (cedis in Ghana, rupees in India, and so on); second, trying to work out how much a cedi or rupee buys you compared with what a dollar buys in the United States -- which is known as a currency's purchasing power. Neither step is simple. In respect to the purchasing-power question, working out how much a cedi buys compared with a dollar is not a simple case of going to the bank to look at the exchange rate. As anyone who has traveled in a developing country will know, your dollar goes a lot further in a poorer country. (Try buying noodle soup for 60 cents at a New York City restaurant.) Princeton University economist and purchasing-power guru Angus Deaton argues that the price data used by the World Bank to measure income in China, in particular, is too high -- making people there appear poorer in dollar terms than they really are. If that's the case, global poverty is even lower than suggested by the World Bank's latest numbers.
Similarly, economists Xavier Sala-i-Martin and Maxim Pinkovskiy of Columbia University and MIT, respectively, argue that the official poverty numbers for sub-Saharan Africa are far too pessimistic. They suggest that, on current trends, sub-Saharan Africa will halve the proportion of people living in absolute poverty between 1990 and 2015 -- a stronger forecast than the World Bank's estimates.
A second reason to think that the World Bank's new poverty estimates are too conservative when it comes to measuring the quality of life of the world's poorest is that the figures only measure private consumption of available goods. There is more to the quality of life -- or even a full measure of income -- than private consumption, and what people can buy changes over time. For example, in 1991, about 44 percent of children in the world's low-income countries (with gross national incomes under $1,000 per capita) completed primary school, according to World Bank statistics. A little more than half were vaccinated against measles. Today, about two-thirds of children in those countries complete primary education, and nearly four-fifths are vaccinated against measles. People not only have more money, but thanks to improved government services, they have more education and better health too.
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