The World Really Is Getting Richer as Poor Countries Catch Up
(Bloomberg Opinion) -- Last month, Microsoft co-founder and philanthropist Bill Gates touched off a high-profile debate about global poverty after tweeting out a graph from the website Our World in Data showing that the number of people living on less than $1.90 a day (adjusting for inflation and price difference between countries) has fallen dramatically. That graph looked something like this:
Anthropologist Jason Hickel, writing in the pages of the Guardian, took exception, disputed the graph and denied Gates’s assertion. Two of Our World in Data’s creators, Joe Hasell and Max Roser, defended their methodology for measuring poverty, which Hickel then criticized more. The debate was well summarized by Dylan Matthews in Vox.
It’s understandable that some people in the U.K. and the U.S. would want to embrace a narrative of increasing global immiseration. These rich countries are struggling with their own economic problems — inequality, reduced mobility and wage stagnation — and no doubt those in Hickel's camp also feel guilty for the imperial conquests of past centuries. But that narrative is false. Hickel is wrong, and Gates, Hasell and Roser are correct — global poverty has indeed been dropping at a dramatic and unprecedented rate.
One of Hickel’s main arguments is that the poverty threshold used by Our World in Data — $1.90 a day in 2011 international dollars — is too low. Hickel suggests instead using a threshold of $7.40 a day to measure extreme poverty. If this higher threshold is used, the total number of poor people in the world rose steadily in the 1980s and 1990s, and only began to fall very gradually in the late 2000s. Thus, Hickel declares, global poverty has risen rather than fallen.
But this argument is both economically and morally flawed. Although higher poverty thresholds are important to look at, the lower thresholds are actually more important. A person living on less than $1.90 a day is in danger of starving to death, has no access to life-saving medical care, proper sanitation or basic education. Let's imagine her income rose to $7.39 a day. That increase would be utterly life-changing — still poor, but out of immediate danger and the grueling daily struggle just to stay alive.
But by Hickel’s accounting, this gain in income would represent no reduction in poverty, since $7.39 a day is still less than his chosen threshold of $7.40. This is reflects an analytical failure because he doesn’t appreciate one of the basic tenets of economics — the diminishing marginal utility of consumption, meaning that the less money you have, the more each small increase matters.
In other words, by dismissing the use of very low poverty thresholds, Hickel is willfully ignoring the most important improvement in living standards — the ones that move people away from utter destitution.
Hickel’s second argument is that the poverty graph inaccurately measures the past. Our World in Data’s poverty numbers for 1820 through 1980 are taken from a paper by economists François Bourguignon and Christian Morrisson, although the data from 1981 on come from the World Bank’s PovcalNet database. Hickel notes that simply pasting together two different data sources is inappropriate for drawing comparisons between the recent past and the distant past. He suggests that the true income of people in pre-industrial societies was higher than the economic historians estimate, since they had access to communal lands and other natural resources that measures of market activity miss.
This may or may not be true; as Roser and Hasell note, economic historians do try to account for these non-market sources of production. But even if Hickel is right, that would hurt his argument instead of help.
The basic story of the Our World in Data graph is that the total number of people in poverty rose steadily from 1820 through 1980 and then began to fall. If Hickel is right, colonialism impoverished the world even more than the graph would suggest. But if that’s true, the drop in poverty since 1981 — which is based on World Bank data that Hickel doesn’t dispute — is even more impressive, because it represents such a dramatic reversal of past trends.
But perhaps the biggest flaw in Hickel’s case is that it ignores all the other data corroborating the story that poverty has fallen. Gates didn’t just tweet that one graph — he tweeted a set of six. Two of the other graphs show dramatic increases in literacy rates and years of education. A third shows a steep fall in infant mortality. Still other graphs that Gates didn’t tweet show declines in hunger and undernourishment. If global poverty had really increased, these improvements would almost certainly not have been possible.
The truth is that the past 25 years have seen dramatic improvements in the lives of the poor in many parts of the world. China has outperformed the field, of course, but India, Bangladesh, Indonesia and other populous developing nations have experienced steady growth in recent years. People will no doubt argue endlessly over whether to credit market liberalization or deliberate industrial policy with this miracle — some poor countries used the former, some the latter, and others (such as China) used a mix of both.
But one thing seems clear — it was decolonization that ultimately made it possible for poor countries to start catching up. Free from the crushing burden of producing resources and crops for their colonial masters, many of these countries were able to pursue their own destinies and to experiment with economic policies until they found a mix that worked. The triumph of decolonization is a story that even Hickel should be able to feel happy about.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Noah Smith is a Bloomberg Opinion columnist. He was an assistant professor of finance at Stony Brook University, and he blogs at Noahpinion.
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