Dr Misir's arguments on poverty reduction are deeply flawed
March 2, 2004
I'd like to comment on Dr. Prem Misir's offering in the February 16 issue of the Guyana Chronicle ("Poverty Reduction: In Search of a New Economic Format").
Dr. Misir's piece has one objective: to demonstrate that the PPP has made robust inroads on poverty.Â If his "statistics on poverty" were true, one would have to agree.Â But his statistics are clever propaganda.Â Let's see why.
Dr. Misir's arguments are based on two major distortions.Â The first is to compare poverty data produced by the two comprehensive surveys (the HIES/LSMS survey of 1992/93 and the Guyana Survey of Living Conditions of 1999) to those of three non-rigorous studies. The two comprehensive surveys were based on large-scale sampling and accepted concepts and techniques, while the studies by PAHO, Byod and Ramprakash were not surveys but estimates based on non-standard ways of deriving the poverty line and computing income distribution. These three studies utilize concepts and methodologies that are unsound, in addition to their very limited coverage, which make generalization hazardous and unreliable. Dr. Misir ought to know that one cannot compare coconuts, mangoes, cassava and bora and get allu as the result. Poverty data can be compared reliably only if they are taken from studies that are based on similar concepts, methodologies and coverage.Â The repeated and indiscriminate comparison of poverty numbers from widely different studies by PPP writers is a flagrant violation of the motivation for research.Â It was the lack of comparable poverty data that prompted the World Bank in 1992 to observe: "There is no reliable way to estimate the extent of poverty in Guyana or to assess the effects of the adjustment measures on the poor since recent data are not available on household income levels, employment and unemployment rates, or other social conditions. There remains a critical need for more adequate information." This was part of the rationale for the World Bank-supported 1992/93 poverty survey.
Distortion is also intermingled with confusion.Â For example, Dr. Misir writes: "Poverty gap measures the intensity of poverty" (which is ok), but immediately goes on to talk about the decline in the incidence of poverty (as measured by the headcount index). The Poverty Gap index measures the amount of resources necessary to raise the income of all poor individuals to the level of the poverty line, as a portion of the poverty line. Differently put, it is the aggregate poverty deficit relative to the poverty line.Â The Poverty Gap is an analytic measure, while the Headcount Index is a descriptive index; the two are not the same and should not be confused. One measures the incidence of poverty; the other is a crude indicator of inequality.
The second major distortion committed by Dr. Misir is to compare poverty rates generated by domestic and international poverty lines.Â He began by looking at poverty in the US, noting that "In 1999, New York City's residents experienced a 29% depth of poverty.Â In Guyana only the Rural Hinterland exceeds this US figure." This is interesting stuff: the poverty rate in New York City in 1999 was higher than that in Guyana!Â Two observations are relevant here.
The first is methodological. It is ridiculous and misleading to compare poverty in the US and Guyana (leaving aside the enigmatic first sentence in the quote).Â One cannot simply compare poverty among countries by looking at their respective national poverty rates.Â Poverty among countries can only be compared if one uses an international poverty line (IPL), such as the US$1.08 per day, which yields a zero poverty rate for the US: the typical poor person in the US lives on about US$38 per day.Â
We suspect that Dr. Misir is aware of his methodological blunder but is apparently more interested in the publicity stunt, which explains why he quickly cautions: "But let's not get too excited because the standards in both countries are different and so methodologically, the comparison may not hold."Â The fact of the matter is that a comparison between the US and Guyana is misleading and should not be made at all.Â
Excitement is not a basis for analysis; objectivity is.
Why does one need an IPL to compare poverty rates across countries?Â Aside from concepts and methods, there is one fundamental difference between national and international poverty lines: the former is based on purchasing power within a given country; the latter, on purchasing power across countries.Â "When estimating poverty world-wide, the same reference poverty line has to be used, and expressed in a common unit across countries.
Therefore, for the purpose of global aggregation and comparison, the World Bank uses reference lines set at $1 and $2 per day in 1993 Purchasing Power Parity (PPP) terms" (World Bank Website).
Purchasing power parity is a theory that exchange rates between currencies are in equilibrium when their purchasing power is the same in each of the two countries. In a nutshell, it means that, in equilibrium, a Kentucky fried chicken in Guyana will cost just as much as in the US.Â If in fact the fried chicken costs much more/less in Guyana than in the US (or Suriname, Ethiopia, Trinidad, Zimbabwe, Bangladesh or Nigeria for that matter), this is taken into consideration when the IPL line is constructed to ensure that it measures the relative purchasing power of currencies across countries.
The second observation is about manipulation. Dr. Misir extracted a single column of data from the well-known paper by Chen and Ravallion ("How Did the World's Poorest Fare in the 1990s?"), both of whom work for the World Bank, and drew a bold conclusion: the incidence of extreme poverty in Guyana is low by international standards. It is necessary, therefore, for us to "appreciate the strides made in poverty reduction in Guyana."Â Given what has been said about the NPL and the IPL, this is a misleading comparison. It is also a dishonest comparison.
Dishonesty derives from covering up dates. While the Chen and Ravallion table has a column for extreme poverty for each year during 1990-1998, the single column reproduced by Dr. Misir is without a date.Â But by sourcing his table he conveyed an unmistakable impression: the data refers to 2000 when in fact it refers to 1990.Â Bottom line: Dr. Misir was comparing Guyana's 1999 poverty rate to that of Latin America and the Caribbean for 1990!Â But even if he had gotten his dates correct, his analysis would be still misleading. Because Guyana's poverty rates, which are based on its national poverty line, cannot be compared to poverty rates for Latin America and the Caribbean, which are derived from the international poverty line. What causes poverty? Dr. Misir tells us that there are two competing explanations: blaming the poor person for her poverty and the fact that "society is the producer of poverty."Â The first explanation is no longer proffered, except by those who are unfamiliar with the current literature.
As for the second, it is patently obvious that society does not generate poverty automatically. Poverty is primarily the results of imposed structural factors - processes, institutions, structures and mechanisms embedded in society that perpetuate deprivation, powerlessness and hopelessness.
Yet on the merit of Dr. Misir's arguments, if Guyana's poverty rate compares well by international standards, then the Guyanese society must be in good shape.Â We know otherwise: massive migration and corruption, endemic crime, economic stagnation, moral bankruptcy, illiteracy, malnutrition, disease, a defunct socialist ideology and a brain-dead PPP - these trap Guyanese in a vice that is worse than poverty. If progress is good and poverty has fallen considerably, how does one explain these maladies?Â Or are they a figment of the imagination?
If you entertain that dismal thought, the doctor will castigate you.Â It is capitalism, not you, that is the problem, according to Dr. Misir. Capitalism is "an economic system driving many poverty-reducing programmes. Historically, capitalism has not measured up to the task of combating economic inequality.Â In fact, it creates greater inequality."Â Poverty and inequality are therefore intrinsic features of capitalism.
That is why, according to Dr. Misir, "the search for other economic systems to assist capitalism in reducing poverty will continue." We now have a nice conclusion that fits well with the mentality of the PPP: if robust progress has been made against poverty, then perhaps robust progress has been made against market forces and towards communism. One can now understand why Ramjattan was disciplined, to put it mildly, for merely suggesting that the PPP's communist ideology should be tweaked.Â