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Lack of account ability or accountability?

Last updated on: July 26, 2003 15:53 IST

The comparison of India with China is hot -- again. First, Prime Minister Vajpayee visited China and every born-again journalist (as well as those born sometime ago) started comparing India with China.

The reporting was considerably more favourable to China, with some wizened (but not necessarily wise) experts attributing China's better economic performance to India having to cope with the 'drawbacks' of democracy.

Before the dust could settle, the discussion heated up again with the publication of the UN's flagship report on the state of welfare of the poor, Human Development Report, 2003.

This report, done by objective experts, and experts with access to the research of the best and the brightest at not only the UN but also the World Bank, convincingly demonstrated that not only was the average Chinese significantly richer, but so was the average poor Chinese -- so much so, that only 16 per cent of China's population was poor, compared to more than double that amount, or 35 per cent poor in India.

The same UN report also documents that Pakistan had only 13 per cent poor, less than China even, leaving many Chinese, Indians, and Pakistanis, bewildered. When asked about the non-plausibility of these statistics, poverty experts at the international agencies point to 'involved' computations of purchasing power parity, exchange rates, complications involved with household survey data, and other instruments of obfuscation.

But the QGO (quasi-government organisation) representatives do not answer the simple question -- what do readily available data reveal about the differences in income status of the poor in China and India?

The result is startling -- the average poor Indian has the same purchasing power (if not more) as the average poor Chinese! This result just cannot be true. It is. And here is the back of the napkin calculation -- all computations based on official government-UN-World Bank data, and untouched by human hands.

Measured in US dollars, the income of the average Chinese is almost double that of the average Indian. Measured in PPP (purchase power parity) $, the difference is 66 per cent -- still huge, and consistent with the UN-World Bank claim of a twice as high poverty level for India.

But as argued by QGO experts, poverty is more correctly measured via consumption rather than income. Because of a considerably higher savings rate, average household consumption in China is only 23 per cent higher than the low levels observed in India -- still a large gap, but not as high as income (67 per cent).

For calculations pertaining to the poor (here defined as the bottom fifth of the population to 'match' the current China poverty rate of 16 per cent) data on the distribution of income (or consumption) are needed. Perhaps surprising to some (but not to the poverty number crunchers at UNWB) income inequality is considerably worse in China.

Further, that such inequality levels were almost identical in 1983, with China's distribution being somewhat better than India then! Today, Chinese distribution is almost 30 per cent worse than it was two decades ago, while surprisingly, India's distribution has stayed constant, indeed marginally improved but that is another story.

Again, these are all official data. It is now trivial to show that the average consumption of the bottom 20 per cent in China is about 20 per cent lower than the consumption of the average Indian.

Who has less poverty - China or India, circa 2000?

TABLE.mon{COLOR: #000000; FONT-FAMILY: arial; FONT-SIZE: 13px; TEXT-DECORATION: none}
  China India Ratio China/India

Levels of income, consumption, poverty

 

 

 

Mean Income (US $)

855

457

1.87

Mean Income (PPP $)

3,189

2099

1.66

Mean Consumption (PPP $)

1,686

1,372

1.23

Head Count ratio (per cent, UN & World Bank estimates)

16.1

34.7

0.46

Inequality

 

 

 

Share of Consumption (Bottom 20% of population)

5.9

8.7

0.68

Share of Consumption (Bottom 40%)

16.1

21.1

0.76

Simple computations - based only on above data

 

 

 

Average Income (bottom 20%)

1,029

913

1.13

Average Income (bottom 40%)

1404

1,107

1.27

Average Consumption (bottom 20%)

497

597

0.83

Average Consumption (bottom 40%)

679

724

0.94


Note:
The average income of the bottom 20% results from the simple multiplication of the share with the mean income and divided by 20 (or 40 for the bottom 40%).

Incidentally, nearly the same result holds for the bottom 40 per cent, with the slight difference that the poor Chinese consumption is now marginally higher -- but is still below the consumption level of the poor Indian.

If average consumption levels of the poor are nearly the same, then the poverty levels (head count ratios) have to be approximately the same.

Indeed, one should expect Indian poverty levels to be a few percentage points lower than China.

Given that the UNWB calculations suggest that there is a near 20 per cent difference in the head count ratios, with the difference in the wrong direction (i.e. Indian poverty rates are higher) some explanation of the accounting error is necessary.

As documented above and in the table, poverty calculations are only accounting calculations, with no higher order math needed. They can be done by the woman on the street. She has also been told that Chinese growth rates have been somewhat exaggerated i.e. rather than the 8 per cent annual per capita growth for the last twenty years, the actual growth has been somewhat lower.

If even a slightly lower (but still very high) number of 7 per cent is assumed, then the differential is an additional 20 per cent in favour of the poor Indian -- yet the poor Indian is, with almost 40 per cent higher consumption, more than twice as likely to be poor as a comparable resident of China.

Thus, there is overwhelming and convincing evidence that according to widely published data, the consumption (and income) levels of the poor in China and India are near equal -- with the poor Indian being most likely less poor. But we have been told, by official international agencies, a widely circulated different story.

If such a mismatch in accounts had occurred in the private sector (e.g. Enron), heads would have rolled, inquiries made, and officials made to resign. But so huge is the NGO-QGO business (non government and quasi-government, respectively), and so powerful its leaders that nary a squeak is heard from any source, and practically none from so called academic experts.

It wouldn't be so bad if it weren't for the fact that the QGO reports are widely circulated, assumed to be the gospel by unsuspecting (and some somewhat lazy?) journalists, who then make conclusions based on this QGO mis-evidence and then recommend policies for other countries to follow, or not follow!

Further, the World Bank and associated QGOs and NGOs are now arguing for aid to be allocated to countries on the basis of poverty reduction – and who calculates the poverty reduction on whose basis aid, and good housekeeping awards are handed out -- you guessed it, the UNWB experts.

It does not get more circular than this, even on a full moon day. As Lenin said, what is to be done? First, recognition should be there that development research, and especially poverty research, is big business.

And like with all such big businesses, there is politics, and intrigue, and…just ask Netscape about Microsoft.

Second, there needs to be an accounting of why such accounting errors are being made, and not being cross-checked. The reason most likely is that the QGOs are a research monopoly, and suffer from the arrogance, and drawbacks, of every monopoly.

Third, most non-QGO development research is financed by the QGOs. This situation is completely analogous to what has happened on Wall Street.

After lawsuits, the new order has been outlined -- a non-leaky Chinese wall between research and investments, and some ($ 432 million at last count) investment bank research has to be conducted from outside the investment banks.

Something similar needs to be forced upon the QGOs, and as a start, the next Human Development Report and World Development Reports could be conducted in third world institutions (and of course under the supervision of the UN and the World Bank).

Finally, an Expert Committee should be set up (whose members are drawn from the best and the brightest in the policy making and academic world) to evaluate the various, and large, amount of research that has been published by the QGOs. I hope I am wrong in that the QGOs are not going to see their own, Enron like, pizza and shredding party!

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Surjit S Bhalla