The problem of world poverty may be far worse than we currently imagine, according to Professor
Partha Dasgupta, writing in the latest issue of the Economic Journal. He argues that while such
measures of the quality of life as GNP per capita and the United Nations' Human Development
Index (HDI) suggest steady improvement over the past thirty years in much of the developing
world, they fail to take account of what really matters for human welfare: a country's productive
base. And it seems clear that in Bangladesh, India, Nepal, Pakistan, sub-Saharan Africa and China -
countries and regions that together encompass half the world's population - this has been
shrinking.
Dasgupta points out that both GNP per capita and HDI - which includes GNP but also such
indicators as life expectancy and literacy - are flow concepts. As such, they fail to tackle the
tension between the present and the future, grossly overestimating changes in standards of living
in the developing world. What ultimately matters is not the income or HDI of nations but the
wealth of nations, their stock of physical capital, human capital and the natural capital of soil,
forests, biodiversity, etc.
In practice, when the negative changes in wealth brought on by environmental degradation are
included in measures of the changing quality of life over time, these measures also become
negative. This means that it is possible to see money in people's pockets and higher life
expectancy and literacy rates and, at the same time, to be destroying capital and hence severely
damaging the prospects for future improvements.
As Dasgupta notes: 'It should be no surprise that Adam Smith inquired into the wealth of nations,
not the Gross National Product of nations nor the Human Development Index of nations.'
This table shows Dasgupta's measure of wealth per capita compared with GNP per capita and HDI
for a number of developing countries.
Average Annual Percentage Yearly Change in:
Wealth per capita
(1970-93)
GNP per capita
(1965-96)
Human Development Index
(1987-97)
Bangladesh -2.6 1.0 3.3
India -0.1 2.3 2.2
Nepal -3.0 1.0 5.3
Pakistan -1.9 2.7 1.8
Sub-Saharan Africa -3.4 -0.2 0.9
China 0.8 6.7 -0.2
The countries and regions covered in the table comprise nearly all of the world's poor countries
along with roughly half the world's population. The figures show how misleading the assessment
of long-term economic development can be by simply looking at GNP per capita or HDI. They
indicate how the problem of world poverty may be far worse than currently thought.
For example, Pakistan's GNP per capita grew at a healthy 2.7% per year, implying a more than
doubling of living standards in the period 1965-96. However, the per capita wealth measure shows
that living standards actually almost halved over this period. For sub-Saharan Africa the picture is
even worse with living standards halving after only 20 years.
Indeed, Dasgupta concludes: 'The implication of these results should be heart-breaking: the Indian
sub-continent and sub-Saharan Africa, two of the poorest regions of the world, comprising
something like a third of the world's population, have over the past decades become poorer.'
Note for Editors: 'Valuing Objects and Evaluating Policies in Imperfect Economies' by Partha
Dasgupta is published in the May 2001 issue of the Economic Journal. Dasgupta is Professor of
Economics at Cambridge University and a former President of the Royal Economic Society.
For Further Information: contact Partha Dasgupta on 01223-335206 (email:
partha.dasgupta@econ.cam.ac.uk); RES Media Consultant Romesh Vaitilingam on 0117-983-
9770 or 07768-661095 (email: romesh@compuserve.com); or RES Media Assistant Niall Flynn
on 020-7878-2919 (email: nflynn@cepr.org).