World Poverty: The Problem Is Getting Worse

07 May 2001

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.

  Wealth per capita
GNP per capita
Human Development Index
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.''

''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.

Partha Dasgupta

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