Don’t be fooled by statistics: poverty and inequality persist

It is more important than ever that statistics capture inequality, not just the size of the economy, writes Alan Philps

This is the time of year when the global financial and business elite – leavened with a few celebrities, politicians and campaigners – meet in the Swiss resort of Davos to sort out the world's problems. The World Economic Forum has been going for more than 40 years and the attraction of a few days of Alpine luxury is undimmed.

This year the theme is growing inequality, which the WEF has declared to be one of the major economic challenges facing the world for the next decade.

Oxfam, the aid and development charity, has welcomed the forum’s belated recognition of widening income disparities with a hard-hitting report, Working for the Few, which contains some unappealing statistics for the global elite.

Here are a few: almost half of the world’s wealth is now owned by just one per cent of the population; the bottom half of the world’s population owns the same as the richest 85 people in the world; seven out of 10 people live in countries where economic inequality has increased in the past 30 years; in the United States, the wealthiest one per cent captured 95 per cent of post-financial crisis growth since 2009, while the bottom 90 per cent became poorer.

These bald facts seem to give the lie to the aphorism, “a rising tide will lift all boats”, made famous by President John Kennedy in the 1960s. These days, the banker’s yacht is rising proudly, while the fisherman’s skiff is taking in water.

Bill Gates, the Microsoft founder and philanthropist, has weighed in with a very different perspective. One of the nostrums about the developing world, that poor countries are fated to stay poor, is all wrong, he writes in his annual letter to the world. “The global picture of poverty has been completely redrawn in my lifetime,” he writes. “Per person incomes in Turkey and Chile are where the United States level was in 1960.”

He dares to predict that by 2035 there will be almost no poor countries left on Earth. Apart from few countries held back by war, politics (North Korea) or geography (landlocked nations in central Africa), all will be on the rise. Every nation in South America, Asia and Central America (with the possible exception of Haiti), and most in coastal Africa, will have joined the ranks of today’s middle-income nations.

Mr Gates is one of those 85 richest men on Earth who together own as much as the bottom half of the world’s population. Giving up much of his wealth to fight poverty and disease in the Third World, he has earned the right to a hearing. But his optimistic assessment of the progress of globalisation fits uneasily with the Oxfam view of the world’s toiling masses being bled dry by the politically connected super-rich. Is he just salving the consciences of the global elite as they enjoy the snow and high-minded talk of Davos?

Mr Gates is not wrong. The number of countries listed by the World Bank as “low-income” is down to 35 from 75 in 2000.

Poor countries are, statistically speaking, dying out. But there is a devil in those statistics. According to the World Bank classification, countries where people live on $3 (Dh11) a day or less are “low income”. Those that rise above this are classified as middle-income, but living on $4 a day could hardly be considered a middle-class lifestyle. It would be a precarious life, not at all improved by knowing that your country is labelled “middle-income”. In fact, that label could make life worse: by graduating to middle-income status, countries are deprived of a lot of development aid.

This is not to say that there is no progress. Research from the International Labour Organization, an arm of the United Nations, has identified a “developing middle class” in the global south over the past 25 years of globalisation. This group is defined by workers earning $13 a day. This group has grown from 600 million to 1.4 billion and could constitute half the workforce within four years.

So there are winners, as well as losers, from globalisation. The winners are now snapping at the heels of the pampered societies of Europe, who rose to affluence early but are now running out of breath.

This uncomfortable fact was highlighted in Davos on Wednesday by Christophe de Margerie, chief executive of Total, the French oil company, who said Europe should be reclassified as “an emerging country”. The old continent needed to “go back to competitiveness”.

The fact that there are winners from globalisation cannot hide the fact that the gradual extinction of poor countries, which is the headline generated by Mr Gates’s letter, does not tell the whole story. At a time of growing income inequality, the rise of some countries to middle-income status may just reflect a super-wealthy elite of presidential cronies rather than a flourishing economy.

Extreme inequality of income distribution is a feature of developing countries, with South Africa topping some classifications, with all the ensuing risks of social unrest. The crisis of inequality may now be most keenly felt inside countries, between the urban poor and the new middle class in their gated communities, than between the developed and the developing world.

Money does not tell the whole story. A fisherman in West Africa who gives up his trade because industrial trawlers are taking his catch may earn a living from hawking in the city. But his family is hardly better off. He will not feed them on fresh fish, as he did in the past, but on a cheap and unhealthy diet.

Mr Gates does indeed point out the inequality issue, though this has tended to get lost in the media scrum.

As far as statistics go, he is right, but guests of the World Economic Forum should not be allowed to enjoy a warm glow that all is well in the world. It is more important than ever that statistics capture inequality, not just the size of the economy.

On Twitter:@aphilps