Nobel Prize: British economist (cautiously) paints rosy picture

We’ve never had it so good!

by Michael Roberts

Angus Deaton

The Nobel prize for economics this year went to Scottish Princeton University professor, Angus Deaton.  Of course, this is not really a Nobel prize as it is an invention by the Swedish central bank, the Riksbank, and has become a ‘Nobel’ prize. But leaving aside the controversy over whether it should be called a Nobel prize and whether all these mainstream neoclassical economists should keep winning it, what does Angus Deaton have to offer?

He is an expert on world poverty, the consumption patterns of households and how to measure them.  The media coverage of Deaton’s work is keen to emphasise that he shows that humankind have never had it so good in 2015 under the capitalist mode of production. As one commentator put it: “Deaton’s central message is deeply positive, almost gloriously so. By the most meaningful measures — how long we live, how healthy and happy we are, how much we know — life has never been better. Just as important, it is continuing to improve.”

And it’s true that Deaton has emphasised that life expectancy globally has risen 50% since 1900 and is still rising. The share of people living on less than $1 a day (in inflation-adjusted terms) has dropped to 14 percent from 42 percent as recently as 1981. Even as inequality has surged within many countries, global inequality has very likely fallen, thanks largely to the rise of Asia. The digital revolution has allowed people to remain in touch with friends and family who once would have grown distant. The democratization of air travel, for all its indignities, has helped, too. The greatest progress against cancer and heart disease has come in the last 20 to 30 years.  “Things are getting better,” he writes, “and hugely so.” 

But when we dig below the headlines of global ‘progress’, Deaton’s work has a more subtle message that is not quite so Panglossian.  Deaton makes it clear that progress in living conditions and quality of life is a relatively recent development.  “For thousands of years,” Deaton writes, “those who were lucky enough to escape death in childhood faced years of grinding poverty.”  In his latest book, The Great Escape, he points out only with the development of science and the decline of religion did human beings start to ‘escape’ from a short sharp often painful existence.

Deaton concludes, based on the data, that rising education is the most powerful cause of the recent longevity boom in most poor countries, even more powerful than high incomes. A typical resident of India is only as rich as a typical Briton in 1860, for example, but has a life expectancy more typical of a European in the mid-20th century. The spread of knowledge, about public health, medicine and diet, explains the difference.

Exactly! What the media coverage about Deaton’s work does not say is that much of this improvement in the quality and length of life comes from the application of science and knowledge through state spending on education, on sewage, clean water, disease prevention and protection, hospitals and better child development.  These are things that do not come from capitalism but from the common weal.

And things are not that rosy.  Back in 2013, the World Bank reported that there were roughly 1.2 billion people completely destitute (living on less than $1.25 a day), one-third of which are 400 million children.  One of every three extremely poor people is a child under the age of 13.   So there are over one billion people, one-third of them children, who are virtually starving in the 21st century.

It’s true that the number of people living in ‘extreme poverty’, as defined, has sharply declined over the past three decades,  There were 721 million fewer people living in extreme poverty in 2010 compared to 1981 (assuming what $1.25 a day could buy in 1981 is the same as what it can buy now).  That sounds better, but this reduction is almost solely due a rise in living standards in the billion-plus populations of India and particularly China in the last 30 years. 

There has been very little reduction in extreme poverty levels (as defined) in other very poor emerging economies.  While extreme poverty rates have declined in all regions, the world’s 35 low-income countries (LICs) – 26 of which are in Africa — registered 103 million more extremely poor people today than three decades ago.  Aside from China and India,“individuals living in extreme poverty [in the developing world] today appear to be as poor as those living in extreme poverty 30 years ago,” the World Bank said.

Deaton himself recognises this: “In spite of all the faults in the data, a fairly clear picture is now emerging of what has been happening to poverty around the world around the end of the millennium. The overall count of income-poor in the world is dominated by what has been happening in India and in China, where there has been a great deal of economic growth. Although the growth rates of income and consumption around the poverty line have been slower than growth at the mean—there has been a widening of income inequality—there has still been sufficient growth among the poor in both countries for there to be reductions, not only in the fraction of people who are poor, but in the actual number of the very poorest people, those living on less than $1 a day. Although the number of those who live on less than $2 a day is rising according to the most recent estimates.”

In 2010, 33 percent of the extreme poor lived in low-income countries (LICs), compared to 13 percent in 1981.  In India, the average income of the poor rose to 96 cents in 2010, compared to 84 cents in 1981, and China’s average poor’s income rose to 95 cents, compared to 67 cents.  China’s state-run still mainly planned economy saw its poorest people make the greatest progress.   But the “average” poor person in a low-income country lived on 78 cents a day in 2010, compared to 74 cents a day in 1981, hardly any change.

Three-quarters, or 78 percent, of those living in extreme poverty live in rural areas, with nearly two-thirds of the extreme poor deriving their livelihoods from agriculture.  The extreme poor also continue to lag significantly behind in access to basic services. Only 26 percent of the poor had access to clean water in 2010, compared to 56 percent among those living above the $1.25 poverty line (hardly an income). Meanwhile, fewer than half – 49 percent – of the extreme poor had access to electricity compared to 87 percent of the ‘non-poor’. And while 61 percent of those above the $1.25 poverty line had access to basic sanitation, just 20 percent of the extreme poor had access to similar services.

As a share of the GDP of the developing world, the Aggregate Poverty Gap is now less than one tenth of what it was 30 years ago. For LICs, the share in 2010 was approximately 8 percent of their GDP, down from 24 percent in 1981. Notwithstanding this significant decline, the Aggregate Poverty Gap/GDP ratio in LICs is 16 times larger than the average for the developing world.  “To reach the goal of ending extreme poverty by 2030, the pace of poverty reduction in LICs will have to increase substantially”.

More recently, the World Bank announced that it is to change to its global poverty line, raising its measure by a half to about $1.90 per day.  When researchers at the bank tested a notional poverty line of $1.92 earlier this year, it led to a surge of 148m.  To end “extreme poverty” by 2030, the world needs to help 7,500 people move up the economic ladder every hour for the next 15 years, according to one calculation. Put another way, that is 181,729 people every day.  So on the one hand, the extreme poverty is falling and on the other hand, it is rising, once you adjust the poverty to a more realistic level.

Will ‘extreme poverty’ be abolished under capitalism?  Deaton seems to think so.  He is ‘cautiously optimistic’.  But Deaton also warns of rising threats like global warming, slowing economic growth and rising inequality.  Deaton points out that rising inequality in the US has meant that . The skew is so severe in the United States that a vast majority of Americans — the bottom 99 percent have done worse than a vast majority of French in recent decades.

Moreover, Deaton’s ‘cautious optimism’ does not seem justified when the World Bank concludes that the main limitation to ending extreme poverty is the failure of a transfer of resources from the rich countries to the poor. That means that poverty (as defined) could be ended if governments chose to do so.  The World Bank explained it this way:  “Suppose that the real GDP growth for the developing world as a whole is 5 percent per year. If 10 percent of this GDP growth accrued to the 21 percent of the developing world’s population who are extremely poor, and this 10 percent was distributed in a way that the growth in income of each poor person was exactly his/her distance to the $1.25 line, extreme poverty would end in one year.”

That’s how much better it could be in a world with governments working collectively to help the human race rather than representing the interests of capital and the rich.