Article: "Convergence, period" in Economics focus - The Economist (July 18th, 2002)

Letter submitted to the Editor from Sakiko Fukuda-Parr

Article: "Africans need all the help they can get" by Joseph Siegle - FT (June 2002)

Letter to the Editor from Sakiko Fukuda-Parr

Article: "The U.N. Is Dead Wrong on Poverty and Inequality" by Robert Barro - BusinessWeek (May 2002):

Letter to the Editor from Sakiko Fukuda-Parr
Letter to the Editor from Nancy Birdsall

LETTER SUBMITTED TO THE EDITOR: Convergence, period
By Sakiko Fukuda-Parr
The Economist

Sir,

Prof Sala-i-Martin’s paper, on which you base your article ‘Convergence, period’, makes a number of errors. He notes that the 1999 Human Development Report, produced by the United Nations Development Programme (UNDP), highlights increases in inequality both within most (not all) countries and between countries, findings confirmed by his own study. But he then imputes to the HDR the invalid argument that these two increases imply an increase in global interpersonal inequality. The 1999 HDR makes no such claim. It’s observation of “increasing concentration of income, resources and wealth among people, corporations and countries” (regrettably your article misquotes this line) refers to the increasing gap between the richest and poorest countries, the richest and poorest people, the increasing size and power of the largest corporations, and other clearly identifiable increases in numerous aspects of inequality. Sala-i-Martin’s paper makes no attempt to undermine these observations and hence does not undermine the Report’s argument.

Turning to the use to purchasing power parity exchange rates, your article correctly observes that the gap between the richest and the poorest countries has increased whether one uses market exchange rates or PPP rates. PPP rates, by factoring in differences in prices across countries, do a better job of determining the economic welfare of individuals. HDRs appear annually, and since 2000 they have reported inequality in PPP terms for this purpose. But since international markets function with market exchange rates, it is wealth measured in these terms that matters for bargaining in multilateral and bilateral power structures, and poverty in these terms that leads to the marginalisation of poor countries. So both types of exchange rate are of interest.

Sala-i-Martin finds that global interpersonal inequality has decreased slightly. Some other studies agree with this conclusion, others disagree. But no measured change in any study is statistically significant. The real message of global inequality is that it is extremely high: in 1993 the richest 5% of the world’s people had incomes 114 times those of the poorest 5% in PPP terms; in market exchange rates, 84% of the world’s people received just 16% of world income. And the only certain conclusion is that it is not decreasing fast enough.

Sala-i-Martin’s observation that global poverty rates have declined, due largely to growth in China and India, is uncontroversial, as is his concern with stagnation in Africa: both the UN and the World Bank have been making both points for several years. Estimating the actual numbers is more controversial, and his methodology here is seriously flawed. He estimates poverty within each country on the basis of an estimate of income distribution, applied to the per capita GDP of each country. But GDP includes savings that do not contribute to personal income, and government expenditures that typically do not reach the very poor. He therefore over-estimates national personal incomes and thus under-estimates poverty.

Yours sincerely,

Sakiko Fukuda-Parr
Director
Human Development Report Office, UNDP
and Director
Human Development Report 1999

LETTERS TO THE EDITOR: Africans need all the help they can get
By Sakiko Fukuda-Parr
Financial Times; July 2nd, 2002

Sir,

Joseph Siegle (June 27) cautions Group of Eight countries against the urge to help Africa. His analysis and conclusions are dangerously simplistic. Democracy should be promoted for its own sake and for its own virtues and does not need to be justified as a means to economic growth. And to withhold aid to African people until their countries are fully democratic will undermine the very cause of democratisation and poverty eradication. It is naive to assume away the real difficulties newly democratic states face in building democratic institutions and practice.

Democracy has real benefits in promoting social and economic development but it is dangerous to simplify it as a panacea. The claim that democracy produces economic growth and poverty reduction is not substantiated by more careful statistical studies of worldwide experience. In Africa over the last 20 years most countries have shifted regimes, and today most are neither authoritarian nor fully democratic but somewhere in between. Apply the same analysis to east Asia and the conclusions may be the reverse. China, Singapore and Indonesia have had marked success in economic growth and poverty reduction by any international standard. Some African democracies, such as Botswana and Mauritius, have been very successful, but more democratic Russia and its neighbours have seen the economy plummet, unemployment explode and inequalities soar.

Waiting for fully functioning democracies before giving aid would only perpetuate the vicious circle of poverty and fragile democracies. People in Africa need all the help they can get to build democracy to promote economic growth and social progress.

Sakiko Fukuda-Parr
Director, Human Development Report, UNDP, New York, NY 10017, US

Is Robert Barro Dead Wrong about the U.N.?
By Sakiko Fukuda-Parr
BusinessWeek; May 2002

Robert J. Barro's critique of the Human Development Report is out of date ("The U.N. is dead wrong on poverty and inequality," Economic Viewpoint, May 6). The HDR is published annually, so it is curious that he should choose to criticize the 1999 report rather than the report from 2001, the latest available. As academic research progresses, our analysis evolves. The forthcoming HDR 2002, out in July, will present our best current analysis of global inequality.

Barro fails to realize that global inequality is not about just income. It is about education for children, access to world markets, receipt of foreign direct investment, control of technology, the marginalization of women, and so on. But the real story is that the extremes of global inequality are so grotesque: The richest 5% of the world's people have incomes 114 times those of the poorest 5%. The latest U.N. Conference on Trade & Development report shows that in the two decades since 1980, export earnings grew at nearly 8% annually in developed countries, 11% in developing countries, but only 3% in sub-Saharan African countries. Hand-wringing helps nobody. But there is no excuse for complacency.

Sakiko Fukuda-Parr
Director
Human Development Report Office
U.N. Development Program
New York
Editor's note: The writer is lead author of the Human Development Reports, 1995-2002.

Letter for Readers Report
By Nancy Birdsall
BusinessWeek; May 2002

Robert Barro takes a bit of a cheap shot at the UN in his recent column. In 1999 the Human Development Report (a staff report prepared at the United Nations Development Program) described a world in which the rich, in both rich and poor countries are both richer, healthier, better schooled, and in general a lot luckier with vastly greater economic freedoms and opportunities than the much larger numbers of poor, mostly in the world’s poor countries. But it is dead wrong to suggest that the UN blames these problems on “unchecked globalization and market expansion.” On the contrary. The 2001 version of that same report (Making New Technologies Work for Human Development) emphasized that more open global markets and new technologies are creating and spreading enormous opportunities for reducing poverty and narrowing the gap between the rich and the poor.

Global markets are not the cause of world poverty or global inequality. But they are also not alone the solution. Robert Barro is right that poverty has declined enormously in fast-growing China and India, and that reducing world poverty further requires focusing on sub-Saharan Africa and on its failure to grow. But he would do well to spend less ink on the silly debate about whether “globalization” is good or bad, and more on the concrete suggestions for raising human development and reducing human misery, including via more effective and open global markets. I invite him to review the UN’s 2001 report and the forthcoming 2002 report, both of which emphasize how to spread to the world’s poor the economic and political freedoms which most BusinessWeek take for granted.

Sincerely,

Nancy Birdsall
President, Center for Global Development, Washington D.C.

(Info, truth in disclosure(!) Nancy Birdsall was the Special Advisor to the UNDP’s Administrator for the 2001 Human Development Report.)