Making a place for poor in rich man's world

CARING ABOUT PEOPLE: There's a Western bias in global economic statistics, writes Branko Milanovic

THE current economic crisis is called the "global financial crisis". But is the term "global" justified? Or does that term reveal a rich-world bias in global economic statistics?

Just consider how the four years since the onset of the "global crisis" look in the eyes of the non-Western world. In sub-Saharan Africa, the average per capita real growth rate was 1.5 per cent a year.

In Latin America, it was nearly that high, and in Asia, it was three per cent.

These numbers are more than respectable. They are impressive. Yes, in much of the developed world, in Europe, North America and Russia, growth sputtered; and in many countries, but not in all years, rates of gross domestic product growth turned negative.

 Global output declined by two per cent in 2009, but it rebounded by 2.7 per cent in 2010, and is estimated to have risen by at least as much last year.

 Do these seem like "global" crisis numbers?

The rebound of the global economy was dampened in the last two years because the crisis affected the richest part of the world.

The richest part, by definition, produces more goods and services than the other parts. If its output goes down or stagnates, it tends to drag world GDP down with it.

The global economic statistics we use show a tremendous Western, or rich world, bias.

There is an implicit weighting scheme in the calculation that is seldom recognised. It is called "plutocratic" weighting, and it gives a greater weight in the overall calculation to richer countries.

While the "plutocratic" growth rate that we normally calculate and use gives an exact metric regarding what happens to overall economic output, the "people's" growth rate gives a more accurate idea as to how economic growth, or lack of it, affects individuals across the world.

In the "people's" growth rate, every individual in the world counts the same. In the "plutocratic" growth rate, what happens to the income of rich people matters exactly so much more as their incomes exceed the incomes of the poor.

In the "people's" calculation, it is not the richest countries that matter the most, but the most populous.

And it is precisely these populous countries that have continued to chalk up positive, and often very high, rates of growth in the midst of what is called "the worst crisis since the Great Depression".

Between 2007 and last year, China's GDP per capita expanded by 43 per cent, India's by 30 per cent, Brazil's by 14 per cent and Indonesia's by seven per cent.

These four countries are home to almost three billion people, or about 43 per cent of the world's population.

Thus, it is not surprising that for the world as a whole, the average "people's" growth rate during the 2007-11 "crisis" was about four  per cent per capita, just slightly above the 1990 to 2000 long-run average.

The reason why the Western media portray the crisis as a "global" crisis (and why, when non-crisis countries are mentioned at all, it is merely in their "supporting actor" role of making sure their demand does not slow down and make the recession in the West worse) is the same reason we (almost) never hear about the wars in Congo.

People in the Western world, who are still much richer than others, are mostly interested in their own fortunes, and the fortunes of people similar to them, when they create and buy the news.

The same media paid scant attention when Russia's GDP nosedived in the 1990s. A meaningless phrase, "transition recession", was created and used as if it were an explanation. The Asian crisis of 1998 attracted far more attention, chiefly because of the threat of contagion spreading to developed market economies. But that threat never materialised, and the attention waned.

Meanwhile, two decades of unremitting African misery and descent into hell passed largely unnoticed by the mainstream media.

 Who would know, for example, that nine African countries, with about 150 million people, have lower per capita incomes today than in 1980, and seven lower than in 1960?

What we have to contend with is a  global imbalance. Rather than focusing only on total economic output, we ought to refocus the calculation on how individuals' incomes across the world are affected.

Thus, instead of giving to each individual the implicit weight equal to his income, we should give the same implicit weight to everybody. Such a statistical rebalancing would lead to a world where we move from caring about quantities to caring about people.

Branko Milanovic is a contributor editor at The Globalist.com