In a letter written to David Ricardo in 1817, Thomas Malthus described the causes of the wealth and poverty of nations as the grand object of all enquiries in political economy. Even today, economists continue to grapple with the problem of why some countries have escaped from the clutches of mass poverty while others continue to be stuck in the rut.
A related question focuses on poor individuals rather than poor nations. There is undoubtedly a link between the two. A person is more likely to be poor when he is born in a poor country, but it is also worth remembering that a country such as India has more than one-fifth of its population living below the global poverty line despite the fact that it is defined as a middle-income country by international organizations based on its per capita income.
Angus Deaton is one of the foremost experts on poverty in the world. His deep scholarship is evident in his new book, which examines three interlinked themes: health, wealth and inequality. Deaton has also been an important participant in the great Indian poverty debates in recent years. For example, he wrote a celebrated paper with Jean Drèze in 2002, where they argued that the calorie intake of the average Indian has perhaps fallen despite rising incomes because of lower levels of physical activity as well as better healthcare.
The story that Deaton tells an optimistic one: lives are getting better. The Great Escape that he writes about began in Europe after the Industrial Revolution, but the progress made in those years has been dwarfed by the spectacular success since the end of World War II, when hundreds of millions of people across the world escaped extreme poverty. It is interesting to note that the years after World War II were a period replete with many pessimistic forecasts about how a population explosion would lead to mass hunger in what was then described as the Third World.
For example, the number of people living of less than a dollar a day fell from 1.5 billion in 1981 to 805 million in 2008. These are 2005 dollars adjusted for purchasing power parity, which is the global poverty line from the World Bank. People also live longer and healthier lives. The Chinese growth miracle is obviously a big explanatory factor, but the sustained growth in India since 1980 is also an important reason why global poverty has fallen.
The Great Escape is a deeply compassionate book, but it should not be read only for its insights into how economic growth has liberated hundreds of millions of people from the clutches of poverty. Deaton also provides very lucid explanations on how poverty, health and inequality are measured. These are important issues that the thinking citizen should be aware of. The public debates in India are often ridiculous precisely because many of those who are holding forth seem to have little clue about what the numbers actually mean.
Few seem to realize that the controversial Indian poverty line of Rs.26 a day is actually quite close to the global poverty line if the correct conversions into dollars are made; many have confused market exchange rates with purchasing power parity conversions in these debates. There are several other important problems with Indian data that economists have battled over. There is a wide divergence between the consumption numbers in the national accounts and what shows up in periodic household surveys conducted by government agencies. Even these surveys tell us different stories depending on what is described as the recall period. Should people be asked how much they have consumed over the past 30 days or the past seven days?
Deaton explains methodological issues such as these in simple language. His analysis of inequality is also nuanced, showing that a lot depends on what you are counting (though his overall suggestion is that inequality has been increasing). This is a book that deserves to be read by as many people as possible, so that the poverty debates we have in India go beyond ideological grandstanding and the usual television dramatics.
The recent years have seen several leading economic thinkers write excellent books for the ordinary reader, and the new Deaton book is firmly in that category.
Niranjan Rajadhyaksha is the Executive Editor of Mint.