The Lie of Global Prosperity

Donnelly’s The Lie of Global Prosperity shows how global institutions use bad data to promote the idea that poverty has declined due to neoliberal globalisation, finds Orlando Hill

Seth Donnelly, The Lie of Global Prosperity: How Neoliberals Distort Data to Mask Poverty and Exploitation (Monthly Review Press 2019), 119pp.

Students at A-level are taught to back up their arguments with data obtained from reputable sources. Teachers guide them towards official institutions such as the IMF and World Bank. Donnelly in this book warns us to be cautious of the assumptions made when collecting data, and the argument which the data is supporting.

Capitalism’s long-standing myth is that although it might create inequality, the overall welfare of society improves. According to the right, the left worry too much about inequality and not enough about improving people’s lives. What is the problem with inequality if the level of poverty is falling?

I went onto the World Bank Open Data website and read that ‘the proportion of the world’s population living in extreme poverty has dropped significantly.’ In 2015, only 10% of the world population survived with $1.90 or less a day. This is a drop from 2002, when the proportion was 25.5%. On the surface, this is a success story.

But why $1.90? How did the World Bank reach this figure? Donnelly explains that $1.90 is an arbitrary threshold established by governments, and not based on what people need in terms of housing, food and clothing. In 2013, the United Nations Conference on Trade and Development (UNCTAD) admitted that $5 would be more suitable to meet an adequate standard of living. In today’s value that would be $7.40.

There are various problems with the methodology of establishing a poverty threshold. A household operating in a market economy would seem by the numbers alone to be better off than one under a welfare state with good public services. From the World Bank’s perspective, a society that moves towards a market economy manages to reduce the level of absolute poverty even though the people might lose their collective land, food rations and medical care and begin manufacturing commodities for the export market under atrocious conditions.

Measuring the basket

There is also the question of what $1.90 can buy in diverse countries. Anyone who has travelled knows that depending on where you go, $1.90 has more or less purchasing power. Economists solve this problem with the concept of purchasing power parity conversion. The idea is that a basket of goods and services should cost the same wherever you go. That should give a better idea of the true value of a currency rather than using the rate established in the foreign-exchange market. Of course, the baskets do not include identical items. The composition of the basket will vary from country to country reflecting the differences in taste, culture, climate and price structure. But they should provide the same level of satisfaction and utility.

This international basket is composed of goods and services with the same weighting. Since 2002, food and fuel prices have been increasing in the global south as a consequence of the World Bank’s policy of promoting agribusiness. Food is relatively cheaper to the costs of other items in the basket in richer than in lower-income countries. By calculating the basket as aggregates of consumption patterns in both rich and poor countries, the real expenditure on food by those on low income is underemphasised. Meanwhile, services are overemphasised since they account for a large proportion of the consumption in richer countries. This artificially inflates the purchasing power of poor people in the developing world where services are relatively cheap.

Donnelly ends the first part of the book by informing us that although the number of people living on the $1.90 might have fallen, the number of low-income people living on under $10 a day has increased. Capitalism is failing to spread prosperity however the World Bank might spin the numbers.

The importance of class

Although I found the first part of the book interesting, the second part ‘devoted to explaining the imperialist world system’ (p.62) lacks a class analysis. He states the obvious that neoliberalism is a manifestation of imperialism. In his opinion this is understood by those who ‘have lived under imperialism’s boot’ (p 62), but not by leftists in rich countries who seem to have an interest in preserving the imperial system. He is not clear what he means by ‘leftists’. Does he include the anti-war, anti-globalisation and solidarity movements? Should we discard the struggles of the working class in the Global North?

Donnelly’s understanding of imperialism involves rich countries in the North taking resources, including labour, from poor countries in the Global South. Thirty pages of his book are dedicated to a concise history of imperialism, from the end of the Second World War to neoliberalism, its latest stage. My problem with his analysis is that is solely based on the concept of core countries, led by the US, versus peripheral countries.

There is no analysis of how the ruling classes in the Global South benefit from imperialism. Without this understanding it becomes difficult to comprehend the coups in the Global South I do not deny that the CIA has intervened and even orchestrated the downfall of progressive governments, but it has always been in alliance with sectors of the ruling class of the Global South. Even sectors that do not benefit directly from the coup will ally themselves with the plotters, because they have more in common with imperialism than with the poor in their own country.

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Orlando Hill

Orlando was born in Brazil and was involved in the successful struggle for democracy in the late 1970s and 80s in that country. He teaches A level Economics. He is a member of the NEU, Counterfire and Stop the War.

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