Revision Essay On 'Per Capita' Income (Development)
Why is per capita income considered an inadequate measure of a country’s development? Answer with reference to the various dimensions of poverty AND alternative ways of measuring human development.
Plan
1. Reason1- It tells us nothing about internal income distribution
2. Reason 2- Income measure only one part of broad view of poverty.
3. Reason 3- Currency measure not usually local currency PPP
4. Reason 4- Other ‘Dimension of Poverty’ debate issues not mentioned eg subjectivity ‘absolute’ ‘relative’ ‘snapshots
5. Alternative ways of measuring human development HDI. And why it is better
6. Measuring Poverty not simple. Even HDI not perfect but still working on innovations.
Intro
Per Capita income is considered an inadequate measure of a country’s development for a wide variety of reasons. It is based on the median GDP income and tells us nothing about the internal distribution of wealth within the country so it could be argued that the figure can sometimes relate to only a very small section of the population in the middle. It is also a money-metric measure that overlooks other important considerations when trying to understand a country’s development. There are other major issues around converting the local currency into an internationally recognized bench mark currency like the United States Dollar because local food prices, for example, can be relatively low in the local currency. There are also a whole raft of other considerations that fall into the ‘Dimensions of Poverty’ debate like, measuring ‘Absolute’ poverty or ‘Relative’ poverty, ‘Snapshot’ or ‘Time-line’ issues and the ‘subjective’ nature of Poverty. To try overcome some of these concerns and to get a broader picture of development the United Nations Development Programme has come up with the Human Development Index to try get a more balanced picture. Although HDIs are a massive improvement on measuring development on Per Capita income it is by no means perfect, measuring poverty and development is not easy but innovations are constantly helping us to refine our methods to look with more detail at specific internal groups.
1.
The first reason I would give for why per capita income is considered to an inadequate measure of a country’s development is because it tells us nothing about the internal income distribution of that country. The country’s GDP is crudely divided by the population to give this per capita income regardless of whether there is a massive disparity between the ‘rich’ and ‘poor’ within that country. With this type of disparity, per capita income is the median of these two groups so could be equally unrepresentative of both groups. Even where income distribution figures exist they are often measured with the ‘household’ being the unit so therefore ignoring any internal disparity within the family. This intrahousehold distribution of resources could take the form of the men of the house getting more nutrition or education.
2.
This income-centric measure also overlooks other important indicators of poverty like for example, average life expectancy or access to education or healthcare. Any number of factors could be taken into account to try gauge poverty but looking simply at per capita income is showing a lack of understanding for the complexity of poverty. Some people can live from the produce they can grow in their locality but something like this is not involved in a measurable financial transaction and without speculating about its market value would go uncounted. Also access to education and healthcare may appear to be less tangible indicators of poverty but they would be considered by any serious study or measure.
3.
Another reason that measuring per capita income based on GDP can be misleading is that this measure of production and its value is made in a currency that can be freely converted internationally like the US Dollar. This is misleading because the local currency may have a different purchasing power for commodities at local prices, and example of this is that in certain countries living off two US Dollars per day could buy enough food to have a reasonably high calorific intake whereas in the US it most certainly would not. The reality of this situation is taken into consideration with some measurements, when this is done is the result is given in ‘purchasing power parity dollars’ or ‘PPP Dollars.’
4.
The ‘Dimension of Poverty’ debate looks at the above issues but also has many other considerations, like ‘Snapshot or Timeline’ issues, the difference between ‘Absolute’ or ‘Relative’ poverty and ‘subjective perceptions of poverty’. What I mean by ‘Snapshot or Timeline’ issues is that poverty or relative prosperity can be something that is seasonal, or negatively affected by war or drought, we would need to look over a long period of life-cycle to try understand these. ‘Absolute’ or ‘Relative’ poverty are two different ways of measuring poverty, the former is people under a given benchmark(E.g. 1PPP Dollar per day) and the latter is half the mean income or in some cases considers exclusion from participation in society. Finally, when I talk about ‘subjective perceptions of poverty’ I am suggesting that there is no definitive ‘objective’ measure of poverty so there may be some disparity between local and development agency understandings of what ‘really’ constitutes poverty.
5.
There are many other ways to measure poverty but the Human Development Index goes a lot further than Per Capita income to try get a multi-dimentional picture of poverty. The HDI considers life expectancy, educational exposure/literacy and real per capita income with the ‘Purchasing Power Parity’ considerations mentioned above. It has been said that the HDI is ‘a more comprehensive measure than per capita income as it has the advantage of directing attention from material possessions toward human needs’. The United Nations Development Programme, who introduced these measures, uses the HDI to rank countries into three groups, low, medium or high human development. An example of HDI giving us different results to simple Per Capita income is that of Bolivia in 2004 with a much lower GDP scored a higher HDI than Guatamala illustrating that they were translating that lower income into better human development.
6.
Measuring poverty is not an easy business with so many different factors to try understand and take into consideration. HDI is not at all perfect, even the UNDP said that ‘‘the HDI is a useful starting point, it is important to remember that the concept of human development is much broader and more complex than any summary measure can capture…the HDI is not a comprehensive measure. It does not include important aspects of human development, notably the ability to participate in the decisions that affect ones’ life and to enjoy the respect of others in the community’’. These shortcomings have been recognised and some effort has been put into address some of the issues with recent HDI innovations being able to look at separate components like, gender, class, ethnicity and regional variation to get a better picture of the skewed incomes of these groups.
Conc
The reasons for Per Capita income being considered an inadequate measure of a country’s development are many and varied. Ignoring the internal distribution of wealth within the country can result it the Per Capita income measure being representative of only a small percentage of the population. Looking at development in an income-centric way misses other important considerations. There are also issues relating to usefulness of converting the local currency into an internationally recognized bench mark currency because local food prices can, in some cases, be relatively cheap in the local currency. The ‘Dimensions of Poverty’ debate also highlights other anomalies like, whether to measure ‘Absolute’ poverty or ‘Relative’ poverty, the inaccuracies of ‘Snapshot’ measurements and the lack of a universal ‘objective’ standard of poverty. The UNDP measure of HDI is a massive improvement to measuring a country’s development on Per Capita income but even with some of its latest innovations there can never really be a ‘perfect’ way to measure a countries development as particular idiosyncrasies based on a more sociological understanding are always present.
Sebastian O’Brien April 2007
Plan
1. Reason1- It tells us nothing about internal income distribution
2. Reason 2- Income measure only one part of broad view of poverty.
3. Reason 3- Currency measure not usually local currency PPP
4. Reason 4- Other ‘Dimension of Poverty’ debate issues not mentioned eg subjectivity ‘absolute’ ‘relative’ ‘snapshots
5. Alternative ways of measuring human development HDI. And why it is better
6. Measuring Poverty not simple. Even HDI not perfect but still working on innovations.
Intro
Per Capita income is considered an inadequate measure of a country’s development for a wide variety of reasons. It is based on the median GDP income and tells us nothing about the internal distribution of wealth within the country so it could be argued that the figure can sometimes relate to only a very small section of the population in the middle. It is also a money-metric measure that overlooks other important considerations when trying to understand a country’s development. There are other major issues around converting the local currency into an internationally recognized bench mark currency like the United States Dollar because local food prices, for example, can be relatively low in the local currency. There are also a whole raft of other considerations that fall into the ‘Dimensions of Poverty’ debate like, measuring ‘Absolute’ poverty or ‘Relative’ poverty, ‘Snapshot’ or ‘Time-line’ issues and the ‘subjective’ nature of Poverty. To try overcome some of these concerns and to get a broader picture of development the United Nations Development Programme has come up with the Human Development Index to try get a more balanced picture. Although HDIs are a massive improvement on measuring development on Per Capita income it is by no means perfect, measuring poverty and development is not easy but innovations are constantly helping us to refine our methods to look with more detail at specific internal groups.
1.
The first reason I would give for why per capita income is considered to an inadequate measure of a country’s development is because it tells us nothing about the internal income distribution of that country. The country’s GDP is crudely divided by the population to give this per capita income regardless of whether there is a massive disparity between the ‘rich’ and ‘poor’ within that country. With this type of disparity, per capita income is the median of these two groups so could be equally unrepresentative of both groups. Even where income distribution figures exist they are often measured with the ‘household’ being the unit so therefore ignoring any internal disparity within the family. This intrahousehold distribution of resources could take the form of the men of the house getting more nutrition or education.
2.
This income-centric measure also overlooks other important indicators of poverty like for example, average life expectancy or access to education or healthcare. Any number of factors could be taken into account to try gauge poverty but looking simply at per capita income is showing a lack of understanding for the complexity of poverty. Some people can live from the produce they can grow in their locality but something like this is not involved in a measurable financial transaction and without speculating about its market value would go uncounted. Also access to education and healthcare may appear to be less tangible indicators of poverty but they would be considered by any serious study or measure.
3.
Another reason that measuring per capita income based on GDP can be misleading is that this measure of production and its value is made in a currency that can be freely converted internationally like the US Dollar. This is misleading because the local currency may have a different purchasing power for commodities at local prices, and example of this is that in certain countries living off two US Dollars per day could buy enough food to have a reasonably high calorific intake whereas in the US it most certainly would not. The reality of this situation is taken into consideration with some measurements, when this is done is the result is given in ‘purchasing power parity dollars’ or ‘PPP Dollars.’
4.
The ‘Dimension of Poverty’ debate looks at the above issues but also has many other considerations, like ‘Snapshot or Timeline’ issues, the difference between ‘Absolute’ or ‘Relative’ poverty and ‘subjective perceptions of poverty’. What I mean by ‘Snapshot or Timeline’ issues is that poverty or relative prosperity can be something that is seasonal, or negatively affected by war or drought, we would need to look over a long period of life-cycle to try understand these. ‘Absolute’ or ‘Relative’ poverty are two different ways of measuring poverty, the former is people under a given benchmark(E.g. 1PPP Dollar per day) and the latter is half the mean income or in some cases considers exclusion from participation in society. Finally, when I talk about ‘subjective perceptions of poverty’ I am suggesting that there is no definitive ‘objective’ measure of poverty so there may be some disparity between local and development agency understandings of what ‘really’ constitutes poverty.
5.
There are many other ways to measure poverty but the Human Development Index goes a lot further than Per Capita income to try get a multi-dimentional picture of poverty. The HDI considers life expectancy, educational exposure/literacy and real per capita income with the ‘Purchasing Power Parity’ considerations mentioned above. It has been said that the HDI is ‘a more comprehensive measure than per capita income as it has the advantage of directing attention from material possessions toward human needs’. The United Nations Development Programme, who introduced these measures, uses the HDI to rank countries into three groups, low, medium or high human development. An example of HDI giving us different results to simple Per Capita income is that of Bolivia in 2004 with a much lower GDP scored a higher HDI than Guatamala illustrating that they were translating that lower income into better human development.
6.
Measuring poverty is not an easy business with so many different factors to try understand and take into consideration. HDI is not at all perfect, even the UNDP said that ‘‘the HDI is a useful starting point, it is important to remember that the concept of human development is much broader and more complex than any summary measure can capture…the HDI is not a comprehensive measure. It does not include important aspects of human development, notably the ability to participate in the decisions that affect ones’ life and to enjoy the respect of others in the community’’. These shortcomings have been recognised and some effort has been put into address some of the issues with recent HDI innovations being able to look at separate components like, gender, class, ethnicity and regional variation to get a better picture of the skewed incomes of these groups.
Conc
The reasons for Per Capita income being considered an inadequate measure of a country’s development are many and varied. Ignoring the internal distribution of wealth within the country can result it the Per Capita income measure being representative of only a small percentage of the population. Looking at development in an income-centric way misses other important considerations. There are also issues relating to usefulness of converting the local currency into an internationally recognized bench mark currency because local food prices can, in some cases, be relatively cheap in the local currency. The ‘Dimensions of Poverty’ debate also highlights other anomalies like, whether to measure ‘Absolute’ poverty or ‘Relative’ poverty, the inaccuracies of ‘Snapshot’ measurements and the lack of a universal ‘objective’ standard of poverty. The UNDP measure of HDI is a massive improvement to measuring a country’s development on Per Capita income but even with some of its latest innovations there can never really be a ‘perfect’ way to measure a countries development as particular idiosyncrasies based on a more sociological understanding are always present.
Sebastian O’Brien April 2007
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4:27 AM
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