Like what you've read?

On Line Opinion is the only Australian site where you get all sides of the story. We don't
charge, but we need your support. Here�s how you can help.

  • Advertise

    We have a monthly audience of 70,000 and advertising packages from $200 a month.

  • Volunteer

    We always need commissioning editors and sub-editors.

  • Contribute

    Got something to say? Submit an essay.

 The National Forum   Donate   Your Account   On Line Opinion   Forum   Blogs   Polling   About   
On Line Opinion logo ON LINE OPINION - Australia's e-journal of social and political debate


On Line Opinion is a not-for-profit publication and relies on the generosity of its sponsors, editors and contributors. If you would like to help, contact us.


RSS 2.0

Dodgy statistics lend nothing to solving world inequalities

By Ian Castles - posted Sunday, 15 July 2001

Last September James Wolfensohn, the Australian-born chief of the World Bank, visited Sydney for some days before the annual meetings of the Bank and the International Monetary Fund in Prague. In between Olympic events, he gave an exclusive interview to the Australian Financial Review.

Wolfensohn said that he agreed with many of the concerns of the 20,000 protesters who were expected to demonstrate at the forthcoming meetings in Prague. Such events helped to create "an awareness among young people of global problems".

Central to these problems, said Wolfensohn, was a "fundamental inequity" in the distribution of the world's income. "At the moment, we have 20 per cent of the world's population with 80 per cent of the world's GDP"; the other 80 per cent of the world's people therefore "have to" live on 20 per cent of the world's output.


Unless poor people got "a better shake", he said, "you simply won't have a peaceful world".

Wolfensohn's figures were wrong. As I argued at the time, he had used the long-discredited method of converting nominal values of GDP into a common currency using exchange rates, grossly understating the developing countries' share of global output ("Wolfensohn had wrong figures", AFR September 29, 2000).

There was no reaction to my criticism, and the Bank president repeated the same numbers in media interviews around the globe. On October 13, the Bank's Development News highlighted Wolfensohn's claim, in an interview with L'Express (Paris), that 20 per cent of countries "control" 80 per cent of world GDP. This posed a "grave threat to world peace". The remarks were reported under the headline "An Unjust World is a Dangerous World: Wolfensohn".

The use of shoddy statistics to bolster such propositions is not a trivial matter. The System of National Accounts, which was welcomed and unanimously approved by the Statistical Commission of the United Nations in 1993, is explicit that "exchange rate converted data must not be interpreted as measures of the relative volumes of goods and services concerned".

The World Bank itself was a prime mover in the development of the SNA, and has subsequently advised the Commission that "there is unanimous agreement among researchers and theoreticians [that] proper cross-country comparisons can only be made once values have been adjusted to eliminate differences in price levels using purchasing power parities".

Even more serious than Wolfensohn's statistical errors are his inflammatory language and the falsity of his world model. The people of the developed world are not relatively rich because they "control" most of the world's GDP, but because they produce most of it. It is a fallacy to view the world economy as a fixed pie, from which poor countries "have to" accept less if rich countries prosper.


Of course, Wolfensohn was correct in his basic point that the distribution of global income is very unequal. But there is nothing new in this. The Australian economist Colin Clark invented the purchasing power parity technique in the 1930s to measure real incomes in all countries, rich and poor.

He was astonished at his own results, which he saw as showing that the world was a "desperately poor place" in which most people lived "in a condition of collective poverty so profound and long-lasting that many despair of any escape from it ever being found".

But the experience of the past 30 years shows that escape is possible. From about the time that the Pearson Commission reported that "the widening gap between the developed and the developing countries has become the central problem of our times", the statistical evidence shows that the relative gap between rich and poor has in fact been narrowing.

  1. Pages:
  2. Page 1
  3. 2
  4. All

This article was first published in The Australian Financial Review on June 21.

Discuss in our Forums

See what other readers are saying about this article!

Click here to read & post comments.

Share this:
reddit this reddit thisbookmark with Del.icio.usdigg thisseed newsvineSeed NewsvineStumbleUpon StumbleUponsubmit to propellerkwoff it

About the Author

Ian Castles is a Visiting Fellow at the Crawford School of Economics and Government at the Australian National University. He is a former Head of the Australian Bureau of Statistics.

Other articles by this Author

All articles by Ian Castles
Related Links
Academy of the Social Sciences
Article Tools
Comment Comments
Print Printable version
Subscribe Subscribe
Email Email a friend

About Us Search Discuss Feedback Legals Privacy