An extraordinary (but weak) claim about China's poverty reduction performance

Over the last forty years, global poverty has reduced dramatically. To see how dramatically, run this animation from Our World in Data (source here):

That animation is based on a poverty line of US$30 per day, which is about the average poverty line in a developed country. A poverty line is a level of income that separates the poor (who have income below the poverty line) from the non-poor (who have income above the poverty line). The poverty rate is then the proportion of the population who are poor. For example, the World Bank uses a poverty line that is currently US$2.15 per day (which is US$1 per day in 1996, adjusted for inflation) to determine rates of extreme poverty. By that measure, over the last 40 years, 800 million people have been lifted out of poverty, and China contributed close to three-quarters of that number.

The level of the extreme poverty line has been the subject of significant debate over the years (with many articles and several books devoted to the topic). Nevertheless, that global poverty has declined, and that China has contributed significantly to this success, is generally accepted. So, I was very surprised to read this article in The Conversation by Dylan Sullivan (Macquarie University), Jason Hickel (Autonomous University of Barcelona), and Michail Moatsos (Maastricht University), which presents a counter-view. They argue that:

In contrast to the World Bank, we find that from 1981 to 1990 – at the end of the socialist period – China’s rate of extreme poverty was one of the lowest in the developing world. It averaged only 5.6%, compared to 51% in India, 36.5% in Indonesia and 29.5% in Brazil.

We find extreme poverty increased dramatically during the market reforms of the 1990s. It reached a peak of 68% as price deregulation pushed up the cost of basic food and housing, cutting the buying power of low-income people.

Extreme poverty then slid during the 2000s, but has yet to fall to the levels calculated by the World Bank.

This is an extraordinary claim, so I read the underlying research article, which was just published in the journal New Political Economy (open access). The key difference between Sullivan et al.'s results and those of the World Bank lie in how the poverty line is calculated. As they explain:

In recent years, scholars have developed an alternative approach to measuring extreme poverty, which compares incomes against the cost of basic needs in different contexts (Moatsos 2016, Allen 2017, 2020). In 2021, the OECD published estimates of the share of the population below this ‘basic needs poverty line’ (BNPL), for all countries with available household survey based data from 1981 to 2008.

It is the use of this Basic Needs Poverty Line (BNPL) that explains the extraordinary results, and that is because when it comes to basic needs:

Socialist policies of public provisioning and price controls may keep the cost of meeting basic needs quite low compared to capitalist contexts characterised by high levels of commodification and privatisation. This means that any given level of broad-gauge PPP income would have a greater welfare purchasing power – in terms of basic needs – under socialism than under capitalism; people would have better access to the key goods, such as food and housing, that are necessary for escaping extreme poverty.

So, as China opened their economy up in the 1980s, privatising housing and other markets, the cost for a household to satisfy their basic needs increased, meaning that more households would be defined as extremely poor based on the BNPL measure. So, they end up with this comparison between China and several other 'middle income' countries (Figure 4 from the article):

Sullivan et al. then go on to compare those countries' performance across a range of measures that should be correlated with living standards, including literacy, school enrolment, life expectancy, health access (physicians and hospital beds per 1000 people), and calorie availability. They compare China with those other countries in 1981 and in 1990, a period where extreme poverty was reducing based on the World Bank poverty line, but where poverty based on the BNPL was relatively flat (as shown above). With these comparisons, they show that:

In sum, the empirical data on social indicators raises significant questions about the validity of the World Bank’s estimates of the poverty rate in China during the 1980s. In 25 out of 29 comparisons, China achieved the 1st or 2nd best score of the countries reviewed here, as we would expect from China’s relative performance on the BNPL.

There is a problem with the comparisons that they make though. They look at how China ranked in 1981 and 1990 compared with these other countries, and use China's declining ranking compared to these other countries as evidence in support of the BNPL data. However, they don't make the very obvious comparison of China in 1990 with China in 1981 on those same measures. If extreme poverty was decreasing, as the World Bank data suggests, then we would expect an improvement in these other measures of living standards. And indeed, that is what we see. The literacy rate in China increased from 66% to 78%, life expectancy increased from 67 to 69, and calorie availability increased from 103% to 119% of basic needs. None of that is inconsistent with a reduction in extreme poverty. Of course, that is also consistent with the BNPL data, which shows an (albeit slight) decrease in extreme poverty between 1981 and 1990 as well. An even better comparison would have been to look at the 1990s, where poverty based on the World Bank data and poverty based on the BNPL dramatically diverged. However, Sullivan et al. don't make that comparison (presumably because it doesn't support their argument).

The setting of a global extreme poverty line is quite fraught, and there will always be disagreements about how it should be determined, and at what level it should be set. However, as the American astronomer Carl Sagan noted, extraordinary claims require extraordinary evidence. The evidence that Sullivan et al. have brought to support their extraordinary claim is not extraordinary. Before we overturn the consensus that China dramatically reduced extreme poverty during the past 40 years, we need something more.