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SPRINGER BRIEFS IN ECONOMICS

S. Subramanian

Inequality and
Poverty
A Short Critical
Introduction

123
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S. Subramanian

Inequality and Poverty


A Short Critical Introduction

123
S. Subramanian
Independent Researcher
Chennai, India

ISSN 2191-5504 ISSN 2191-5512 (electronic)


SpringerBriefs in Economics
ISBN 978-981-13-8184-3 ISBN 978-981-13-8185-0 (eBook)
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Singapore
…distribution should undo excess,
And each man have enough.
Gloucester: King Lear, Act 4, Scene 1
Dedicated to the memory of Sundappa
[N. Sunder Rajan:
17 May 1944–17 July 2014]
exemplary civil servant, husband, father,
and my brother-in-law
Acknowledgements

For permission to reproduce 19 of the 23 chapters in this book, with occasional


minor alterations in the title or other small editorial amendments, the author would
like to thank:
The editor and publisher of Livemint, for Chaps. 2 through 5 and 8 through 13;
The editor and publisher of The Tribune (Chandigarh), for Chaps. 14, 15, 16, 18, 19,
21, and 23;
The editor and publisher of WiderAngle (World Institute for Development
Economics Research, United Nations University, Helsinki), for Chap. 20;
and
The editor and publisher of Frontline, for Chap. 22.
Chapter-wise details of the original sources are provided in the chart below

Chapter Chapter Title Original Title Original Source


Chapter 2 The Intrinsic Bane of The Philosophical Livemint
Inequality Case Against October 5, 2017
Inequality
Chapter 3 The Instrumental The Instrumental Livemint
Harms of Inequality Harms of Inequality October 6, 2017
Chapter 4 Distributive Justice Distributive Justice Livemint
and Utilitarianism and Utilitarianism November 12, 2017
Chapter 5 Distributive Justice Distributive Justice Livemint
and Welfare and Welfare December 6, 2017
Economics Economics
Chapter 8 On the Conflict On the Conflict Livemint
Between Equity and Between Equity and January 28, 2018
Efficiency Efficiency
Chapter 9 Equality, Efficiency, Equality, Efficiency, Livemint
and ‘Levelling Down’ and ‘Levelling February 20, 2018
Down’
(continued)

ix
x Acknowledgements

(continued)
Chapter Chapter Title Original Title Original Source
Chapter 10 Equality and Liberty The Conflict Livemint
Between Equality March 28, 2018
and Liberty
Chapter 11 Inter-personal versus Inter-personal versus Livemint
Inter-group Inequality Inter-group April 24, 2018
Inequality
Chapter 12 The Measurement of The Measurement of Livemint
Economic Inequality Economic Inequality May 30, 2018
in India
Chapter 13 Economic Inequality Economic Inequality Livemint
in India and the World in India and the June 28, 2018
World
Chapter 14 The Language of the Identifying the Poor The Tribune
Poverty Line July 24, 2015
Chapter 15 The Logic of the ‘Price-Corrected’ The Tribune.
Poverty Line Poverty Lines August 21, 2015
Chapter 16 India’s Official Controversy over The Tribune,
Poverty Lines Poverty Line August 7, 2015
Chapter 18 Targeting Assistance Targeting Assistance The Tribune,
to the Poor to the Poor September 30, 2016
Chapter 19 Do We Have an The Obligation to The Tribune,
Obligation to Assist Assist the Distant December 23, 2016
the Distant Needy? Needy
Chapter 20 Poverty and Inclusive Poverty and WiderAngle (World
Growth in the Light of Inclusive Growth in Institute for Development
the Quintile Income the Light of the Economics Research,
Statistic Quintile Income United Nations University,
Statistic Helsinki)
December 9, 2013
Chapter 21 Deprivation in the Deprivation Amid The Tribune,
Midst of Affluence Affluence April 8, 2016
Chapter 22 Growth, Poverty, and Growth of Inequality Frontline,
Inequality in India: August 5, 2016
Pulling the Threads
Together
Chapter 23 Post-script: Some The Economics of The Tribune,
FAQs in the Poverty July 22, 2016
Economics of
Poverty, Inequality,
and Welfare
About This Book

This book provides an entry into the subjects of disparity and deprivation, by attending
to issues that have a bearing on certain salient philosophical and conceptual aspects
of these subjects. The student doing a graduate course in the measurement of
inequality and poverty is all too often plunged directly into the complexities
of Schur-convex functions, dominance conditions, partial orders and the axiomatics
of characterization theorems. Inequality and poverty as phenomena with profound
social and moral implications for the world we live in tend to get submerged in a
treatment of the subject that is more suggestive of applied mathematics than of the
material conditions of life. This is in no way to deny that measurement must deal
uncompromisingly with measurement, and therefore with the protocols of formal
logic and technical rigour. Having said this, it seems fair to suggest that one’s
appreciation of the formalities—as well as of the limitations and ambiguities—of
measurement is only aided by a relatively gentle introduction to the subject. This
would call for a prior, or accompanying, engagement with the underlying concepts,
the philosophical bases, the political salience, the normative values, and the critical
facts of the subjects under investigation. It is this necessary background that is
emphasized in this book, which is a collection of articles published earlier in the
popular press, and intended for consumption by any curious general reader or student
with a taste for critical enquiry. The contents of the book will be useful as much for
the aspiring scholar as for the interested lay reader looking for a gateway into the
subject.

xi
Contents

1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2 The Intrinsic Bane of Inequality . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3 The Instrumental Harms of Inequality . . . . . . . . . . . . . . . . . . . . . . 5
4 Distributive Justice and Utilitarianism . . . . . . . . . . . . . . . . . . . . . . 7
5 Distributive Justice and Welfare Economics . . . . . . . . . . . . . . . . . . 11
6 More on Welfare Economics and Distributive Justice . . . . . . . . . . . 15
7 Distribution, Welfare, and Some Elements of Social Choice
Theory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
7.1 Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
7.2 Compensation Tests and Welfare Criteria . . . . . . . . . . . . . . . . . 20
7.3 Arrow’s Theorem . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
7.4 From Pareto Non-comparability to Collective Indifference:
A Theorem of Sen’s . . . . . . . . . . . . . . . . . . . . . . . . . . . . .... 22
8 On the Conflict Between Equity and Efficiency . . . . . . . . . . . . . . . . 25
9 Equality, Efficiency, and ‘Levelling Down’ . . . . . . . . . . . . . . . . . . . 27
10 Equality and Liberty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
11 Inter-personal Versus Inter-group Inequality . . . . . . . . . . . . . . . . . 35
12 The Measurement of Economic Inequality . . . . . . . . . . . . . . . . . . . 39
13 Economic Inequality in India and the World . . . . . . . . . . . . . . . . . 43
14 The Language of the Poverty Line . . . . . . . . . . . . . . . . . . . . . . . . . 47
15 The Logic of the Poverty Line . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
16 India’s Official Poverty Lines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55

xiii
xiv Contents

17 Poverty Comparisons Across Populations of Different Sizes . . . . . . 59


18 Targeting Assistance to the Poor . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
19 Do We Have an Obligation to Assist the Distant Needy? . . . . . . . . 69
20 Poverty and Inclusive Growth in the Light of the Quintile Income
Statistic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
20.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
20.2 The Poverty Line . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
20.3 The Quintile Income Statistic Q . . . . . . . . . . . . . . . . . . . . . . . . 75
20.3.1 Q and Money-Metric Poverty . . . . . . . . . . . . . . . . . . . 75
20.3.2 Q and Inclusive Growth . . . . . . . . . . . . . . . . . . . . . . . 76
20.4 Summary and Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
21 Deprivation in the Midst of Affluence . . . . . . . . . . . . . . . . . . . . . . . 79
22 Growth, Poverty, and Inequality in India: Pulling the Threads
Together . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
22.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
22.2 The 1991 Crisis and the Aftermath . . . . . . . . . . . . . . . . . . . . . 84
22.3 Misplaced Focus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
22.4 Poverty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
22.5 Inequality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
22.6 Horizontal and Multi-dimensional Inequality . . . . . . . . . . . . . . 87
22.7 Where Are We Headed? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
23 Post-script: Some FAQs in the Economics of Poverty, Inequality,
and Welfare . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
Further Recommended Reading . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
About the Author

S. Subramanian was a Professor at the Madras Institute of Development Studies,


Chennai, India. An economist with research interests in poverty, inequality,
demography, welfare economics, collective choice theory and development eco-
nomics, he has published widely in professional journals, and is the author of
(among other books) The Poverty Line (OUP, Delhi, 2012). He is an elected Fellow
of the Human Development and Capabilities Association, and was a member of the
Advisory Board of the World Bank’s Commission on Global Poverty.

xv
Chapter 1
Introduction

This slim book started out life without its being intended to be a book at all. It has
grown mainly out of a selection of columns that I wrote between 2016 and 2018,
first for the Chandigarh-based Tribune newspaper and then for the economics/finance
daily Livemint. I am very grateful to Harish Khare, Former Editor of The Tribune,
for inviting me to write a regular bimonthly column on economics-related issues for
his newspaper and to Niranjan Rajadhyaksha, Former Editor of Livemint, for readily
acquiescing with the notion of my writing a ten-part series of brief essays on various
aspects of economic inequality for his daily. Both editors gave me a pretty free hand,
allowing me the indulgence of attempting to write for the general reader despite
years of entrenchment in the habits (and possibly vices) of formal academic writing.
Of particular help was the clear and unfussy guideline issued by Dr. Rajadhyaksha:
‘The only editorial guidance I want to give is that the average Mint reader is an
intelligent creature but not always a professional economist—so no dumbing down
but sometimes special effort is needed to explain why an idea is important’.
I thought that the last bit of advice was as appropriate for writing a column in the
pages of The Mint, as for teaching a course in inequality measurement to first-year
postgraduate students of economics—as I discovered during a most enjoyable stint
of instruction at Mumbai University. I am very grateful to the faculty and students
of the Mumbai School of Economics and Public Policy (formerly the Department of
Economics of Mumbai University) for inviting me to offer a set of lectures under the
aegis of its M. L. Dantwala Initiative for Excellence. Inequality and poverty, as these
subjects are generally taught in college courses, tend to emphasize the quantitative
aspects of measurement and estimation. I am not suggesting that there is anything
wrong in this, except when these subjects are treated as belonging exclusively to the
province of the mathematical sciences rather than as, very substantially, to that of
the social and moral sciences.
In particular, it seems to me that a student acquires a much greater capacity
for involved and sensitive engagement with the relatively abstract axiomatics and
mathematics of measurement if she is also exposed to a preliminary acquaintance
with the underlying conceptual issues motivating the subject of enquiry. ‘Motivation’
is the key operational point. This is something that I was privileged to learn from those
© The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2019 1
S. Subramanian, Inequality and Poverty, SpringerBriefs
in Economics, https://doi.org/10.1007/978-981-13-8185-0_1
2 1 Introduction

wonderful courses in Welfare Economics and Social Choice Theory that I attended,
forty years ago, as a student at the London School of Economics. The instructor
was Prof. Amartya Sen—whose teaching, writing and general influence on my own
understanding of the subject of this book I hope I may acknowledge without in any
way implicating him in its errors and inadequacies.
When the emphasis is on ‘motivation’, the concern is with how and why the
problem under investigation is interesting and deserves attention. In subjects such
as inequality and poverty, this would generally entail engagement with the concep-
tual issues underlying the relevant themes. This, in turn, would dictate an involve-
ment with the philosophical and normative aspects of the specific problem under
review—that is to say, with values and the logic of moral reasoning, as distinct from
an exclusively ‘economistic’ concern with techniques and the toolkit.
It is in this spirit that the twenty-three short essays in this book have addressed
questions relating to the intrinsic and instrumental ills of inequality; the philosophical
bases—and inadequacies—of standard Welfare Economics and the utilitarian ethic
in dealing with distributional issues; the conflict between the demands of equal-
ity and those of other social virtues such as efficiency and liberty; the alternative
and often conflicting claims of interpersonal and inter-group equality; the logic and
values underlying the measurement of inequality and poverty; the practical and nor-
mative implications of targeting assistance to the poor; the moral argument for taking
responsibility for the existence of inequality and poverty in the world around; rep-
resentations of poverty in affluent societies; and the actual experience in the recent
past, on the fronts of disparity and deprivation, borne by the world at large and India
in particular.
I should point out here that there is some repetitiveness of themes—especially
the theme of relative, absolute, and centrist inequality measures—across some of the
chapters. I have tried to point this out in the relevant places, and while an attempt
has been made to reduce cases of repetition, these have not been entirely eliminated,
just so that each chapter can be read as an independent, self-contained piece that
preserves its own structure of both separateness and continuity.
In keeping with the orientation of avoiding an overtly academic style of exposition,
the book has eliminated or minimized dependence on the scholarly paraphernalia of
footnotes, equations, citations, and references. However, at the end of the book, there
is a bibliography of ‘Recommended Readings’ arranged chapter-wise, which I hope
will be of use to the student interested in placing the concerns of each chapter in the
wider literature dealing with those concerns.
Finally, there is a case for sharing the blame for this book with those that have had
a hand in instigating its writing. Here, I have to make specific mention of Kaushik
Basu, who suggested that I should employ the Livemint articles as a basis for a small
book; Amit Basole, who suggested that these articles might have some value as an
aid to classroom instruction; and Anjan Mukherji, Satish Jain, Rammanohar Reddy,
and Sanjay G. Reddy, who have offered encouragement by finding merit in some of
these pieces. At least now the reader will know whom to hold to account for this
book.
Chapter 2
The Intrinsic Bane of Inequality

Abstract What is the intrinsic philosophical case against inequality? This chapter
addresses this question, and in so doing, it draws considerably on John Rawls’ work
in his Theory of Justice, and some of the antecedent influences upon the book, such
as the ideas of Jean-Jacques Rousseau on inequality and the social contract. In the
process, Rawls’s ‘maximin principle’ is also explained.

This is the first of a small series of reflections on the idea of economic inequality
which will draw considerably on disciplines other than solely economics, not least
moral philosophy. I would like to begin with the somewhat elementary question of
why one might object to the fact of inequality. The reasons for resistance to inequality
could be intrinsic ones, or they could be instrumental ones. In this the first chapter,
I shall deal only with the intrinsic aspect of the problem, leaving the instrumental
aspects for consideration in the following chapter. At some fundamental level, it
appears reasonable to suggest that most people with an ethical sense of life would
find it hard to perceive any moral attractiveness in inequality: this is because they
see the virtue of some notion of justice and fairness in the conduct of life.
Indeed, a good place in which to begin might be with the notion of ‘justice as
fairness’. This is a notion that was made famous by the late Harvard moral philosopher
John Rawls, in several of his writings, which culminated in his celebrated book
A Theory of Justice, published in 1971, and widely regarded as one of the most
important works of twentieth-century moral philosophy in the Western tradition
of liberal ethics. A foundational question raised by Rawls related to the sort of
public principles of justice that might be expected to command wide intuitive and
deliberative acceptance. His answer postulates two principles.
The first principle advances the virtue of the greatest possible liberty to all which
is compatible with a similar liberty to others. The second is what is known as the
Difference Principle, which is a guideline to a just distribution of resources, reckoned
as what Rawls called ‘primary goods’ (a portmanteau notion that encompasses a wide
variety of ‘resources’ from liberties to incomes to the social bases of self-respect).
Rawls’ Difference Principle states that in comparing the goodness of two alternative
states of the world, society should favour that state in which the worst-off person is
better off, with advantage reckoned in terms of the possession of primary goods.

© The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2019 3
S. Subramanian, Inequality and Poverty, SpringerBriefs
in Economics, https://doi.org/10.1007/978-981-13-8185-0_2
4 2 The Intrinsic Bane of Inequality

This is very much in the spirit of Mahatma Gandhi’s ‘Antyodaya talisman’: ‘I will
give you a talisman. Whenever you are in doubt, or when the self becomes too much
with you, apply the following test. Recall the face of the poorest and the weakest
man whom you may have seen, and ask yourself if the step you contemplate is going
to be of any use to him. Will he gain anything by it? Will it restore him to a control
over his own life and destiny? In other words, will it lead to swaraj for the hungry
and spiritually starving millions? Then you will find your doubts and your self melt
away’. The Difference Principle is clearly a matter of making the worst-off person as
well off as possible, a matter of ‘maximizing the minimum’—whence also the label
of ‘maximin principle’ for it.
How does the maximin principle correspond to a notion of ‘justice as fairness’?
Rawls invites us to perform a thought experiment involving what he called ‘the
original position’, which is a fictive place of the imagination, in which all agents are
assumed to be in a state of ‘primordial ignorance’ on the position they will occupy in
the real world. If the agents were now invited to enter into a voluntary social contract
for a just distribution of resources, it is not unlikely, given aversion to risk, that they
will legislate in favour of securing the best of all possible worlds for the worst-off
person—which each of them might well end up being in the real world. The contract
will have been arrived at voluntarily and in a state of equal and impartial ignorance.
The resulting outcome might thus deservedly be seen to be an aspect of ‘justice as
fairness’.
Behind all great ideas lies a tradition of continuity—a notion made famous by
Newton when he spoke about standing on the shoulders of giants. At least one
giant upon whose shoulders Rawls stood was the French philosopher Jean-Jacques
Rousseau, author of the essay ‘Discourse on the Origin of Inequality’ (published in
1759) and written as an entry for a competition organized by the Academy of Dijon,
followed by the book Of the Social Contract in 1762. If it is of interest, Rousseau’s
essay did not win the competition; but his work left a lasting influence upon the devel-
opment, in the Western world, of the philosophical underpinnings of the notion of
justice. Rawls’ analytical deployment of the device of a primordial ‘original position’
is surely not an accidental echo of Rousseau’s identification of ‘the state of nature’
as a site of equality and the home of the ‘noble savage’, before its corruption by
the evolution of society whose redemption would ultimately depend upon the work-
ings of a social compact—a notion reflected in the pronounced ‘contractarianism’
underlying Rawls’s own conception of justice.
And the link with equality? Consider a pure loaf-of-bread-division exercise involv-
ing two claimants to the loaf. If we were to follow the Difference Principle, we should
prefer the distribution (1/4, 3/4) to the distribution (1/8, 7/8) [where the first number
in each pair of brackets refers to person 1’s share of the loaf of bread and the sec-
ond number to the share of person 2]: note that the worse-off person is better off in
the first distribution than in the second one. For the same reason, we should prefer
(1/3, 2/3) to (1/4, 3/4), and (1/2, 1/2) to (1/3, 2/3). From symmetric considerations,
parallel judgements must hold when we switch the income shares between the two
individuals. Wherefore (1/2, 1/2)—the outcome of perfect equality—is clearly the
best of all possible worlds from the perspective of the Difference Principle!
Chapter 3
The Instrumental Harms of Inequality

Abstract Inequality can be morally offensive both because it is objectionable in


itself and because it has harmful consequences. Chapter 2 explored the first idea,
and this chapter here explores the second idea. It is noted, in the present chapter, that
inequality can be instrumental in causing damage to a number of desired social and
economic outcomes, including income growth, efficiency, societal harmony, and a
population’s good health.

If there are intrinsic moral reasons to be concerned about inequality, there are also
instrumental reasons for such concern. Inequality is reprehensible not only because it
is inherently unfair and unjust, but because it can cause harm in a number of domains
of everyday living. In the present chapter, I discuss a small sample of some of these
instrumental ills of inequality.
First, inequality can be harmful for the prospects of an increase in national income.
Because the poor spend the bulk of their income on necessities, the marginal propen-
sity to consume out of income is higher for the poor than it is for the rich. A reduction
in the concentration of wealth and income might be expected to increase the share
of income going to the poor, which in turn should promote higher levels of con-
sumption and, through this route, greater effective demand, and markets that achieve
deeper penetration—with a concomitant positive impact on income and investment.
Increasing inequality inhibits these healthy tendencies in the economy.
Second, the concentration of wealth and income in the hands of a few is conducive
to a market structure that is monopolistic or oligopolistic. Monopolistic pricing, as
is well known, is associated with deadweight losses in welfare.
Third, there are other direct ways in which inequality can interfere with the effi-
ciency of an economy. It is interesting to note that economists like Hugh Dalton, Tony
Atkinson, Serge-Christophe Kolm and Amartya Sen have associated a measure of
inequality with the efficiency, or welfare, loss occasioned by inequality. Specifically,
if the marginal social value of income is seen to decline as income increases, then
it is easy to see that progressive redistributions of income should increase aggre-
gate welfare and that an equal distribution should maximize it. Equivalently, for any
given level of average income for a fixed population, in which income is unequally
divided, one can always think of a lower level of income such that, if every person in

© The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2019 5
S. Subramanian, Inequality and Poverty, SpringerBriefs
in Economics, https://doi.org/10.1007/978-981-13-8185-0_3
6 3 The Instrumental Harms of Inequality

society were to receive this income, the level of aggregate welfare for the equalized
distribution is the same as it was for the earlier unequal distribution.
This level of income is what Atkinson called the ‘equally distributed equivalent
(EDE)’ income. The proportionate shortfall of the EDE income from the actual
average income is then a plausible measure of the welfare loss, assessed in equivalent
income terms, occasioned by the presence of inequality. This sort of reasoning is what
led the Oxford philosopher-economist John Broome to write an essay titled ‘What’s
the Good of Equality?’ (Broome was stressing the instrumental, rather than intrinsic,
virtue of equality; otherwise, he should have written an essay titled ‘What’s Right
with Equality?’). The instrumentally positive impact of equality on efficiency is also
highlighted by a measure of ‘effective literacy’ advanced by the economists Kaushik
Basu and James Foster, who postulate that literacy is something like a public good,
such that a literate person confers external literacy benefits on other members of her
household. In line with such a view, a more equal inter-household distribution of
literacy should be accompanied by a rise in overall ‘effective literacy’.
Fourth, inequality is often both the source and the consequence of economic
domination by one group of people over another. The theme of inequality and conflict
has been well addressed in the works of economists such as Debraj Ray, Joan-Maria
Esteban, and Anirban Mitra, when they speak of polarization and of strife organized
around religious divisions. The ghettoization of the Muslim community in Gujarat
after the events of 2002, and the attempt at nullification of the community’s economic
status, is a case in point. Also of relevance here is the role played by economic
disparities in the control of natural resources. The Yale moral philosopher Thomas
Pogge has repeatedly highlighted the part played, in a country’s impoverishment, by
domestic despots who control ownership of its natural resources.
Fifth, inequalities of income and wealth have a way of spilling over into other
domains, such as that of health. Economic inequalities are known to have stress
and demoralization effects on workers; inequality can dampen productivity, and
so earning potential, and so productivity again, and earning potential once more,
in an endlessly and mutually reinforcing vicious circle; elites in a highly unequal
society would have a large say in the budgetary provisions made by a state for social
sector spending and its financing through taxation—and both public health and public
education might be expected to be among the most prominent casualties of a system of
self-centred vested interests wrought by large concentrations of economic resources
and political power in the hands of a few. On the subject of health and inequality,
a great deal of profoundly useful work has been done by Sir Michael Marmot in
Britain and by the Harvard academics Ichiro Kawachi and S. V. Subramanian in the
USA.
That was only a sampler, and the links and examples can be vastly multiplied. The
world, however, is not wanting in ‘Darwinian’ champions of the alleged virtues of
inequality in securing the preservation and propagation of the fittest. Such tendencies
are particularly well marked in fascist plutocracies, and if tendencies are what we
speak of, then there is reason for us to fear in India’s behalf. However unseasonal
the sentiment, there is much to be said for setting one’s face against unharnessed
inequality. There is nothing either right nor good about it.
Chapter 4
Distributive Justice and Utilitarianism

Abstract One of the most influential moral, political, and economic doctrines in
the recent history of Western liberal philosophy is the ethical principle of utilitar-
ianism. The present chapter explains how utilitarianism has come to be associated
with promoting the quest for equality. Employing the work of Amartya Sen, it also
argues that the association is a misplaced one, which perhaps applies only to ‘homo-
geneous’ populations and so leaves the important question of ‘heterogeneity’ out of
the question.

Utilitarianism is one of several ethical theories addressed to the question of how


to assess the ‘goodness’ of any state of affairs. In the history of ideas, the most
distinguished proponents and defenders of utilitarianism have been the great English
thinkers Jeremy Bentham (1748–1832) and John Stuart Mill (1806–1873). Bentham’s
is one of the foremost names in British jurisprudence: a man who held the notion
of ‘natural rights’ to be ‘nonsense upon stilts’, he nevertheless also fought for the
abolition of slavery. J. S. Mill, a child prodigy who grew into an adult genius, is
known (apart from his contributions to the principles of political economy), for his
tracts ‘On Liberty’ and ‘On Utilitarianism’. Utilitarianism, as encompassed in what is
called the ‘Benthamite Social Welfare Function’, is a staple feature of contemporary
economic theory; and among economist–philosophers in the modern era, a notable
proponent of utilitarianism has been the Nobel Prize-winning game theorist John
Harsyani.
In summary form, utilitarianism is well served by that clichéd description of it as
demanding ‘the greatest good of the greatest number.’ Stated more rigorously, the
‘goodness’ of any state of affairs is taken to be reflected by the sum of the utilities
derived from that state by all the individuals in a community (this sum is what is
called the Utilitarian or Benthamite Social Welfare Function); and in comparing the
‘goodness’ of alternative states of affairs, utilitarianism will recommend that state
in which the sum of individual utilities is larger. ‘Utility’, for present purposes, may
simply be interpreted as ‘desire fulfilment’. (It is said that the famously irascible
Cambridge economic theorist Frank Hahn, growing weary of philosophical defini-
tions, once told his class that ‘utility is the damned thing you maximize’!) In order to
be able to sum utilities across individuals, some special assumptions about personal

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8 4 Distributive Justice and Utilitarianism

utility must be made: in particular, that utility is ‘cardinal’ (which permits statements
such as ‘my utility is twice as much in state x as in state y’) and also ‘interpersonally
comparable’, that is, commensurable across individuals.
What does utilitarianism have to say about distributive justice? To fix ideas, let
us ask: what is the optimal distribution of income that utilitarianism would prescribe
in a two-person world? Typically, the assumption is that both individuals share the
same utility function defined on income; and further, that utility increases as income
increases, though at a declining rate, to accommodate the thesis of ‘diminishing
marginal utility’. Notice that social welfare under utilitarianism is a sum of individual
utilities. When will this sum be maximized? Suppose we have a fixed amount of
income, say Rs. 100, to distribute between the two individuals: what is the optimal
distribution? Suppose the welfare-maximizing distribution is an unequal one, say Rs.
40 to individual 1 and Rs. 60 to individual 2. Then, because of diminishing marginal
utility of income, if we were to transfer some income from person 2 to person 1, the
gain in utility to person 1 would be greater than the loss in utility to person 2, that is,
on net, social welfare would increase with a transfer of income from the richer to the
poorer person. And this must continue to be the case as long as one person has more
income than the other. This is just another way of saying that an unequal distribution
can never be a welfare-maximizing distribution. The optimal distribution of income,
under utilitarianism, must always be an equal one.
The above equality result, some thought will reveal, is driven by the assumption
of identical utility functions for the two individuals, utility functions which increase
with income at a diminishing rate. The condition for maximum social welfare is
equalization of the two individuals’ marginal utilities; and given the assumption of
identical utility functions, the accidental by-product of equal marginal utilities at the
optimum is equal incomes. Take away the assumption of identical utility functions,
and what do we have?
This is the problem that Amartya Sen addressed in his Radcliffe Lectures at the
University of Warwick, subsequently published in book form in 1973 under the title
On Economic Inequality. Specifically, he considered a situation in which, given the
two-person world invoked earlier, person 1 experiences exactly half as much utility
as person 2 at each level of income, because, let us say, person 1, unlike person 2, is
physically handicapped. What would the utilitarian welfare-maximizing distribution
of income now look like? At the optimum, the two persons’ marginal utilities would
have to be equalized; and given the particular circumstances we have specified about
the two individuals, this will happen when person 2’s income is twice the income of
person 1.
Elementary considerations of ‘need’ would prompt us to prescribe a greater share
of income for the disadvantaged person 1. Utilitarianism does precisely the opposite.
As Sen has pointed out, utilitarianism rewards the more efficient ‘pleasure machine’,
instead of compensating the more needy disabled individual. By 1973, Sen was
already anticipating his subsequently developed ‘capability theory’, wherein well-
being is seen to be a matter of human capability rather than desire satisfaction.
Utilitarianism’s assumption of identical utility functions depends on the postulation
of homogeneous populations. But the world as we know it has populations that are
4 Distributive Justice and Utilitarianism 9

heterogeneous, that is, people are not identical in their non-income characteristics.
Heterogeneity is of the essence of inequality, a problem which utilitarianism handles
inadequately, indeed perversely.
Chapter 5
Distributive Justice and Welfare
Economics

Abstract This chapter carries forward the work of Chap. 4, by discussing the (as
it happens, very restricted) role of distributional questions in Welfare Economics.
Drawing on the fine expository work of Hal Varian, this chapter reviews the meaning
and limits of the so-called First Theorem of Welfare Economics and highlights the
dominance of efficiency considerations and the relative insignificance of distribu-
tional concerns in the analytical structure of Welfare Economics.

A fundamental concern of Welfare Economics, as of other evaluative ethical theories,


resides in the assessment of the ‘goodness’ of a given state of affairs. In the context
of economic investigation, it is convenient to describe a ‘state of affairs’ very simply
in terms of a given feasible allocation of goods among the individuals constituting
the economy under review. In assessing the allocation of goods which comes to pass,
some criterion of evaluation must obviously come into play. A criterion that Welfare
Economics has been much concerned with is that of Pareto efficiency—named after
the Italian sociologist Vilfredo Pareto.
Before defining ‘Pareto efficiency’, it is useful to state what has come to be known
as the Pareto principle. The Pareto principle requires that given any two social states
(or allocations, in the present context) a and b, if a is ‘Pareto superior’ to b in the
sense that everybody is better off in a than in b, then a is a better state than b. Any
social state a will be said to be Pareto efficient, if there is no other feasible state b
which is Pareto superior to a. We still need to specify what we mean by the term
‘better off’, a matter that is aided by the notion of a utility function.
Each person is assumed to derive some utility from the commodity bundle assigned
to her by each feasible allocation, defined as a collection of commodity bundles, one
bundle for each person in the economy. If the utility she derives from her commodity
bundle under some allocation a is greater than the utility she derives from her com-
modity bundle under some other allocation b, then she will be said to be better off
with allocation a than with allocation b. And if everybody is better off, in this sense,
under allocation a than under allocation b, then a is Pareto superior to b.

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12 5 Distributive Justice and Welfare Economics

Welfare Economics is also much concerned with the notion of a social welfare
function (SWF). Given any feasible allocation a, a SWF associates a number W
with a which is supposed to reflect the aggregate welfare produced by the allocation
a. Typically, W would depend on the utility which each person derives from the
commodity bundle assigned to her in the allocation in question. This utility is assumed
to be ordinal, that is, imbued only with the property of ranking. Further, individual
utilities are assumed to be not interpersonally comparable. Finally, the SWF W is
assumed to be Pareto-inclusive, which simply means, that other things equal, if any
one person’s utility increases, aggregate welfare will also be assumed to increase.
In choosing between alternative feasible allocations, Welfare Economics espouses
the cause of that allocation which maximizes a social welfare function of the type
just described. It can be easily verified that any allocation which maximizes such a
welfare function is also Pareto efficient.
Are there any institutional arrangements we know of that are compatible with the
emergence of Pareto-efficient outcomes? Scholars who have some familiarity with
Adam Smith’s ‘Invisible Hand’ account of a market will immediately see a connec-
tion between the allocation ordained by a competitive market and Pareto efficiency.
Much of Welfare Economics has been concerned with this connection. Indeed, the
content of the so-called First Theorem of Welfare Economics is precisely that, under
certain well-defined conditions, a competitive equilibrium is Pareto efficient. Lay
interpretations of the Theorem have led to lazy and inaccurate idealizations of the
market as an institution: among other things, the First Theorem, as Amartya Sen
has pointed out, is entirely devoid of the sort of ethical significance one would look
for if one had some egalitarian concern for the allocation thrown up by a competi-
tive equilibrium: the latter is Pareto efficient all right, but could well be profoundly
inegalitarian.
To see this, consider a two-person society in which person 1’s share of the social
dividend from an efficient allocation is some fraction x, and person 2’s share is (1-x).
If we increase x, then person 1 will be better off, but person 2 will be worse off. If
we reduce x, person 2 will be better off, and person 1 worse off. That is, there is
no change in x which can make both persons better off. Equivalently, the outcome
(x, 1-x) is Pareto efficient. But this must hold for any and all fractions x! There can
thus be an infinite number of Pareto-efficient outcomes (since there are an infinite
number of fractions x), and Welfare Economics offers little normative guidance in
choosing between them. We shall investigate this issue in a little greater detail in the
next chapter, with specific reference to the work of Amartya Sen in this regard. One
of Sen’s most distinctive contributions to normative economics has been his critique
of the theoretical foundations of Welfare Economics, a critique which exposes the
inability of Welfare Economics to deal meaningfully with distributional concerns.
This, as we shall see later, has much to do with the impoverished and purely utility-
based information on the foundations of which Welfare Economics is erected.
Let me conclude with a reading tip for anyone interested in a deeper exploration
of the issues flagged above. A wonderfully lucid treatment of the subject under
discussion is available in an essay written, in 1975, by Professor Hal Varian of
the University of California at Berkeley, and titled ‘Distributive Justice, Welfare
5 Distributive Justice and Welfare Economics 13

Economics, and a Theory of Fairness’, which was published in the journal Philosophy
and Public Affairs. I have drawn considerably on Varian in writing this account, but
there is no substitute for the original, which I strongly commend to the interested
reader.
Chapter 6
More on Welfare Economics
and Distributive Justice

Abstract This chapter amplifies on the concerns of Chap. 5, by enquiring into the
reasons for the inability of Welfare Economics to deal meaningfully with distribu-
tional questions. Drawing on the seminal work of Amartya Sen, the chapter explains
how the extremely restricted informational basis of Welfare Economics—founded,
as it is, on a particularly limited set of data purely on individual utilities—has con-
tributed to the sparse engagement of Welfare Economics with distributional ethics.

As we have seen in the preceding chapter, the branch of economic theory called
Welfare Economics typically assesses the goodness of any state of affairs by means
of a ‘social welfare function’ which aggregates individual utilities defined over each
state of affairs into a collective or societal level of welfare. The individual utilities
are required to be ordinal and interpersonally non-comparable. Ordinal comparisons
of utility are confined to utility numbers whose only role is that of ranking states of
affairs according to their utility content. Interpersonal non-comparability denies the
possibility of weighing the magnitude of one individual’s utility level against that of
another’s. These properties are supposed to be requirements designed to guarantee
the ‘scientific’ status of Welfare Economics. As we shall see, however, they end up
being a source of knots and muddles for inequality comparisons.
What are the implications for distributional judgements of such a view of social
welfare as has been described above? We owe it to Amartya Sen for elucidating the
answer to this question. Sen observes that the typical social welfare function (SWF)
of Welfare Economics implies a property called neutrality, which requires the SWF
to be neutral with respect to all information that is not already contained in the set
of ordinal and interpersonally non-comparable individual utilities, these being the
only quantities on which the SWF depends. What this means, in effect, is that if
individuals’ utility rankings of two distributions x and y are the same as their utility
rankings of two other distributions w and z, then the SWF is required to rank x and
y in the same way as it ranks w and z. A minor adaptation of an example due to Sen
will illuminate the implication of this sort of neutrality for distributional judgments.
Like good economists, let us first assume that everybody prefers more
income to less. Consider a two-person world, comprised of individuals 1 and
2, respectively. Let x = (1, 9) represent a social state in which the first per-

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16 6 More on Welfare Economics and Distributive Justice

son has an income of 1 rupee and the second person an income of 9 rupees.
The social states y = (2, 8), w = (8, 2), and z = (9, 1) are to be similarly inter-
preted. Notice that y can be seen to have been derived from x by a redistribution of
1 unit of income (call it a rupee) from person 2 to person 1, and similarly, z to have
been derived from w by a redistribution of 1 rupee from person 2 to person 1. One
would imagine that if we had any minimal concern for equity, we would rank y over
x and w over z.
Why so? One reason might be that we favour an income transfer from a rich
person to a poor one (and hence y over x), while disfavouring a transfer from a poor
person to a rich one (and hence our preference for w over z). But notions such as
‘affluence’ and ‘deprivation’ constitute non-utility bits of information, to which an
SWF with the property of neutrality must be impervious. A second possible reason
could be our view that 1’s utility is much lower than 2’s in both x and y, which is
reversed in the comparison between w and z; so we approve of the 2-to-1 transfer in
moving from x to y, and disapprove of the 2-to-1 transfer in moving from w to z. But
notice that in making any such judgement, we are guilty of effecting interpersonal
comparisons of utility, so this route to justification must also remain sealed.
All that the SWF allows us to judge is that 1’s utility is higher in y than in x,
exactly as 2’s utility is higher in x than in y; identically, 1’s utility is higher in z than
in w, exactly as 2’s utility is higher in w than in z. This dictates that an SWF with the
property of neutrality is required to rank x and y in the same way as it ranks w and z.
What does this leave us with? With the fact that if the SWF should favour x over y,
it would be obliged also to favour w over z; and if it should favour y over x, it would
be obliged also to favour z over w. In each case, it would appear that the ranking of
w and z inverts the ethical values underlying the ranking of x and y. In the austere
language of moral logic, such an outcome must be judged to be inconsistent; in the
rougher language of everyday conversation, such an outcome must be judged to be
plain crazy.
It appears then, that for us to be able to undertake meaningful distributional
comparisons, we must at least assume some form of interpersonal comparability
of individual utilities. An ethic which allows for both cardinality and interpersonal
comparability is utilitarianism. In an earlier chapter, we have noted, however, that
utilitarianism yields counter-intuitive distributional judgements when populations
are heterogeneous (that is, when peoples’ non-income characteristics are different
from one another’s).
Another rule of distributive justice that can be invoked when individual utilities
are interpersonally comparable is John Rawls’ maximin rule. An application of the
‘maximin principle’ to the space of utilities would be compatible with the equalization
of total utilities at the welfare optimum. However, and as economists and philosophers
such as Amartya Sen, Anthony Shorrocks and John Broome have pointed out, welfare
must be concerned with efficiency, as well as equity, considerations. A notion of
welfare which requires a ‘levelling down’ of everybody’s utility to that of the worst-
6 More on Welfare Economics and Distributive Justice 17

off person could be considered to place a disproportionate emphasis on equality


at the cost of efficiency. In general, the competing claims of efficiency and equity
constitute a pervasive problem in distributional analysis, which we shall consider in
Chap. 8.
Chapter 7
Distribution, Welfare, and Some
Elements of Social Choice Theory

Abstract This chapter serves as an occasion to introduce the reader to some elements
of Social Choice Theory as these relate to the role of distributional concerns in Welfare
Economics. Specific attention is paid to an elucidation of ‘compensation criteria’ in
Welfare Economics and social choice; to the ‘informational’ significance of Arrow’s
General Possibility Theorem; and to a theorem of Sen’s on the restricted ability of
Paretian Welfare Economics to pronounce on distributional conflicts.

7.1 Background

This chapter will be an occasion to introduce the student to some basic concepts in
the theory of social choice, with general reference to the informational framework
on which the ‘New Welfare Economics’ is based, and specific reference to inequality
and collective choice judgements.
In 1932, Lionel Robbins wrote an influential book called An Essay on the Nature
and Significance of Economic Science, in which, among other things, he engaged in
a powerful criticism of utilitarianism. The following year, Amartya Sen was born;
and several years later, Sen himself was to initiate a powerful critique of Robbins
and his many followers. While Sen was no votary of the ethic of utilitarianism, his
contention was that Robbins had blamed utilitarianism for all the precisely wrong
reasons; that he (Robbins) had condemned utilitarianism for the only minor virtues it
possessed; and that he had made suggestions for rectification which only succeeded
in virtually derailing the intellectual enterprise called Welfare Economics.
What was Robbins’ objection, and in general that of the votaries of the New
Welfare Economics? It went something like this. It was held—as we have seen in the
two preceding chapters—that it makes little sense to see individual utility functions
as being either cardinal or interpersonally comparable. The New Welfare Economics
was fastidious about the type of utility information it would allow as ‘scientific’. To
speak of intensities of preference (via cardinalism), or to believe in the interpersonal
commensurability of preferences, was to import unfounded values into what was
essentially a positive science. The only admissible sort of SWF, briefly, was one
that was built on individualistic, ordinal, and interpersonally non-comparable utility

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20 7 Distribution, Welfare, and Some Elements of Social Choice Theory

functions and could be required to be Pareto inclusive. We have already, in Chaps. 5


and 6, seen the implications of such a social welfare function for distributional
judgements; in what follows, we shall elaborate on some of these implications for
the ‘rankability’ of Pareto-wise non-comparable social states.

7.2 Compensation Tests and Welfare Criteria

How did the New Welfare Economics cope with the problem of comparing a pair of
Pareto non-comparable social states, armed, as it was, with no more than a Pareto-
inclusive welfare indicator based on ordinal, interpersonally non-comparable indi-
vidual utility functions? As might be imagined, the attempt was paved with many
embarrassments. Some preliminary investment in notation should help.
To begin with, if individual utility functions are required to be ordinal and inter-
personally non-comparable, one might as well replace these utilities with a corre-
sponding set of individual preference orderings on the (finite) set X of social states.
Using a notational system developed by Kenneth Arrow in his 1963 book Social
Choice and Individual Values, let us say that given any two social states x and y, for
each individual i, we shall write xRi y to mean that x is regarded by i to be at least
as good as y. The binary relation Ri is assumed to be reflexive (viz. for all x: xRi x),
complete (viz. for all distinct x, y: xRi y or yRi x), and transitive (viz. for all distinct
x, y, z: if xRi y and yRi z, then xRi z). A binary relation which displays these proper-
ties is called an ordering. For each individual i, therefore, Ri is taken to be a weak
ordering on X. For each Ri on X, there exists a symmetric component I i (the binary
relation of ‘indifference’) and an asymmetric component Pi (the binary relation of
‘strict preference’). A social welfare function W predicated on a set of ordinal and
interpersonally non-comparable individual utilities can now be seen to be equivalent
to a collective weak preference ordering R defined on the set of individual weak
orderings on X, (R1 , …, Ri , …, Rn )—one ordering for each individual. For each R
on X, there is a symmetric component I (denoting ‘collective indifference’) and an
asymmetric component P (denoting ‘collective strict preference’).
Given any two social states x, y in X, we shall say that x is Pareto superior to y (in
the ‘weak’ sense we have noted earlier), written xP*y, if and only if [for all i: xPi y].
Any two states x, y are Pareto non-comparable if neither of xP*y nor yP*x is true.
Given such a pair of states, how would the New Welfare Economics proceed to rank
them? The literature on ‘compensation tests and welfare criteria’ comes to the fore
here.
Nicholas Kaldor, in 1939, proposed a principle which has come to be called
the ‘Potential Pareto Principle’ and embodies the following ‘compensation test’ for
deciding on the social ranking of a pair of Pareto non-comparable alternatives x and y.
A move from y to x will be endorsed—written xPy—if and only if the gainers from
the move can compensate the losers and still have something left over. Formally,
and using notation due to Sen, let S(x) denote the set of social states achievable
by redistribution, starting from x. Then, we shall say that the movement from y to
7.2 Compensation Tests and Welfare Criteria 21

x will have passed the ‘Kaldor compensation test’—written xPK y—if and only if
there exists some x  in S(x) such that x  P*y. Now, quite apart from the dubiousness
of an ethic that supports a merely potential and not actual compensation, it was
discovered by Tibor Scitovsky in 1941 that the Kaldor compensation test is logically
inconsistent, in that one can find a pair of social states x and y such that both xPK y
and yPK x—and therefore, both xPy and yPx—hold.
Scitovsky himself provided what he believed to be a resolution of the above prob-
lem. He proposed what has come to be called the ‘double compensation test’. Given
a pair of social states x, y, we shall say that the movement from y to x will have
passed the ‘Scitovsky compensation test’—written xPS y—if and only if [xPK y and
not (yPK x)]. Unfortunately, it was demonstrated by Terence Gorman in 1955 that
the relation PS could run into problems of transitivity: specifically, he constructed a
plausible example involving a triple {x, y, z} such that xPS y, yPS z, and not (xPS z).
Subsequently, Paul Samuelson provided a sufficient condition under which the tran-
sitivity of PS could be guaranteed: this effectively amounted to a complete outward
shift of the ‘utility possibility curve’—a condition of such restrictiveness that it still
left the comparability of many pairs of Pareto non-comparable states dangling in
the air. These issues have been thoroughly discussed in Sen’s 1970 book Collective
Choice and Social Welfare.
These knots and muddles were portents of the severe trouble the New Welfare
Economics was enmeshing itself in. The definitive blow came with the publication
of Arrow’s General Possibility Theorem.

7.3 Arrow’s Theorem

Recall that the sort of Social Welfare Function W which the proponents of the New
Welfare Economics favoured could be reasonably represented by a collective or social
ordering R of the set of alternatives X derived from an n-tuple of individual orderings
(R1 , …, Ri , …, Rn ) on X. One can then write:

R = f (R1 , . . . , Ri , . . . , Rn ).

The function f is a social welfare function in the Arrovian sense—a mapping


from every configuration of individual preferences to a social preference relation R
which is also required to be an ordering. To make any headway at all, one has to
invest the function f with some structure. Arrow imposed four seemingly innocuous
conditions on f, with which the New Welfare Economists could hardly be expected
to quarrel. These conditions were:
1. Unrestricted Domain (Condition U): The domain of the function f should include
every logically possible configuration of individual preferences.
22 7 Distribution, Welfare, and Some Elements of Social Choice Theory

2. Independence of Irrelevant Alternatives (Condition I). The social ranking of any


pair of social states x, y should depend only on the set of individual rankings over
that pair x, y.
3. Non-Dictatorship (Condition D). There should not exist any individual k such
that, for every configuration of individual preferences and all x, y, whenever
xPk y, then xPy, and whenever yPk x, then yPx. That is, there should be no person
such that his or her preference over every pair of alternatives always prevails
as the social preference over that pair, no matter what the preferences of other
individuals may be.
4. Weak Pareto Principle. For all x, y, if [for all i: xPi y], then xPy. This is a simple
condition seeking respect for unanimous preferences.
Arrow’s problem was: What is the set of social welfare functions f which will
satisfy Conditions U, I, D, and P? The answer was a door slammed in the face: the
empty set. There is no f which satisfies Conditions U, I, P, and D. The New Welfare
Economics had, with the ‘informational famine’ (Sen’s phrase) it had inflicted upon
itself, virtually starved itself out of existence.

7.4 From Pareto Non-comparability to Collective


Indifference: A Theorem of Sen’s

The complete unsuitability of a social welfare function of the type endorsed by


the New Welfare Economics for judging distributional questions and meaningfully
resolving conflict situations is well brought out in a theorem of Sen’s, conceived
within the ‘Arrow framework’. (The reader is referred to Sen’s 1970 book Collective
Choice and Social Welfare, as well as to his 1973 book On Economic Inequality.)
Sen retained Conditions U, I, and D from Arrow’s theorem and strengthened the
Pareto principle a little (call the new condition P ) whereby, for all x, y, if [for all i:
xRi y and for some i: xPi y], then xPy; and if [for all i: xI i y], then xIy. At the same
time, Sen required that the social preference relation R need be only quasi-transitive,
namely, transitive only in the strict preference relation P, but not necessarily in
the indifference relation I. Sen’s theorem states that for a social welfare function f
satisfying Conditions U, I, D, and P , the following is true:
(α) For all x, y, xPy if and only if x is Pareto superior to y.
What happens now if x and y are Pareto non-comparable? Since y is not Pareto
superior to x, by virtue of (α), it must be the case that not (yPx) whence, by the
completeness of the relation R, xRy. By the same token, since x is not Pareto superior
to y, it must be the case that not (xPy) whence, again by the completeness of R, yRx.
But if both xRy and yRx, by definition, we must have: xIy. What is the message?
The only SWF which satisfies Conditions U, I, D, and P is of the type which,
every time it is confronted by a pair of Pareto non-comparable social states, simply
declares the concerned pair to be socially indifferent! This is a remarkable—indeed,
bizarre—result. Every vexatious case demanding a distributional judgment, every
7.4 From Pareto Non-comparability to Collective … 23

case of preference conflict must be invariably resolved by the simple expedient of


transforming Pareto non-comparability into collective indifference! There is, then,
no meaningful sense in which it can be said that the New Welfare Economics is
capable of going beyond the Pareto principle.
Chapter 8
On the Conflict Between Equity
and Efficiency

Abstract This chapter focuses on two social desiderata—those of (Pareto) efficiency


and equality. Drawing on the work of Albert Weale, it expands on a specific sense
of how the two principles could conflict. It also points to the logical and ethical
difficulties that arise from an attempt to circumvent the conflict by affording priority
to one of the two principles.

Equality is not the only social virtue to which we may aspire. ‘Efficiency’ is another
such virtue, a notion that is typically interpreted by economists in terms of the Pareto
principle, namely that if a state of affairs is better for someone without being worse
for anyone, then it is a better state. If states of affairs are interpreted as income
distributions, and if we assume that everybody prefers more income to less, then a
‘Paretian’ will judge that x is a better distribution than y whenever at least one person
has more income and no person has less income in x than in y.
How might one describe an Egalitarian? One could say an Egalitarian is a per-
son who holds it to be bad that some persons should be worse off than others.
Operationally, and in the context of income distributions, one way in which many
economists and philosophers have interpreted egalitarianism is in terms of the
requirement that x is a better distribution than y whenever x is a more equal dis-
tribution than y. Given these interpretations of egalitarianism and Efficiency, a very
fine account of how the two principles could clash is available in the work of Albert
Weale, now a Professor of Political Theory at University College London. In much
of what follows, I shall depend a great deal on Weale’s paper ‘The Impossibility of
Liberal Egalitarianism’ (Analysis 1980).
To see clearly the nature of the conflict between equity and efficiency, let us
confine attention to a two-person world, comprising individuals 1 and 2. A typical
income distribution is a two-component list in which the first component refers to
person 1’s income, and the second to person 2’s income. One distribution will be
said to be more equal than another if the income share of the poorer person is larger
in the first distribution than in the second. Now consider two distributions x = (5, 5)
and y = (6, 12). Clearly, x (in which the poorer person’s income share is 50%) is a
more equal distribution than y (in which the poorer person’s income share is around
33%). An Egalitarian of the sort we have described earlier must hold x to be a better

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26 8 On the Conflict Between Equity and Efficiency

state than y. However, each person in y has a higher income than her corresponding
income in x, so a Paretian must judge y to be a better state than x. In summary, x is
better than y in egalitarian terms, and y is better than x in efficiency terms. Hence the
Equity–Efficiency conflict.
How can we ethically rank two income distributions x and y if the ranking is
governed by two criteria of which one criterion ranks x over y and the other ranks
y over x? The obvious way out, one may think, is to grant priority to one criterion
vis-à-vis the other. The Pareto principle has long enjoyed the status of a Sacred Cow
(on which more in a subsequent chapter), so let us see what happens when we accord
priority to this principle. In particular, given two distributions x and y, let us say
that x will be ranked ethically superior to y if either (a) x is Pareto-superior to y, or,
failing that, if (b) x is more equitable than y and y is not Pareto-superior to x. Call this
the Priority Rule. The Priority Rule seems to be a natural way of affording priority
to efficiency over equity. Does it resolve the conflict between the two principles?
It would seem so: going back to our original example involving the distributions
x = (5, 5) and y = (6, 12), notice that by the Priority Rule we should declare the
Pareto-superior distribution (if one exists) to be the ethically better distribution. As
it happens, y is indeed Pareto-superior to x, so y should be ranked above x, and the
conflict stands resolved.
Or does it? Consider a third distribution z = (7, 4), in which the income share of
the poorer person is 4/11, or around 36%. Clearly, z is a more equitable distribution
than y, and a less equitable distribution than x. By the Priority Rule, we should—as
we have already seen—judge y to be ethically superior to x. Notice that since x is
more equitable than z and z is not Pareto-superior to x, the Priority Rule will dictate
that x should be ranked ethically superior to z. Similarly, in the comparison between y
and z, since z is more equitable than y and y is not Pareto-superior to z, by the Priority
Rule, one must have: z is ethically superior to y. What then, in sum, do we have? The
following: y ethically superior to x; x ethically superior to z; and z ethically superior
to y. We have a complete cycle of ethical rankings, with each distribution chasing the
other in an infinite regress. (A cycle of this nature falls foul of a necessity of logic
called the property of transitivity.)
We could try and augment the role of the Pareto principle by according it even
more priority, along lines which Albert Weale has explored in his paper. But this only
leads to additional contradictions and logical inconsistencies (the interested reader
may wish to consult Weale’s paper for the finer details). In an extreme bid to avert
conflict, we could assign a role only to efficiency, and none to equity, in the ethical
ranking of income distributions. But then, as Albert Camus has said, ‘If I attempt to
solve a problem, at least I must not by that very solution conjure away one of the terms
of the problem’. Conflict is thus unavoidable if we insist on a view of egalitarianism
such as has been presented in this essay and insist also on the ethical irreproachability
of Paretianism. We shall see in the next chapter how this equity–efficiency conflict
has tended to project egalitarianism in a poor light.
Chapter 9
Equality, Efficiency, and ‘Levelling
Down’

Abstract The conflict between efficiency and equity discussed in the previous
chapter is often diagnosed as reflecting poorly on egalitarianism as insisting on
the virtues of a ‘level’ playing field, even if the ‘levelling’ is to be done by simply
dragging down those who are better off to the level of those who are worse off. The
appeal of the ‘levelling down’ argument against egalitarianism is located in a partic-
ular reading of the unexceptionableness of the Pareto principle of efficiency, and a
particular reading of the requirements of egalitarianism. Both readings are subjected
to critical scrutiny in this chapter.

Here is a quick summary of the concerns of the previous chapter. One can furnish
a rather elementary arithmetical example of a possible conflict between the social
virtues of equality and efficiency, in terms of two 2-person utility distributions x = (5,
5) and y = (5, 7): x is an equal distribution and y an unequal one, so if egalitarianism is
understood as an intrinsic valuation in favour of an equal distribution over an unequal
one, then equality must rank x as ethically superior to y; on the other hand, since
one individual has a higher utility and is therefore better off in y than in x while the
other individual is equally well off in both x and y, efficiency must rank y as ethically
superior to x. In this view of the matter, egalitarianism ranks the distributions in one
way and efficiency the other way—hence the perceived conflict between the two
virtues.
Which of the two principles—egalitarianism or efficiency—is to be assigned the
role of Villain of the Piece in this conflict? Many ethical commentators, including
in particular the late Oxford moral philosopher Derek Parfit, have contended that
egalitarianism is prey to what Parfit has called the ‘Levelling Down Objection’. The
Levelling Down Objection (LDO) states that if one state of affairs x is derived from
another state y by simply dragging down the better-off individual in y to the level of
the worse-off individual in x, then there is no respect—contrary to what egalitarianism
would assert—in which x can be judged to be a better state than y. The claim becomes
starker when we consider an example of ‘levelling down’ due to the Princeton moral

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28 9 Equality, Efficiency, and ‘Levelling Down’

philosopher Larry Temkin (who, however, as we shall see, is a vigorous opponent of


the LDO). In Temkin’s example, all of the people in x are wholly blind, while in y,
one-half of these people are wholly blind and one-half are blind in one eye: in terms
of the LDO, it is repugnant to hold that there is at least one respect, that of equality,
in which one must endorse deriving x from y by blinding the half-sighted in y.
Temkin outraged some ethical commentators by maintaining that there is nothing
repugnant in certifying x to be better than y in at least the one respect of equality,
even though—and as he was very careful to point out—y might well be judged to be
better than x from an ‘all-things-considered’ perspective. What is Temkin’s objection
to the LDO? It is to be located in what Temkin sees as the guiding principle behind
the LDO. This guiding principle is just the well-worn Pareto principle, or what the
Oxford moral philosopher John Broome calls ‘The Principle of Personal Good’, or
what Temkin simply refers to as ‘The Slogan’. One way of stating The Slogan is in
the following terms: ‘If a state y is better than a state x for somebody without being
worse for anybody, then there is NO respect in which x can be regarded as better
than y’.
If we see the sentiment encompassed in The Slogan as unimpeachably compelling,
then we have no option but to defer to the LDO, and this must necessarily entail our
calling into question the moral appeal of egalitarianism. But is The Slogan really the
wholly unexceptionable principle it might appear to be? Temkin denies this, with the
help of several arguments, of which we shall consider just one. This argument revolves
around the intrinsic appeal of a moral principle such as that of ‘proportional justice’,
a principle of desert which demands that people must be rewarded or punished in
proportion to their virtues or vices. Suppose x and y are two states in the after-world
such that in x, the ‘saints’ receive a utility level of 100 each and the ‘sinners’ a utility
level of 20 each, while in y the ‘saints’ receive a utility level of 100 each and the
‘sinners’ a utility level of 200 each. Then, The Slogan would not only hold y to be
a better state than x, but it would also insist that there is NO respect—including in
respect of the principle of proportional justice—in which one can hold x to be a better
state than y. It would require a fairly tenacious ability to bite the bullet in order to
continue to see The Slogan as an unexceptionable moral principle!
Another way of rescuing egalitarianism from the LDO is to ask if egalitarianism
really requires us to judge that any equal distribution is better than any unequal
distribution (even if only in the one respect of equality). One can resist such a way
of characterizing egalitarianism (as the present writer has done elsewhere). A more
sober, prudent, and moderate characterization of egalitarianism is the following one:
‘given that x and y have the same population size, egalitarianism requires x to be
judged a better distribution than y, whenever x is a more equal distribution than y,
provided the total amount of utility in x is the same as that in y; or whenever both x
and y are equal distributions, with the total amount of utility in x being greater than
that in y’. This sensible characterization of egalitarianism respects considerations
of both size and distribution, as well as the clause ‘all other things being equal’.
In particular, and in this view of egalitarianism, we are not constrained to say that
9 Equality, Efficiency, and ‘Levelling Down’ 29

x = (5, 5) is a better distribution of utilities than y = (5, 7) from the perspective of


equality: for note that in this example, the sum total of utility is not the same in x as
in y. That is to say, an egalitarian may, but is not required to, pronounce x as a better
state than y.
Briefly, and whatever the intrinsic appeal of The Slogan, egalitarianism, sensibly
defined, need not fall foul of the Levelling Down Objection.
Chapter 10
Equality and Liberty

Abstract Most principles of social choice would uphold the virtues of both effi-
ciency and equality, as they would the virtues of both liberty and equality. But just as
efficiency and equality could turn out to be mutually incompatible, we find—drawing
on the work of Amartya Sen and Peter Hammond—that liberty and equality could
also conflict with each other. This chapter considers the nature of this conflict and
explores how it might be addressed.

In A Theory of Justice, as we have seen in Chap. 1, John Rawls advances two fun-
damental principles as being constitutive of any reasonable interpretation of justice
as fairness. Rawls’ first principle of justice demands that each person is to have an
equal right to the most widespread liberty compatible with a like liberty for all. The
second principle—the celebrated Difference Principle—emphasizes the primacy of
maximizing the advantage (in terms of an index of primary goods) of the worst-off
person: specifically, ‘social and economic inequalities are to be arranged so that
they are both (a) to the greatest benefit of the least advantaged and (b) attached to
offices and positions open to all under conditions of fair equality of opportunity’. In
this perspective then, equality and liberty are the cornerstones of any foundational
conception of justice, or more generally, of any inclusive view of political morality.
Given this, it should be cause for concern if the principles of liberty and equality
were found to be in mutual conflict. Indeed, it turns out that there are seemingly
reasonable ways of interpreting these principles such that they end up being mutually
incompatible. Specifically, the potential for such a conflict always exists if we were
to defer to the dictates of equality in terms of a version of Amartya Sen’s ‘Weak
Equity Axiom’, and to the dictates of liberty in terms of Sen’s principle of ‘Minimal
Liberty’ (ML).
Sen’s ‘Weak Equity Axiom’, which was originally postulated in the context of
income distributions, was subsequently advanced in more general terms by the Stan-
ford economist Peter Hammond in terms of a principle that one might call ‘Minimal
Equity’ (ME). Sen’s axiom demanded that in an optimal distribution of income
between two individuals, the person who is worse off in both distributions deserves

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32 10 Equality and Liberty

a larger share of the total income. In a more general setting, one can formulate the
principle of ‘Minimal Equity’ as follows: given a pair of states of affairs which differ
from each other only in terms of the personal features of two individuals—call them
1 and 2, respectively—if (say) person 1 is worse off than person 2 in both states
of affairs, then the social choice between the two states should depend only on the
preference of the more disadvantaged individual (i.e. person 1, in this case). The
general principle underlined is that equity must privilege the preference of the more
disadvantaged individual in collective choices.
‘Minimal Liberty’ (ML) defers to a very weak requirement of the recognition of
what John Stuart Mill called a protected personal sphere, in which personal prefer-
ences are socially respected. More specifically, ML demands that for each of at least
two individuals in society, there should be at least one pair of social states each which
differ only in a feature personal to that individual, such that the individual’s prefer-
ence over the relevant pair of states is also accepted as the social preference over that
pair. The general underlying principle is that liberty requires personal choices to be
collectively respected.
Now it is possible to show that there is a specific sense in which, under certain
well-defined conditions, the principles of Minimal Liberty and Minimal Equity can
clash. A demonstration of this is available in work done elsewhere by the present
author. (The interested reader is referred to the essay ‘Can we possibly subscribe
to both Liberty and Equality at one and the same time?’ in the Spring 2012 issue
of the journal of philosophy Think.) The specific technical details of demonstration
are beyond the scope of this essay, but the conflict between equity and liberty is a
common enough theme in political and moral analysis.
How should we view this alleged conflict between equality and liberty? A par-
ticularly appealing interpretation is available in the important book Taking Rights
Seriously written by the late Harvard philosopher and jurist Ronald Dworkin. For
Dworkin, the notion of a conflict could be a misplaced one if one allows for a con-
ception of liberty and equality in which the one value is both constrained by, and
subsumed under, the other. Indeed, for Dworkin, it is a moot point whether peo-
ple have any ‘generalised right to liberty’, as such. Liberty, in Dworkin’s view, is
compromised by equality only when the former is interpreted as license: it is one’s
generalised ‘right’ to liberty (as license) that Dworkin questions.
It is useful to distinguish between two notions of a ‘right’ to something: ‘wanting’
something (such as, say, chocolate cake), on the one hand, and ‘being entitled to’
something (such as, say, admission in a college if one has the requisite marks), on
the other. For Dworkin, libertarian rights fit more readily into the first category of
rights, and equalitarian rights more readily into the second category. One may be
disposed to imagine that the frustration of desire is less serious than the frustration
of entitlement. In line with such a view, it could be held that people have a right
to liberty in the first, and weak, sense, while they have a right to equality in the
second, and strong, sense. Pitting liberty against equality, in this context, could be
misconceived. Dworkin believes that what ‘political morality’ should demand is
10 Equality and Liberty 33

‘the liberal conception of equality’: this is a conception of equality, not of liberty,


and requires that all citizens are entitled to being treated with the same respect and
concern as all others. This principle acquires a particular salience in the context of
discussions on inter-personal and inter-group equalities, as we shall see in the next
chapter.
Chapter 11
Inter-personal Versus Inter-group
Inequality

Abstract Provisions of group equality such as those subsumed in tenets of ‘affirma-


tive action’ or ‘compensatory discrimination’ have always been fraught with political
opposition to them, as constituting an affront to constitutional guarantees of inter-
personal equality. The issue is explored briefly and analytically in the present chapter,
which seeks to address the alleged conflict in terms of the distinction between ‘for-
mal’ equality and ‘substantive’ equality—a distinction that emerges clearly from a
consideration of the phenomenon of ‘heterogeneity’ as a fundamental correlate of
inequality.

One of the most contentious issues in India’s constitutional law and government
policy has been the one relating to caste-based reservations in education and
employment—a powerful example of ‘compensatory discrimination’ and ‘affirma-
tive action’ on behalf of identified ‘backward classes’ in the country. For very many
people (predictably belonging to the ‘upper castes’ and ‘upper classes’ of the social
hierarchy), affirmative action is founded in a flawed and contradictory notion of
equality, of which, indeed, the Constitution of India has been held guilty. What is
the precise nature of the complaint?
Let us look at some of the salient ‘equality clauses’ in the Constitution of India.
Article 15 relates to ‘Prohibition of discrimination…’, and Article 15(1) states that
‘The State shall not discriminate against any citizen on grounds only of religion, race,
caste, sex, place of birth or any of them’, while Article 15(4) mandates that ‘Nothing
in this article or in clause (2) of Article 29 shall prevent the State from making any
special provision for the advancement of any socially and educationally backward
classes of citizens or for the Scheduled Castes and the Scheduled Tribes’. Article
29 relates to ‘Protection of interests of minorities’, and Article 29(2) stipulates that
‘No citizen shall be denied admission into any educational institution maintained by
the State or receiving aid out of State funds on grounds only of religion, race, caste,
language or any of them’. Article 16 is concerned with ‘Equality of opportunity in
matters of public employment’. Article 16(2) states that ‘No citizen shall, on grounds
only of religion, race, caste, sex, descent, place of birth, residence or any of them, be
ineligible for, or discriminated against, in respect of any employment or office under
the State’. Article 16(4), however, requires that ‘Nothing in this article shall prevent

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S. Subramanian, Inequality and Poverty, SpringerBriefs
in Economics, https://doi.org/10.1007/978-981-13-8185-0_11
36 11 Inter-personal Versus Inter-group Inequality

the State from making any provision for the reservation of appointments or posts in
favour of any backward class of citizens which, in the opinion of the State, is not
adequately represented in the services under the State’.
For many, Article 15(4) is incompatible with Articles 15(1) and 29(2), just as
Article 16(4) is incompatible with the spirit of Articles 15(1), 16(2) and 29(2). How
so? Well, and this is how the argument might run, in order to discriminate in favour of
certain groups (as Articles 15(4) and 16(4) allow for), one must discriminate against
certain other groups (which is proscribed by Articles 15(1), 29(2) and 16(2)). The
problem, in this reckoning, would not arise if the redress of inequality were confined
to inter-personal inequality, without extending it to inter-group inequality. After all,
or so one might say, the only relevant criterion of differentiation among individuals
is the economic criterion, not differentiation according to caste or religion or social
and educational backwardness.
As it happens, there is a special circumstance under which the argument in the
preceding paragraph must be deemed to be not just plausible but also convincing.
This relates to the situation in which populations are homogeneous, that is to say, to
circumstances in which individuals are identical to each other in respect of all their
non-income characteristics. This, as we have seen in an earlier article, is a typical
assumption underlying the utilitarian calculus. Unfortunately, the assumption falls
hopelessly foul of the empirical facts of the case. The world as we know it is the exact
opposite of homogeneous: it is severely and multidimensionally heterogeneous—in
respect of age, sex, disability status, health status, caste, religion, and surely a host
of other non-income characteristics that are of signal importance in determining
individual advantage or disadvantage.
The demands and interests of inter-personal equality and inter-group equality
would coincide precisely if populations were homogeneous. But these could well
diverge when populations are heterogeneous. A theory of equality which abolishes
contradiction by denying a crucial aspect of empirical reality must be deemed to be a
poor theory. On the other hand, a theory of equality which takes on board the reality of
heterogeneity is thereby enabled to resolve the apparent contradiction between inter-
personal and inter-group equality by recognizing that there exists a valid difference
between the two notions of equality.
The difference in question is what in jurisprudence is often referred to as the
difference between ‘formal’ and ‘substantive’ equality. The most elegant distinction
I have encountered is the one drawn by the late Harvard jurist and philosopher
Ronald Dworkin, when he spoke of two kinds of the right to equality: the ‘right to
equal treatment’ and the ‘right to treatment as an equal’. The first right, as Dworkin
explains, is the right to an equal division of ‘society’s burdens and benefits’. The
second right is what he calls the right to ‘being treated with the same respect and
concern as anyone else’. In Dworkin’s view, the second of these two rights to equality
is ‘fundamental’, while the first right is ‘contingent’ and ‘derivative’.
It is easy to see what this means when we note that in any homogeneous popula-
tion, the right to treatment as an equal would entail also the right to equal treatment,
whereas in a heterogeneous population, this may well not be the case, from the prin-
ciple that the interests of substantive equality are poorly served by treating unequals
11 Inter-personal Versus Inter-group Inequality 37

equally. This is the just and simple case for compensatory provisions in favour of
the ‘backward classes’. A pity that it is so often so profoundly—and so resentful-
ly—misunderstood!
Chapter 12
The Measurement of Economic
Inequality

Abstract Since measurement is intimately linked to mathematics, there is a frequent


tendency to treat measures of inequality as unambiguously accurate and satisfactory
indicators of the phenomenon they are supposed to measure. However, and as this
chapter argues, social measurement cannot be dissociated from underlying normative
considerations of what constitutes the subject of measurement. Specifically, inequal-
ity measures, in the end, can only be as convincing as the ethical axiomatics on which
they are founded—a proposition that is explored and explained in this chapter.

Inequality occurs in many dimensions, only some of which are economic. And when
we speak of economic inequality, again the reference is to a very large canvas, which
must be restricted very severely in the interests of tractability. Accordingly, by ‘eco-
nomic inequality’, we shall mainly mean interpersonal inequality in the distribution
of incomes.
This is as good a place as any to observe that the enterprise of measurement—in-
cluding that of socio-economic phenomena such as poverty and inequality—has
tended to trigger two types of reaction among practitioners. On the one hand, we
have the ‘measurement fetishists’—those who seldom see poverty or inequality as
felt, experienced, human conditions beyond the boundaries of equations and formu-
las. At the other extreme, we have the ‘measurement nihilists’—those that regard
measurement as a cold, calculating, soulless exercise conducted by ‘experts’ that
trade in arcane symbols and unreliable data to construct misleading pictures of real-
ity.
The truth, as is often the case, is perhaps somewhere in between. Measurement
is a means of ensuring that our descriptions of, and prescriptions for, the economy
are based on evidence that is rather more tangible and objective than impressionistic
judgements and casual empiricism are wont to be. Having said which, it is never a
bad idea to check the findings from measurement against our intuitions, against what
we see around us, against our ‘feel’ for the society and economy in which we live.
Measurement may be indispensible, but can be worse than useless when it is not
informed by logical coherence and normative appeal. Measurement without respect
for facts, values, and logic is a poor thing.

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40 12 The Measurement of Economic Inequality

The measurement of income inequality generally revolves around the identifica-


tion of a summary number which captures the deviations of the incomes of a society’s
members from the mean income, which is, of course, the norm of equality. Or some-
times, the summary number captures some average of the deviations of each person’s
income from each other person’s income. Some widely used measures of inequality
in this tradition are the so-called Gini coefficient (named after the Italian statistician
Corrado Gini), which can be related to the area beneath an interesting curve, called
the Lorenz curve (named after the American Economist Max O. Lorenz): the curve
presents a pictorial representation of inequality by plotting a society’s cumulative
income share against its cumulative population share (arranged in ascending order
of income).
In very basic statistics, any student of the subject would, quite early on in her
career, encounter two well-known measures of dispersion known as the variance
and the squared coefficient of variation. Borrowing from information theory, the
Dutch econometrician Henri Theil proposed a couple of inequality measures which
have since come to be known as the two ‘Theil Indices’ and are widely employed
in routine empirical work in the measurement of inequality. The British economist
Anthony Atkinson discovered a family of ‘ethical’ measures of inequality (which
link inequality to the loss in social welfare occasioned by its presence) and are now
known as the Atkinson measures.
Apart from the measure called the variance, all the others mentioned above are
‘relative’ measures which satisfy the following property: if all incomes in a dis-
tribution are doubled or halved (or in general increased or decreased by the same
proportion), then inequality should be deemed to have remained unchanged. Such a
requirement is called the property of ‘scale invariance’. This, on the face of it, appears
to be perfectly reasonable. Consider the two-person distribution (10, 20). If each per-
son’s income is now doubled, the new distribution becomes (20, 40). But inasmuch as
the poorer person’s income is exactly one-half of the richer person’s income in both
distributions, one might be inclined to say that inequality has remained unchanged
in the transition from the distribution (10, 20) to the distribution (20, 40).
Has inequality indeed remained unchanged? As far back as the early 1920s, the
British economist Hugh Dalton did not find this account of unvarying inequality
wholly convincing. This discomfort with received wisdom was echoed by the French
economist Serge-Chrisophe Kolm in the mid-1970s. For note that though the ratio of
the poorer person’s income to that of the richer person is the same in the distributions
(10, 20) and (20, 40), the absolute difference in their incomes rises from 10 in the
distribution (10, 20) to 20 in the distribution (20, 40). Arising from which, should
not we be saying that inequality should remain unchanged when all incomes are
changed by the same absolute amount (rather than by the same proportion)? Such
a requirement is called the property of ‘translation invariance’, and any measure
satisfying the property is said to be an ‘absolute’ measure.
On further investigation, Kolm noted that both relative and absolute measures had
shortcomings—in the matter of both logical coherence and ethical acceptability. He
therefore proposed the use of ‘intermediate’ measures, which are neither relative nor
absolute, but which satisfy the property that they register a rise in value when all
12 The Measurement of Economic Inequality 41

incomes are raised by the same proportion, and a decline in value when all incomes
are raised by the same amount. In much of mainstream practice, only relative mea-
sures are employed; when these are replaced by their more reasonable ‘intermediate
counterparts’, we find that trends and magnitudes are often dramatically altered.
This is a reminder of how crucially important it is to get our measurement protocols
as nearly ‘right’ as possible. The outcome of measurement may appear to bear the
imprint of infallible precision, but it is still human handiwork—and therefore subject
to serious critical scrutiny.
Chapter 13
Economic Inequality in India
and the World

Abstract As noted in the previous chapter, the only sorts of inequality measures that
are overwhelmingly considered in the measurement literature are the so-called rela-
tive measures. However, relative measures are no less arbitrary than ‘absolute’ mea-
sures, and ‘centrist’ or ‘intermediate’ measures which strike a compromise between
the ‘extreme’ ethical values underlying relative and absolute measures commend
themselves to consideration. We find that such intermediate measures present an
empirically striking contrast to the relatively un-alarming trends displayed by the
commonly used relative measures—and this is true whether we speak of Indian or
global inequality.

To recapitulate from the previous chapter, inequality measures can be relative, abso-
lute, or intermediate. A relative measure is one whose value remains unchanged when
all incomes in an income distribution are raised or lowered by the same proportion.
An absolute measure is one whose value remains unchanged when all incomes in a
distribution are raised or lowered by the same absolute amount. The French economist
Serge-Christophe Kolm observed that in a period of labour unrest in the late 1960s,
French workers agreed to an across-the-board increase of 13% in all remunerations.
It was only later that they realized that there was a specific sense in which this
arrangement could increase inequality among wage earners. Imagine two employees
with remunerations of 100 francs and 1000 francs, respectively, before the wage
hike: the difference in their remunerations is 900 francs. After the wage hike, the
two persons’ remunerations become 113 francs and 1130 francs, respectively—and
the gap between the two remunerations increases from 900 francs before the hike to
1017 francs after the hike!
In the presence of income growth, relative measures tend to behave like ‘rightist’
measures and absolute measures like ‘leftist’ measures, as Kolm put it. He therefore
saw the case for more ‘moderate’, ‘centrist/intermediate’ measures which register an
increase in value when all incomes in a distribution are raised equi-proportionately,
and a decline in value when all incomes are raised equally. These are what one
may call income-centrist measures. An analogous problem is encountered with a
reckoning of inequality in the presence of population changes. Most extant inequality
measures are population-relative, in the sense that when the numbers of persons at

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44 13 Economic Inequality in India and the World

all income levels are raised equi-proportionately, the value of the inequality index
remains unchanged. By contrast, a population-absolute index would register a k-fold
increase in its value for a k-fold replication of the population at each income level.
Population intermediate measures, which avoid the ‘extreme values’ of both relative
and absolute indices, would typically register, in the presence of equi-proportionate
increases of population at all income levels, a less-than-proportionate increase in
inequality.
There is a strong case, from the perspectives of both logical and ethical acceptabil-
ity, for employing comprehensively intermediate (that is, income-cum-population
intermediate) measures of inequality in empirical work. The predominant main-
stream practice, however, is to employ strictly relative measures. One such measure
is the well-known Gini coefficient of inequality. What happens when we replace the
relative Gini with the intermediate Gini coefficient? It is instructive to consider this
question in the context of economic inequality in India and the world as a whole.
In India, we do not have systematic data on the distribution of personal incomes,
though we do have data—from the periodic surveys conducted by the Central Statis-
tical Office’s National Sample Surveys—on the distribution of consumption expendi-
ture. If we look at data from the 1970s to the 2010s, we find that the relative Gini had
displayed a moderately rising trend in urban India and no significant trend in rural
India so that—given that the rural population predominates—the overall all-India
trend is not an alarmingly increasing one.
This has served as a basis for neoconservative commentators to claim that growth
in India has not been seriously non-inclusive, and has also been good for poverty.
Such an assertion misses the point that a greater emphasis on redistribution would
have secured even further reductions in poverty than has been the case with the sort
of jobless, ‘trickle-down’ growth to which the country has been a witness in the
last three decades. It also misses the point that the trend in the intermediate Gini
coefficient is a clearly increasing one for both rural and urban India. This trend is
particularly and severely apparent in the overtime distribution of household wealth
in the country.
Exactly the same sorts of results hold for the world as a whole, as revealed by the
contrast in the overtime behaviour of the relative and intermediate Ginis for global
income. From the late 1980s to the late 2000s, the global relative Gini has remained
roughly constant, as revealed in the important work of experts like Branko Milanovic
of the City University of New York, whereas the global centrist Gini has registered
a rising trend.
Both diagnosis and policy prescription are crucially dependent on the findings
from measurement. And yet, if there is one thing which measurement teaches us, it
is that its underlying conceptual basis is no bedrock of value-free certainties. To the
contrary, measurement is shot through with doubt, ambiguity, and uncertainty. As
the logician Frank Ramsey, who died tragically young at the age of 28, once said:
‘We can make several things clearer, but we cannot make anything clear’.
One thing which is reasonably clear though, despite protocols of measurement
which tell us otherwise, is that inequality in the world we live in is increasing.
Why we must do something to stop this is a subject we will not even get around to
13 Economic Inequality in India and the World 45

discussing if we keep denying that it is happening. Meanwhile, the coexistence of


poverty as widespread destitution and affluence as concentrated obscenity is a moral
and political grotesquery that bodes ill for the prospects of our country’s continued
democratic functioning.
Chapter 14
The Language of the Poverty Line

Abstract A major component of the exercise of measuring poverty is the so-called


identification exercise, which usually translates to the requirement of stipulating a
poverty line in income (or more generally, ‘money-metric’) space. Chapter 14 argues
that it would be a folly to see the identification exercise as an uncomplicated problem
if one insists on a responsible use of language that respects the notion of ‘meaning’
in ordinary communication.

Why does the phrase ‘the poverty line’ generate so much disagreement and contro-
versy? Are the quarrels on the subject akin to, and of no more significance than, dispu-
tations on how many angels can dance on a pin’s head? Is the frequently encountered
concern with the notion no more than an affectation, a waste of time, an insensitive
preoccupation with definition-mongering, a cynical hobby of the hyper-specialized
professional, an instance of what Camus once called ‘sterile exercises on great sub-
jects’? There is, in my view, something of truth in these charges; and to the extent
that this is the case, one must feel free to turn one’s back on the subject and engage
with issues that one considers to be more urgent and relevant and meaningful.
But there might also be a strong case for not treating everybody that deals with
the subject with scorn and suspicion. For lurking behind the seemingly arcane and
cold-bloodedly abstract debates surrounding the subject are substantive issues of
political economy, moral concern, and practical import. The essay titled ‘How Not
to Count the Poor’ (versions of which should be easily accessible through some
purposive googling on the net) is an example of this proposition. The authors of the
essay are Sanjay Reddy, an economist at the New School of Social Research in New
York, and Thomas Pogge, a philosopher at Yale University. Their work is one of
the few bulwarks available against a complete swamping of perspective on global
income-related poverty by the World Bank over the last twenty-five years or so. So
there might, after all, well be something to be said for not judging too harshly some at
least of those that have been involved in a principled engagement with the meaning,
the (ab)uses, and the significance of the phrase ‘poverty line’.
What does ‘poverty line’ mean? It is very interesting to note that the definitions
suggested by Oxford Dictionaries and by the Merriam-Webster dictionary (both
available on the net) are so different. According to the former, the poverty line is

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48 14 The Language of the Poverty Line

‘the estimated minimum level of income needed to secure the necessities of life’.
According to the latter, the poverty line is ‘a level of personal or family income
below which one is classified as poor according to governmental standards’. The
difference between the two definitions resides in the fact that the poor are identified,
in the first definition, according to some external and presumably objective norm
encompassed in the term ‘necessities of life’; and in the second definition, according
to some internal and possibly subjective and bureaucratic norm encompassed in the
term ‘governmental standards’. As citizens who have a stake in the responsible use
of language, all of us should have a legitimate concern that key concepts, which have
a profound bearing on our well-being and that of our compatriots, are not bandied
about frivolously. And this certainly goes for the phrase ‘poverty line’.
What, then, is actually involved in all of this? A major clue is afforded in a piquant
conversation that occurs in Lewis Carroll’s Through The Looking-Glass: “‘When I
use a word,’ Humpty Dumpty said, in rather a scornful tone, ‘it means just what I
choose it to mean neither more nor less.’ ‘The question is,’ said Alice, ‘whether you
can make words mean so many different things.’ ‘The question is,’ said Humpty
Dumpty, ‘which is to be master that’s all”’. Much of what Carroll wrote can be read
at the level of ingeniously provocative and side-splittingly humorous children’s lit-
erature. Much of it is also profound and deadly serious—after all, Lewis Carroll, in
real life, was Charles Dodgson, who taught logic and mathematics at Christ Church
College in the University of Oxford. It is significant that decades later, the great
philosopher Ludwig Wittgenstein, was, effectively, to espouse the cause of Humpty
Dumpty, in his Philosophical Investigations, in opposition to his own earlier views
on language (comparable, one supposes, to Alice’s), as contained in the younger
Wittgenstein’s Tractatus Logico-Philosophicus. To simplify drastically, for the ear-
lier Wittgenstein, the function of language is to represent a reality which is out there;
for the later Wittgenstein, language is a ‘game’, in which ‘the meaning of a word
is its use’, and which therefore allows for subjectivism in its employment—what
Wittgenstein called ‘private language’. Thus, Alice would have no use for a descrip-
tion of a horse as a creature with eight legs, whereas Humpty Dumpty would be able
to get away with it by simply pronouncing that when he says ‘horse’ he means what
other people have in mind when they say ‘spider’: the meaning of his words is the
use to which he puts them.
I must say I prefer the earlier Wittgenstein to the later one, Alice to Humpty
Dumpty, the Oxford Dictionaries to Merriam-Webster’s! In this reckoning, the
poverty line must be based on an objective and reasonable assessment of what it costs
to achieve the minimum ‘necessities of life’, and not—self-referentially—on a sub-
jective and possibly arbitrary assessment determined by ‘governmental standards’.
For official standards can—and in the absence of vigilance, must—be expected to be
informed by vested interest, by considerations of convenience rather than justice, by
respect for the expedient rather than the right and the good. That’s possibly a cynical
view, but certainly not a lazy one: it suggests that all of us have a right and a duty in
the matter of participating in the activity of arriving at a reasonable understanding of
the meaning and magnitude of the poverty line. This in turn enjoins on us a stance
of alertness to, and engagement with, what at first blush might seem like an esoteric
14 The Language of the Poverty Line 49

issue that is best left to the economic expert to decide. And leaving it up entirely
to the economic expert is also to abandon the path of democratic deliberation. In
the bargain, it is a way of upholding a notion of language that accords the status of
‘master’, as Humpty Dumpty puts it, to the official expert.
For the poverty line is crucial in determining how much poverty there is in a
society at a given point of time, and how it has changed over time; in determining
who, and how many, will be eligible for state assistance on grounds of poverty; in
determining how well or badly the state has discharged its responsibility towards
mitigating the burden of deprivation on its people. These are questions that must be
addressed with truth and courage. And if that is admitted, it would not be a good idea
to confer exclusive power and authority on official experts to decide the answers to
them. The types and dangers of the arbitrariness that can arise from such a concession
will be discussed in concrete terms in the following two chapters.
Chapter 15
The Logic of the Poverty Line

Abstract Chapter 15 continues its engagement with the notion of the ‘poverty line’
introduced in Chap. 14. It is suggested in this chapter that a responsible use of lan-
guage would dictate a view of the poverty line that has certain logical implications
for the appropriate ‘space’ in which invariance of the poverty standard must be main-
tained. These logical entailments also have ethical consequences for how ‘liberal’
or ‘conservative’ we should be in specifying the poverty line, and what implications
these decisions have for our diagnosis of the levels and trends of poverty in any
concrete empirical setting.

It was our contention, in the previous chapter on this subject, that in commonly
understood terms which are compatible with a responsible use of language, the term
‘poverty line’ should refer to ‘the estimated minimum level of income needed to
secure the necessities of life’ (the definition suggested by Oxford Dictionaries).
The language of the ‘poverty line’ therefore suggests a view of income in which
it is a means to an end, rather than an end in itself. (Not that there is anything
intrinsically objectionable to a view of income as an end in itself: it is just that the
notion of a ‘poverty line’ is incompatible with such an interpretation of income.)
The ‘poverty line’ approach to conceptualizing income deprivation therefore sees
income (or resources in general) as a means to the end of avoiding deprivation in
the space of what the economist Amartya Sen has called human functionings. A
‘functioning’, in Sen’s view, is ‘a state of being or doing’, such as is reflected in a
person’s nutritional status, or status in respect of access to shelter, or clothing, or good
health, or knowledge, or the ability to move about freely, or the ability to ‘appear
in public without shame’ (a desideratum much stressed by the eighteenth-century
political economist Adam Smith and repeatedly endorsed by Amartya Sen.)
There are certain unavoidable implications for identifying the poor which a
poverty-line approach to conceptualizing poverty entails. Implication 1 is that the
logical way of deriving a poverty line is the following one: first, identify a set of
human functionings in respect of which escaping deprivation is necessary to qualify
for not being judged poor; second, agree on minimally acceptable levels of achieve-
ment for each of these functionings; third, assess the commodity requirements for
attaining these minimal levels of achievement; fourth, compute the reasonable cost

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52 15 The Logic of the Poverty Line

of the commodity requirements for each valued functioning; and fifth, add up these
costs to arrive at the poverty line.
Implication 2 is that individual-specific poverty lines derived in accordance with
Implication 1 are most unlikely to be identical across individuals. This is because of
heterogeneities that must be expected to obtain, across both individuals and ‘contexts’
or ‘environments’. What does one mean by this? Some examples should help to
illustrate the point. Consider two individuals A and B who have the same income
but who have one important non-income characteristic in respect of which they are
very different: A is physically handicapped, but B is not. Typically, to achieve the
same level of functioning in the matter of ‘mobility’, the physically handicapped
individual A will require more resources (in the form of a wheelchair, say) than
individual B. This is another way of saying that it is much more difficult for A to
convert income (or resources in general) into functionings than it is for individual
B. But since it is functionings that ultimately matter—as we have argued earlier—A
must be judged poorer than B even when both persons have the same income. Or
putting it differently, the income poverty line for A must be judged to be higher than
for B.
Consider another example involving a variation in ‘environment’. Suppose A lives
on the plains of Dindigul district in Tamil Nadu, where it is always warm (or at least
never particularly cold), while B lives in the hills of Kodaikanal, where it is almost
always cold. For both individuals to achieve the same level of functioning with respect
to ‘adequacy of clothing’, clearly B will require access to more warm clothes than A.
Even if both the income and the non-income characteristics of A and B were identical,
the income poverty line for A must be judged to be lower than for B. Variations in
the objective environment, or ‘context’ in which life is lived, again ensure that there
are inter-personal differences in the ability to convert resources into functionings.
Implication 2 of adopting a meaningful poverty-line approach to conceptualizing
poverty therefore goes against the grain of postulating a unique income poverty
line for all individuals and all environments. Implication 2 can be pithily stated in
Amartya Sen’s terms as the proposition that it is sensible to view poverty as an
absolute concept in the space of human functionings, but—because of inter-personal
variations in the ability to convert incomes or resources into functionings—as a
relative concept in the space of incomes or resources.
It should be mentioned here that there is one logical situation in which deferring to
Implication 2 is still compatible with violating Implication 1. This is the situation in
which we advance a unique poverty line, but one that is yielded by the largest of the
individual-specific poverty lines derived through deference to achievements in func-
tionings space: we can be sure, in such a situation, that no one who is poor will be left
out of the count of the poor. This is a cautious—and therefore liberal—approach to
identifying the poor. By contrast, a conservative (or crabbed and niggardly) approach
would advance a poverty line that is yielded by the smallest of the individual-specific
poverty lines: we can be sure of excluding all non-poor persons from the count of the
poor in such an approach, but we cannot be sure of including all poor persons within
the count. It should be noted that identifying the poor is only the first step in measur-
ing poverty. The second step is aggregation: the process of combining information
15 The Logic of the Poverty Line 53

on the poverty line and the distribution of incomes with a view to coming up with a
number which is intended to signify the amount of poverty that obtains in a society.
The simplest such measure of poverty is the headcount ratio or proportion of the
population below the poverty line. It does not require rocket science to deduce that,
other things equal, the headcount ratio will increase as the poverty line is increased.
There is therefore a built-in incentive for official poverty lines to be pitched ‘low’.
How does the World Bank global poverty line measure up to Implications 1 and
2, as discussed above? First, the Bank proposes a unique ‘dollar-a-day’ poverty line
for all countries of the world and over time. (The line is approximately one US dollar
per day, expressed in ‘purchasing power parity terms’, to correct for variations in
country-specific currencies’ purchasing power.) This is by no means the maximum
of country-specific poverty lines, derived in accordance with functionings-inspired
calculations. Rather, it is the minimum of country-specific poverty lines, based on
the actual poverty lines (some of which have in fact been recommended by the
World Bank itself!) employed by a few of the world’s poorest countries. The global
poverty line employed by the Bank is less than 10% of the US poverty line. It is
with reference to such a low poverty line that the Millennium Development Goal of
poverty reduction has been set. The philosopher Thomas Pogge has demonstrated
that global achievements in poverty reduction become altogether less impressive if
the poverty line is raised to a less modest, but nevertheless modest, $2.50.
Briefly, the World Bank’s global poverty estimates are based on a conceptually
dubious and un-generously Spartan reckoning of the poverty line.
Chapter 16
India’s Official Poverty Lines

Abstract The concerns of the preceding two chapters are applied to a critical exam-
ination, in this chapter, of the procedures by which official poverty lines in India have
been determined. It is concluded that these procedures have tended to violate those
aspects of logical and normative desirability that should underlie the construction of
a reasonable poverty line, as argued in Chaps. 14 and 15. As a consequence, logi-
cally unexceptionable variations of the methods adopted in official Indian treatments
of the subject could end up displaying declining trends of relatively low levels of
poverty or increasing trends of relatively high levels of poverty—without sufficient
guidance as to which approach should actually be favoured.

In the two earlier chapters on the ‘poverty line’, it was argued that when we speak
of such a line we mean—or should mean—a level of income which is adequate to
secure the necessities of life or to secure satisfactory levels of achievement with
respect to a set of identified and basic human functionings, such as the ability to be
well nourished, decently clothed, sheltered against the inclemency of the weather,
free of ignorance and ill health, and reasonably mobile. In such a view, income or
resources or commodity bundles are a means, which might well be variable across
individuals and contexts, to the end of achieving a certain absolute freedom from
deprivation in the space of human functionings, conceived of as states of being and
doing.
For any measure to be consistent and amenable to comparison across contexts,
the norm or standard of measurement must be unchanging in a relevant space. So
suppose I am comparing the lengths of two objects, say the longer sides of two tables,
and I measure the length of the first table in feet by means of a foot rule, then I must
measure the length of the second table also by means of a foot rule (made of any
material): that is, the measuring rod must be identical in the space of length, and it
would be meaningless to seek constancy of the measuring rod in the space, say, of
weight. (A wooden foot rule may be twice the weight of a plastic foot rule. If the
first table is 10 plastic foot rules long, and the second table is 10 wooden six-inch-
rulers long, then the first table is twice the length of the second table even though
we have preserved invariance of the measuring rod in the space of weight—which

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56 16 India’s Official Poverty Lines

just happens not to be the relevant space in which to preserve invariance when we
are measuring length.)
As with length, so with poverty. The poverty line may be specified in terms of the
monetary value of some given commodity bundle. But for comparisons of poverty
across space or over time to be meaningful, we must preserve invariance of the
poverty standard in the space of functionings, not of incomes or commodity bundles
or resources in general. In the previous chapter on the poverty line, we noted that
the World Bank’s ‘dollar-a-day’ global poverty line preserves invariance in the space
of ‘real income’ (or income adjusted only for price variations). This is not unlike
preserving constancy of the measuring rod’s weight when we are comparing lengths.
What about India’s official poverty lines?
Over the last twenty-five years, there have been three Expert Committees that
have overseen the determination of a consumption expenditure poverty line for India.
There was the 1993 Expert Group headed by Professor D. T. Lakadawala, the 2010
Expert Group headed by Professor S. D. Tendulkar, and the 2014 Expert Group
headed by Professor C. Rangarajan. Alas, all three Expert Committees seem to have
got the space in which invariance of the poverty norm must be sought wrong: all of
them prescribe invariance of the commodity bundle corresponding to the poverty line
level of consumption expenditure (although a different commodity bundle in each
case).
How is the ‘poverty line commodity’ bundle to be determined? Without getting
into complications of detail, the official Indian practice has been to fix the commodity
bundle in terms of that package of goods and services which corresponds to the level
of consumption expenditure at which a norm of nutritional adequacy is observed to be
achieved in some chosen ‘reference’ year. For the 1993 Expert Group, the reference
year was 1973–74, and the poverty line was selected as that level of consumption
expenditure at which a calorific consumption of 2400 kcal per person per day in the
rural areas and of 2100 kcal in the urban areas was observed to be realized, on the
basis of survey data on the distribution of calorific consumption and of expenditure
across expenditure size-classes. By this reckoning, rural and urban consumption
expenditure poverty lines for 1973–74 were arrived at. Through a similar procedure,
the 2010 Expert Group arrived at poverty lines for 2004–05 as the reference year,
and the 2014 Expert Group arrived at poverty lines for 2011–12 as the reference year.
The poverty lines in subsequent years were (effectively) derived by re-valuing the
reference year commodity bundles at contemporaneously ruling prices. What was
to be kept unvarying across contexts of comparison was therefore the ‘poverty line
commodity bundle’.
This procedure has been a recipe for complete confusion. It has been discov-
ered that as we move forward in time, the officially ‘price-corrected’ poverty lines
progressively fall short of the calorific norms on the basis of which they were ini-
tially rationalized. This phenomenon has come to be described as a ‘calorie drift’. In
some ways, such a drift is perhaps inevitable, if relative prices should move against
food items over time, or if resources such as firewood for fuel should become trans-
formed from common pool resources to marketized and priced commodities, or if
people’s ‘preferences’ (or more realistically and ironically, ‘needs’) were to shift
16 India’s Official Poverty Lines 57

more urgently towards non-food items vis-à-vis food items. Basic ‘demand theory’
predicts as much, and official procedures of fixing the poverty line have been, and
continue to remain, impervious to basic theoretical considerations.
On the basis of its dubious methodology, official poverty lines have displayed a
pleasing time-trend of declining headcount ratios of poverty. But the choice of the
reference year is essentially arbitrary. We discover that, as we move the reference
year forward in time, the declining trend is preserved, but at embarrassingly larger
and larger magnitudes of the headcount ratio. What is worse, and as the economist
Utsa Patnaik has demonstrated, if each year in our time series is treated as the
‘reference year’, that is, if the poverty line in each year is directly reckoned as the
level of consumption expenditure at which the chosen calorific norm is observed to
be realized in that year, then we obtain a profile of increasing headcount ratios! What
does this imply? It implies that the official methodology has thrown the door open to
complete anarchy. What magnitudes and trends of poverty ratios obtain becomes a
function of what year(s) we choose as our reference year(s), not a function of actual
poverty-related events on the ground.
What is more, and as Marx observed in Capital, the socially necessary means of
subsistence in any society at any point of time are always ‘practically known’. Most
people with some experience of living in a city such as Chennai would recommend a
poverty line of Rs. 15,000 per month for a family of 5. The official poverty line works
out to only around 60% of this figure. Is poverty then best tackled by understating
magnitudes and trends through Expert Fiat and Official Bluff? Or, rather, through
active state intervention which is responsive to public demands that sense and scruple
must not be sacrificed in the interests of convenience and expediency?
Chapter 17
Poverty Comparisons Across Populations
of Different Sizes

Abstract The most commonly employed measure of poverty is some headcount


of the population in poverty. Should we measure this headcount as a ratio (i.e. as a
proportion of the poor population in total population) or as an absolute number of
those in poverty? It turns out, as this chapter demonstrates, that the question has a
surprising amount of philosophical content in it. These questions of logic and norma-
tivity are explored briefly here—and shown to have very substantial implications for
our diagnosis of magnitudes and trends of poverty in any specific empirical setting.

In the preceding three chapters, we have looked at some general principles by which
a money-metric poverty line may be determined. This line, as we have seen, serves
to distinguish the poor segment of a population from its non-poor segment. The
specification of such a poverty line is often alluded to as the ‘identification exercise’
in poverty measurement, for it is the means by which the poor are identified (as those
with incomes below it).
Let us suppose that for some given society the identification problem has been
satisfactorily solved. To obtain a quantitative assessment of the extent of poverty, we
now need to combine information on the poverty line and the distribution of incomes
in order to arrive at some number which is supposed to summarily convey an order of
magnitude of the extent of poverty in the society under consideration. This part of the
activity of poverty measurement is generally referred to as the ‘aggregation exercise’.
Conventional approaches to the measurement of poverty are thus constituted by a
two-stage process: first identification, followed by aggregation. (Whether this is
necessarily the most appealing approach to money-metric poverty measurement is a
question that is discussed in Chap. 20.)
The most elementary and direct route to aggregation is in terms of some appropri-
ate count of the poor. The measure most commonly employed in the measurement
literature is the headcount ratio, which is simply the proportion of the poor popula-
tion in total population. An alternative and much less commonly employed headcount
measure is one which does not normalize for the size of the population. This mea-
sure is called the aggregate headcount, which is simply the aggregate number of poor
persons in a society. Let us call the headcount ratio and the aggregate headcount H
and A, respectively.

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60 17 Poverty Comparisons Across Populations of Different Sizes

It is clear that the headcount ratio H measures poverty on a per person basis: it
is a relative measure. The aggregate headcount A, on the other hand, is concerned
directly with the size, as such, of the poor population—and not with that size in
relation to the size of the total population: it is thus an absolute measure. In order to
obtain a more sharply delineated distinction between relative and absolute measures,
we need to engage squarely with the problem of how to effect poverty comparisons
across populations of different sizes.
To see what is involved, we consider the notion of an ordered income distribution.
This is simply a list, in increasing order, of the incomes of the individuals constituting
the society under review: an example of an ordered income distribution for a hypo-
thetical five-member society could be the list (10, 21, 25, 32, 48), which indicates
that the incomes of the five individuals in the society, arranged in increasing order,
are 10, 21, 25, 32, and 48, respectively. The number of persons represented in an
income distribution, which is of course the population of the society under review,
is the dimensionality of the income distribution. Suppose x and y are two ordered
income distributions of different dimensionalities, m and n, respectively. How may
we compare poverty across these differently dimensioned distributions? This is the
problem of ‘poverty comparisons across populations of different sizes’ in the title of
this chapter.
The standard way of resolving this problem is through the postulation of a prop-
erty of poverty indices which is widely regarded as being wholly unexceptionable
and innocuous in the poverty measurement literature. This property is called the
‘Replication Invariance Axiom’ or Axiom RI for short. Axiom RI states that given
any distribution x, if x* is derived from x by replicating each income in x k times
over, where k is any positive whole number, then poverty in the distributions x and
x* should be judged to be the same (given the poverty line, of course). That is, the
extent of measured poverty should be invariant with respect to any k-replication of
incomes.
The basis for the appeal of Axiom RI resides in the notion that what is relevant for
poverty comparisons is the relative frequency of the population at each income level:
as long as the proportion of the population at each income level is the same in two
distributions—whatever their respective dimensionalities may be—poverty in the
two distributions must be assessed to be the same. Notice that population proportions
are preserved by a doubling, or tripling, or quadrupling or—in general—by any k-fold
replication of an income distribution.
How does Axiom RI assist with comparing poverty across distributions of different
dimensionality? Here is a simple example that illustrates the mechanism. Suppose
we wish to compare poverty in the distributions x and y, where, say, x = (10, 32)
and y = (21, 25, 48), and the poverty line is, let us say, 30. Notice that we are
speaking of populations of variable size: x is a 2-person distribution, and y is a 3-
person distribution. Now consider a 3-fold replication of x, given by x* = (10, 10,
10, 32, 32, 32): the dimensionality of x* is 6. Next, consider a 2-fold replication of
y, given by y* = (21, 21, 25, 25, 48, 48): the dimensionality of y* is also 6. Since
x* and y* have the same dimensionality (of 6 each), one can compare poverty in
x* with poverty in y*. If it should turn out that poverty in x* is greater than in y*,
17 Poverty Comparisons Across Populations of Different Sizes 61

then it follows from Axiom RI that poverty in x is also greater than in y, since—by
Axiom RI—poverty in x is the same as in x*, just as poverty in y is the same as
in y*. This example should pave the way for a generalized understanding of how
the axiom of Replication Invariance surmounts the problem of variable population
poverty comparisons.
But suppose someone were to respond to the illustrative example furnished above
in the following terms: ‘By Axiom RI, poverty in x is the same as poverty in x*.
But surely, we should judge poverty to be greater in x* than in x: after all, since
there are thrice as many poor persons in x* as in x, it would be three times harder
and require three times as many resources to address poverty in x* as compared to
poverty in x . Such a line of reasoning could lead to the postulation of a property
which is severely at odds with the Replication Invariance axiom. Such a property,
which could be called the Axiom of Replication Scaling, or Axiom RS, for short,
would demand that, for any given poverty line, a k-fold replication of an income
distribution should lead to a k-fold increase in poverty.
It is easy to see that Replication Invariance is based on a relative reckoning of
population size in the assessment of poverty, while Replication Scaling is based on
an absolute reckoning of this quantity. This distinction also holds precisely for the
headcount ratio (H) and the aggregate headcount (A) measures of poverty we started
out with: it is very easy to verify that H satisfies Axiom RI and A satisfies Axiom
RS. That neither of these measures is wholly satisfactory, in and of itself, is brought
out in the following discussion.
First, the headcount ratio. It can be shown that H falls foul of a normative principle
called the ‘Constituency Principle’. This principle was advanced by the economist-
philosopher John Broome when he addressed certain questions in population ethics
inspired by the work of the moral philosopher Derek Parfit. Stated somewhat loosely,
the Constituency Principle (CP) demands that in comparing the ‘goodness’ of alter-
native states of the world, we should take account of the implications of these states
for the interests, advantage, and preferences of only and exclusively that constituency
of people which is common to the two states of the world. In the context of poverty
comparisons across a pair of distributions x and y, the Constituency Principle can be
read as demanding that our comparison should be restricted to the poor populations
in x and y. This will mean, in particular, that if y is derived from x by an increase in
the income of a non-poor person’s income or by the addition of a non-poor person
to the population, then the extent of poverty in y should be regarded as being the
same as in x. The requirement of the invariance of poverty with respect to increases
in non-poor incomes has had a long standing in the poverty measurement literature,
under the label of the Focus Axiom, which we shall here re-christen the Income Focus
Axiom. If the Income Focus Axiom derives its appeal from the notion that poverty
comparisons should be independent of the incomes of non-poor persons, then, by
the same token, one could advance a Population Focus Axiom which demands that
poverty comparisons should be independent of the size of the non-poor population.
Between them, Income Focus and Population Focus define a poverty-specific ver-
sion of Broome’s generalized postulation of a Constituency Principle in population
ethics.
62 17 Poverty Comparisons Across Populations of Different Sizes

It is easy to see that both the headcount ratio H and the aggregate headcount
A satisfy the Income Focus Axiom. However, H—unlike A—violates the Popula-
tion Focus Axiom. To see this, consider a two-person ordered income distribution
x1 = (25, 50), in a situation in which the poverty line is 30. Suppose the distribution
x2 is derived from the distribution x1 by the addition of a non-poor person with
income 50, so that x2 = (25, 50, 50). One can similarly define a distribution x3 =
(25, 50, 50, 50), …, and a distribution xm = (25, 50, …, 50) containing m 50’s.
Notice now that the headcount ratios corresponding to these different distributions
are given, respectively, by H 1 = ½; H 2 = 1/3; H 3 = ¼; …; and H m = 1/(m + 1).
The headcount ratio keeps declining with the addition of every extra non-poor per-
son, and, indeed, for sufficiently large m, the headcount ratio [which is 1/(m + 1)]
becomes vanishingly small. The suggestion then is that poverty can be claimed to
have been virtually eradicated in a society by doing precisely nothing to alleviate the
poverty of the only poor person who constitutes the constituency of the poor in the
society! This is how the headcount ratio can fall foul of the Constituency Principle,
and why it offends our moral intuition.
That the aggregate headcount A does not suffer from this infirmity can be easily
confirmed from the example discussed in the preceding paragraph: it can be verified
that the aggregate headcounts for the various distributions earlier considered are
given, respectively, by A1 = A2 = A3 = ··· = Am = 1. However, A—unlike H—does
violate a seemingly attractive property called the Likelihood Principle. This principle
requires that a poverty measure should convey some information about the probability
of encountering a poor person in any given society. That the aggregate headcount falls
foul of this principle is easily shown. Consider two situations P and Q, respectively,
such that in situation P, 99 persons in a population of 100 are poor, while in situation
Q, 100 persons in a population of 10,000 are poor: then, the aggregate headcount will
pronounce that there is more poverty in situation Q than in situation P, even though
the probability of encountering a poor person in situation Q is only 1%, while the
same probability in situation P is as high as 99%. Since the aggregate headcount,
on this score, is potentially a misleading index, we may have to fall back on the
headcount ratio as the only appropriate measure to employ in headcount poverty
comparisons—only to run into the problem of the Constituency Principle!
A possible scheme of resolution is afforded by resort to a principle of variable
population poverty comparisons that avoids the ‘extreme’ demands of the polar
properties of Replication Invariance and Replication Scaling. Such a property is
encompassed in what one may call the Axiom of Flexible Replication Responsiveness
or Axiom FRR for short, which demands simply that any k-fold replication of an
income distribution, given the poverty line, should lead to an increase in poverty,
but an increase that is less than proportionate, so that if y is any k-fold replication
of a distribution x, then, for the given poverty line, P(y) = k β P(x), where P(.) is the
distribution-specific level of poverty, and β is a parameter lying between 0 and 1
which reflects one’s preference for ‘replication responsiveness’ in the spectrum from
Replication Invariance to Replication Scaling: the closer β is to 0, the closer one is
to endorsing Axiom RI, and the closer β is to 1, the closer one is to endorsing Axiom
RS.
17 Poverty Comparisons Across Populations of Different Sizes 63

An intermediate headcount index, one which is a compromise between the purely


relative headcount ratio H and the purely absolute aggregate headcount A is given
by the index I(β) = Aβ (1 + H), where β is a parameter between 0 and 1 signifying
our judgement of the extent of the responsiveness of poverty to replication of an
income distribution: I(.) is a measure that satisfies Axiom FRR. A ‘properly centrist’
intermediate headcount index—call it C—is realized when β is set at one-half, so
that C = A1/2 (1 + H): C is equidistant from the claims of both Replication Invariance
and Replication Scaling. The index is an unbiased compromise between H and A.
On the ground, does it make a difference what precise headcount index we employ
in order to measure poverty? Here is an example from Indian poverty data which
suggests an answer in the affirmative. What has India’s performance been like on the
poverty front between the years 1961 and 1991? Going by official pronouncements,
poverty as measured by the headcount ratio registered a nicely flattering downward
trend over the three decades between 1961 and 1991. For specificity, let us just con-
sider the base and terminal years 1961 and 1991. Based on National Sample Survey
data on the distribution of consumption expenditure, and employing norms relating
to the poverty line and price indices which are fairly standard in the Indian poverty lit-
erature, the economist Gaurav Datt (among others) has provided an extremely useful
time series on Indian poverty trends. One of the indices he employs is the headcount
ratio H which, for 1961, was 45.27%, and, in 1991, was down to 35.49%—making
for a nearly 10% point decline over the tri-decadal period under review.
Contrarily, making use of Census population figures, it can be verified that the
aggregate headcount A rose from 198.8 millions in 1961 to 300.4 millions in 1991.
Since we have a conflict between the poverty rankings by H and A, let us employ
the centrist index C = A1/2 (1 + H). However, this, too, registers an increase, from
288.8 millions in 1961 to 407.0 millions in 1991. Perhaps we ought to give more
weight to the headcount ratio H? To that end, let us employ the index I(1/3). But we
find we continue to have an increase—from 64.8 millions in 1961 to 74.3 millions
in 1991. What if we employed a drastically pro-H index, say I(1/5)? The count still
refuses to climb down: it is 6.64 millions in 1961 and 6.72 millions in 1991. And
beyond this, there is a strong case for ceasing to pamper the headcount ratio any
further!
Briefly, the contention here is that there is a plausible case for asserting that
poverty in this country has not displayed the pleasing downward trend put out by
official claims. The idea is not to either play trivial numbers games or to engage in
insensitively arcane philosophical arguments. Quite the contrary. The object is to
emphasize that, in a society where starvation deaths are a fact, the moral problem
of poverty still stares us in the face, and therefore enjoins on the practitioner the
case for displaying extreme care and caution in choices relating to the protocols of
measurement. This is so even when we are dealing with apparently uncontroversial
and straightforward approaches to measurement, as the discussion of the seemingly
uncomplicated Replication Invariance axiom in this chapter reveals. There is no harm
in reminding ourselves, in the present poverty measurement context, of a sentiment
expressed in Chap. 9 in reference to the measurement of inequality: ‘the outcome
64 17 Poverty Comparisons Across Populations of Different Sizes

of measurement may appear to bear the imprint of infallible precision, but it is still
human handiwork—and therefore subject to serious critical scrutiny’.
Chapter 18
Targeting Assistance to the Poor

Abstract The present chapter considers certain questions of anti-poverty policy in


a somewhat abstract analytical setting. Should assistance (such as direct income
transfers) be targeted to the poor, or should provisioning be universal? How does the
cost of collecting information on who is poor, and how poor, mediate this discussion?
If targeting is recommended, how might the measure of poverty employed dictate who
among the poor is to be assisted, and to what extent? These questions are addressed
in what follows.

It is customary to employ an income criterion as a way of distinguishing the poor


segment of a population from its non-poor segment. The distinguishing criterion, as
we have seen in earlier discussion, is usually specified in terms of a threshold level
of income, typically called the poverty line, such that those with incomes below
this level are certified as being poor, and the rest as non-poor. These sets of people
are those that have been famously labelled, by the Government of India, as being,
respectively, ‘Below Poverty Line’ (BPL) and ‘Above Poverty Line’ (APL). Typi-
cally, poverty alleviation schemes are directed at the BPL segment of the population.
For a government which does not have the means—and this usually comes from not
having the political will or electoral incentive to tax the rich in order to subsidize the
poor—there is a powerful motivation for pitching the official poverty line as low as
it is possible to get away with.
The lower the poverty line, the smaller the number of the officially recognized
‘poor’ population that have to be accommodated in anti-poverty policy, and therefore
the smaller the strain on budgetary provisions and resource-mobilization effort. This
is almost always the case when anti-poverty programmes are targeted to the poor,
rather than made available as universal benefits that do not require means testing. The
tendency to understate the poverty line, under targeted schemes, in order to downscale
budgetary intervention in behalf of the poor is a reason why some commentators
have recommended that officially stipulated poverty lines should be de-linked from
means-tested targeting exercises.
Naturally, one would endorse this suggestion, but it is not at all clear why an
unrealistically low poverty line is acceptable for other purposes, such as ‘monitoring
the trend in the poverty rate’! After all, it turns out, empirically, to be the case that it is

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66 18 Targeting Assistance to the Poor

not only levels but also trends in poverty rates that tend to be more flattering the lower
the poverty line is. ‘Experts’ sometimes assume apparently stern positions only to
end up being lenient with officially orchestrated misrepresentations, including—as
in this instance—the poverty line.
When resort is had to means-tested targeting, there are potentially two kinds of
error that could occur. These have been referred to by Frances Stewart and Andrea
Cornia, two economists, as Type-1 and Type-2 errors, respectively. A Type-1 error is
one in which a poor person is wrongly excluded from a benefit, while a Type-2 error
is one in which a non-poor person is wrongly included within the ambit of a benefit.
In analogy with a problem in jurisprudence, a Type-1 error is rather like hanging an
innocent person, while a Type-2 error is rather like letting a guilty person go free.
Most of us would, I think, agree that the first error is the graver of the two types of
error.
And yet, stringent means-tested targeting is addressed to the problem of minimiz-
ing a Type-2 rather than a Type-1 error. This becomes particularly apparent when we
note that the headcount ratio of rural poverty employing the Tendulkar Committee’s
rural poverty line for 2004–05 was less than 40%, whereas the headcount ratio, with
a far more reasonably ‘liberal’ poverty line of Rs. 20 per person per day at 2004–05
prices, was close to 80%! The moral of the story is quite straightforward. In a society
like our own, in which most people are more-or-less poor, there is a case in favour
of universal provisioning over targeted assistance.
However that may be, when resort is had to targeting, the policy-maker must
resolve the problem of who among the poor will benefit from the assistance and to
what extent. There are different types of anti-poverty policy that one can think of,
such as direct income transfers, commodity subsidies, and wage-employment public
works programmes. For specificity, and in order to clarify some of the principles
of targeting that must be reckoned with, let us consider the case of direct income
transfers. Typically, and to put the problem in simple terms, the government will
have a budget of fixed size which is not large enough to lift all the poor out of
poverty; and the policy-maker must decide how much income to transfer to which
of the eligible persons constituting the set of poor individuals. It is assumed that the
policy-maker has, at best, access to information on the distribution of income (i.e.
on the proportion of the population at each income level) without access to data on
who has what income.
The solution to the above planning problem will depend considerably on how we
choose to measure poverty. If we measure poverty by the headcount ratio, then the
obvious procedure to follow would be to start with the richest of the poor and to work
one’s way downward, bridging each person’s shortfall from the poverty line, until the
budget is exhausted. The non-poor and the poorest of the poor will be excluded from
the ambit of assistance in such an approach. In a more egalitarian approach, one could
simply divide the budget equally among all the poor, excluding the non-poor. In an
even more egalitarian approach, one could distribute the budget in proportion to each
poor person’s shortfall from the poverty line, while again excluding the non-poor.
The most egalitarian scheme one could think of is to start with the poorest of
the poor and to raise her income to the level of the next poorest person’s income;
18 Targeting Assistance to the Poor 67

then to raise the incomes of the two poorest persons’ incomes to the level of the
third poorest person’s income; and so on, until we reach that marginal poor person
with whom the budget is exhausted. Under this approach, the richer among the poor
and the non-poor are excluded from assistance, while the poorest of the poor are
all raised to a common level of income below the poverty line. The headcount ratio
thus recommends a budgetary allocation that is compatible with a sort of ‘Social
Darwinism’ (in which it is the ‘ablest’ or least poor, who benefit), while an equality-
sensitive poverty measure will support a ‘maximin’ principle of allocation as would
be endorsed by a ‘Rawlsian’ principle of justice or Mahatma Gandhi’s Antyodya
principle, whereby the worst-off person is made as well off as possible.
We see thus that there is a fair amount of moral philosophy that is (or should
be) involved in targeting exercises! From a practical point of view, and no matter
how we choose to measure poverty, it turns out that targeting presumes the ability
to identify which poor person needs how much income to be transferred to her. But
obtaining this information is costly (and sometimes impossible). If we factor this
cost of information-collection into our calculations, then it is no longer absolutely
clear that targeting assistance to the poor is an invariably less expensive proposition
than universal provisioning. Universalism may thus not only be morally indicated but
also supported by considerations of practicality—except, of course, when targeting
errors are readily tolerated, for reasons of either negligence or (worse) design. The
problem of limited, private, and dispersed information requires careful attention.
Chapter 19
Do We Have an Obligation to Assist
the Distant Needy?

Abstract What might be an ethical approach to considering questions on what


obligations, if any, we might have towards alleviating the deprivation of those in
poverty? Some have argued that we have no obligations in this matter; others, that
we have a positive duty to assist the needy, and yet others that such a duty is enjoined
on us whenever we have violated the negative duty of not visiting harm on others.
These questions are addressed and elaborated on this chapter.

It is a well-known fact that there are massive differences in levels of human well-
being between the developed and the developing nations of the world, between the
so-called ‘global North’ and the ‘global South’. This is evident from international
statistics on certain very elementary indicators of well-being, such as those relating
to the distribution of income, mortality, and disease across the world. The problem is
not only one of relative disparity between the ‘rich’ and the ‘poor’, but of the acute
levels of absolute deprivation to which the ‘poor’ are subjected. These are matters
of largely common knowledge, though the magnitudes of the global disparities and
deprivations that obtain are frequently hugely larger than are generally suspected to
be the case. Given these background facts of international inequality and poverty, an
interesting ethical question that arises is: ‘Do the citizens of the affluent North have
an obligation to assistant the distant needy citizens of the impoverished South?’ Or,
more generally, do we have a moral onus to help those in need of material assistance
to relieve the burden of their poverty?
Moral philosophers (and economists, to a lesser extent) have addressed this ques-
tion, which has been answered in a variety of ways. A popular position that has been
adopted in the literature is one which rejects the idea of any moral obligation for afflu-
ent citizens of affluent countries to assist anonymous deprived citizens in deprived
countries. The work of libertarian thinkers such as the Canada-based philosopher Jan
Narveson exemplifies this point of view. A common argument is that all rights imply
correlative duties (on some person or agency to secure these rights), and since the
poor of the global South have no general right to assistance, there is no general duty
to assist which is binding on anyone else. In response to this, philosophers such as
Jens Timmerman (who teaches in Scotland) have pointed out that while rights imply

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70 19 Do We Have an Obligation to Assist the Distant Needy?

duties, duties do not necessarily imply correlative rights. So, does the affluent North
indeed have a duty to assist the impoverished South?
Two very influential responses in the affirmative have been provided in the work
of two moral philosophers—Peter Singer, who teaches at Princeton University, and
Thomas Pogge, who teaches at Yale University, both in the USA. Each of them
has written at least one enormously accessible book on the subject: the interested
reader is referred to Singer’s The Life You Can Save (first published in 2009) and
to Pogge’s Politics as Usual (2010). I consider Singer’s argument first. Singer notes
that a possible argument against the existence of an obligation to assist might be
located in the notion that it is against human nature to give, that providing assistance
is not an action that is psychologically plausible. This is reflected in such factors
as the distance from us of ‘statistical lives’ as opposed to ‘identifiable victims’;
parochialism (the tendency to favour ‘one’s own’ over ‘far-removed others’); futility
(‘what’s the use of my meagre, isolated contribution?’); diffusion of responsibility
(‘why me when others could help?’); sense of fairness (‘what about richer individuals
than myself who refuse to give?’); libertarianism (‘It’s my business and my right to
do as I wish with my resources’); and the hold of the norm of self-interest. Having
noted this, Singer also points out that moral judgements must ultimately be based
on moral reasoning, not on the intuitions triggered by psychological dispositions. Is
there, then, a moral line of reasoning that would point in the direction of an obligation
to assist? For Singer, there is a line of reasoning that affirms the existence of a positive
duty to assist, while for Pogge, there is one that affirms the case for an obligation that
is based on the negative duty to desist from harming others. Each can be considered
in turn.
Singer’s assertion of positive duty is based on the analogy of ‘the drowning child’.
If you are walking on your way to work and find that a child unknown to you is
drowning in a shallow pond, with no one around to help, and all you have to do is
to wade into the water at the risk of no more than wetting your suit and spoiling
your shoes and being a little late for work, wouldn’t it be monstrous on your part to
refuse to save the child’s life? The moral from the example can be generalized. If
one can assist a person in dire straits at some marginal cost to oneself, does one not
have a positive obligation to assist? Singer goes on to demonstrate that poor human
lives that are routinely lost to conditions such as diarrhoea in developing countries
can indeed be saved by a rich person in an affluent country by foregoing just the
occasional soda pop, or equivalent thereof.
Pogge’s assertion of negative duty is the eminently reasonable one that no per-
son may wilfully and unprovokedly harm another. If such harm is indeed visited
by one person upon another, then moral behaviour clearly dictates that the former
must compensate the latter for the harm done. That the North has played a major
role in the immiserization of the South can be denied only by denying the histor-
ical facts of colonialism, unfair international trade practices, the depredations of
multinational corporations, the burdens of international debt, and the ravages of war.
It would require a similar obtuseness to the unsavoury practices of supranational
institutions—practices including conditional lending, structural adjustment, macroe-
conomic stabilization, power-based trade dispute mechanisms, and the terms of
19 Do We Have an Obligation to Assist the Distant Needy? 71

international patent laws—to fail to see that the allegation of harm must stick. And
if there is a violation of the injunction not to harm, then the just claims of restitution
will impose an obligation on the affluent rich to assist the harmed poor. Indeed, Pogge
goes so far as to suggest that world poverty is a crime fully comparable in scale to the
crimes committed by the Nazis in Hitler’s Germany. Pogge’s formulation, we may
note, is both less and more demanding than Singer’s formulation. Less demanding,
because Pogge will insist only on the negative duty of refraining from harming others
and profiting from so doing, and more demanding, because Pogge asserts that global
deprivation and disparity can be directly attributed to the harm done to the poor by
the rich, through—among other mechanisms—the subversion of global institutions
and the global order for the sake of private or geopolitical profit and advantage.
Ordinary sensitivity to simple moral reasoning would therefore seem to demand
that there does exist an obligation on the part of the richer nations of the world to
assist the poorer, even if distant, nations. How much more urgent must that moral
imperative be when we speak of our own rich and our own poor! And yet, how
callously little of this sensitivity is on evidence when we contemplate the depth of
deprivation and the width of inequality in our country! Is it this fact of insensitivity
or, instead, the acknowledgement of it, which is anti-national?
Chapter 20
Poverty and Inclusive Growth
in the Light of the Quintile Income
Statistic

Abstract Given the vexatious nature of the problem of identification in poverty


measurement, is there an alternative approach to measuring money-metric poverty
that is conceived of as ‘lowness of income’, as such? Such an approach is espoused
by the measure that Kaushik Basu calls the ‘quintile income statistic’. This chapter
explores the merits of this measure, both as an indicator of income poverty and as a
component of a method for assessing the ‘inclusiveness’ of the growth in per capita
income.

20.1 Introduction

It appears that the World Bank is planning to maintain and disseminate systematic
information on a version of what Kaushik Basu had some years ago advanced as
the ‘quintile income statistic’. The quintile income—which we shall find convenient
to refer to simply as Q—is just the average income of the poorest quintile (that is
to say, poorest 20%) of a population. The quintile income statistic is a very simple,
but also very versatile, welfare indicator—one which can be employed to cast light,
admittedly in a somewhat elementary way, on aspects of both income poverty and the
‘inclusiveness’ of growth. The World Bank aims to track, subject to the availability of
data, country-specific performance with respect to the average income of the poorest
40% of the population (rather than 20%, as Basu had proposed in his original version
of the statistic).
Notice that the quintile income and the Bank’s proposed measure are specific
instances of a more general formula that pertains to the average income of the poor-
est x per cent of a population. As x goes towards 100, we move closer and closer
towards that old workhorse summary indicator of welfare, the income per capita of
a population. To ensure that some sensible distinction from per capita gross national
product (GNP) is maintained, there is a case for pitching x ‘low’ rather than ‘high’.
As such, one wishes the World Bank had stuck to Basu’s original recommendation
of concentrating on the bottom 20%, instead of focusing on the bottom 40%. Having
said this, it is nevertheless welcome that the bank proposes to implement a version
of the quintile income index, and, for specificity, it is this measure Q that I shall refer

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74 20 Poverty and Inclusive Growth in the Light …

to in the rest of this article. In what follows, I shall attempt to describe as simply as
I can how the Q statistic can be employed to reveal something about an economy’s
poverty and dynamic inequality.

20.2 The Poverty Line

As is well known, extant protocols of money-metric poverty measurement follow


what one may call the route of ‘identification-cum-aggregation’. To summarize some
major considerations discussed in earlier chapters, the identification exercise is con-
cerned with specifying an income ‘poverty line’ designed to distinguish the poor
segment of a population from its non-poor segment. The aggregation exercise is con-
cerned with combining information on the distribution of income and the poverty
line in order to come up with a single real number which is supposed to signify the
extent of poverty in the society under review. A particularly simple aggregate mea-
sure of poverty, and one which is very widely employed, is the so-called headcount
ratio or proportion of the population in poverty (that is to say, the proportion of the
population with incomes or consumption expenditure levels below the poverty line).
It is important to recognize that the language of a ‘poverty line’ is ill-suited to
treating income as anything but a means to an end—specifically the end of avoiding
deprivation in the space of human functionings. After all, what is the common sense
meaning of the term ‘poverty line’? Is it not a reference to that level of income
which, when it is attained, enables an individual to escape deprivation? And what is
deprivation, if not a failure to achieve certain ‘minimally satisfactory’ states of being
and doing—such as the state of being reasonably well nourished, reasonably mobile,
reasonably free of disease and ignorance, reasonably sheltered against the forces of
nature and climate, reasonably equipped to participate without shame in the affairs
of one’s society, and so on? And if this is the case, surely the right way of going
about fixing the poverty line would be to first make a list of human functionings in
respect of which it is reasonable to insist that one should avoid deprivation in order
to be counted non-poor; to identify the reasonable cost of achieving each reasonable
level of functioning; and to add up all of these functioning-specific costs in order to
arrive at the money-metric poverty line.
As we have had occasion to note before, there can be both interpersonal and
‘environment-’ or ‘context-dependent’ factors which can make for differences in
the rate at which incomes (or resources in general) are converted into functionings.
Thus, a pregnant or lactating mother will typically need more nutritional resources
than a person who, other things equal, is not in this condition. Similarly, a physically
handicapped person would typically need more resources to achieve the functioning
of mobility than one who is not so handicapped. Apart from such individual hetero-
geneities, are also differences wrought by variations in the objective environment.
Thus, a person living in unsanitary conditions without access to clean drinking water
might be expected to require more food to achieve the same nutritional status as one
whose absorptive capacity is not compromised by infected potable water. Similarly,
20.2 The Poverty Line 75

a person living in a cold climate would require more resources to expend on protec-
tive clothing than one living in a temperate climate. We owe all of these insights to
Amartya Sen who, many years ago, employed this line of argumentation to assert
that poverty is best seen as an absolute concept in the space of functionings, but (and
precisely because of variations across regimes in the ability to convert resources into
functionings) as a relative concept in the space of resources (including income).
What is the implication of these seemingly arcane conceptual distinctions? The
implication, it turns out, is of rather immediate pragmatic import. The line of dis-
cussion just pursued suggests that, ideally, one ought to have individual-specific
money-metric poverty norms to take account of interpersonal variations in the abil-
ity to convert resources into functionings. This is scarcely feasible. More manage-
able might be to have ‘regime-specific’ poverty lines, to allow for differences across
demographic groups, or space, or time. At a point of time, for instance, in a country
like India, there might be a case for having at least district-specific poverty lines,
based on spatial disaggregation. That would mean upward of 600 poverty lines in the
country—not exactly a matter which is within the bounds of practical politics, unless
there existed a functioning, permanent Poverty Estimation and Monitoring Bureau to
do the job. The practical issue is this: for poverty comparisons to be meaningful, the
poverty standard must be invariant across the contexts of comparison. But invariant
in what space? In the space of functionings (which is compatible with variability in
the space of resources), not in the space of real incomes or of commodity bundles.
Yet, in practice, the World Bank’s ‘dollar-a-day’ international poverty line pre-
serves invariance in the space of real incomes, while India’s official poverty lines
preserve invariance in the space of commodity bundles. Regrettably, the language
of a ‘poverty line’—in terms of which incomes or resources are seen as a means
to the end of avoiding deprivation in the space of functionings—is wholly incom-
patible with such postulated invariance of real incomes or commodity bundles. The
resulting estimates of ‘poverty’ are, quite straightforwardly put, hard to interpret in
any conceptually coherent or meaningful way. And the problem, I’m afraid, cannot
simply be taken care of by impatient assertions regarding the unavoidability of some
element of arbitrariness in the specification of an income poverty line.

20.3 The Quintile Income Statistic Q

20.3.1 Q and Money-Metric Poverty

Alternatively, one could abandon the ‘poverty line’ route to assessing money-metric
poverty, and treat income as an end in itself. The notion of being in possession of
income is, in such a view, treated as a desirable functioning to achieve, in and of itself.
There is at any rate, in this construction, no ambiguity, or dissonance in the intended
meaning of a notion and the use to which it is put. In such an event, one is enabled
to get out of the ‘identification-cum-aggregation’ mould of poverty measurement
76 20 Poverty and Inclusive Growth in the Light …

and, instead, employ something like Kaushik Basu’s ‘quintile income statistic’ as
a signifier of money-metric poverty. The idea, here, would be to track, monitor,
and compare the average income of the poorest x per cent of a population across
alternative regimes. The quintile income Q is a specific instance of a money-metric
poverty indicator, pure and simple, and not least by virtue of its being a reflection of
the income performance of the income-poorest 20% of a population.
One way in which the performance of Q over time for a given country (or for
the world as a whole) can be evaluated is the following. Just as countries often set
targets for the rate of growth of per capita GNP, so one can set rates of growth for
Q. For some desired postulated rate of growth of Q over time, one can obtain a time
series of ‘warranted’ Qs—call these the corresponding Q* values—and obtain a time
series on the ratio of the actual quintile income (Q) to the ‘warranted’ quintile income
(Q*) at each point of time. Increasing overtime ratios of greater than one would tell
an encouraging story of declining overtime money-metric poverty; just the opposite
would be true for dwindling overtime ratios of less than one. Presumably, the targeted
rate of growth of Q would be higher the lower the initial level of Q.

20.3.2 Q and Inclusive Growth

If we took a wholly relative view of inequality, we would say that inequality over
time, in the presence of growth in per capita income, has remained unchanged when
each person’s income has increased by the same proportion. If we took a wholly
absolute view of inequality, we would assert overtime invariance in inequality when
each person’s income has increased by the same amount. A ‘properly centrist’ view
of inequality invariance might dictate that one-half of the product of growth should
be distributed in the proportions that obtain currently (i.e. in the base year) and one-
half should be distributed equally. Or, at a broader level of aggregation, we might
wish for this outcome to hold at the level of quintiles. In assessing the ‘inclusiveness’
of growth over the past, say T years, we could proceed as follows. Suppose g to be
the annual compound rate of growth of per capita income over the last T years. For
each year t = 1, …, T, it is a simple matter, given g, to apply the ‘properly centrist’
formula just discussed in order to obtain the desired quintile-specific average income
levels in each year which will preserve overtime inequality invariance.
Let Q̂ 1t be the desired level of Q for the richest quintile in year t, let Q̂ 5t be the
desired level of Q for the poorest quintile in year t, and let Q 1t and Q 5t be the actual
values of Q for the richest and poorest quintiles, respectively, in year t. Consider
the ratios qt1 ≡ Q 1t / Q̂ 1t and qt5 ≡ Q 5t / Q̂ 5t for every t = 1, …, T. A little thought
will establish that a situation in which qt1 displays a rising trend above the unit
line and qt5 displays a falling trend below the unit line, so that the two trend lines
together resemble a diverging fork starting together at unity in the base year, is a
clear manifestation of non-inclusive growth, of rising dynamic inequality. This is a
specific way in which the inclusiveness or otherwise of growth can be assessed, in
terms of the overtime trends in the average incomes of the richest and the poorest
quintiles of a population.
20.4 Summary and Conclusion 77

20.4 Summary and Conclusion

To summarize, even at the risk of some repetition, given the way the poverty line
is often specified and treated, namely nominally as a means to an end but not sub-
stantively so, one is left with the view of an inappropriate use of language that
characterizes the bulk of actual empirical work available on the identification issue
in poverty measurement. The result, in my view, is that poverty statistics on mag-
nitudes or trends—whether at the level of countries or at a global level—are often
profoundly misleading. Rectification of standard practice would require that poverty
be treated as an absolute conception in the space of human functionings and as a rela-
tive conception—allowing for both interpersonal and contextual heterogeneities—in
the space of incomes. This is a practically very difficult exercise to implement, but
is the price that must be paid for treating income—in terms of the language of a
‘poverty line’—as a means to an end. Failing this, income could be treated as an end
in itself, in which case the quintile income can be employed as a legitimate money-
metric indicator of poverty. Overtime comparisons of the actual quintile income with
reasonably targeted levels based on a normative growth rate should yield a picture
of how money-metric poverty has fared over time. Suitable comparisons of the over-
time performance of the average incomes of the richest and the poorest quintiles
over time—along lines discussed in the text—should yield a picture of the inclu-
siveness or otherwise of growth. In conclusion, I would say that there is a strong
case for replacing dollar-a-day-type approaches to the estimation of money-metric
poverty by a more straightforward ‘quintile income approach’, which can also be
employed in order to pronounce judgment on whether or not growth in income has
been ‘pro-poor’ or inclusive.
Chapter 21
Deprivation in the Midst of Affluence

Abstract There are a number of ways in which poverty can be represented. The
approach employed in the poverty-measurement literature is a particularly dry and
unemotional one, in which the phenomenon is distilled into a set of real numbers.
More immediately affecting representations are afforded by fictional treatments of
poverty, by the instrument of photography, and by more or less intimate factual
treatments of the subject. In this chapter, the representation of poverty in an affluent
country such as the USA is considered, with particular emphasis on the great book
titled Let Us Now Praise Famous Men, consisting of a text written by James Agee
and photographs taken by Walker Evans.

All too often, the poor in rich countries are excluded from a consideration of the global
reach and scrutiny of poverty. For example, the World Bank’s ‘absolute’ poverty line
is pitched at US$1.90 per person per day in 2011 purchasing power parity terms:
this line has been derived as the average of the national poverty lines of fifteen of
the world’s poorest countries (in terms of per capita income). It is instructive to
contrast the global poverty line with the US national poverty line. Poverty thresholds
of relevance to the USA are provided by the Census Bureau for families of different
sizes: the lowest per capita threshold applies to a family of nine or more persons,
and is set, in 2012, at $47,297 per year, which works out, for a family of nine, to a
per capita requirement of $14.60 per day. Let us take this relatively modest estimate
as a working figure for the US poverty line. The latter, by this reckoning, is already
more than seven times the global poverty line, which suggests that application of the
global standard of poverty to the USA would result in a severe underestimation of
income deprivation in that country.
Indeed, it turns out that, for the year 2011, if we take the US poverty line to
be $7.30 per person per day—a figure which is just one-half of the conservative
estimates of $14.60 mentioned earlier—then the number of poor people in the USA
corresponding to this poverty line is 8.3 million. Since high-income countries are
left out of the reckoning in the World Bank’s global poverty calculations, this is
8.3 million more poor people in the US alone than the Bank allows. One can well
imagine how the ranks of the global poor would swell if the poor in all high-income
countries were to be brought into the count. This is just one instance of the failure to

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in Economics, https://doi.org/10.1007/978-981-13-8185-0_21
80 21 Deprivation in the Midst of Affluence

take proper account of the status of the poor when the wealth of a nation is allowed
to obscure the deprivation of its poorer members.
Another example is provided by statistics on an important indicator of depri-
vation—mortality. Writing at the turn of the millennium, Amartya Sen noted that
the probability of African American males surviving to relatively higher ages was
uniformly lower than the corresponding probability for males in Kerala or males in
China. Indeed, the probability of survival to age 40 was higher for Bangladeshi males
than for the black male population in New York’s Harlem district. Homelessness in
rich countries is another aspect of deprivation that is frequently overlooked (notably
not, though, by Mother Teresa’s Missionaries of Charity). Briefly, rich countries too
have a lot of poor folk in them, and both the people and the phenomenon involved
are often subjects of neglect.
While it is easier to ignore poverty in a rich country such as the USA than in
one like ours where the poor are always with us (not that this has prevented our
upper classes and castes from having done a reasonably thorough job of turning
their backs on their less fortunate compatriots), there have also been distinguished
reminders of such neglect and omission. Confining oneself to the USA, in the field
of fiction, one must draw reference to John Steinbeck’s portrayal of the Depression
years in his book The Grapes of Wrath (in contrast, e.g., to the portrayal of the rich
and the beautiful in the frenetic 1920s of F. Scott Fitzgerald’s The Great Gatsby).
Material and social aspects of deprivation and disparity in America’s Deep South
were similarly a distinctive feature of the novels of the writer Erskine Caldwell in
the 1930s (Tobacco Road, God’s Little Acre).
By this time, the camera had also begun to establish itself as an instrument of
both art and visual communication. It was employed to great effect by the photogra-
pher Margaret Bourke-White in a pictures-and-text collaboration with her husband
Caldwell for the book titled You Have Seen Their Faces, about poverty in the South
during the Depression. (Bourke-White, however, has sometimes been accused of
sensationalism and of exploiting the vulnerability of her subjects by portraying them
in their most damaged and humiliated conditions.)
Perhaps the most searingly honest and moving account of poverty in America
is the work of collaboration between the writer James Agee and the photographer
Walker Evans, which was published under the title Let Us Now Praise Famous Men.
Agee and Evans were commissioned, in 1936, by Fortune magazine to report on
the living conditions of impoverished share-cropping families living and working
and dying in the southern USA. The two young men attached themselves to a few
such families in Alabama to study their lives and to report on them. Very soon, they
discovered that their mission was beginning to be aborted by their own conscience.
For one thing, they were moved and appalled and angered by the destitution and
betrayal they witnessed around them. For a second, they found themselves being
overtaken, in their assigned role of researchers and reporters, by their involuntary
love for and loyalty to the subjects of their study. For a third, they were seized by
distaste and revulsion for the job they were effectively being asked to do: namely
to spy on the lives of people they had come to love and respect, for the sake of the
profit of their employers and for the edification and satisfaction of consumers who
21 Deprivation in the Midst of Affluence 81

found it convenient to have poverty delivered at their doorstep in acceptable forms


and quantities.
Agee and Evans rebelled. The reports and pictures they sent to Fortune were an
uncompromising indictment of the American state and American society. This was
not what the magazine was looking to publish! Fortune cancelled its commission,
but Agee and Evans completed their work, and decided to publish their findings in a
book that came out in 1941. It had a poor reception, and went out of print, before it
began to be gradually recognized as an important work, and is now an acknowledged
masterpiece of American letters—a judgement that ironically validates Agee’s own
observation that it ‘…might in time achieve the emasculation of acceptance’.
Let Us Now Praise Famous Men is a great reminder that the study of phenomena
such as poverty must be informed by respect for facts, values, and human beings.
The title is from a moving passage in The Book of Ecclesiasticus, which pays due
homage to ‘famous men’, before it addresses also the claims of the vast numbers
of obscure and unknown and anonymous and invaluable persons who, essentially,
are the impoverished inhabitants of Agee’s book: ‘And some there be which have
no memorial; who perished, as though they had never been; and become as though
they had never been born;…Their bodies are buried in peace; but their name liveth
for evermore’. As Walker Evans said of his friend James Agee, ‘After a while, in a
round-about way, you discovered that, to him, human beings were at least possibly
immortal and literally sacred souls’.
Chapter 22
Growth, Poverty, and Inequality in India:
Pulling the Threads Together

Abstract This chapter should be of particular interest to students of economic


growth, deprivation, and disparity in India. It presents a critical account of the extent
and nature of growth in India, of trends in money-metric poverty in the country, and of
what has happened to inequality in the distribution of consumption expenditure and
household wealth. The picture that obtains is one of money-metric poverty that has
reduced over time, but is still both deep and wide; of expanding economic inequal-
ity and of the location of these two phenomena in an environment of impressive
rates of growth which are, however, sectorally lop-sided, vertically and horizontally
unbalanced, and largely unaccompanied by any significant improvements on the
employment front.

22.1 Introduction

What has happened to growth in per capita income, to poverty, and to inequality in
India in the last 30 or so years of economic liberalization? There are economists who
come close to suggesting that India’s growth performance has been spectacular. That
reductions in poverty have been profoundly impressive, that the latter state of affairs
is directly attributable to the former one, and that all of this has happened without
any serious secular increase in economic inequality. At the other extreme, we have
those who claim that the nature of growth has been dangerously non-inclusive and
that poverty, over the long haul, has remained either unchanging in magnitude or
has actually increased. There is cause to believe that a reasoned assessment of the
facts of the case would suggest a more moderate inference than the picture yielded
by such ‘reactionary’ constructions at one polar extreme and ‘radical’ constructions
at the other extreme. In particular, it seems fair to assert that growth has indeed
been impressive; that poverty has declined, but altogether less dramatically than
‘pro-liberalization’ analysts would claim, and that it exists in intensity and spread
on a scale which continues to be a matter of grave concern; and that it is simply
nonsense to claim that growth has not been accompanied by an increase in economic
inequality.

© The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2019 83
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in Economics, https://doi.org/10.1007/978-981-13-8185-0_22
84 22 Growth, Poverty, and Inequality in India: Pulling the Threads …

22.2 The 1991 Crisis and the Aftermath

It is customary to date the era of ‘economic liberalization’ to the sequence of ‘reform’


measures that were initiated by the Congress-led government following the 1991
economic crisis, although the move towards liberalization had already begun in the
1980s. However, the crisis of 1991 is a helpful starting point. That crisis and the
subsequent recovery of the economy are now part of the mythology (in that word’s
senses both of legendary status and hyperbolic embellishment) of India’s economic
development. From around the mid-1980s, India had been gradually building up to a
balance of payments crisis, to the accompaniment of a growing fiscal deficit, depre-
ciation in the real value of the rupee, and erosion of the country’s foreign exchange
reserves, until a point was reached in mid-1991 when these reserves amounted to
no more than the value of three weeks’ worth of essential imports. Foreign investor
confidence in India was also on a downward spiral. Emergency measures were called
for to deal with this crisis situation. To this end, India was forced to raise a loan from
the International Monetary Fund (IMF) by pledging its gold reserves with the IMF.
The main ingredients of the subsequent ‘liberalization’ programme ushered in by the
government are by now well known: trade liberalization, greater openness to foreign
investment, financial deregulation, privatization, public sector disinvestment, mar-
ketization, and relaxation of the ‘licence-permit raj’ culture which had dominated
the relationship of the bureaucracy with private enterprise. It would be churlish to
deny some of the positive outcomes of these strategies of ‘reform’—in particular, the
growth in per capita income—although it is another matter whether these outcomes
are to be certified as unqualified successes or have been purchased at a non-negligible
cost.

22.3 Misplaced Focus

The singular (and impressive) feature of India’s growth performance has often been
the only focus of attention of the country’s middle and upper classes and castes, who
are happy to herald the arrival of their country at the doorstep of super-power status,
and now that we have won the 2011 Cricket World Cup and were finalists in the 2016
T-20 Championship, apparently all that is left to achieve perfect bliss is to be allowed
a place at the high table of the United Nations’ Security Council. We do not, when
we assume such positions, pause to ask if our poverty statistics are based on reli-
able conceptual premises (which they are not); whether a more multi-dimensional
approach to poverty would reveal a different picture (which it does); whether the
sectoral composition of our national income could be excessively weighted in favour
of services (which it is) and distressingly biased against agriculture (which also it is);
whether the mix of foreign investment (direct and portfolio) is appropriate (which
it arguably is not); whether it is either equitable or efficient to privatize services
such as banking, insurance, and financial intermediation; and whether reducing pub-
22.3 Misplaced Focus 85

lic spending (especially on capital formation and the social sector), as opposed to
mobilizing additional tax resources, is the right (and progressive) way of holding
the fiscal deficit down. Should the growth story (which is itself now beginning to
unravel, despite heroic efforts to salvage it with the assistance of fudged statistics)
edge out our concerns with the profoundly more serious moral problems of poverty
and inequality? Where do we stand in relation to these problems?

22.4 Poverty

Successive expert committees set up by the Indian Planning Commission have gone
into the question of how to define the ‘poverty line’ appropriately. It is remarkable
that all of them have succeeded in getting the outcome wrong. Bereft of nuances
of detail, the official procedure of setting the poverty line has been to identify it
with that level of consumption expenditure at which a specified calorific norm of
nutritional intake is observed to be actually achieved in some reference year which
is certified as the ‘base’ year. (This is done on the basis of data on the distribution of
consumption expenditure across consumption and calorie size-classes.) The poverty
line in subsequent years is obtained by simply ‘updating’ this base-year poverty line
by means of a suitable price index. This procedure takes no account of the fact that
the choice of base year is an essentially arbitrary one. The choice of an ‘early’ year
as base year yields a pleasing trend of relatively small and declining headcount ratios
of poverty. As we shift the base year forward in time, the declining trend (though at
less steep inclines) is preserved, but at the cost of embarrassingly higher magnitudes
of poverty. If we change the reference year at given intervals of time, then we tend
to obtain an up-and-down regime of alternately falling and rising poverty rates. If
we treat every year as a reference year, then we actually obtain a trend of increasing
poverty rates, as has been established by the economist Utsa Patnaik.
With such shaky conceptual foundations, we are hardly in a position—given these
methodologies of poverty assessment—to verify even the direction, leave alone the
magnitude, of change in poverty over time. Indeed, as we move forward in time, we
find that the observed calorific intake at the official poverty line keeps declining—a
phenomenon now called the ‘calorie drift’. It is plausible that the drift occurs because
as we move forward in time, people’s needs, and how these are prioritized, change
in such a way that desired expenditures on education, health, clothing, footwear,
transport, and energy can only be met by tightening the belt. What is worst of all is
that official poverty lines are set with apparently little regard for their adequacy in
meeting the basic necessities of life.
The protocols governing the official measurement of poverty are, regrettably,
frequently endorsed by independent professionals, and the deeply suspect logical
and normative bases of these protocols are a poor foundation on which to build
complacent theories of rapidly declining money-metric poverty. It is even worse
that such dramatic declines in poverty have been attributed to neoliberal economic
policies. Exercises aimed at decomposing the decline in poverty into a ‘growth effect’
86 22 Growth, Poverty, and Inequality in India: Pulling the Threads …

and a ‘redistribution effect’ find that it is growth that plays an overwhelming role
in accounting for the decline. This has led to the misleading commendation, and
prescription, of growth as the great alleviator of poverty, when all that the result
probably demonstrates is the poor record of redistributive effort undertaken by the
state.
That poverty continues, or should continue, to be a major source of concern to
us is brought home even more tellingly when we look at non-income dimensions of
poverty, such as in respect of access to schools, public health centres, drinking water,
toilets, electricity, elementary transport, roads, and energy for cooking. Instances of
simultaneous multiple deprivation in several dimensions bespeak a condition of an
order of severity of poverty which compares badly with both the nation’s untapped
potential for escaping poverty and the record of other comparably poor countries
such as China, Sri Lanka, and Cuba.

22.5 Inequality

In the interests of continuity, some repetition here of earlier themes is unavoidable.


This is particularly the case with reference to the proposition that questionable mea-
surement protocols have again played a major role in propagating the view that while
economic inequality has perhaps increased to some extent in urban India, there is
relatively little evidence of such an increase in rural India. A significant source of
such findings is that the sorts of inequality measures most commonly in use are ‘rel-
ative’ inequality measures—measures which display no variation if every person in
a community were to have her income increased by the same proportion. Thus, the
two-person income distribution (10, 20) would show the same amount of relative
inequality as the distribution (20, 40), obtained by doubling each person’s income.
This way of measuring inequality neglects to note that though the poorer person’s
relative share in total income is the same, at one-third in both distributions, the gap in
the incomes of the two persons has risen from 10 in the distribution (10, 20) to 20 in
the distribution (20, 40). An absolute inequality measure would assert that inequality
remains unchanged when every person in a community has her income increased by
the same absolute amount. It is easy to see that, in the presence of income-growth,
relative inequality measures would tend to transmit a ‘rightist’ message and abso-
lute measures a ‘leftist’ message. Away from these extremes is a ‘centrist’ measure
which has the property that inequality increases with an equi-proportionate rise in
all incomes and declines with an equal absolute rise in all incomes. An example of
such an inequality measure is the so-called Krtscha measure. The Krtscha measure
suggests a pronouncedly rising trend of inequality in the distribution of consump-
tion expenditure in India and an even more dramatic explosion of inequality in the
distribution of household wealth.
22.6 Horizontal and Multi-dimensional Inequality 87

22.6 Horizontal and Multi-dimensional Inequality

Thus far, we have spoken only of interpersonal (or ‘vertical’) inequality, not of
inter-group (or ‘horizontal’) inequality. We have also spoken only of money-metric
disparities, not disparities in other dimensions. As it happens, work done by my
former colleague D. Jayaraj and myself suggests that there is a well-defined way in
which group inequalities in the distributions of both consumption expenditure and
household wealth, reckoned in terms of caste, gender, and occupational partitions of
the population, have shown a systematic secular increase. This, as it happens, is true
not only of income and wealth, but of other measures of human development such
as mortality, morbidity, age, and literacy indicators. Just about the most unhappy
conjuncture of circumstances, when it comes to the rights-status of an individual,
from the perspectives of both positive and negative freedom, is to be a poor, rural,
illiterate, Scheduled Caste woman.

22.7 Where Are We Headed?

When one contemplates the situation of that woman, even as one hears accounts of
India’s great leap forward in the era of liberalization, it is hard for one to resist being
overtaken by a sense of both alienation and shame. The environment of rising levels
of vertical and horizontal inequality in which we find ourselves is also just the sort
of environment in which it is possible to successfully feed the forces of divisiveness
between rich and poor, ‘upper’ and ‘lower’ castes, majority and minority religious
communities, males and females, and ‘patriots’ and ‘anti-nationals’. In such an envi-
ronment, it is becoming increasingly hard to speak of the virtues of affirmative action,
communal inclusiveness, gender equality, land reform, and democratic decentralized
governance.
In the exclusively economic domain, it is becoming even harder to advance the
cause of a universal ‘minimum inheritance’ to all citizens upon the attainment of
adulthood; of substantial Child Benefit to all children and its financing out of income-
taxation; of a more progressive income-tax schedule; of a more progressive property-
tax schedule; of taxes on gifts and inheritances; of an annual tax on wealth; and of a
minimum tax for corporations. The experts who have taken monopolistic control of
the discussion forums on our television channels would laugh out of court any such
counsels as those that have just been catalogued as emanating from a raving radical
lunatic living in a word that is out of joint with the reality of ‘reform’, liberalization,
and globalization.
As it happens, though, these prescriptions for a less unequal world than the one we
live in have come not from some deranged ‘lefty’ but from a deeply principled and
brilliantly analytical ‘mainstream’ economist, Sir Anthony Atkinson: the reader is
referred to his recent book Inequality: What Can be Done? Atkinson does not stand
alone in his recognition of inequality as a great and growing contemporary evil and
88 22 Growth, Poverty, and Inequality in India: Pulling the Threads …

of what should be done to counter it. It is instructive also to look at the work of other
European and American economists such as Thomas Piketty, Branko Milanovic, and
Joseph Stiglitz.
These economists, it is worth noting, speak from countries in which poverty is
nowhere near as large a problem as it is in ours. According to the distributional ethic
of ‘sufficientarianism’, due to the philosopher Harry Frankfurt, inequality (to put it a
bit crudely) is problematic in the sense and to the extent that it coexists with a situation
in which some people do not have access to sufficient resources for the avoidance
of poverty. Objecting to inequality in the presence of ‘sufficiency’ might, therefore,
largely be a matter of just resentment and envy. Is that the kind of economy ours is?
You would think so, going only by neoliberal celebrations of India’s growth. There
are principled moral and political reasons to be deeply worried about both poverty
and inequality in India. But to turn one’s back on these problems, as is becoming an
increasingly common feature of the response of our elite classes and castes, is also
a profoundly unwise reaction from the perspective of enlightened self-interest.
Whether from impulses of ‘stout denial’ or from a certain general culture of
insensitivity that seems to flourish in a climate of liberalization and globalization,
we tend to ignore or minimize the ills of poverty and inequality. But we do so only
at our own peril. That sounds portentous, I will admit, but, and perhaps more to the
point, I am afraid it is also true.
Chapter 23
Post-script: Some FAQs in the Economics
of Poverty, Inequality, and Welfare

Abstract This chapter rounds off this brief monograph with a set of frequently asked
questions relating to the subjects of inequality, poverty, and welfare. The answers, of
course, are a product of the author’s own predispositions and orientation. It is hoped
that the preceding chapters of the book will have provided some rationale for the
particular views expressed by the author in the present chapter.

A friend of this author’s is a deeply dedicated teacher of Economics in a Southern


University. For years, he has been trying to make the discipline accessible to students.
Recently, he arranged for students to address questions to economists which the latter
would answer. I received a set of six questions which are very representative of the
sorts of concerns which students and laypersons often display in my area of work. I
thought it would be useful to share the questions and answers with my readers.
Q. Physicists, physicians and other scientists are agreed on how to measure the
phenomena they study, like the speed of light, the age of matter, temperature, and
blood pressure. How is it that economists, with the powerful quantitative tools at their
disposal, are unable to arrive at a consensus on how poverty is to be measured? Is
it because measuring poverty is more an ideological issue?
A. A cardinal principle of measurement revolves around the requirement that
the ‘norm’ or ‘standard’ of measurement should be unvarying across contexts. For
example, if we are measuring length, then we should use a measuring rod of the
same length across contexts; preserving a measuring rod of the same weight would
be meaningless.
Similarly, when we measure and compare poverty across temporal or spatial con-
texts, the question arises: in what ‘space’ should we preserve constancy of the measur-
ing standard? Some have said: ‘In the space of real incomes, or commodity bundles,
or resources in general’. Others have said: ‘In the space of human functionings’.
Poverty, unlike temperature, is a social, not a natural, phenomenon, and eco-
nomics, unlike physics, is a social, not a natural, science. Insisting that economics is
a discipline akin to physics is a recipe for comedic confusion.
The distinction between length and weight is more direct and requires rather less
deliberation, than the distinction between resources and functionings. We should
therefore be unsurprised that achieving consensus on how to measure poverty is

© The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2019 89
S. Subramanian, Inequality and Poverty, SpringerBriefs
in Economics, https://doi.org/10.1007/978-981-13-8185-0_23
90 23 Post-script: Some FAQs in the Economics of Poverty …

inherently more problematic than achieving consensus on how to measure tempera-


ture.
And yes, a good deal of what makes the problem complex is the fact that ideology
does indeed inform our understanding of concepts such as ‘poverty’.
Q. As long as poverty is reduced, why should we bother about inequality? Cannot
we have an economy with no destitution and yet with some earning far more than
others?
A. This is a point of view that has been expressed by many including, in par-
ticular, the moral philosopher Harry Frankfurt. In a paper titled ‘Equality as a
Moral Ideal’, Frankfurt has advanced the distributional ethic of ‘sufficientarianism’
which—crudely put—finds inequality objectionable only to the extent and in the
sense that it co-exists with poverty: inequality, in this view, should be relatively
unproblematic in a situation wherein all citizens have a sufficiency of the resources
needed to avoid poverty; objecting to inequality even in such a circumstance could
simply be a symptom of envy.
A somewhat more complex view of the matter would suggest that there are intrinsic
moral objections (based on criteria of fairness and impartiality) to inequality beyond
a point and also instrumental political objections that have to do with the implications
of inequality for efficiency, conflict, perceptions of fairness, and the status of public
health outcomes. (See Chaps. 1 and 2 of this book.)
Q. Inequality of income is often due to differences in talent and market demand
for particular kinds of skills. That is why A. R. Rehman earns fabulously more than
musicians who either (a) have lesser talent or (b) perform the kind of music with
very low demand in the music market compared to his music. What is wrong with
inequality derived from one’s superior talents or skills with more demand in the
market?
A. I suppose one cannot object to ‘superior talent’ earning a differential reward
when such superior talent is ascribable entirely and only to ‘inherent’ effort, and
not to blind chance or to social arrangements and institutional practices. This is a
useful distinction in principle, but one which it is hard to determine in fact, not
least because of ideological predilections and presuppositions which mediate the
judgement. Finally, why on earth should one credit the market with the ability to
make such a nuanced judgement?!
Q. Ethics is a subjective issue, a matter of opinion and social convention. Eco-
nomics is based on objective facts. How can something subjective like ethics be
related to a science like economics? Does not [the distinguished economist] Lionel
Robbins clearly say that economists should stay away from ethical questions?
A. It is no sign of disrespect to Lionel Robbins to suggest that we are not obliged
to accept his views on the subject! Economics is not concerned exclusively with an
‘explanation’ of how the world works, least of all of a world which is held to be
‘natural’ rather than ‘social’ in its construction.
How one believes the ‘economic world’ works also has implications for what
one believes should be done in order for that world to be ‘better’ than it is. This is
why economics is interested in questions of ‘policy’ (narrowly conceived) and of
‘philosophy’ (broadly conceived).
23 Post-script: Some FAQs in the Economics of Poverty … 91

Economics, that is, is not only about ‘is’ propositions, but about ‘ought’ propo-
sitions. It is the task of an economist to interpret ‘objective facts’ in terms of the
ethical categories of both the ‘right’ and the ‘good’. To deny a normative component
to economics is a matter of shockingly bad social theory (and even worse social
practice): economics as a wholly ‘positive’ science is a somewhat silly conceit and
a dishonest one at that.
Q. I get the impression that social choice is about what people in society prefer.
But people differ in their preferences so how can there be something called “social
preference”?
A. The question of aggregating individual preferences into a social preference
would scarcely be interesting, would it, if perfect unanimity always prevailed?! What
makes the problem of ‘social choice’ based on individual preferences interesting
and exciting is the fact of the diversity of preferences and conflict of interests. The
normative axiomatic foundations of social choice mechanisms would otherwise be
seriously uninteresting!
Q. Do you agree with the argument that government failure is more harmful than
market failure because the state can correct the market but there is no institution
to correct the state, and so, as far as possible, the private sector should dominate
economic life?
A. No, I do not agree. The conditions required to prevent market failure are
unrealistically demanding, and they do not obtain in the idealized form in which
they are required to exist for ensuring ‘corrections’ to market failure. On the other
hand, a properly functioning democracy is a good cure for government failure.
It would also help—to keep governments on the straight and narrow path of
virtue—for professional economists to display some ordinary sense of moral respon-
sibility in the discharge of their professional obligations, by which I mean that there
could be more to being an economist than doing whatever is required in order to be
nominated to the next Government Commission or Public Office!
Further Recommended Reading

In what follows, a list of readings is suggested for each of the 23 chapters


(excepting the introductory one) in the book. To make things manageable for the
student, no more than three key readings per chapter are listed.
Chapter 2
Rawls J (1971) A theory of justice. Harvard University Press, Cambridge, MA
Sen AK (1973) On economic inequality. Clarendon Press, Oxford
Chapter 3
Atkinson AB (1970) On the measurement of inequality. J Econ Theory 2(3):244–
263
Basu K, Foster JE (1998) On measuring literacy. Econ J 108(451):1733–1749
Subramanian SV, Kawachi I (2004) Income inequality and health: what have we
learned so far?. Epidemiol Rev 26(1):78–91
Chapter 4
Sen AK (1980) Equality of what?. In: McMurrin SM (ed) Tanner lectures on human
values, I. University of Utah Press, Salt Lake City and Cambridge University Press,
Cambridge
Chapters 5, 6 and 7
Arrow KJ (1963) Social choice and individual values. Wiley, New York
Kaldor N (1939) Welfare propositions in economics and interpersonal comparisons
of utility. Econ J 49(195):549–552
Sen AK (1970) Collective choice and social welfare. Holden Day, San Francisco
Sen AK (1973) On economic inequality. Clarendon Press, Oxford
Sen AK (1979) Personal utilities and public judgments: or what’s wrong with
welfare economics?. Economic J 89(355):537–558
Sen AK (1982) Welfare comparisons and social choice (Section 3) of ‘Introduction’
to choice, welfare and measurement. Blackwell, Oxford

© The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2019 93
S. Subramanian, Inequality and Poverty, SpringerBriefs
in Economics, https://doi.org/10.1007/978-981-13-8185-0
94 Further Recommended Reading

Varian H (1975) Distributive justice, welfare economics and the theory of fairness.
Philos Public Aff 4(3):223–247
Chapter 8
Rae D (1975) Maximin justice and an alternative principle of general advantage.
Am Polit Sci Rev 69(2):630–647
Weale A (1980) The impossibility of liberal egalitarianism. Analysis 40(1):13–19
Chapter 9
Parfit D (1997) Equality and priority. Ratio (New series) 10(3):202–221
Temkin L (2003) Equality, priority, or what?. Econ Philos 19(1):61–87
Chapter 10
Sen AK (1970) The impossibility of a Paretian liberal. J Polit Econ 78(1):152–159
Subramanian S (2012) Can we possibly subscribe to both liberty and equality at one
and the same time?. Think: Philos Everyone (J Roy Inst Philos) 11(30):103–110
Chapter 11
Dworkin R (1977) Taking rights seriously. Harvard University Press, Cambridge,
MA
Loury G (2000) Social exclusion and ethnic groups: the challenge to economics.
Institute for Economic Development, Boston University (Discussion papers) 106
Thurow LC (1980) The zero-sum society. Basic Books, New York
Chapter 12
Kolm S-C (1976) Unequal inequalities I and II. J Econ Theory 12(3):416–454; 13
(1):82–111.
Krtscha M (1994) A new compromise measure of inequality. In: Eichhorn W
(ed) Models and measurement of welfare and inequality. Springer-Verlag,
Heidelberg, pp 111–120
Subramanian S (2017) On comprehensively intermediate measures of inequality
and poverty, with an illustrative application to global data. J Globalization Dev 8
(2):1–18
Chapter 13
Atkinson AB, Brandolini A (2010) On analyzing the world distribution of income.
World Bank Econ Rev 24(1):1–37
Bosmans K, Decancq K, Decoster A (2014) The relativity of decreasing inequality
between countries. Economica 81(322):276–292
Subramanian S, Jayaraj D (2015) Growth and inequality in the distribution of
India’s consumption expenditure. Econ Polit Wkly 50(32):39–47
Chapters 14 and 15
Ravallion M (1998) Poverty lines in theory and practice. The World Bank,
Washington, DC
Further Recommended Reading 95

Reddy SG (2009) The Emperor’s new suit: global poverty estimates reappraised.
DESA working paper no. 79 ST/ESA/2009/DWP/79, Department of Economic and
Social Affairs, United Nations. Available at http://www.un.org/esa/desa/papers/
2009/wp79_2009.pdf
Reddy S, Lahoti R (2016) $1.90 a day: what does it say?. New Left Rev 97(Jan–
Feb):106–127
Reddy S, Pogge T (2010) How Not to count the poor. In: Anand S, Segal P,
Stiglitz J (eds) Debates on the measurement of global poverty. Oxford University
Press, New York, pp 42–85
Sen A (1983) Poor, relatively speaking. Oxford Econ Pap 35(2):153–169
Subramanian S (2012) The poverty line. Oxford India short introductions series.
Oxford University Press, Delhi
Chapter 16
Mehta J, Venkatraman S (2000) Poverty statistics: Bermicide’s feast. Econ Polit
Wkly 35(27):2377–2381.
Patnaik U (2004) The republic of hunger. Soc Sci 32(9–10):9–35. [Text of a Public
Lecture on the occasion of the 50th Birthday of Safdar Hashmi on April 10, 2004,
New Delhi.]
Subramanian S (2014) The poverty line: getting it wrong again…and again. Econ
Polit Wkly 49(47):66–72.
Chapter 17
Chakravarty S, Kanbur SR, Mukherjee D (2006) Population growth and poverty
measurement. Soc Choice Welfare 26(3):471–483
Hassoun N, Subramanian S (2012) An aspect of variable population poverty
comparisons. J Dev Econ 98(2):238–241
Subramanian S (2002) Counting the poor: an elementary difficulty in the mea-
surement of poverty. Econ Philos 18(2):277–285
Chapter 18
Besley T (1990) Means testing versus universal provision in poverty alleviation
programmes. Economica 57(225):119–129
Besley T, Kanbur R (1993) The principles of targeting. In: Lipton M, van der
Gaag J (eds) Including the poor. World Bank, Washington, DC
Bourguignon F, Fields GS (1990) Poverty measures and anti-poverty policy.
Recherches Economiques de Louvain 56(3–4):409–427
Chapter 19
Pogge T (2010) Politics as usual: what lies behind the pro-poor rhetoric. Polity
Press, Cambridge
Singer P (2009) The life you can save: acting now to end world poverty. Random
House, New York
96 Further Recommended Reading

Chapter 20
Basu K (2001) On the goals of development. In: Meier GM, Stiglitz JE
(eds) Frontiers of development economics: the future in perspective. Oxford
University Press, New York, pp 61–86
Basu K (2006) Globalization, poverty, and inequality: what is the relationship?
What can be done? World Dev 34(8):1361–1373.
Subramanian S (2018) The quintile income statistic and distributional analysis. In:
Mishra A, Ray T (eds) Markets, governance, and institutions in the process of
economic development. Clarendon, Oxford, pp 63–80
Chapter 21
Agee J, Evans W (1941) Let us now praise famous men: three tenant families.
Houghton Mifflin, Boston
Sen A (1980) Description as choice. Oxford Econ Pap (New series) 32(3):353–369
Steinbeck J (1939) The grapes of wrath. The Viking Press, New York
Chapter 22
Jayadev A, Motiram S, Vakulabharanam V (2007) Patterns of wealth disparities in
India during the liberalisation era. Econ Polit Wkly 42(38):3853–3863
Motiram S, Naraparaju K (2015) Growth and deprivation in india: what does recent
evidence suggest on “Inclusiveness”?. Oxford Dev Stud 43(2):145–164
Subramanian S, Jayaraj D (2013) The evolution of consumption and wealth
inequality in India: a quantitative assessment. J Globalization Dev 4(2):253–281
Subramanian S, Lalvani M (2018) Poverty, growth, inequality: some general and
India-specific considerations. Indian Growth Dev Rev 11(2):136–151. https://doi.
org/10.1108/IGDR-05-2018-0055
Chapter 23
Qizilbash M (2007) On ethics and the economics of development. J Philos Econ I
(1):54–73. Available at http://www.rrojasdatabank.info/ethicseconomicsqizilbash.
pdf