"Rich" and "Poor" Across the World

Dani Rodrik writes:

Dani Rodrik's weblog: And the winner is ...: The  correct answer is that a poor person in a rich country is three times better off than a rich person in a poor country (given my definition of what "rich" and "poor" mean in this context). It is not even close.

The relevant numbers are [rich individual in poor country = $3,039; poor individual in rich country = $9,387]

He goes on:

The reason we are tempted to answer "rich in a poor country" is the obvious wealth at the very top of the income distribution. But by the time you average the entire top 10%, the income level goes down quite a bit...

The thought experiment Dani does is to compare the income of the 10th percentile person in the 90th percentile country with the income of the 90th percentile person in the 10th percentile country.

I suspect that people get this wrong because when they think of "rich" they think not of Dani's 10th percentile but of the 0.1st percentile. The 10th percentile person in the world's richest country has a GDP-per-capita-concept income of roughly $12,000 a year. The 0.1st percentile person in the 10th percentile country has a GDP-per-capita-concept income of something like $60,000 a year.

The 90th percentile person we call "upper middle class"; not "rich."

Comments

[CMike]

Rodrik's first assumption, "[a]ssume you care only about your own consumption" skews the answer.

He allows no value to be attached to having status, power, leisure time or a sense of well being.

[CapitalistImperialistPig]

What CMike said.

Analyses like Rodrik's make me wonder what it will take for economics to graduate from the psuedo-science phase. Maybe a more sensible theory of value.

[archer]

Brad, excellent point. And related point: labor and real estate are much cheaper in dollar terms in a poor country. A rich, or even upper middle class person may not be able to buy much in the way of foreign goods, like Hermes bags and iPods, but they can have full time servants, for instance.

[ogmb]

"The thought experiment Dani does is to compare the income of the 10th percentile person in the 90th percentile country with the income of the 90th percentile person in the 10th percentile country."

Technical correction: The comparison is between an average income in the top decile population in the average bottom decile country vs. an average income in the bottom decile population of an average top decile country.

Rodrik can define "rich" in whichever way he wants, but what this exercise boils down to is that there is an X, with wealth of richest X% in poorest X% countries = wealth of poorest X% in richest X% countries, and Rodrik's responders failed to realize just how narrow the wealthy upper class in poor countries is. If this X were approximately zero he'd have a point, but it isn't, so this is all economic three-card monte.

[Admiral Tirpitz]

I call them rich. I suspect a lot of others do as well.

[a different chris]

>Analyses like Rodrik's make me wonder what it will take for economics to graduate from the psuedo-science phase.

Really. He takes a narrow, pretty artifical unit of measure ($$$) and says who's better and who's not depending on that.

Is a Saudi woman, who isn't allowed to drive, "better off" than a working Phillipino just because her household is much richer?

And even on those narrow terms, he doesn't scale it by purchasing parity.

Pffftttt. This would be sad if it wasn't so destructive for societies we have classified as "poor".

[jim]

The problem is "rich" isn't a technical term. It's a very slippery term. I've joked that, except for a handful of public figures, there are no self-identified rich people in the US. There are people who will admit to being "comfortable." Some will grant they've "done well recently." But The Rich are other people.

[notsneaky]

Obviously Rodrik was trying to make a point, not to assert that own consumption is the only thing that matters for welfare. And folks here are missing the point. Except ogmb: "Rodrik's responders failed to realize just how narrow the wealthy upper class in poor countries is".

You can also do this historically - would you rather be the average of the top 10% in 1500 UK or France, or the average of the bottom 10% in US (or those countries) today. Again, it's not even close.

Oh, and btw, if the income of the average top 10% person in a poor country is around 3K, then yes, there's a lot of folks below you, which I guess could generate some "status" happiness (or whatever you wanna call it). But it also means you're way way below the top, say, 1%, which surely would decrease the happiness associated with "status". So even allowing for caring about relative income, depending on how you weight it, you'd still be better off being poor in a rich country.

[Dan K]

I wonder how many of these commenters have actually lived in developing countries?

First off, the bottom 10% excludes nearly all the cushy places to live that we think of as poor (only countries in sub-Saharan Africa minus SAfrica plus maybe Haiti, NKorea, and Afghanistan if you go by population).

These are not places with swank (or even safe) capitals. They all have terrible and fragile political systems. So there are plenty of intangibles on the other side of the ledger to counteract "status, power, leisure time or a sense of well being" -- namely insecurity, poor infrastructure, lack of services, and general volatility. Let's not forget the constant threat of diseases that just don't exist in Western Europe or the States.

Second, $3000 at PPP (which he did use) is simply not that much money no matter where you are. It usually is not enough to have live-in servants and these are people with very normal, but university educated, jobs. Think middle level public servants, agricultural supervisors at small (by American standards) farms, line managers at factories, accountants, etc. They work hard and have a very difficult life. MAYBE they get four weeks vacation if they work for government, but they don't have enough money for fancy trips or anything. Like I said, most of the people that get to the top 10% (but not necessarily the top .1%) work very hard. And many of them (though not all) are trying to get to the U.S. Why do you think that is?

[andres]

The real problem is that many developing countries have unbelievably concentrated income distributions--not without reason did one economist describe Brazil (Gini coefficient = 63) as a rich country the size of Belgium dropped into a poor country the size of India.

With such a distribution, the people in the richest 0.1% of such countries are huge outliers in comparison to the rest, and therefore it is highly misleading to characterize everyone else in the upper 10% as being "rich" when they are at most middle class in comparison to Europe and the US. In a very real sense, what is needed is an absolute comparison of incomes across countries. An income-topographical atlas is something that I've yet to see and which is desperately needed as a guide to development economics.

[baileyman]

Perhaps we should measure the well-being of the rich in the poor countries by counting the number of assistants they can hire, say, for child care and teaching, transportation, cooking and other household needs, etc.

At my own undisclosed percentile within the USA I should say that there are impressively few assistants I can hire within the State of Massachusetts.