Thanks to Gernot for this point.
Yes, one can find some examples that show neo-liberalism in a poorer light while still using the PPP model to recalculate GDP growth rates. And no surprise that neo-classics and institutions like the WB and the IMF do not choose to do this (in July on Pen-l, Mike L. pointed us to Robert Wade's article that does not challenge PPP but just challenges some 'official' presentations).
But one can imagine how such comparisons would look using non-neoclassical (or even, just less neo-classical) models. Gernot's version of this particular calculation came out 45 to 51 countries "against" neo-liberalism; but had he been able to use numbers generated by a model that also more closely approximates Gernot's views (I assume) on microeconomics\price formation then surely his results would look different.
After all, PPP is truly extreme: prices are noted from a TINY number of number of items (400 goods or services in developing countries from and entire national economy!). And of course these *exact* items have to be available internationally (which in itself makes them quite different from a large part of items in the "3rd world" and elsewhere). A ratio is calculated. Since prices are assumed to be determined by supply and demand (and not long run cost of production); since international markets are assumed to be universally efficient; since markets are so "powerful" that the prices of 'international-type' items seamlessly linked to the price of things that are not sold in the international market (through the power of General Equilibrium and the Law of One Price); since markets are also so powerful that they can determine the price of things that are unique and not commodities (e.g. land, non-reproducible commodities and talents); since markets are also so powerful that they can "reveal" a price for items in the that are produced or exchanged in conditions outside a market context such as pre-market arrangements, or household production (yes, Gary Becker) -- THEN PPP works. (BTW for a few big ticket items like housing and cars "hedonistic" pricing methods are used -- lets not get started on that one. And there is no point discussing how they compare international prices for things like health care.)
If this were not bad enough, new 'applications' of the PPP are being found all the time, without regard to how the numbers are calculated. So when you read about the number of poor living below the WB poverty line of $1 a day, those are PPP calculations. Never mind that the poor's consumption has very little to do with the PPP basket of internationally available items. And then, in flagrant disregard of mathematics, the PPPs baskets are revised (four revisions since 1980, including the current one) and the numbers from one basket period are indiscriminantly merged with the next even though the WB statisticians point out to their superiors that the numbers are not transitive. And so it is that if there is technical progress in the developed world and the real price of the basket falls in the developed world only, we would still hear (as we do) that the number of poor in the developing world declined -- even if nothing has changed for the poor - it is a mathematical bias.
What is disconcerting is that large numbers of academics and analysts who would never ascribe to these propositions wind up - inadvertently - using these assumptions via the PPP numbers. And so their results - like Gernot's examples - are diluted. Increasingly, these PPP numbers are not even clearly labeled as coming from a model and not a statistic (and lately they have started to be called "international dollars", even with their own currency symbol!). As Gernot points out such numbers do not always determine the absolute direction of each question, but they do have a powerful undertow. In short, there IS a reason why we promote alternative theories of microeconomics and of value.
Paul
Gernot writes:
Granting that World Bank statistical methods deserve leftist critique, the biases in PPP statistics may not be as strongly pro-neoliberal as one might think. I compared GDP per capita levels for 100 countries for 1960 and 1999, using constant PPP figures (1985=100) (source: World Bank data) and found the following:
Between 1960 and 1999, 45 (out of 100) countries had growth convergence with USA; and 51 (out of 100) countries had growth divergence with USA (widening of the gap). Examples of convergence include: Singapore (GDP per capita changed from 17% to 86% of USA values); Hong Kong (from 23% to 83%). Examples of a widening gap include: Venezuela (64% to 29% of U.S. GDP per capita), Jamaica (18% to 11%). Thus, the PPP data (stylized facts) do not hide divergence of GDP per capita.
Gernot Paul, please send me a copy of the Pablo Ruiz-Napoles article.
Paul wrote Date: Sat, 12 Feb 2005
I pointed out various reasons to believe that the PPP method has 'biases' that may automatically show progress in many parts of the "3rd world" (reducing >poverty, closing the gap with the "developed" world) even if nothing in the "3rd world" had >actually changed.
The biases may not be as pro-neoliberal as one might think. I performed a comparison of GDP per capita levels for 100 countries for 1960 and 1999, using constant PPP figures (1985=100) (source: World Bank data) and found the following:
Between 1960 and 1999, 45 (out of 100) countries had growth convergence with USA; and 51 (out of 100) countries had growth divergence with USA (widening of the gap). Examples of convergence include: Singapore (GDP per capita changed from 17% to 86% of USA values); Hong Kong (from 23% to 83%). Examples of a widening gap include: Venezuela (64% to 29% of U.S. GDP per capita), Jamaica (18% to 11%).
Gernot Please email a copy of the Pablo Ruiz-Napoles article.
