There was a certain amount of uproar yesterday as an allegation was made that Evan Spiegel, the CEO of Snap, the owners of Snapchat, said he wasn't interested in expanding in poor countries like India. This allegation is being denied and that's fine. But it's also true that the basic point itself, that India is a poor country, is true. This is something that does rather need to be emphasised for as a result of my mentioning the point yesterday I've had a flood of comments and emails denying that basic fact. It's entirely true that India is growing fast, a point I've noted approvingly around here many a time. It's true that there are many billionaires, that the economy as a whole is large, that there's a large and growing middle class. But it is also still true that India is a poor country - one useful indication of this is that the average income of the top 5% of Indians is still lower than the average income of the bottom 5% of Americans.
This is not to say anything either good nor bad about either the US nor India. It is rather a pointing to the vast gaping gulfs of global economic inequality. And this is something simply not understood by almost all people. Americans do not understand, indeed most forcefully reject the idea, that by global standards there simply is no poverty at all in the United States. There is most certainly inequality but there is no one, absent serious mental health or addiction issues, living on the international standard for absolute poverty, less than $1.90 a day. Seriously, not one single person. Equally, from the Indian side my commenters and correspondents aren't quite grasping the difference in average Indian and American incomes. GDP per capita in India is still around $1,500, $1,600 a year. That for the US is $56,000. India's a very much better and richer place than it was a decade ago, than two years ago, but it's still a poor country.
Of course, Spiegel is pointing out that he wasn't so crass as to make the comment claimed:
Snapchat today refuted the reported claims of a former employee who alleged that its CEO Evan Spiegel made negative comments about the Indian market, saying the multimedia mobile app is for everyone and the company is “grateful” to its Indian users. “Obviously Snapchat is for everyone! It’s available worldwide to download for free,” a spokesperson for Snapchat said in a statement to CNN. Snapchat is strongly denying allegations by a former employee Anthony Pompliano, who alleged in a lawsuit that Spiegel had once shot down his suggestion to pursue growth in certain international markets. Pompliano alleges that Spiegel said Snapchat is “only for rich people” and that he didn’t want to “expand into poor countries like India and Spain.
People did get rather riled by the reporting of that comment:
Twitter users using the #boycottsnapchat hashtag called for uninstalling the Snapchat app after a legal document unsealed last week alleged that Snap Chief Executive Evan Spiegel in 2015 said he was uninterested in prioritising growth in India and Spain because they were "poor".
People can and should decide what sits on their phone as they wish, of course. But leave aside who said it and even whether it was said. And consider the point of whether India is a poor country? This being something that a number of my correspondents are flat out denying. And sadly they're wrong to do so.
First we can look at GDP per capita. By one measure this is some $1,600 a year for India and using the same measurement method it's $56,000 for the US. Those are the World Bank numbers and we'll not get far arguing with their accuracy. They're as good as we've got. We can, if we prefer, use a slightly different measure and try to compare living standards, not nominal incomes. We do this by taking account of price differences using a method called PPP, purchasing power parity. Here the Indian GDP per capita is $6,000 or so, that for the US $56,000 again (this will always be true, the US is our reference standard, so nominal incomes and PPP incomes will be the same for the US). What we mean by this is that the average Indian GDP per capita of $1,600 buys a lifestyle in India which would cost $6,000 a year in the US at US prices.
This is still poverty though, isn't it?
It's entirely true that India's a very large place with a very large aggregate economy. There are, as this magazine regularly points out, a substantial number of billionaires in the country. But here's a surprising point. The average income of the top 5% of Indians is still lower than the average income of the bottom 5% of Americans:
US and Indian PPP incomes
Branko Milanovic, The Haves and Have-NotsNote what is being said here. Obviously, those Indian billionaires are vastly better off than the bottom end of the American society. As are the top 0.1%, the top 1% of India. But when we average out the incomes of all in that top ventile, that top 5%, then that average income is lower than the average income of the bottom 5% of the US. Someone in that top Indian 5% will have a very different mixture of consumption, sure. They're highly (perhaps even extremely) likely to have the services of a servant or three, something that isn't going to be true of the Americans. But then the routine presence of servants in a society is, as I've said before, proof that the society is poor. Servants exist where wages for human labour are low. A society which has low wages for human labour is a poor society--for they're the same thing. Poverty is low wages for human labour.
We should also note that this is not specific to India. This is a common finding around the world, that the world really is economically unequal. We get much the same result when we compare East African incomes with those in Denmark. The top of those poorer societies have lower average incomes than the bottom of the richer one.
We could, if we so desired, go off and talk about that vast Indian middle class. And it's entirely true, there is one. I'm not sure about the 250 million sorta numbers sometimes claimed, as others aren't. But again, the very claim of middle class status is evidence of this gaping gulf in economic inequality. For what we consider to be the "global middle class" is consumption of $10 a day and up. Which is actually less than the US minimum wage affords:
The study divided the population in each country into five groups based on a family's daily per-capita consumption or income. The thresholds are based on various things, with $2 being the daily per capita income level under which people are globally considered poor, and $2-$10 fitting people in under the low-income category. As per this measure, the middle-class falls into those who earn between $10 and $20 a day. (As a reminder of how low this still is, the study reminds us that the poverty line in the United States, comes in at around $16 – on the upper end of what this report considers middle income).
The US poverty line is slightly lower for an individual than the minimum wage affords. A slightly more academic discussion of the same point:
Internationally, there exists no consensus about the definition of a new, income-based “class” of the notpoor
but not-rich in developing countries. Birdsall (2010) has suggested a $10 per capita per day (at 2005
PPP) minimum for being middle class in today’s global economy – much higher than the World Bank’s
international poverty lines but high enough to imply minimum vulnerability to most economic and
political shocks.3
Kharas (2010) and World Bank (2012, forthcoming) use $10 per capita per day (PPP) as
a minimum threshold for a person to be middle class. Similarly, Pritchett (2003) has previously argued for
a higher international poverty line of $15 per capita per day (PPP) to set a standard for what constitutes
unacceptable deprivation and inadequate income in a globalized world. Lopez-Calva et al. (2012) and
Sumner (2012) provide comprehensive reviews of the recent “middle class literature”.
In this note, we use updated household survey data to re-assess the size of the Indian middle class.
Consistent with previous work (Birdsall 2010, 2012) we apply a $10 per capita minimum threshold,
which seems to be emerging as the global minimum for the middle class.
Do note again that these numbers are all at PPP. We have already adjusted for the fact that prices differ around the world.
It is entirely true that India is growing fast and that's a delight. Who wouldn't be happy with more than a billion people getting richer, becoming able to enjoy more of the fruits of this Earth? India most certainly has billionaires and a large economy in aggregate. There is even that large and rising middle class. But it is still true that India is a poor country. People are getting fooled by the different definitions of poverty and middle classness used around the world. This works both ways too. Almost everyone in the North Atlantic economies (to use one possible definition of rich countries, a bit archaic now that we should add Japan, South Korea to the list) is entirely unaware that there just is no poverty in those economies when we use the global standard for absolute poverty. There just isn't anyone living on less than $1.90 a day. Equally, our use of the global standard for the middle class, consumption of over $10 per day per capita, obscures that fact that in those North Atlantic economies that is still defined as being under the poverty line, less than a minimum wage income.
India is most certainly getting richer and current economic performance is marvelous. But by any version of classification we want to use it is still true that India is a poor country.
