Mexico cuts poverty at a stroke – by changing the way it measures earnings

Change in methodology by national statistics institute provokes scepticism after it shows Mexico’s poor are richer by a third compared with last year

 

A girl stands in a slum in Mexico City. Mexico’s poor may not be feeling better off despite the latest report from the national statistics institute. Photograph: Alamy Stock Photo


David Agren in The Guardian


Mexico’s impoverished masses were up to 33.6% richer in 2015 than the previous year, according to the state-run statistics service.

But the change owes less to a sudden increase in actual wealth and wellbeing for the country’s poor than to unannounced changes in the methodology for measuring household earnings.

The changes make comparing poverty rates from one year to the next impossible – something acknowledged by the National Geography and Statistics Institute (Inegi).

But the tweak will allow image-conscious politicians to claim success in their anti-poverty programs and economic stewardship, even though public discontent over stagnant wages and rising prices remains widespread.



Pope's focus on violence and poor likely to make for 'uncomfortable' Mexico visit



“Basically what the Inegi is saying is: we’ve been overestimating poverty levels,” said Jonathan Heath, an independent economist in Mexico City.

“The way that they did this” – without public consultation – “raises suspicion,” he added.

“The new poverty numbers are certainly going to fall by a significant amount and it’s not due to improvements, it’s not due to government action, it’s not due to anything. It’s due to the way Inegi has carried out this survey,” he said.


The methodological changes were revealed on Friday with the release of the 2015 edition of the Survey of Socioeconomic Conditions, which showed an overall real increase of 11.9% in household earnings. In some states, the increase was more than 30%, while the poorest Mexicans saw the biggest gain in earnings, according to Inegi.


The changes came as a complete surprise to social scientists and non-governmental groups, but were justified by Inegi as an attempt at obtaining a truer measure of poverty – a notoriously tricky undertaking as people tend to underreport their incomes.


Inegi said in a statement that it applied new criteria in the collection and review of field data, which allows it to “offer society and the State a more precise measure of household earnings”.


Measuring poverty has proved controversial in Mexico, where social programs are often criticized as vote-buying exercises and beneficiaries in some states are told erroneously that their benefits are conditional on supporting the party in power.

Mexico used to measure poverty based on income, but changed its methodology in 2008 to take a “multidimensional” measure based on six social necessities, according to Heath.

The information collected by Inegi is provided to the National Council for the Evaluation of Social Development Policy (Coneval), an agency responsible for measuring poverty rates and the performance of social programs. Coneval put the poverty rate at 46.2% of the population in 2014, an increase of 0.7% points from 2012.


“[The] changes lack public technical documents to justify them,” Coneval said in a statement. It added the increase in household earnings “is not congruent with the trend that has been shown in other Inegi documents and with other economic variables”.

Austerity has never worked

It's not just about the current economic environment. History shows that slashing budgets always leads to recession

• 
• • Ha-Joon Chang
  • guardian.co.uk, Monday 4 June 2012 22.14 BST

David Cameron and EC president, José Manuel Barroso, at a meeting of EU leaders in Brussels. Photograph: Lionel Bonaventure/AFP/Getty Images

Last week saw a string of bad economic news reports. The eurozone leaders seem unwilling or unable to change from their austerity policies, even as Greece and Spain fall apart and the core eurozone economies contract. Britain watches on as its economy is heading for the third consecutive quarter of contraction, with an unexpectedly sharp fall in manufacturing. Last week's jobs figures confirmed that the US recovery is stuttering. The largest developing economies that have so far provided some support for world demand levels – especially India and Brazil but even China – are slowing down too. Four years after the financial crisis began, many rich capitalist economies have not recovered their pre-crisis output levels.

Even more serious is the unemployment problem. The International Labour Organisation estimates there are 60 million fewer people employed worldwide than if the pre-crisis trend had continued. In countries like Spain and Greece, overall jobless rates are approaching 25%, with youth unemployment over 50%. Even in countries experiencing "milder" unemployment problems, like the US and the UK, between 8% and 10% are out of work. If we include those who have given up looking for jobs or those who are forced to work part-time for want of fulltime opportunities, "real" unemployment could be easily over 15% even in these countries.

The remedies on offer are well known. Reduce budget deficits by cutting spending – especially "unproductive" social welfare spending that reduces growth by making poor people less willing to work. Cut taxes at the top and deregulate business (euphemistically called "cutting red tape") so that the "wealth creators" have greater incentives to invest and generate growth; and make hiring and firing easier.

It is increasingly accepted that these policies are not working in the current environment. But less widespread is the recognition that there is also plenty of historical evidence showing that they have never worked. The same happened during the 1982 developing world debt crisis, the 1994 Mexican crisis, the 1997 Asian crisis, the Brazilian and the Russian crises in 1998, and the Argentinian crisis of 2002. All the crisis-stricken countries were forced (usually by the IMF) to cut spending and run budget surpluses, only to see their economies sink deeper into recession. Going back a bit further, the Great Depression also showed that cutting budget deficits too far and too quickly in the middle of a recession only makes things worse.

As for the need to cut social spending to revive growth, there is no historical evidence to support it either. From 1945 to 1990, per capita income in Europe grew considerably faster than in the US, despite its countries having welfare states on average a third larger than that of the US. Even after 1990, when European growth slowed down, countries like Sweden and Finland, with much larger welfare spending, grew faster than the US.

As for the belief that making life easier for the rich through tax cuts and deregulation is good for investment and growth, we need to remind ourselves that this was tried in many countries after 1980, with very poor results. Compared to the previous three decades of higher taxes and stronger regulation, investment (as a proportion of GDP) and economic growth fell in those countries. Also, the world economy in the 19th century grew much more slowly than in the high-tax, high-regulation era of 1945-80, despite the fact that taxes were much lower (most countries didn't even have income tax) and regulation thinner on the ground.

The argument on hiring and firing is also not grounded in historical evidence. Unemployment rates in the major capitalist economies were between 0% (some years in Switzerland) and 4% from 1945-80, despite increasing labour market regulation. There were more jobless people during the 19th century, when there was effectively no regulation on hiring and firing.

So, if the whole history of capitalism, and not just the experiences of the last few years, shows that the supposed remedies for today's economic crisis are not going to work, what are our political and economic leaders doing? Perhaps they are insane – if we follow Albert Einstein's definition of insanity as "doing the same thing over and over again and expecting different results". But the more likely explanation is that, by pushing these policies against all evidence, our leaders are really telling us that they want to preserve – or even intensify, in areas like welfare policy – the economic system that has served them so well in the past three decades.

For the rest of us, the time has come to choose whether we go along with that agenda or make these leaders change course.

Do we want a society where 50% of young people are kept out of work in order to bring the deficit down from 9% of GDP to 3% in three years? A society in which the rich have to be made richer to work harder (at their supposed jobs of investing and creating wealth) while the poor have to be made poorer in order to work harder? Where a tiny minority (often called the 1% but more like the 0.1% or even 0.01%) control a disproportionate, and increasing, share of everything – not just income and wealth but also political power and influence (through control of the media, thinktanks, and even academia)?

Maybe we do, but these choices need to be made consciously, rather than by default. The time has come to choose the kind of society we want to live in.