Benchmarking is a popular management and analytical tool. Usually it is a comparative measure with other companies or similar operations, which are deemed to have achieved best practice or simply to have set the performance standard.
League tables set up a benchmark, a top performer, or the top performing group. The commercial world is full of comparative tables, as is the trade press of every industry. Commercial benchmarks have their drawbacks, but they are nothing as controversial as international comparisons of the type set out in the UN Human Development Report last week.
That report has received a lot of attention because it placed Ireland 16th out of 17 developed countries in terms of a Human Poverty Index, and the United States 17th. This seems astounding at first, as does the statistic that 22.6 per cent of Irish adults are functionally illiterate according to an OECD survey (i.e. cannot read typed instructions on a medicine bottle or a children's story). No literacy data was available from seven countries, including France, Japan, Norway, Finland and Italy. All the data was already known to us. This is true of all international comparisons in which Ireland appears. We don't learn anything about Ireland from international comparisons. We just learn how we rate against others, in this case, according to certain arcane formulae. The Human Poverty Index is only useful if we can learn from it how to reduce poverty in Ireland and if it functions as a relevant benchmark for us. Should our policy aim be to rise in its rankings?
Judging by the prodigious work on the analysis of poverty in Ireland at the ESRI, as briefly illustrated in Poverty in the 1990s published in 1996, some of our prime analysts already have a firm grip on income distributions and measures of poverty in Ireland. They concentrate on relative measures of a poverty line of 40 per cent, 50 per cent and 60 per cent below mean personal and household disposable income. The UN report goes much further and adds to the relative income measure, those of life expectancy, literacy and long-term unemployment. In case you're interested, each percentage is cubed, added to the others, the sum divided by four and the third root is taken of the result. I'm no statistician, but the formula appears to mean that you could change the poverty index equally by a 1 per cent decrease in the percentage of people who will not live beyond 60, as by a fall in the long-term unemployment rate of 1 per cent. Or by a 1 per cent fall in the illiteracy level or, equally, by a fall of 1 per cent in the percentage of people who have less than half the median disposable income in a society. A consequence is that the lack of data from seven OECD countries on literacy means that the true rankings could be entirely different. This gap is as serious as if there had been no specific data on long-term unemployment in seven countries.
These weightings are, to my mind, a strange aspect of the attempt at a more comprehensive measure of poverty. We have a choice. Would we in Ireland really believe we had decreased poverty as much by a rise in the life expectancy rate as by a fall in the relative income gap? Increasing life expectancy is not the focus of current Government policy in its National AntiPoverty Strategy, nor a measure used by the Combat Poverty Agency. If the index is the best measure of poverty, we should aim to reduce adult illiteracy by 1 per cent as much as we aim to reduce long-term unemployment by 1 per cent. Logically, if it costs less to reduce illiteracy, we'd be better off doing that than devoting the same resources to reducing long-term unemployment.
I don't think that Government policies or lobbyists' proposals to reduce poverty are going to be significantly changed by the index. We already have policies aimed at social inclusion in education, training and drug awareness. There are arguments about whether these are sufficient or effective to tackle poverty and about the place of redistribution of income in antipoverty strategies. More of that on a later date.
To use the Human Development Report's poverty index would be to allow a statistical benchmark to become a distraction. Fundamentally, it doesn't matter much if one can amalgamate measures of educational achievement, life expectancy, employment and literacy into just one number.
Some will say the Human Poverty Index has an embarrassment value to spur the Government to do more about poverty through the shame of international comparison. The shame would be if we had to wait for a not-too-convincing international league table to understand and address our own problems; problems which no one else in the world, not even the UN, cares about.
Oliver O'Connor is an investment funds specialist
