The Islamic Scorecard -- A New Approach to Poverty Relief

Index is not a useful measure -- instead a truly multidimensional approach is required.

A useful discussion is given by Malcolm Gladwell -- The Order of Things, Feb 14 2011, New Yorker. He shows how arbitrary college rankings are.. When dimensions are heterogenous, every index reflects personal preferences.

QUESTIONS TO BE ADDRESSED IN A INTERIM METHODOLOGICAL PAPER.

1: Multi-dimensional criteria cannot usefullly be reduced without specifying objectives -- refer to Gladwell article above, ADD example, which medicine is best?? Try to understand which axiomatics violated by adding stuff but not violated by adding deprivations. (Have asked Sabina for her book, Arif Naveed also mentioned reference)

2: There exist things which are genuinely qualitative and cannot be reduced to numbers. Life Experience for example, built in abilities. Every moment of time is unique.

Moving Beyond Indices – A Scorecard for Policy Makers

The Alkire-Foster MPI has been a useful tool in changing the nature of the debate regarding development. It provides a humane alternative to the single minded focus on growth and money that drove and, to a large extent, continues to drive economic policy. A one dimensional MPI is useful to put in opposition to the one dimensional growth rate. Nonetheless, for reasons to be discussed, effective policy responses to poverty require moving beyond indices.

Problems/Difficulties/Defects of the IDEA of an MP Index

1: The multi-dimensional nature of poverty is one of the most significant findings of the literature in the past few decades. This is dramatically opposed to one-dimensional measures based on income or calorie intake which were almost universally used in the past. The fundamental insight that poverty cannot be reduced to a single dimension is contradicted by the attempt to do so via the MPI. One might respond that the MPI is decomposable so that we can recover the different dimensions from the data input needed to construct the MPI. However, the question remains – why should we try to produce one number? Why not insist that the multidimensional nature of poverty requires multiple yardsticks? That we should not attempt to reduce to one dimension? That all such efforts are bound to fail?

2: Creation of a single index is an attempt to solve an impossible problem. How much education can compensate for lack of access to potable water? Should someone buy expensive medicine for his sick child, depriving the rest of the family essential nutrition? Every index actually provides answers to these questions. But these questions should not be answered – instead, we should strive with all our energies to change a world which faces some of us with such cruel choices.

3: One index creates an illusory and useless one dimensional ranking among countries. Hundreds of arbitrary decisions are involved in creating an index, and those with specialized knowledge can create any ranking they want by adjusting these decisions appropriately. Competing for improvements in this ranking can actually be counterproductive.

4: An index creates a crutch for policy makers, who can utilize improvements in one dimension to compensate for failings in others. Note the contrast with the MDG’s where every dimension is treated separately. Good performance in one dimension is not allowed to compensate for failings in others. There is strong empirical evidence that MDG’s have been effective – it seems likely that they would not have been as effective if the performance measure had been reduced to an index.

5: Use of sophisticated mathematics creates an illusion that mathematics can be used to solve moral dilemmas. This supports the idea of technical fixes to human problems. An important part of our efforts to solve the poverty problem must be the re-introduction of the normative into the sterilized pseudo-scientific discourse characteristic of modern economics. We must be allowed to express our sorrow at the fate of the hungry and malnourished, and we must encourage the development of compassion and sympathy. Polanyi has argued that market economies systematically create indifference to poverty, and we must counteract this to prevail.

6: As I have argued elsewhere, a useful measure must have a target which exists in the real world – that is, it must be trying to measure something real. MPI and other indices CREATE the phenomenon being measured – the target of the measure does not have an independent existence; it is defined by the measure itself.

A listing of defects is of no use unless a superior alternative is available. My suggestion is that a SCORECARD approach would serve our purposes better. A motivation is provided by the “Poor Economics” approach of Duflo-Banerjee. In their view, tackling poverty requires addressing a thousand small problems, rather than a few big problems. The scorecard approach requires us to set out a list of dimensions along which we would like to see improvements. Initially, these could be the dimensions from which the MPI is constructed; later they could be adjusted in light of experience. One part of the scorecard would be the measure of achievement along this dimension, in comparison with the 100% ideal situation – where all needs are met. An additional part would be the score of the target policy making agency, with respect to its capabilities. Thus the scorecard would be different for different groups of agents – initially, it could be government sector, commercial sector, and civil society. Each group would be ranked on its achievement in solving the problem; this achievement would be relative to its capabilities. Worldwide usage would provide us with realistic benchmarks, and also mark out high achievers as models to be followed. Exceptionally poor performance, relative to capabilities, would also be singled out. Thus the scorecard has the potential for providing more effective and sharply focused policy responses.

One might think that we are making a mountain out of a molehill. The MPI is already being used in many of the ways that are proposed for the scorecard. The information required for policy interventions is gathered in the process of construction of the MPI. We can disaggregate and then use this information in the ways suggested. There are a number of responses to this:

1. The scorecard can be targeted to different groups, with differing capabilities, and might permit a co-ordinate approach to problems requiring public-private partnership, for example.

2. The scorecard could provide realistic benchmarks, as well as best case and worst case performances. Performance would be judged relative to capabilities, instead of hypothetically ideal, but impossible to achieve goals.

3. The magic of numbers, and Lord Kelvin’s dictum that superior knowledge is always quantifiable and measurable, has created the illusion that it is always useful to measure. We must learn to distinguish between problems which require solution, and those which don’t -- that is, we must not try to measure, in situations where the measure does not provide any information of value for decision making {This would normally be the case with the MPI}. For example, aggregating over all kinds of foods to meet caloric requirements is a feasible exercise. However, if we set different minimal requirements for different types of food groups, then we must REFUSE to aggregate – because aggregated food indices would necessarily lose vital information in this case. Aggregation is NOT always desirable, and can sometimes be harmful. Decisions to create an aggregated measure require a close look at the real world issues under consideration, and cannot be resolved on a purely mathematical & statistical basis.

4. All of the policy objectives achieved by the MPI can be achieved equally well or in a better way via a suitable scorecard approach.

FOLLOWING THREE GOALS should be shifted into new paper on scorecard approach:

1: Introduction: Three Goals for Constructing an Islamic Index.

Before construction of an Islamic Index, we must consider the purpose for such a construct. The purpose or intention determines the value of all actions. At the outset, Islamic scholars are agreed that increase in wealth cannot be equated with development. The condemnation of Qaroon, and prohibition of purposeless accumulation of wealth is definite and clear in this regard:

Q (9:34) They who hoard up gold and silver and spend it not in the way of Allah, unto them give tidings (O Muhammad) of a painful doom.

It immediately follows that GDP per capita, which is the dominant criterion for measure of wealth, prosperity and welfare of nations, is unacceptable from an Islamic point of view. In fact, this is now widely accepted, and the Stiglitz-Sen-Fitoussi report, with two Nobel Laureate economists as authors, details myriad shortcomings of the GNP per capita as a measure of development. Although many ideas for alternatives have been proposed, none has acquired prominence, and policy making all over the globe is concerned with how to achieve increases in GNP per capita. This narrow focus has made routinely possible extremely foolish policies such as cutting social welfare expenditures in order to pay interest to foreigners. This leads to our first goal in construction of an Islamic Index:

1. Provide a better guide for economic policy. Instead of focusing on the narrow objective of increasing GDP per capita, policy should focus on achieving objectives considered desirable in Islam.

Focus on GDP per capita as the sole determinant of progress has led to a huge amount of injustice in many spheres of life. Governments routinely argue that they do not have sufficient wealth to support welfare programs – economic growth, rather than provision of justice, is taken as the goal by authorities. There exists strong empirical evidence to show that substantial improvement in welfare can be achieved even at very low GDP levels, if there is the will to do so. Countries which do achieve growth continue to focus on greater growth, assuming that growth will automatically bring benefits to all. Sharply increasing income inequality all over the globe contradicts this naive “trickle-down” theory. Trade theory textbooks assume that nations should focus on improving domestic wealth, even at the expense of other nations. This results in trade policies which harm poor farmers in low income countries and bring benefits to the rich. Thus changing the criteria by which we measure growth can be used to further a second extremely important objective:

2. Holding the rich and powerful (persons, institutions and nations) responsible for provision of economic justice to all human beings.

Finally, it is the responsibility of the Ummah to spread the good and to prevent the evil all over the world. An Islamic index will potentially provide the criteria by which good is to be measured, and also measure the negative impact of evil actions. Among many economic imperatives, we have been commanded to “urge the feeding of the poor.” An Islamic index can provide clarity on what is considered good and evil, and help to spread these concepts. Developing an index which takes Islamic commandments into account will serve the third purpose of fulfilling our collective responsibilities towards Allah for Amr-bil-Ma’roof:

3. Spreading the good and preventing the evil.

With the understanding the development of index is not an academic exercise, but rather a method by which we might change the world to a better place, we proceed to some more concrete and specific considerations.

Multidimensional Approaches to Welfare - Essie Maasoumi paper on researchgate