Introduction
THE INEQUALITY PARADOX THAT PROVIDES THIS BOOK WITH ITS TITLE IS that while inequality in rich countries has been growing – at least until recently – at the same time as the fastest rise in inequality, there took place a quite extraordinary reduction in poverty. We have seen that until the 1980s poverty was pervasive worldwide. Interpolation from the data in Figure 9 suggests that in 1950, 65% of the world’s population lived in extreme poverty. The latest estimate for 2013 suggests that this has fallen to 10.7%1 (since updated to 10.9%).
The other side of reduced poverty in the East is that – although the nature of the poverty is not comparable – the extent of poverty in the West is growing. I observed in a Cebr report on the US economy in 2013 that San Francisco, near Silicon Valley and one of the most prosperous regions in the world, now has more than 6,000 people homeless and that this type of poverty is a problem that is increasingly affecting the United States.2 To a visitor their difficulties are very obvious. The total homeless has since risen further, according to the data mentioned in the prologue to this book.
Oddly, surprisingly few people in the West know about the fall in poverty. A recent survey in the UK showed that only 12% agreed with the proposition that ‘In the last 30 years the proportion of the world population living in extreme poverty has decreased.’3 In other words, 88% of the population don’t believe something that every person who has made an objective study knows to be true about one of the most important issues in world economics and politics. If you ever wanted an explanation of why democracy often doesn’t produce the right answer, this perhaps gives a clue.
A different survey showed that only 8% of the adult populations in the US and in Germany agreed with the proposition that global extreme poverty had fallen in the past 20 years. But interestingly, in a country where the fall in poverty would be much more obvious than in the West, fully half the population of China covered in the same survey knew this.4
The Marxist assumption of false consciousness is used to explain why the poor don’t rise up against their exploitation. But you could use the same phrase to describe the situation where people believe in things that are completely untrue, to the detriment of their political understanding.
One doesn’t need to go down the whole Donald Trump ‘fake news’ route to suggest that in the area of poverty the mainstream media in the West need to raise their game in keeping the public informed.5 Some might suggest a conspiracy to mislead among left-wingers, of whom there are many in the media. But in my experience of life, serious academics and commentators do not get together to try to work out how to mislead people. If they do mislead it is generally unintentional, and results from a combination of ignorance, ‘group think’ and arrogance.
This chapter looks at six issues – how much has poverty fallen and on what measure; why poverty has fallen; a discussion of the measurement issues affecting poverty; the links between poverty, education and health; a geographical analysis of where extreme poverty is now concentrated; and a brief examination of the prospects for further poverty reduction.
How much has poverty fallen?
This section relies heavily on an excellent note available on the web prepared by two outstanding economists, Max Roser and Esteban Ortiz-Ospina.6
The main statistics on world poverty that are widely used relating to recent years since 1981 are those provided by the World Bank. The best source of earlier data is in a seminal paper written by Bourguignon and Morrisson in 2002.7 In this paper, the two authors measured poverty as far back as 1820 using a measure of ‘one dollar a day’. The current poverty line of $1.90 a day was only introduced in 2015. There has been some discussion of the changing official definitions of extreme poverty amid worries that these definitions have been changed to choose the data that gives the best presentation of the results, so it is sensible to look at this in some detail.
How is poverty defined and measured?
One of my advantages as an economist is that having lived and worked in an emerging economy, worked in a major corporate and run my own company I have some sense about which statistics are likely to be reliable and which might not be.
When I worked for IBM in the UK we discovered that the official data suggested that the prices of computers were going up. Since we produced a third of the computers produced in the UK at that time and we were pretty certain that the opposite was true, I thought it was worth investigating in our own organisation what statistical data we were contributing to the government on this.
Eventually we discovered how IBM’s contribution to these statistics was emerging. A relatively junior employee whose day job was stacking shelves had been tasked with filling in the government forms. It turned out that the government sent IBM three forms, one of which related to a machine that had gone out of production roughly 20 years earlier. I asked the person who filled in the form how he dealt with that problem ‘Oh, I just put in the price of the successor machine,’ he responded. ‘But,’ I asked, ‘what about the fact that the successor machine is 10,000 times more powerful?’ ‘Don’t worry,’ he said. ‘It’s only a government form.’
I also asked how he took account of discounting, which is meant to be taken into account when the official forms are filled in. His expurgated reply was on the lines of: ‘Do you think I have the time to waste on finding out who got what discount for each machine – of course I only put down the list price!’ This taught me a lot, and ever since I have been extremely careful to understand the basis of any figures before I assume that they are correct. My impression is that qualitative data from senior figures in a position to know is often superior to quantitative data from people who are not in a position to have the relevant information at their fingertips.
The potential unreliability of statistics has to be considered when looking at the data here.
The World Bank is the main source for global information on extreme poverty today and sets the International Poverty Line. This poverty line was revised in 2015 – since then a person is considered to live in extreme poverty if he or she is living on less than $1.90 per day. The poverty measurement is based on the monetary value of a person’s consumption, but since consumption measures are unfortunately not available for all countries, the World Bank has to rely on income measures for some countries.
A key difficulty for measuring global poverty is that price levels are very different in different countries. For that reason it is not sufficient to convert the consumption levels of people in different countries simply by the market exchange rate; it is additionally necessary to adjust for differences in price levels between different countries. This is done through Purchasing Power Parity (PPP) adjustments (explained below), which allow consumption and incomes to be expressed in so-called ‘international dollars’.
It is important to notice that the International Poverty Line is extremely low. Indeed, ‘extreme poverty’ is the right name for those living under this low threshold. Focusing on extreme poverty is important precisely because it captures those most in need. However, it is also important to point out that living conditions well above the International Poverty Line can still be characterised by poverty and hardship.
The data mainly comes from surveys and has been criticised for various defects such as non-response and urban bias. That is why I have cross-checked the data (see below) with other indicators which might confirm this or otherwise.
I have looked particularly to see if the extreme poverty data is consistent with data on health, on malnutrition and on life expectancy. I have also checked to see if it is consistent with conventional views on the returns to education and the data on the spread of education.
In October 2015 the World Bank’s new definition of poverty became $1.90 a day in 2011 US Purchasing Power Parity dollars. The International Poverty Line (IPL) is the generally accepted measure below which people are considered to be living in extreme poverty and is meant to represent a level of income that would buy $1.90 worth of goods in the US in 2011. The previous IPL was $1.25 in 2005 US Purchasing Power Parity dollars set in 2008. Previous to that the IPL (set in 1990) was $1.00 in 1985 dollars, which was raised in line with inflation to $1.01 also in 1990, to $1.08 in 2001 before the rise to $1.25. The poverty line is set in line with the median poverty line in a sample of countries which are carefully chosen to be representative and investigated in detail. In 1990 these countries were Kenya, Nepal, Tanzania, Bangladesh, Indonesia, Morocco, the Philippines and Pakistan. The data on poverty is then extended to cover the whole world using the International Price Comparison project which compares the cost of living around the world.
Weaknesses in the data
Measuring poverty is hard to make scientific. Different people have different ideas of poverty. Many anti-poverty campaigners now use relative poverty rather than absolute poverty, although it would be hard to measure progress against issues such as malnutrition on such a basis. And the countries where poverty is rife are unlikely to have the skills to make measurement, particularly on an internationally comparable basis, easy. And frankly, if poverty is that severe, the first policy priority is more likely to be food than statistics.
The first problem is that there is a group of 30 countries ranging from Zimbabwe to Argentina which do not normally provide poverty data at all. Their total population was 225 million in 2008 out of a world population (then) of 6.7 billion. Because they account for only 3.6% of the world’s population, this is a relatively minor problem since even if everyone in each of these countries was in extreme poverty they would not change the statistics dramatically.
There is an additional group of countries of which the most extreme example is Syria where the data has not been collected recently because of conflicts. Here it is likely that the bulk of the population is in extreme poverty and the numbers in these countries should be added in. Syria’s population was 24.5 million pre-war and is currently estimated to be slightly over 16 million of whom 13.5 million are estimated by the UN to be in need of humanitarian assistance.8 This boosts the official numbers in extreme poverty by at least 20 million and probably by something more like 50 million (300 million people lived in countries with war happening somewhere in their country in 2014).9
The third problem is that many have criticised the definition of extreme poverty because it is too tight and excludes many malnourished people (it is estimated that about 60% of those living on the IPL are malnourished). For this reason the World Bank has published separate data using a much wider definition of extreme poverty, with the IPL set at $3.20 a day instead of $1.90 (the equivalent of the $3.20 measure consistent with the $1 a day 1990 measure was $2 a day in 1985 dollars). The reduction in extreme poverty is slightly less (see below in this chapter for data on the $3.20 a day basis of measurement) but the figures still show an essentially similar picture.
Thomas Pogge, the German philosopher based at Harvard, claims, based on a 2010 UN report, that malnourishment is still increasing worldwide, which would be unlikely if poverty was falling.10 But this UN data is contradicted by more up-to-date data from the same source. The latest data from this source (actually the Food and Agriculture Organisation, which is a sub-branch of the UN) contradicts this view.11 What it shows is that the number malnourished rose from 900 million to 925 million from 2000 to 2005, fell dramatically to 777 million in 2015 on the latest data, and was projected to rise to 815 million in 2016. The falls in percentages are much more impressive because of the growth in the world population. The fall is from 14.7% in 2000 to 10.6% in 2015. I find the projected rise in the number malnourished in 2016 to be improbable because 2016 was a year when food prices fell dramatically – by about a third.12 If it indeed turns out to be an accurate estimate, one suspects that the fall in food prices in 2016 will bring down the 2017 figure for malnourishment sharply.
The World Health Organisation collects different data which show, in the latest World Health Report, that malnourishment among children has declined from 198 million people worldwide in 2000 to 156 million in 2015.13 The decline in percentage terms is much more impressive – a decline from 32.7% to 23.2% over the same period, roughly in line with the World Bank estimates of the declining proportions in extreme poverty, although it is important to note that with a quarter of the world’s children undernourished, we have a long way to go before we have declared victory in this battle.
Another criticism is that the bulk of the reduction in poverty has been in India and China. Since nearly 40% of the world’s population lives in these two countries and they have both grown especially quickly, this is exactly what one might expect. But it does make the data especially dependent on the methodology of collecting data in these two countries. This is why I have deliberately cross-checked the data on poverty with independently sourced data on life expectancy, health and malnutrition. They all point to the same thing – that world poverty has fallen sharply, though of course the extent of the fall depends on the measure used.
The importance of the dependence on results from only two countries is enhanced because there appear to be many people, especially in India, living on a subsistence level that is quite close to the International Poverty Line, and the results are therefore sensitive to precisely where the line is drawn. The fall in the proportions on the $3.10 (and $2) measure is therefore slower than that on the $1.90 (and $1) measure (see Figure 9). One suspects that the fall in poverty on the $3.10 measure is about to increase in speed while that on the narrower measure will slow and may even go into reverse. It would be improbable that different ways of measuring the same thing could derive completely different conclusions over a long period.
There is one final criticism which seems to me less easy to accept. To quote Pogge again: ‘Between 1990 and 2008, the number of people living in extreme poverty shrank only incrementally, from 1.2 billion to 1.1 billion, when you exclude China. And you should exclude China, because its radical poverty reduction has been achieved via methods that are completely at odds with World Bank and World Trade Organization policies’.14 In other words, poverty hasn’t fallen because it didn’t fall in the right way. My response to this would be to ask the poor themselves whether they feel that their poverty hasn’t diminished because it didn’t diminish ‘in the right way’. I am extremely uncomfortable with this suggestion that poverty hasn’t reduced because it didn’t reduce in the right way.
History of poverty
For most of the world’s history, poverty has been the general state of mankind. The Reverend Thomas Malthus, writing at the end of the 18th century in his classic ‘An Essay on the Principle of Population’, argued that as agricultural production essentially grew arithmetically while populations grew exponentially, unless people abstained from having children, famine to limit populations would be inevitable. For example, world GDP (1990 Geary-Khamis dollars) is estimated at $121 billion dollars in the year 1000 AD and twice that at $248 billion dollars in 1500 AD. Yet GDP per capita grew only slightly, rising from $453 per person per year in 1000 to $566 in 1500. Indeed, from 1500 to 1820 GDP more than doubled yet again, to $693 billion, but GDP per capita again rose only slightly to $666 per person. Malthus’ concept that populations would rise to consume the resources available would not have seemed entirely fanciful to someone observing that data.15
Only a very small proportion of the world’s population did not live in extreme poverty in 1820. But economic growth and trickle-down economics (where economic growth does enough to mean that the number of poor diminishes) means that the world since then has not only managed to reduce extreme poverty by more than three quarters but also to accommodate a sevenfold increase in the world’s population from one billion to seven billion.
From 1820 to 1950 the fall in world extreme poverty was gradual – from 94% to 72% on the $2 a day measure and from 84% to 55% on the $1 a day measure. But since then the amount of poverty in the world has fallen dramatically. There is no consistent series, but interpolation suggests that about 65-70% were in extreme poverty in 1950; this had fallen to 44% in 1981 and to the conventionally accepted figure of 10.7% for 2013 (just revised to 10.9%).
Until the 1960s, because of population growth, the gradual fall in the share of the world’s population in extreme poverty was not enough to prevent the total number of people in extreme poverty rising – from around one billion in 1820 to around two billion in the 1960s. But since the 1960-90 period the share has fallen so fast that the number in extreme poverty has itself fallen to around a third of its peak level. The World Bank estimate for 2013 was originally 705 million people in extreme poverty, though this number has been increased in the latest estimates to 783 million.
The first countries in which people improved their living conditions were the first to industrialise. Martin Ravallion from the World Bank (measured against the older poverty line of $1.25 in 2005 prices) writes:16 ‘Today there is virtually no extreme poverty left in today’s rich world, when judged by the standards of poor countries today.’ An exception to this is the US – a country with exceptionally high inequality among rich countries – where a small but sizeable fraction of the population is still living in extreme poverty (see my comment about San Francisco above and those about New York and Los Angeles in the prologue).
Although poverty in rich countries had largely ended a generation ago, there are increasing signs that it may be returning. For example, the number measured as sleeping rough in England (and one can imagine that this number is almost certainly an underestimate) doubled from 1,768 in 2010 to 3,569 in 201517 (more recent data mentioned in the prologue of this book suggests a further increase to over 8,000 people). Most poverty measures in Southern Europe have shown rising poverty since the Euro crisis started and the latest measure (for 2014) shows 36% of all Greeks at risk of income poverty.18 By contrast, the levels of homelessness in the US, admittedly starting at a high level, have fallen in recent years. The official estimate of the number of chronically homeless individuals has fallen from 119,813 in 2007 to 83,170 in 2015.19 But from casual observation it seems likely that with a long-lasting period of economic underperformance since the financial crisis and time-limited welfare that this may now be rising.
Many would argue that people are in extreme poverty even on incomes higher than $1.90 a day. Figure 6 shows the trends on both the $1.90 definition and the $3.20 definition. What it makes clear is that the number in poverty on the $3.20 measure – by no means a high measure – was relatively recently nearly three times that on the $1.90 measure. This shows that even if the world can claim substantial success in reducing the worst of poverty, there are still very many people living in desperately tough conditions.
Figure 6. Comparison of those in poverty on $3.20 per day with those in poverty on $1.90 per day
Source: World Bank databank http://databank.worldbank.org/data/reports.aspx?source=poverty-and-equity-database.
Why has poverty fallen?
The answer that most analysts will give to this question is the rate of economic growth in the poorer economies. Growth particularly in India and China has been behind the fall in poverty. But what has caused the growth?
The Economist has looked at this issue in some detail and come to similar conclusions to those in this book. First, The Economist confirms the scale of the reduction in poverty that is a key point in this book:
To people who believe that the world used to be a better place, and especially to those who argue that globalisation has done more economic harm than good, there is a simple, powerful riposte … In 1981 some 42% of the world’s population were extremely poor, according to the World Bank. They were not just poorer than a large majority of their compatriots, as many rich countries define poverty among their own citizens today, but absolutely destitute. At best, they had barely enough money to eat and pay for necessities like clothes. At worst, they starved.
Since then the number of people in absolute poverty has fallen by about 1bn and the number of non-poor people has gone up by roughly 4bn. By 2013, the most recent year for which reliable data exist, just 10.7% of the world’s population was poor (the modern yardstick for destitution is that a person consumes less than $1.90 a day at 2011 purchasing-power parity). Poverty has almost certainly retreated further since 2013: the World Bank’s finger-in-the-wind estimate for 2016 is 9.1%.20
The assessment that poverty is still falling is backed up by Homi Kharas of the Brookings Institution, who calculates that someone escapes extreme poverty every 1.2 seconds.21 Kharas also supports the ‘trickle down’ explanation of the reduction in poverty: ‘Middle-class growth in most countries is a function of growth in incomes and in population, and not due to changes in inequality.’
Then The Economist goes on to explain why poverty has fallen – so-called ‘better economic policies’ or a move from highly socialist policies that had been followed hitherto to a more successful mix of government intervention and free market policies:
Until recently the world’s poorest people could be divided into three big groups: Chinese, Indian and everybody else. In 1987 China is thought to have had 660m poor people, and India 374m. The concentration of destitution in those two countries was in one sense a boon, because in both places better economic policies allowed legions to scramble out of poverty. At the last count (2011 in India; 2013 in China) India had 268m paupers and China just 25m. Both countries are much more populous than they were 30 years ago.
Some of the decline in poverty in China and India is artificial, caused by more accurate household surveys and new estimates of purchasing power. But most of it is real. In both countries, economic growth has benefited the poor as well as the rich, peasants as well as city-dwellers: the magic ingredient in China’s poverty-reduction formula since the 1980s has been not its factories but its highly productive small farms. Much the same is true of other Asian countries. Carolina Sanchez, a manager at the World Bank, is particularly impressed by Bangladesh, where many sparsely educated women have been able to find good jobs in textile factories.
Looking forward, The Economist comes to the same conclusion as this book does – that the low-hanging fruit of poverty reduction has already been picked:
Unfortunately, this happy chapter in world history is drawing to a close. The share of people living in absolute poverty will almost certainly not decline as quickly in the future—and not because it will hit zero and therefore have nowhere to fall. Even as the global proportion of poor people continues to drift slowly downwards, large pockets of poverty will persist, and some of them are likely to swell. The war on want is about to settle into a period of grinding battles in the trenches.
Then the magazine goes on to explain why it will be increasingly difficult to reduce poverty as rapidly in the future and that doing so will require a mix of economic growth and welfare reform – the same conclusion as this book reaches in Chapter 11 (although The Economist misses what I believe to be a crucial point, the establishment of stable governments in states that are at war):
… these days about four-fifths of all extremely poor people live in the countryside, and just over half of them live in sub-Saharan Africa. Africa is as studded with examples of failure as Asia is filled with success stories.
Allegedly the most controversial cause of the fall in poverty is the role of increased international trade, or globalisation.22 Capital and goods, and to a lesser extent people have moved around the world increasingly freely over the period when poverty fell most. Not only has there been very rapid growth in trade between developed and developing nations, but trade between developing nations has grown even more quickly.
Underpinning this growth in trade have been various ‘infrastructural’ developments.
First, education has moved from being an exception to being the norm in emerging economies. Second, health has improved dramatically, as is evidenced by substantial increases in longevity. Third, the rule of law and the protection of property (it is necessary for property to be protected for investment to be made by private individuals and corporations) has increased. And there has been investment in the physical infrastructure in emerging economies as well.
Meanwhile, technology has also played a role, enabling globalisation.
But what is startling is that charity and overseas aid have played a minor role, if any. Indeed, given the extent of anti-globalisation campaigning by charities over this period (though recently some have started to change their views) one could argue that the reduction in poverty has taken place despite these charities.
Although some campaigners have genuinely tried to help the poor, more have campaigned against globalisation, even as this process has worked its magic to reduce poverty. Christian Aid, for example, provides a globalisation ‘trading game’ for students, filled with such propaganda claims as trade is ‘unfair’.
Oxfam appears to have changed tack dramatically, and has broken with many in the anti-globalisation movement. But it had previously made some tough claims, such as ‘the rules that govern [international trade] are rigged in favour of the rich’. CAFOD, the Catholic charity, has worked with Christian Aid to assert that globalisation could not succeed in reducing poverty on anything like the scale implied by the Millennium Development Goals. This turns out to have been not just wrong, but the precise opposite of the truth.
Why do so many think that globalisation has had such disastrous consequences? One answer is that part of the process of making the poor in poor countries richer has been associated with falling real wages for poorer people in rich countries. And rich countries have built a high cost base into their systems, with heavy regulation, expensive housing and costly energy all combining to raise the cost of living. Charities based in rich countries have paid more attention to the increase in poverty in the rich countries than to the decrease in poverty in the poor countries.
Another possible answer is that globalisation has been a partially capitalist process, though supported by government activity, particularly for education, sanitation, health and infrastructure. And many campaigners may be more ideologically anti-capitalist than genuinely interested in the fate of the poor. Because of their ideological predisposition some feel that anything capitalist cannot yield good results. I try (though it is dangerous to think one is open-minded and others are not, even in those circumstances where it is true!) to have an open mind on capitalism, a system which works quite well but has its weaknesses and of course doesn’t work perfectly (what system does?). And having seen with my own eyes the poor getting richer in Malaysia in my youth and having had the economic tools to understand the process, perhaps my take on the subject has some extra validity compared with the views of those whose understanding is purely statistical.
Of course the fact that the less well-off in the developed world have clearly suffered a worsening in at least their relative position and in many cases their absolute position as a result of globalisation is a genuine problem resulting from globalisation. But one would need to be extremely callous to argue that the number in extreme poverty, in effect facing starvation, should rise four times to prevent a 10-30% at most worsening in the levels of disposable incomes of people in the rich world who, though by no means rich themselves, do at least have enough to live on.
What this book aims to do is to propose policies that would lead to the worse excesses of inequality in the West being prevented without forcing the poor elsewhere in the world back into poverty. The solution to this problem is not to go back to an autarchic pre-capitalist world where the poorest people slide back into poverty again. It is to find ways of bringing down the cost of living in countries such as the US and Britain and improving the skills of poorer people so that they can get decent jobs.
The links between poverty, education and health
Yet again the wonderful Max Roser has provided an invaluable data source to show how living conditions around the world have changed.23
The first major item of data is the fall in child mortality.24 We are often unaware of how bad conditions were in previous eras and so have no basis for comparison with the present. In 1800 43% of those born died before their fifth birthday. Even as recently as 1960 child mortality was still 18.5%. Almost every fifth child born in that year died in childhood. But by 2015 child mortality was down to 4.3%.
Not only has infant mortality fallen but life expectancy has increased. Over the last 200 years people in all countries in the world achieved the type of progress in health that has led to increases in life expectancy. As an aside, improvements in hygiene and sanitation have probably had as much to do with this as improvements in medicine. In the UK, life expectancy doubled over the 200-year period and is now 79.2 for men and 82.9 for women. In Japan health started to improve later, but the country caught up quickly with the UK and overtook it during the 1960s. In South Korea health started to improve later still and the country achieved even faster progress. Now life expectancy in South Korea is higher than life expectancy in the UK.
A century ago life expectancy in India and South Korea was as low as 23 years. A century later, life expectancy in India has almost tripled and in South Korea it has almost quadrupled.
But there are still huge differences between countries: people in Sub-Saharan countries have a life expectancy of less than 50 years, while in Japan, Hong Kong and Singapore it exceeds 85.
The average life expectancy worldwide today is 75. Interestingly, although as a region Sub-Saharan life expectancy is the lowest, increasingly low life expectancy is also being found in pockets of more advanced economies, such as Russia and parts of Glasgow in Scotland and among white working-class people in the US.
Meanwhile education has spread, which has increased the likelihood of escaping from poverty.25
In 1870 only one in four people in the world attended school, and only one in five was able to read. Today, in contrast, the global estimates of literacy and school attendance are above 80%, and the inequality between world regions – while still existing – is much lower.
It is the contention of this book that the role of education in reducing poverty and promoting globalisation has been understated compared with economic causes. Clearly it is difficult to prove the case because so many things have been happening at the same time. But my personal experience growing up in the Far East makes me believe that the spread of education has been crucial. Other factors of course contributed, but had education not become widespread, it seems very unlikely that globalisation as we know it would have happened. Certainly none of those employed in the two offshore manufacturing plants that I studied right at the beginning of globalisation would have been employed had they not been literate.
Where is poverty now concentrated?
In 1990 the world region with the largest number of poor people was Asia (505 million in South Asia, plus 966 million in East Asia and the Pacific). With the rapid economic growth in Asia over the following two decades, the number of people in extreme poverty fell rapidly to 327 million in 2013 – by that time Africa was the continent with the largest number of people living in extreme poverty.
The breakdown of extreme poverty by continent in 2013 was as follows:
• 327 million in Asia
• 19 million in South America
• 13 million in North America
• 2.5 million in Oceania
• 0.7 million in Europe
India is the country with the largest number of people living in extreme poverty (218 million people). Nigeria and the Congo (DRC) follow with 86 and 55 million people.
Since then it has become clear that further low-hanging fruit have been gathered. The Chinese premier Li Keqiang recently claimed that more than 68.5 million rural people had been lifted out of poverty in China over the past five years, meaning that 37,000 people escaped poverty every single day, and that the national poverty rate had fallen 10.2% to 3.1%.26
How can we reduce poverty further?
The aim of the World Bank is to end extreme poverty by 2030. How realistic is this?
A continuation of present growth trends would roughly halve the rate of extreme poverty between 2015 and 2030 to 4.8%.27 While a fall is likely, I would be amazed if we do as well as this.
Microsoft founder Bill Gates (who has a pretty good record in forecasting, but gets it wrong occasionally) predicts that:
By 2035, there will be almost no poor countries left in the world. (I mean by our current definition of poor – specifically, I mean that by 2035, almost no country will be as poor as any of the 35 countries that the World Bank classifies as low-income today, even after adjusting for inflation.) Almost all countries will be what we now call lower-middle income or richer. Countries will learn from their most productive neighbours and benefit from innovations like new vaccines, better seeds, and the digital revolution. Their labour forces, buoyed by expanded education, will attract new investments.
I would love to be as optimistic as Bill Gates. But I fear (as does The Economist – see above) we have picked the low-hanging fruit of poverty reduction – that part that is most amenable to economic growth through the trickle-down effect. Much of what is left is due to less easily eradicable causes.
First, while poverty is reducing in the emerging economies, especially in India and Sub-Saharan Africa, there are also signs that poverty is increasing in the developed world. The persistence of welfare and a culture of joblessness has been combining with problems like addiction to leave people in poverty with growing problems of lack of physical health leading to low and in some cases falling life expectancy.
And the fact that in some Western economies a bad economic policy response to globalisation mean that some groups are almost completely excluded from society means that increasing numbers are mired in poverty. One of the most unfortunate examples is Greece. In 2010 I pointed out that Greece had no option but to devalue and default28 and was accused for my sins of being ‘irresponsible’ – by the leader of the Greek Communist Party, a fine example of pot and kettle!29 Successive Greek governments took a different line and refused to leave the euro, prompting a fall in GDP of over a quarter. As a result a Greek friend has described the situation in Greece as ‘much like after the war’ when many cannot find enough food and are suffering from malnutrition. My prediction that Greece would leave the euro has been proved wrong, though the underlying economic prediction that if they did not do so there would be an economic disaster was not.
The result of what I believe to be bad economic policy decisions, combined with the fact that the later economic developers in the Western world are on the front line of globalisation, have hit Greece badly. Even had my economic policy recommendations been accepted the country would still have faced a tough time but would be recovering by now after nearly a decade. The Greek economy does now seem to be starting to edge upwards again as the stabilisation policy stops intensifying and as the benefits of the ‘internal devaluation’ cutting costs in the tourist sector bear fruit.
The impact of the past decade on Greek poverty is tragic and dramatic. Since 2008 the proportion of Greeks assessed by Eurostat (the European Statistical Agency) as ‘severely materially deprived’ has doubled, reaching 22.2% in 2015.30
Greece is not the only example in the ‘developed’ world of sharply rising poverty, but it is the most dramatic.
Second, much of the poverty that remains has specific causes – failed states such as Venezuela or Zimbabwe, or states where there are civil or other wars. Without restoring the rule of law and creating peace in these countries, reducing poverty seems unlikely.
There is some interesting evidence about this from Iraq, where the Coalition forces after the Gulf War produced some good statistical measurements to try to show the effects of their efforts at nation-building. There the position at one point started to improve but has since gone into reverse. Abdul Zahra al-Hindawi, the spokesperson of the Iraqi Ministry of Planning, told a journalist that the data suggests that ‘the poverty rates dropped from 23 percent in 2010 to 19 percent in 2013 [as a result of] the application of a strategic plan to decrease poverty, which aimed to reduce it to 10 percent by the end of 2014. But because of the current circumstances and the high numbers of displaced people, the plan is no longer effective. The shock of Daesh [the local name of the IS] which raised the numbers of displaced people and the fall in oil prices have raised the poverty rates in 2014 to 22.5 percent.’31
Meanwhile, poverty rates in provinces seized by the Islamic State are higher at 41% than they were during Saddam’s era, according to the Ministry of Planning, though it may not be a totally unbiased source.
This short discussion with statistics indicates the impact of civil war on poverty. Clearly the situation is much worse in Syria, where there are no measurements but where between two-thirds and three-quarters of the population have become refugees.
Where the rule of law has failed for whatever reason it is likely that no matter how beneficial the external environment, poverty will not fall. So, although official aid and charity have played a minor role in reducing extreme poverty worldwide in recent years, their roles and that of peacekeeping agencies are likely to be greater in the future.
My three priorities for reducing poverty in the coming years are:
(1) It is important that the economic growth worldwide continues so that the forces that have been reducing poverty in the past 25 years can continue to operate.
(2) The world will need to deal with problems in specific states where governments have failed or where law and order has broken down or where there are wars taking place.
(3) As the scale of extreme poverty diminishes, the next problem to be dealt with is to reduce slightly less extreme poverty – with still near to a quarter of the world’s population subsisting on less than $3.20 a day.
This means keeping growth going and not holding it back as a result of mistaken policies that are an emotive response to inequality. It means reforming countries where failed policies have been entrenched – Zimbabwe and Venezuela are most obvious. It means finding ways of bringing peace to countries at war – more easily said than done. And it means working with those families where problems of poverty and addiction have become intertwined in order to give them hope and help them out of their problems.
As we shall see in Chapter 17, in many emerging economies there is plenty of scope for increased redistribution from higher rates of taxation without doing too much damage to the incentives that drive growth. But welfare systems need to be carefully planned to minimise their impact on perpetuating poverty. My impression is that such systems often work well initially but as they become entrenched frequently lead to a ‘cycle of deprivation’ of welfare dependence.
Ironically, although aid and charities have played a surprisingly small role in the massive reduction in global poverty so far (and arguably some, through their anti-globalisation campaigning, have actually hindered the process), over the next 25 years poverty reduction is likely to need the kind of targeted help that can be provided from these sources. Their time is likely to come.