BackThere is good news on global poverty
Rapid economic growth is still the most effective antidote to mass poverty
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The World Bank has released new estimates that show that fewer than one in 10 people are now living in extreme poverty. That is an important achievement considering the fact that more than one in three were living on the edge of desperation in 1990. In other words, more than 1.2 billion people have risen above the global poverty line over the past 25 years. This is the first time in human history that the worst type of poverty looks under control in most parts of the world, except for some parts of Africa. The world seems to be on course to ending extreme poverty by 2030.
The sharp decline in extreme poverty since 1990 is most clearly linked to the increase in global growth following the liberalization of most economies. The spectacular economic success in China is obviously one big reason why global poverty has come down so rapidly. No country in history has managed to pull so many people out of poverty in such a short period of time. That has helped bring down the global poverty numbers as well. The lesson is clear: rapid economic growth is still the most effective antidote to mass poverty.
India has not done too badly either, even though it is still home to too many people who live in extreme poverty (some 231 million in the whole of South Asia, down from 575 million in 1990). The World Bank has used the traditional methodology used in sample surveys to estimate poverty in India. The uniform reference period of 30 days has been the bedrock of official consumption surveys till recently. But the recent shift to the mixed reference period—seven days for food items and one year for consumer goods that are bought infrequently—has given poverty numbers that are lower than what was calculated using the 30-day recall period. The World Bank notes that Indian poverty may indeed be lower than what it has actually used in its latest report.
There is another statistical paradox that needs explanation. The first global poverty line—people living on $1 or less per day, based on purchasing power parity (PPP)—was created by a team of economists led by Martin Ravallion in 1991. That was revised to $1.25 a day in 2005. The latest international poverty line by the World Bank is $1.90 a day. How has global poverty fallen despite a sharp increase in the poverty benchmark? The answer: new price surveys were conducted by the World Bank in 2011 in different countries. These surveys showed that price levels in poor countries were considerably lower, relative to those in the US, than earlier assumed. That made a massive difference in the way PPP incomes were calculated.
What now? There are three big issues that need to be addressed as the world dreams of stamping out mass poverty by 2030. First, it is worth asking what the global trend of slower economic growth, not just cyclically but perhaps in terms of lower levels of potential output, will mean for global poverty reduction. Second, the rise in inequality in most countries effectively means that a smaller part of every dollar of incremental output is flowing down to the poorest. That will hurt further progress in poverty reduction.
Third, it is perhaps the right time for countries that have succeeded in rolling back extreme poverty to begin thinking beyond mere income poverty, so that more attention is paid to poverty in all its dimensions, from education to health to social mobility.
The past 25 years have seen impressive victories against the scourge of extreme poverty. The main credit should go to the rapid growth in incomes thanks to the opportunities provided by economic liberalization, especially in populous countries such as China and India. No amount of redistribution could have achieved the same result.
But the world also needs to focus on the next round of challenges, so that the poorest are able to use their latent capabilities to the best effect.
Is fast economic growth the best way to reduce poverty? Tell us at views@livemint.com
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