The Poor Are Getting … Richer
It really is getting better -- even for the bottom billion.
For most of the last 200 years, the story of global incomes has been one of the rich getting richer and the poor staying poor -- or "divergence, big time," as Harvard Kennedy School professor Lant Pritchett put it in a 1997 article. Pritchett argued that in 1870, the world's richest country was probably about nine times as rich as the poorest country. By 1990, that gap had increased to a 45-fold difference. And populations grew fast in many of the stagnant economies at the wrong end of this divergence. By 1981, according to the World Bank, 1.9 billion people, or half of the population of the developing world, lived on $1.25 a day or less.
For most of the last 200 years, the story of global incomes has been one of the rich getting richer and the poor staying poor — or “divergence, big time,” as Harvard Kennedy School professor Lant Pritchett put it in a 1997 article. Pritchett argued that in 1870, the world’s richest country was probably about nine times as rich as the poorest country. By 1990, that gap had increased to a 45-fold difference. And populations grew fast in many of the stagnant economies at the wrong end of this divergence. By 1981, according to the World Bank, 1.9 billion people, or half of the population of the developing world, lived on $1.25 a day or less.
It’s easy to assume, faced with images of continuing destitution in rural Africa and South Asia, that things have just kept getting worse. But they haven’t. In fact, over the last two decades the pattern has reversed. The world has got a lot less poor — and the nature of the poverty that remains has changed in important ways.
Start with the numbers: In the 1980s, the average GDP per capita growth rate in developing countries was 1.4 percent, according to data from the World Bank. By the first decade of the 21st century, however, the average had shot up to 4.4 percent — considerably higher than growth rates in rich countries. As a result of this economic explosion, the number of countries classified as low income — that is, with a GDP per capita of less than about $1,000 — has fallen from 60 in 2003 to 39 today.
It’s not just countries that are getting richer — individual people are, too. In 2005, the number of people worldwide living in absolute poverty, or on $1.25 or less a day, was around 1.3 billion, according to estimates from Laurence Chandy and Geoffrey Gertz of the Brookings Institution. The same researchers suggest it was below 900 million last year. From one-half of the developing world in 1981, they estimate the proportion of people in absolute poverty today at less than one-sixth.
This isn’t just a story of Chinese tigers and Indian elephants — even Africa is getting in on the action. To be sure, the continent was late to the party, but the last 10 years have seen impressive growth in countries both oil-rich and oil-poor, landlocked and coastal. According to Xavier Sala-i-Martin and Maxim Pinkovskiy of Columbia University and the Massachusetts Institute of Technology, respectively, Africa is on track to halve the number of people living in absolute poverty between 1990 and 2017. Already, poverty rates are 30 percent lower than they were in 1995.
Of course, all these numbers need to be taken with a cellar’s worth of salt. Measuring incomes within countries is hard, and meaningfully comparing them across borders — when the same goods have different prices from country to country, and people buy different things — is even harder. Measuring across time adds additional uncertainty. Trying to come up with regional and global estimates, especially for the last few years, requires filling in big gaps using rafts of arguable assumptions. One indication of the lacking exactitude of cross-country income data is that with a few exceptions we don’t really know whether African countries south of the Sahara are richer or poorer than each other.
Caveats aside, the trends are strong enough that the broad picture of falling global poverty and rising incomes is widely accepted — and that makes for some dramatic changes in the nature of the world’s poverty problem.
For one thing, most of the world’s poor people no longer live in poor countries. In 1990, more than 90 percent of them did, according to Andy Sumner of the Institute of Development Studies. By 2007, however, the number had dropped to around one-quarter. That imbalance may not stick; Brookings’s Chandy and Gertz predict that as poverty rates decline in the new middle-income countries — especially in India, China, and Indonesia — the share of poor people living in poor countries will rebound to 45 percent by 2015. Still, the idea of poverty as largely a problem of “the bottom billion,” stuck in countries with medieval average incomes and institutions to match, is due for some revision.
Secondly, the location of the average poor person is moving rapidly west. Even as Africa is becoming less poor, poverty is becoming an increasingly African problem. In 2005, Asia was home to 66 percent of the world’s poorest, while sub-Saharan Africa accounted for 28 percent. The Brookings analysis suggests that by 2015, those proportions may flip, with Asia housing 34 percent and Africa 60 percent.
A related trend is that poverty is becoming more disbursed — no longer concentrated in a few very large countries, but spread among a greater number of mid-sized nations. In 1990, China accounted for more than a third of a global total of 1.8 billion living on $1.25 a day. In 2015, Nigeria is predicted to have the most poor people of any country in the world — but it will account for just over a sixth of the global total, 585 million.
The decline in global poverty is unambiguously good news for billions of people worldwide. But it will pose some problems for the world’s aid agencies. As the majority of poor people shifts toward living in middle-income countries, donors are going to have to think about moving away from a model of helping poor countries to one of helping poor individuals. One option floated by Chandy and Gertz is for donors to guarantee a global minimum level of consumption. Aid agencies would pay poor families the difference between their incomes and the income level of $1.25 per person per day. The Brookings scholars estimate the financial costs of such a scheme have dropped from $96 billion in 2005 to $66 billion today — or about half the value of official aid. With the growing reach of financial services, their idea is more feasible than it was — though recalculating exactly who should get exactly how much income support each year would be an awesome challenge.
But these challenges should force donor agencies to recognize how the new map of poverty actually opens up opportunities for aid. Imagine that China was still home to one-third of the world’s poor. The role for aid in addressing the needs of those poor people would be dwarfed by what the country could manage on its own. China has reserves of $2.85 trillion — that’s about 24 times the annual global volume of aid flows. On the other hand, it is far more plausible to believe that aid could make a difference in poverty in the Democratic Republic of the Congo — which may rank third worldwide in terms of the total number of poor in 2015. The country’s total GDP is only just above $10 billion.
And it’s worth keeping in mind that poverty is about a lot more than money. Despite China’s stunning economic growth over the past 20 years, progress in health improvements has slowed dramatically. From 1975 to 1985, child mortality in the country was almost halved. During a period of considerably more rapid economic growth after 1985, it took 22 years to repeat the performance.
So aid agencies will have an important role to play in improving outcomes for those merely neighboring on absolute destitution and improving the broader quality of life through the extension of health and education services, among other things. This to say nothing of countering the effects of global climate change. The end of poverty, in short, is not yet in sight. Still, we’ve made a pretty great start.
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