In 1990, more than 60% of people in East Asia were in extreme poverty. Now only 3.5% are
Here's an amazing fact: The number of people in extreme poverty fell by 114 million from 2012 to 2013.
That is a simply massive one-year decline, and it's not even the biggest drop in recent years. From 2010 to 2011, global poverty fell by 132 million people. From 2008 to 2013, the number fell by an average of 88 million people per year. If that rate of progress keeps up, global poverty will be eliminated in less than a decade.
These numbers come from a new World Bank report, which, while recognizing what a massive achievement this is, argues that the pace of progress will likely slow down.
There are a couple of reasons for that. A major one is that much of the poverty reduction in the past couple of decades has happened in East Asia, while progress has been slower in sub-Saharan Africa. The result is that while a narrow majority of poor people in 1990 lived in East Asia, now fewer than 10 percent do, and a majority live in sub-Saharan Africa. If that region continues to lag on poverty reduction, we should expect the rate of progress to fall.
But the bigger problem is one that’s become all too familiar to developed countries: inequality. If developing countries figure out how to redistribute income effectively and share the benefits of growth with poor populations, then there’s no reason progress should slow down. Eliminating poverty by 2030 should be totally doable. But if, as in rich countries, inequality is allowed to increase, eliminating extreme poverty becomes that much more challenging.
Why the last leg of poverty elimination will be tough
It’s hard to overstate how astonishing and rapid the decline in extreme poverty in the past couple of decades has been. In 1990, more than a third of people on Earth lived on less than $1.90 a day, adjusted for local prices (this is the line the World Bank uses as its main metric). By 2013, barely 10 percent of people did; the rate had been cut by more than two-thirds. That’s one of the biggest and fastest improvements in human well-being in the history of the planet.
But the benefits were not evenly shared across regions. Here’s how the poverty rate changed in each part of the world over that period:
The purple line representing East Asia shows the most striking trajectory. In 1990, a large majority — 60.2 percent — of people in the region lived in extreme poverty. In 2013, only 3.5 percent did. That’s a shift of mind-boggling scale. And it means that extreme poverty in that area is now a rather small part of the overall global problem.
The big challenges remaining are South Asia and sub-Saharan Africa. The former’s doing pretty well; India has experienced very rapid growth in recent years, and Pakistan and Bangladesh, while less successful, are also seeing a quick rise in GDP per capita:
South Asia contains about a third of the world's remaining extreme poor. Sub-Saharan Africa represents 50.7 percent. And there, the trend line is less promising. Progress is being made — the extreme poverty rate fell from a high of 58.4 percent in 1993 to 41 percent 20 years later — but not as quickly as in Asia. And rapid population growth means the number of poor people in sub-Saharan Africa has actually grown since the early 1990s, and only started to fall again a few years ago.
"Future progress toward the global poverty goal is likely to taper off in coming years if an acceleration in current poverty reduction trends does not take place in Sub-Saharan Africa," the report concludes.
The key to speeding up poverty reduction: redistribution
The World Bank has set a goal of getting global poverty below 3 percent by 2030; the UN has an even more ambitious target of totally eliminating extreme poverty by that point. Whether that’s possible depends heavily on what happens to inequality in developing countries over the next decade.
The World Bank report modeled what would happen to the global poverty rate given a variety of possible changes in inequality, assuming economic growth is as fast as it’s been in the past 10 or 20 years (the past 10 years saw faster growth, the past 20 somewhat slower on average):
The lines on the bottom show what would happen if inequality falls; the ones on top show what happens if inequality rises. Basically, meeting the 3 percent target is only possible with a significant decline in inequality.
The market isn’t going to naturally effect that kind of reduction; it requires government intervention and, ideally, lots of redistribution. And when countries have tried that approach, it’s worked. The report includes a case study on Tanzania, a country that has experienced remarkably fast growth from 2004 to 2014: about 6.5 percent per year, on average. Poverty has fallen substantially as well, from about 60 percent in 2007 to under 50 by 2012.
But most of Tanzania’s poverty reduction isn’t attributable to economic growth. Most of it was due to redistribution:
What happened? Well, the Tanzanian government took measures designed precisely to reduce poverty. One, called MKUKUTA II, focuses on expanding access to public services like health care, primary school, water, and sanitation, while the second, the Tanzania Social Action Fund, provides conditional cash transfers and public works programs.
This isn't the whole story (the country also diversified its agricultural industry in a way that aided in poverty reduction), but it's a significant factor. "From a fiscal point of view," the World Bank report concludes, "Tanzania tends to redistribute more than anticipated based on its relatively low income level."
It's not just the World Bank pointing this out. Economists Andy Sumner and Chris Hoy have estimated that redirecting public subsidies for fossil fuels alone could eliminate up to 70 percent of extreme poverty. Doing that in concert with lower military spending and higher taxes would do even more. "Growth is good, but it will take quite some time for it to raise everyone above a minimal income floor," Sumner notes. "Redistribution is possible right now and could accomplish that goal much faster — and be good for future growth and prosperity."
It could be good for health, too: The Center on Global Development’s "Millions Saved" project has found that cash transfer programs in countries like South Africa, Honduras, Kenya, andPakistan can improve access to health services, reduce teen birth rates and risky sexual behavior, and boost nutrition.