Extreme wealth, but more than a billion in extreme poverty

The market at work: sifting through a dumpsite in Manila

by Michael Roberts

After yesterday’s post on the extreme inequality of global wealth cited by a new study
(see http://thenextrecession.wordpress.com/2013/10/10/global-wealth-inequality-10-own-86-1-own-41-half-own-just-1/), the World Bank has now released a report (World Bank state of the poor) covering the other end of spectrum – the level of extreme poverty in the world. 

There are roughly 1.2 billion people completely destitute (living on less than $1.25 a day), one-third of which are 400 million children.  One of every three extremely poor people is a child under the age of 13.  This is ‘extreme poverty’, compared  with America’s own poverty line at about $60 a day for a family of four.  People in “extreme poverty” tend to lack enough food to meet basic physical and mental needs.  So there are over one billion people, one-third of them children, who are virtually starving in the 21st century.

The World Bank says that the number of people living in extreme poverty has sharply declined over the past three decades,  There are 721 million fewer people lived in extreme poverty in 2010 compared to 1981 (assuming what $1.25 a day could buy in 1981 is the same as what it can buy now).  That sounds better, but this reduction is almost solely due a rise in living standards in the billion-plus populations of India and particularly China in the last 30 years.  There has been very little reduction in extreme poverty levels (as defined) in other very poor emerging economies.  While extreme poverty rates have declined in all regions, the world’s 35 low-income countries (LICs) – 26 of which are in Africa — registered 103 million more extremely poor people today than three decades ago. 

Aside from China and India, “individuals living in extreme poverty [in the developing world] today appear to be as poor as those living in extreme poverty 30 years ago,” the World Bank said. In 2010, 33 percent of the extreme poor lived in low-income countries, compared to 13 percent in 1981.  In India, the average income of the poor rose to 96 cents in 2010, compared to 84 cents in 1981, and China’s average poor’s income rose to 95 cents, compared to 67 cents.  China’s state-run still mainly planned economy saw its poorest people make the greatest progress.   But the “average” poor person in a low-income country lived on 78 cents a day in 2010, compared to 74 cents a day in 1981, hardly any change.

Three quarters, or 78 percent, of those living in extreme poverty live in rural areas, with nearly two-thirds of the extreme poor deriving their livelihoods from agriculture.  The extreme poor also continue to lag significantly behind in access to basic services. Only 26 percent of the poor had access to clean water in 2010, compared to 56 percent among those living above the $1.25 poverty line (hardly an income). Meanwhile, fewer than half – 49 percent – of the extreme poor had access to electricity compared to 87 percent of the ‘non-poor’. And while 61 percent of those above the $1.25 poverty line had access to basic sanitation, just 20 percent of the extreme poor had access to similar services.

As a share of the GDP of the developing world, the Aggregate Poverty Gap is now less than one tenth of what it was 30 years ago. For LICs, the share in 2010 was approximately 8 percent of their GDP, down from 24 percent in 1981. Notwithstanding this significant decline, the Aggregate Poverty Gap/GDP ratio in LICs is 16 times larger than the average for the developing world.  “To reach the goal of ending extreme poverty by 2030, the pace of poverty reduction in LICs will have to increase substantially”.

What is also interesting is that, except for LICs, lack of resources are unlikely to be the main limitation to ending extreme poverty in most countries.  As the World Bank puts it: “The challenge for middle and high income groups is not so much the amount of resources required by the poor, but development and implementation of policies and programs that help redirect those resources to the poor. For LICs, however, resources are still likely to be a major constraint to ending extreme poverty. ”

That means that poverty (as defined) could be ended if governments chose to do so.  The World Banks explained it this way:  ”Suppose that the real GDP growth for the developing world as a whole is 5 percent per year. If 10 percent of this GDP growth accrued to the 21 percent of the developing world’s population who are extremely poor, and this 10 percent was distributed in a way that the growth in income of each poor person was exactly his/her distance to the $1.25 line, extreme poverty would end in one year.”

Fat chance!