Tuesday, November 26, 2013

Economists with the National Bureau of Economic Research released a working paper in 2009 on global poverty concluding that the world had seen a significant decrease in extreme poverty-defined at the time as living on $1 or less per day-between 1970 and 2006. While even a significant decrease in extreme poverty still leaves much room for additional gains, the decrease in rates of extreme poverty during this period of time is stunning.


While the absolute number of individuals in extreme poverty reported in the NBER working paper was lower than in other studies, studies released earlier this year by the United Nations, the World Bank, and the Oxford Poverty & Human Development Initiative confirmed the overall conclusion that the rate of extreme poverty in the world has undergone a stunning decline.

James R. RogersApplying a definition of extreme poverty of living on less than $1.25 a day, the UNs 2013 Human Development Report concluded that the proportion of people living in extreme income poverty worldwide plunged from 43 percent in 1990 to 22 percent in 2008, including more than 500 million people lifted from poverty in China alone."

In a separate study released in April of this year, the World Bank noted that the reduction in extreme poverty occurred from 1981 to 2010 despite a significant increase in population over the same time period: The number of people living on less than $1.25 per day has decreased dramatically in the past three decades, from half the citizens in the developing world in 1981 to 21 percent in 2010, despite a 59 percent increase in the developing world population." The numbers represented by the percentages are staggering, with the World Bank reporting that over 700 million people moved out of extreme poverty during this period. (The Report also notes that 1.2 billion people yet remain in extreme poverty.)

Developing a multidimensional poverty index, or MPI (which the UNs report also drew on as an experimental indice"), that includes not only income, but also illness, food insecurity, unemployment, violence, and lack of electricity and good housing, the researchers at the Oxford Poverty & Human Development Initiative projected forward from the gains made against poverty in recent years and concluded for the poorest nations in the world, If the current pace of poverty reduction continues to the end, then half of the countries would eradicate MPI poverty within 20 years, 18 of the 22 within 41 years, and the remaining four countries within 95 years."

So what accounts for this striking and apparently continuing transformation? There may be less agreement on the causes of the transformation than the fact of the transformation. Most observers would likely concede that the decline in extreme poverty results from a combination of factors. But there remains disagreement over what is the main cause, or set of causes, of the decline.

Among possible causes to be considered, the first and most controversial is the role increased international trade, or globalization, has on the decrease. The movement of capital, people, and goods around the globe has increased dramatically over these decades. But trade occurs not only between developed and developing nations, and underreported story has been the remarkable increase in trade among developing countries themselves. The UN report observed that trade among developing countries constituted less than 10 percent of global trade in 1980, yet now constitutes over 25 percent of global trade.

It is unsurprising in light of the rapid growth of international trade with and among developing countries that numerous workers in developed countries would face downward pressure on living standards as a result. Connecting the problems-the amazing decrease of extreme poverty in developing countries and the increased stress on lower- and middle-class workers in developed countries-highlights a difficult, if not irresolvable public policy problem: How to mitigate the negative pressures of globalization on domestic workers in developed nations without threatening the gains being made on behalf of the most impoverished peoples in developing nations.

A related hypothesis also posits that markets are a causal driver for the reduction in poverty, but this hypothesis focuses on the development of internal markets in developing countries rather than focusing on development of international markets. The hypotheses are not in conflict, of course; both causes can contribute to the gains made among the worlds poor. Nonetheless the development of internal markets in developing countries as a prime cause of income gains would suggest that these gains are less a cause of the negative pressures on workers in developed countries like the U.S.

Related to the development of internal markets, but distinct enough to mention separately, a precondition for the development of both internal and external markets for nations is the development of formalized processes for protecting persons and property. The rule of law" provides a foundation of consistency that allows people to plan their lives with some increased measure of predictability, and allows individuals to be more willing to invest in their personal futures, in pursuing education, for example, as well in their economic future by investing in a business, building a home, or adding to ones fields and hiring workers to help.

Beyond the role of market and legal institutions, increased education, improved health, and improved national infrastructures are possible drivers for the decrease that highlight the role government policies might serve in the development explosion (not to ignore the contributions of non-governmental actors). Investment in literacy, in basic health care like vaccinations, and in roads that connect different parts of a country, all allow individuals to be more productive and thus to work their way out of poverty. Similarly, reducing discrimination against groups and classes of people allows societies to make fuller use of the talents of their people.

Finally, the possible role of technology in the decreasing poverty rates should not be overlooked. The technological changes that set the ground for industrial revolution of the 19th century played a significant role the eras economic development; and technological changes of the late 20th and early 21st centuries likely play a role in broadening the gains of production throughout the world.

Scholars no doubt will debate what factor, or set of factors, most influenced the decline in extreme poverty witnessed over the last 30 to 40 years. But the fact of this remarkable decline seems largely settled. And the world has seen nothing on its scale before. Whether the trend continues, stagnates or reverses in coming years, and how it will change human life, and domestic and international societies, remains to be seen.


James R. Rogers is associate professor of political science at Texas A&M University. His previous On the Square" articles can be found here.

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