According to Harry Truman more than half the people in the world were living in conditions approaching misery in 1949. Since then the world has been making progress in lifting people out of poverty. The impoverished number fell by half as a share of the total population in developing countries, from 43% to 21% between 1990 and 2010. That’s a reduction of almost 1 billion people. Most of the credit goes to capitalism and free trade which enable economies to grow. It is growth that has eased destitution.
Where are we now?
There are greater than 7 billion people alive on the planet. Today 1.1 billion still subsist below the internationally accepted extreme-poverty line of $1.25 a day. Nobody in the developed world comes remotely close to the poverty level $1.25 a day represents. America’s poverty line is $15.75 a day. In the developed parts of the emerging world $4 a day is the poverty line.
The $1.25 level is the average of the 15 poorest countries’ poverty lines, measured in 2005 dollars adjusted for differences in purchasing power. People below that level have lives that are brutish, nasty, and short. They lack the education, health care, clothing and shelter which most people in most of the developed world take for granted. The lack is severe enough the lack of food limits physical and mental health.
Around two-thirds of poverty reduction within a country comes from growth. Greater equality contributes the other third. China is responsible for three-quarters of the recent achievement. Its economy has been growing so fast that, even though inequality is rising fast, extreme poverty is disappearing. China pulled 680 million people out of misery between 1981 and 2010. It reduced its extreme-poverty rate from 84% in 1980 to 10% today.
What remains to be done?
It will be much harder to take the last billion people out of extreme poverty. Poorer governance in India and Africa means the Chinese experience is unlikely to be replicated, at least not as timely. If developing countries maintain their growth; if the poorest countries are not left behind by faster-growing middle-income ones; and if inequality does not widen so that the rich lap up all the cream of growth; then developing countries might cut extreme poverty from 16% of their populations now to 3% by 2030.
If growth is a little faster and income more equal, extreme poverty could fall to just 1.5%, which is as near to zero as is realistically possible. The number of the destitute would then be about 100 million worldwide, most of them in countries in Africa. Misery may become a thing of the past. But that’s a lot of ifs.
We now know how to reduce poverty. Targeted policies; basic social safety nets and cash-transfer schemes help. The biggest poverty-reduction measure is liberalizing markets. We must let poor people achieve, use the skills they have, learn, retain more of their earnings and prosper. That means freeing trade between countries and within them. China’s great leap forward occurred because it allowed private business to grow. Both India and Africa are crowded with monopolies and restrictive practices.