Ending Extreme Poverty by 2030 requires a reduction in inequality

Global Development

Key Points

  • Extreme Poverty will not be eliminated by 2030 unless there is a historically unprecedented reduction in inequality.
  • The continuation of recent high economic growth rates for the next 15 years will not be enough to reach a 3% global extreme poverty rate by 2030.
  • For extreme poverty to be eliminated, the incomes of the bottom 40% of the income distribution (the poorest people) must grow an extra two percentage points higher than the average economic growth rate for the next 15 years.

Background

The latest estimates from the World Bank show that eliminating extreme poverty by 2030 is beyond humanity’s grasp, unless unparalleled steps are taken to reduce inequality. This is an important finding given that world leaders are set to commit to ‘Zero Poverty’ by 2030 as part of the United Nations Sustainable Development Goals (SDGs) Agenda. Reducing poverty and the SDGs are clearly about more than increasing incomes through economic growth. They are about broader issues such as health, education, gender equality, environmental sustainability, employment etc. However at the heart of SDGs is the notion of eliminating extreme poverty (defined as 3% or less of the world’s population living below $1.25 a day).

The continuation of recent high economic growth rates throughout most parts of the developing world will not be enough to reduce extreme poverty. Figure 1 shows how the global poverty rate is likely to change based upon historical growth patterns. Even in the best-case scenario, extreme poverty is likely to remain above 5% of the world’s population by 2030. While if growth rates are lower than they have recently been, like they were in the 1980s, then the global extreme poverty rate could be as high in 2030 as it is today.

Figure 1 – Changes in Extreme Poverty based upon different growth rates

Figure 1

The above predictions hold inequality constant. However if inequality was also reduced, along with these patterns of economic growth, extreme poverty could be eliminated. Figure 2 shows that if the incomes of those in the bottom 40% of the income distribution grow by an extra two percentage points faster than the average growth rate the target of a 3% global extreme poverty rate can be reached. This relies on growth rates continuing to be as high as they were in the 2000s and that the poorest people benefit the most from economic growth.

Figure 2 – Changes in Extreme Poverty based upon Growth for the Bottom 40%

Figure 2

Reducing inequality alongside growth appears to be a key factor in eliminating poverty. However achieving this will require significant changes to see the poor benefit the most from economic growth. These changes are essential if world leaders are serious about Zero Poverty being reached by 2030.

Source:

World Bank 2014 <http://www.worldbank.org/en/topic/measuringpoverty/publication/a-measured-approach-to-ending-poverty-and-boosting-shared-prosperity>

Grading Bill Gates

Global Development

Could you imagine Grading Bill Gates? Well Columbia University Professor Chris Blattman did just that. What did he grade? A must read for those interested in aid and development. Find out more below.

A Must Read for those interested in Aid and Development

Each year Bill and Melinda Gates release a letter to the public and in 2014 they decided to Bust Three Myths about Aid and Development. These are that:

1) Poor countries are doomed to stay poor

2) Foreign aid is a big waste

3) Saving lives leads to overpopulation

The letter contains a large amount of evidence. If you have not read it already make sure you do, it is available here.

Also check out the following videos that summarise the evidence provided in the letter.

MYTH ONE: Poor Countries are doomed to Stay Poor

MYTH TWO: Foreign Aid is a Big Waste

MYTH THREE: Saving Lives leads to Overpopulation

Bill Gates Graded

Overall Bill and Melinda Gates received an A- from Columbia University Professor, Chris Blattman. The full report can be found here.

The main reason they do not score higher is because they claim aid leads to economic growth. Professor Blattman notes ‘The evidence that aid projects are associated with growth is amazingly absent’. This is problematic for the new Australian Government who have shifted the objective of the aid program away from poverty reduction and towards economic growth. Even though there is not any evidence that aid can actually cause economic growth.

There is however a great deal of evidence that aid can dramatically improve the lives of those in poverty. Professor Blattman comments ‘aid projects work and we know it’ and ‘Plenty of aid projects have huge impact’.