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The Last Mile in Ending Extreme Poverty
By Laurence Chandy, Hiroshi Kato, Homi Kharas Brookings Institution Press
Copyright © 2015 Laurence Chandy, Hiroshi Kato and Homi Kharas
All rights reserved.
ISBN: 978-0-8157-2634-0
CHAPTER 1
From a Billion to Zero: Three Key Ingredients to End Extreme Poverty
LAURENCE CHANDY, HIROSHI KATO, AND HOMI KHARAS
On January 20, 1949, in the first-ever televised U.S. presidential inauguration, President Harry Truman stood on the steps of the Capitol and foretold of a better world, one of international order and justice and greater freedom, rid of the scourge of poverty:
More than half the people of the world are living in conditions approaching misery. Their food is inadequate. They are victims of disease. Their economic life is primitive and stagnant. Their poverty is a handicap and a threat both to them and to more prosperous areas. For the first time in history, humanity possesses the knowledge and the skill to relieve the suffering of these people.
More than sixty years later, the idea of a poverty-free world continues to capture the imagination of world leaders as well as lesser mortals. President Barack Obama, Truman's eleventh successor, had this to say in his 2013 State of the Union address:
We also know that progress in the most impoverished parts of our world enriches us all — not only because it creates new markets, more stable order in certain regions of the world, but also because it's the right thing to do. In many places, people live on little more than a dollar a day. So the United States will join with our allies to eradicate such extreme poverty in the next two decades by connecting more people to the global economy; by empowering women; by giving our young and brightest minds new opportunities to serve and helping communities to feed, and power, and educate themselves; by saving the world's children from preventable deaths; and by realizing the promise of an AIDS-free generation, which is within our reach.
Each of these two proclamations is inspiring on its own. Yet taken together, they cannot help but appear naïve. The elusiveness of the goal over so many years suggests that however well-meant, its pursuit may ultimately be futile. Is achieving an end to poverty really possible?
If we think about poverty as a relative concept, then almost certainly it is not. Living standards among people vary greatly within every country, so the have-nots, as much as the haves, are a feature of every society. Many countries set national poverty lines in explicitly relative terms to capture this kind of disadvantage. For instance, the OECD club of rich economies tracks the share of each country's population that lives on less than half the income earned by the person in the middle of distribution (the median). Even in the OECD's most egalitarian countries, such as Denmark and Iceland, poverty by this measure remains prevalent. Since living standards vary much more between countries than within countries, global poverty, measured in relative terms, would appear even harder to eliminate.
If instead we think of poverty as an absolute concept, then its persistence should be less certain and its eradication more readily imaginable. Many countries set national poverty lines in absolute terms that reflect the cost of meeting certain basic needs. As any one of these countries grows richer, one can reasonably expect poverty by this measure to continuously fall as the needs of an increasing share of its population are fulfilled. Yet with rising living standards come changing social norms regarding what constitutes basic needs. Absolute poverty lines are consequently revised upward, ensuring that the goal of poverty elimination remains out of reach. (To be clear, this is a good thing, since it implies that the minimum standards by which people are expected to live are higher.) In this way, poverty lines defined in absolute terms usually still engender a relative concept of poverty.
Figure 1-1 illustrates this phenomenon. The richer countries are, the higher they set their poverty line — and the poorer they are, the lower their poverty line. It is notable, however, that this relationship does not hold in countries where the average income falls below a very meager level — around $3 to $4 a day, or a little over $1,000 a year. The poverty lines in those countries tend to gravitate around a similar mark. This discontinuity provides the basis for defining a truly absolute concept of poverty: the $1.25 a day poverty line that is used to measure extreme poverty globally.
The extreme poverty line corresponds to the average value of national poverty lines in the world's poorest countries and so avoids concerns about relative welfare or subjective judgments about who might be considered poor in any given society. Poverty has many dimensions, including poor health, unsafe drinking water, and lack of education, personal safety, and human rights — along with other, intangible elements that deny people a life of dignity. But its most fundamental element concerns the ability of families to have enough food and resources to survive and to think and plan beyond their short-term survival.
Under this most parsimonious definition, the end of poverty becomes a more reasonable proposition. Figure 1-2 illustrates the declining share of the world population living on under $1.25 a day over time. This figure combines official estimates from the World Bank beginning in 1981 with admittedly shakier historical data constructed by François Bourguignon and Christian Morrisson that extend back to the Industrial Revolution in 1820. The pattern of observations shows that the rate of progress has remained relatively constant throughout the past 200 years. Some commentators point to a possible acceleration in the mid-twentieth century and to another at the start of the twenty-first century, but the overall picture is one of slow, gradual change: for two centuries the poverty rate has declined, on average, by just less than 0.5 percentage point a year. This trend seems humdrum in its monotony and its palpable lack of speed. Yet the story that it implies is all the more spectacular.
In the early 1800s, fewer than one in five people lived above the meager $1.25 threshold. In 2010, fewer than one in five people lived below it. This remarkable transition — from a world where destitution was virtually ubiquitous to one where only pockets of acute deprivation remain — suggests that the end of a long journey in extreme poverty eradication could be nearing. In 2011 (the most recent year for which we have global data), about 1 billion people lived in extreme poverty, or 14 percent of the world's population. Extending the trend from the past two centuries just a short distance into the future implies that the end of extreme poverty could soon be upon us. It is this inference that provides the empirical foundation for the global movement to eliminate extreme poverty by 2030. In 2015, this goal will likely be enshrined in an agreement between member states of the United Nations as one of the Sustainable Development Goals for 2030.
To be sure, it would be absurd to claim that an end to extreme poverty means an end to all deprivation and hardship in the world. Rather, it describes a world where the most egregious forms of destitution are consigned to history, where people no longer live so precariously that they fret about the source of their next meal or face a perpetual threat to their survival. Nor does the end of extreme poverty mark the end of global development — the end of the beginning may be a more accurate description. Nevertheless, it would be churlish to downplay its significance were this goal to be achieved: the end of extreme poverty would represent a key milestone in human progress.
We believe that the end of extreme poverty is achievable, but simply extrapolating from the historical trend of the global poverty rate is problematic. That's because the global poverty problem — its sources and solutions — is constantly evolving. In other words, the last mile in ending extreme poverty looks different from the miles already traveled. In this book we attempt to explain why — and how the last mile might successfully be completed.
We argue that ending extreme poverty requires peace, jobs, and resilience. These are issues that have been largely overlooked by so-called development experts and on which cutting-edge knowledge is blunt and for which best-practice solutions feel decidedly underwhelming. To make our case, we must shift our perspective beyond the global poverty rate to consider the trajectory of individual countries. In the remainder of this chapter, all references to "poverty" refer to extreme, monetary poverty, unless we state otherwise. We are acutely aware that the two are not the same, but we drop the prefixes for the sake of brevity.
Country Paths
The incremental, even-paced record of poverty reduction at the global level can give the impression that individual countries have followed a correspondingly uniform path — albeit from different starting points, with poorer countries beginning further back. That clearly has not been the case historically. The global poverty trajectory illustrated in figure 1-2 can be thought of as a middle road, with individual countries veering off wildly in different directions. Take just the past two decades: 1990 to 2010. In this period, the global poverty rate fell from 36.1 percent to 16.3 percent. Success has been celebrated — the first Millennium Development Goal to halve global poverty was achieved seven years ahead of schedule. Yet of the developing countries for which there are data, two-thirds matched or exceeded the global record in percentage terms while one-third lagged behind. This twenty-year stretch contains cases of supercharged development (Indonesia, Vietnam), arrested development (Kenya, Madagascar), and development in reverse (Côte d'Ivoire, Bolivia), each reflected in the poverty rates reported from national surveys of household living standards. If the global poverty rate's historical regularity is cause for optimism that the end of extreme poverty is in sight, the record of individual countries offers a more ambivalent view.
On one hand, the star performers of the past twenty years serve as a reminder that sustained rapid poverty reduction is indeed possible, so that entire societies can be transformed in the space of a single generation. Given its sheer size, China is the most compelling example of this. What the world achieved in the space of 200 years — the reversal from fewer than one in five people living above $1.25 to fewer than one in five living below that threshold — China managed in little more than twenty years. The experience of China and other trailblazers provides a historical precedent for countries to sustain a rate of poverty reduction of 2.5 percentage points a year over decades — five times the speed of the global average over the past two centuries. If we assume conservatively that this is the maximum sustainable rate of poverty reduction, ending extreme poverty by 2030 would be a mathematical possibility virtually everywhere. The only exceptions would be a dozen or so small countries where poverty rates remained above 50 percent in 2010. Moreover, with a stronger concentration of global knowledge, skills, and resources devoted to helping those countries, it is not unreasonable to argue that they too could end extreme poverty.
On the other hand, the large number of countries that have made little or no inroads in reducing poverty over the past twenty years highlights the complexity of the task ahead. Take Côte d'Ivoire as an example. In the late 1980s, its extreme poverty rate stood at less than 10 percent and the country was widely admired for the capacity and professionalism of its government. The subsequent two decades saw a macroeconomic crisis snowball into a deep and prolonged economic contraction, bringing with it rising poverty, falling school enrollment, and rising child malnutrition. Highly charged political competition inflamed ethnic tension and social unrest, culminating in a military coup in 1999 and two subsequent civil wars between the north and south. According to the most recent survey of living standards, conducted in 2008 before the second civil war, the extreme poverty rate had risen to 35 percent. Côte d'Ivoire serves as a reminder that there is nothing inevitable about poverty reduction. The goal of ending extreme poverty in Côte d'Ivoire has morphed from a reasonable proposition only a generation ago to a herculean task today.
Côte d'Ivoire's reversal is tragic, but in terms of global poverty aggregates, it represents no more than a rounding error. It stands in contrast to China's takeoff, which has driven global poverty aggregates downward over the past two decades. The reason is obvious: China's population is sixty-eight times that of Côte d'Ivoire. More generally, global progress in fighting poverty has been judged by the average performance of developing countries. That allowed better performing countries — especially larger ones — to compensate for lagging ones. In the last mile, this rule no longer holds. It is not enough for most countries or a few big countries to perform well. There must be progress everywhere, without exception. The last mile requires not just good progress on average, but progress that leaves no one behind. That means progress is measured not by average performance but by the weakest performance, making the goal to end extreme poverty much more exacting than the earlier goal to halve global poverty — even though the numbers of people to be lifted out of poverty are similar.
Expressed another way, in the last mile every country must be on a short trajectory to end poverty. This is especially daunting for countries with high poverty rates today and a weak record of progress. Their trajectories to reach the zero mark by 2030 are especially steep and require the biggest turnarounds in performance. If any country deviates from its zero-poverty trajectory, the last mile will remain unfinished.
What holds true for countries is true for smaller units of analysis. The levels of and changes in national poverty rates inevitably conceal differences between subnational regions. Living standards in the coastal provinces of China rival those of advanced countries, but there are tens of millions of people living in extreme poverty in the hinterland. Côte d'Ivoire's conflict has left the country's northern population especially impoverished. The record of the last decade shows that rising prosperity within developing countries has, on average, been broadly shared but that this masks widening distributions in some economies whose poor have been shortchanged. Some fear that the Western phenomenon whereby a rising share of national income is captured by the richest 1 percent of the population could spread to the developing world. The last mile demands improving living standards not just across all countries but across all regions within countries and all households within those regions. No country, region, or household can be left behind.
In The Great Escape, Angus Deaton describes how the discovery and spread of technologies that underpin the development process necessarily result in imbalanced progress across people and places. Global poverty reduction has historically been characterized by that imbalance. In the last mile, the imbalance must be at least partially rectified, so that people everywhere see their living standards raised above the extreme poverty threshold.
Table 1-1 classifies the billion people living in extreme poverty according to two characteristics of the countries in which they live: the recent record of progress in reducing poverty and the poverty rate today. This illustrates how fast countries are traveling and how far they have to go to reach the 2030 goal. The twenty-four countries in the top-left quadrant, which combine a high prevalence of poverty with a dismal record of progress over the past decade, give the goal its sternest test and must be a focus of any serious effort to understand what its achievement requires. People in these countries face the greatest risk of being left behind.
(Continues...)
Excerpted from The Last Mile in Ending Extreme Poverty by Laurence Chandy, Hiroshi Kato, Homi Kharas. Copyright © 2015 Laurence Chandy, Hiroshi Kato and Homi Kharas. Excerpted by permission of Brookings Institution Press.
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