July 22, 2019
MarketWatch, July 22, 2019
By all appearances, the economic positions of the world’s poorest people have improved considerably over the most recent three decades. Households living on $1.90 per capita per day have — on average — seen their real (inflation-adjusted) incomes grow approximately 4.2 percent per year for the last 30 years. Consequently, less than 10 percent of the world’s population lives in extreme poverty today, compared to about 40 percent in 1989. Going forward, we must both understand how this came about and remove barriers to continued progress. Specifically, poverty reduction requires the world to address the threat of climate change— to open up additional space for growth in the Global South without making the entire planet uninhabitable to humans.
Considering that this fall in the poverty rate was about twice that in the three decades prior, this ought to feel like quite a victory. And yet, something feels off. One reason: $1.90 per day is a terribly low threshold by which to define poverty. More than half the world’s population still lives on less than $7.40 per day — a mere $2,700 annually. Another reason is that almost all the accelerated poverty reduction took place in China and India.
These are very populous countries, and most of the world’s poor lived in these two countries during this period. What about poor people residing elsewhere? Over the last 30 years, their incomes grew at an average of only 2 percent per year — certainly an improvement over the 1980s when their incomes grew less than 0.2 percent per year, but far from the more dramatic income growth enjoyed by their peers in China and India.
Indeed, outside of China, the world saw almost no progress in reducing the rate of extreme poverty between the late 1970s and early 1990s. But the rise of China masked this broader failure. Most interestingly, China’s rise bucked the neoliberal “Washington Consensus.” As I wrote in a recent piece, “The History of Poverty Worldwide”:
the Chinese government played a central role in managing the economy. True, China has opened up to foreign investment; but it has done so with strong capital controls and foreign exchange management, imposition of myriad demands on would-be investors including significant transfer of technology, and lax enforcement of foreigners’ so-called intellectual property rights. Nor can China’s acceleration be attributed to neoliberal policy in the United States — see the negative economic experiences that most Latin American countries have seen with their increased exposure to the United States economy. Mexico, for example, had a higher poverty rate, and stagnant wages, after 20 years of NAFTA.
The rest of the world did eventually return to reasonable economic growth rates by the mid-2000s. By then, China had further accelerated its rate of growth, and — critically — amplified the effectiveness of growth in reducing poverty, bringing its poverty rate down toward 50 percent. Furthermore, India joined China in comparatively rapid economic growth, also pulling large numbers of people out of extreme poverty.
However, as the number of extremely poor people in these countries dwindles, global progress in poverty reduction necessarily slows. The world’s remaining poor should not be left behind, nor should we be content to have such a huge percentage of the world’s population living just above this poverty line. Rich countries would be outraged if significant numbers of their own people struggled with a mere $700 per month— let alone $700 per year. The very least bit of economic justice will allow the world’s poor to increase their consumption, more fully reducing extreme poverty and lifting more of the world’s poor out of poverty. This will mean either continued economic growth, a genuinely radical redistribution of global incomes, or some combination of the two.
Still, neither approach is sustainable without decarbonizing the world economy as rapidly as possible, with the intent to stave off catastrophe. As fast as carbon emissions have increased in the last half century, they must be cut twice as fast over the next two decades, and to zero by 2060, to keep the total increase in global warming above preindustrial levels under 1.5°C (2.7°F). Thereafter, we will need to remove — on net — carbon from the atmosphere. Because large-scale carbon capture technology is still out of reach, we must act immediately to minimize the damage by reducing emissions quickly and effectively.
It is possible for the world economy to continue growing without additional carbon emissions, but energy from coal, and thereafter petroleum, must be phased out as rapidly as possible. This means helping developing countries to invest heavily in renewable energy sources and to shift to less carbon-intensive forms of consumption. Land must be managed with an eye toward reducing emissions. (This means, for example, finding ways for Brazil to grow without permitting mining interests to deforest the Amazon.)
Finally, we may be able to extend gains in poverty reduction by slowing economic growth among the rich. The most productive economies in Europe compare favorably to the United States, but have lower emissions. In part, this is due to a social choice favoring leisure over consumption — converting productivity gains into longer vacations and shorter workweeks rather than bigger incomes in order to buy more goods. In the United States, this may also mean reducing inequality and addressing the high and rising cost of health care so that the bottom half of Americans see improvements in their standards of living.
This may buy us some time, but the time is now to address climate change head on and give developing countries space to grow and lift their populations out of poverty.
David Rosnick is an economist at the Center for Economic and Policy Research (www.cepr.net) in Washington, DC. He holds a Ph.D. in Computer Science from N.C. State, a B.S. in Computer Science and Engineering Physics from the University of Illinois, and an M.A. in Economics from George Washington.