The global economic development regime sets for itself 2015 as the target year to reduce the extent of extreme poverty by half. A reality check.
LEADERS of the institutions that guide global economic development have set 2015 as a target date for reducing by half the number of human beings who live in extreme poverty. The World Bank seems to have launched this campaign and many institutions have joined in, including international non-governmental organisations (NGOs) such as OXFAM and CARE and national agencies such as Britain's Department for International Development (DFID). Recently, a United Nations conference was held in Monterrey, Mexico, to rally support. Most people who are influential in setting agendas for economic development seem to agree that reducing poverty is today their top priority and that reducing extreme poverty immediately is an imperative need. The year 2015 symbolises their seriousness and sense of urgency. If they succeed, life will improve for more than a hundred million people over the next 13 years, and many people in South Asia should benefit.
For those who would want to join this campaign or seek to monitor its conduct and progress, some history might be useful. Poverty came to the fore in the global development agenda during the 1990s, a decade famous for the rapid pace of globalisation, when markets monopolised the minds that planned our global future. The United States exemplified fulsome free-market growth promoted by global development institutions led by the World Bank.
The Economist (April 26, 2001) called the 1990s "probably the most exuberant period of wealth creation in human history" and showed how the bulk of the new wealth came into the hands of the rich. The number of millionaires and billionaires multiplied, and by 2001 the richest one per cent of the world's population came to hold a third of the world's wealth. More than half the world's 425 billionaires live in the U.S., which exemplifies trends in global inequality. Between 1977 and 1999, the richest 20 per cent of American households increased their share of national income from 44 per cent to 50 per cent, and the richest one per cent increased their share by six times - from 7 per cent to 13 per cent. Around the world, the economic boom accomplished very little poverty reduction and it actually worsened extreme poverty. The new poverty fell most severely on Africa, where average households now consume 20 per cent less than what they did 25 years ago.
The 1990s epitomised and aggravated a trend that had been in evidence much longer. In a study done for the World Bank, aptly entitled "Divergence, Big Time", Lant Pritchett calculated that between 1870 and 1985 ratios of per capita income between the richest and the poorest countries increased more than six-fold as income levels were dispersed over an ever-widening range of variation and the richest and the poorest economies clustered on the opposite ends of a broader spectrum.
The 1992 United Nations Human Development Report indicated that global inequality had accelerated in the 1970s and 1980s. Thus, the campaign to reduce extreme poverty by half before 2015 came into being even as the world population was about to learn that the numbers of the poorest of the poor were steadily increasing as a proportion of the world population. At the same time, the richest of the rich were engrossing an ever-larger proportion of the world's wealth. Global economic growth has benefited people and places roughly in proportion to the size of their portfolios and attractiveness for investors. In the 1990s, people in the Silicon Valley and Wall Street became hugely rich but people with nothing to invest in places with nothing to offer investors, got nothing.
Inequality grows during periods of economic growth, and poverty persists and deepens, despite growing overall prosperity. This is in part because investors either move assets out of less attractive places to better-endowed ones that become more attractive for more investors; and in part because investors reap more wealth when compared to low-wage earners, for whom the cost of living rises faster than wages.
People with low incomes in risky, vulnerable and insecure areas that are inhospitable to capital investment lose out when economic growth is driven solely by market decisions.
Despite the fact that markets do not eliminate poverty, because they tend to move new wealth away from poor neighbourhoods, most NGOs and governments follow market doctrines. They secure dividends by concentrating on investments in relatively favourable environments. Thus the poorest people in the poorest places have disappeared in practice, if not in ideology and publicity, from the concerns of NGO networks and government programmes, almost as surely as they vanished from private marketing surveys and business plans.
Increasing inequality and extreme poverty strain the legitimacy of global development institutions as well. The leaders of global development live in the rich countries. They depend on rich country contributions. They follow rich country policies. They nonetheless strive to benefit everyone in the world, rich and poor alike. They believe that market-led economic growth is the best route to prosperity for all. A boom decade like the 1990s was a good test of this belief. If economic success like that of the 1990s coincides for too long with growing wealth disparity and abject poverty, their reputation must suffer eventually.
Thus the 2015 deadline represents an effort to valorise the current leadership of the global development regime amidst increasing polarisation of the rich and the poor.
In a world of globalisation, the possibility that international political institutions will someday represent the poor people in proportion to their numbers makes this polarisation ominous. Rich country leaders represent a shrinking global elite minority. The population of the countries of the Organisation for Economic Cooperation and Development shrank as a proportion of the world population from 20 per cent in 1960 to 15 per cent in 1993. A mere 10 per cent of the world's population lives in the 12 countries, mostly the U.S. (45 per cent), Japan (21 per cent), Germany (14 per cent), and France (10 per cent), whose per capita Gross Domestic Product (GDP) is over $20,000. Eighty per cent of the world's population lives in 36 African and 19 Asian countries with under $1,000 per capita GDP, a large proportion in countries such as China (34 per cent), India (26 per cent), Indonesia (5 per cent), Pakistan (4 per cent), Bangladesh (3 per cent), Nigeria (3 per cent), Vietnam (2 per cent), and the Philippines (3 per cent).
Most of the global population lives in countries in whose cases the 2015 campaign will be applicable. Experience in those countries should be part of the global debates about economic development. The rich countries control a lion's share of not only the world's wealth but also of world knowledge. The world's best facilities for education are in the rich countries. The U.S. has a dozen libraries, each holding more books about South Asia than in all the major libraries in South Asia put together. Most of the funding to study the condition of the world is made in rich countries, where the most prestigious academic paradigms emerge for economic and policy analyses as also for historical and cultural studies. The assessment and monitoring of the 2015 campaign should move in the opposite direction.
People in South Asia should not only join in the institutional partnerships that will advance the 2015 campaign but also hold the leaders of the global development regime accountable in order to make the campaign a success. Representatives of international development agencies operating in South Asia should engage the public in an open dialogue about the conduct of this campaign and about the features of free-market globalisation that the campaign seeks to ameliorate.
David Ludden is Professor of History, University of Pennsylvania.