Poverty


 

Excerpt From: Rischard, Jean-Francois.

“High Noon: 20 Global Problems, 20 Years To Solve Them.” iBooks.

 

Reducing world poverty is arguably the main global challenge of the next twenty years. Why? First, for moral reasons, and for the sake of justice and balance. A world where less than 20 percent of the people consume 85 percent of the goods and services just isn’t tenable—and will become even less so as we grow from 6 billion to about 8 billion people in the first quarter of this century. As Martin Wolf of the Financial Times vividly puts it: “Think of a stretch limousine driving through an urban ghetto. Inside is the post-industrial world of Western Europe, North America, Australasia, Japan, and the emerging Pacific Rim. Outside are all the rest.”1 What’s more, the pampered global elite in the limousine, which represented 30 percent of the world population in 1950, will be down to less than 15 percent by 2020.

But there is yet another reason to see poverty as the planet’s number one challenge: it connects with many other global issues on our list, and if we don’t succeed in reducing it substantially, solving the other problems becomes even harder. Poverty and distress are a “breeding ground for disease, environmental degradation, internal conflict, and terrorism. Conversely, if poverty decreases massively over the next twenty years, many other good things will happen—like all six issues in this chapter, it is an “underlier” issue.

Where is poverty today?2 There is some good news. We have cut the rate of absolute poverty—people living on less than $1 a day—from 29 percent of the world’s population in 1990 to 23 percent in 1999.3 Of course, because population increased by 1 billion during the last decade, the absolute numbers were less striking: 100 million people were lifted above the $1 a day line since 1990. But the reduction in the total number of extremely poor people is nevertheless unmistakable. It was due in large part to China’s 7–8 percent growth rate in the 1990s, which enabled it to bring the absolute poor in its territory down from 360 million to some 200 million. Even some African countries have grown at high rates and made substantial progress — Cape Verde, Mozambique, Uganda, Botswana.

Clearly, poverty can be reduced, and fast. For the first time in centuries, countries can double or triple their living standards within a single generation, as many Asian, Latin American, and even African countries have shown. The champion, Korea, went from a per capita income of $300 to $8,500 in a little more than one generation. Countries as diverse as Botswana, Chile, and Thailand have doubled their per capita incomes in ten years. More broadly, the overall developing country group has seen life expectancy rise from forty-five to sixty-five years and literacy rates rise from 55 percent to 75 percent, all since the early 1970s. The average speed of development in large parts of the developing world has been two to three times that of the rich countries around the middle of the nineteenth century.

But there’s also bad news. There are still 1.2 billion people living in abject poverty on less than $1 a day—65 percent of them in Asia and 25 percent in Africa, where most live on less than 60 cents a day. Worldwide, close to 3 billion people—half the world’s population—live on less than $2 a day. Everywhere, the worst affected are children, women, and old people. More than 800 million people suffer from hunger and malnutrition.4 Global poverty is shockingly deep and widespread.

It has become clear that poverty means more than lack of income: it includes isolation and powerlessness, insecurity, lack of services, and lack of control over one’s future. It means spending hours every day gathering water and fuelwood, suffering from indoor pollution, facing domestic violence, being mistreated by police and government officials, and feeling constantly exposed to catastrophic risks—such as just one family member becoming ill.5

Where will poverty be tomorrow? There is an internationally agreed target of halving poverty by 2015—a tall order considering five complicating factors:

The population increase, from 6 to about 8 billion by 2020–2025, with more than 95 percent of the increase coming in the developing countries, may well under current trends increase the world poverty numbers.

Due to the population growth and the youthfulness characteristics of the developing world, the average economic growth rate needed year after year to make a serious dent into poverty is 5–6 percent, much higher than the average 3.5 percent scored by the developing countries in the 1990s. This fact hasn’t sunk in with many people yet.

Increasing disparities within countries—already observed in Latin America since the 1980s but now a more general phenomenon—may complicate the task of reducing poverty.6 What’s needed is not just strong growth, but the right kind of growth—the kind that also reduces inequality and empowers the poor to use their main asset, their labor.7

There will also be the aggravating influence of many of the other global issues to reckon with—including many of the environmental ones discussed above, which hurt the poor the most if they remain unsolved.

Even under optimistic scenarios, Africa will remain the most challenging case. One reason is the very high level of accumulated social and economic distress in many countries of that region, and eroding prices for the commodities they export. Others include AIDS and malaria, the ethnic conflicts and internal wars that affect one African in five, and the pervasiveness of bad government and corrupt elites.

Looking forward, the challenge is enormous—requiring nothing short of a massive step-up in the fight against poverty, especially in Africa. Yet rich countries chose to reduce their official aid by nearly 30 percent since the early 1990s. For the fifty or so “least developed countries” (mostly located in Africa), rich governments have reduced their aid from $17 billion in 1990 to $12 billion today—yet those countries account for 10 percent of the world’s people and represent the hard core of poverty. Rich countries have pledged in 1970 to provide official development aid equal to 0.7 percent of their GDP.8 In effect, their aid peaked at 0.35 percent of their GDP in 1990 and had fallen by 2000 to a 0.22 percent average, with the United States at 0.10 percent.

There are all kinds of reasons for this. The complacency that followed the fall of the Berlin Wall. Doubts about the effectiveness of aid. And a public, such as in the United States, which stubbornly believes aid to be a huge multiple of its actual amount.

Yet many pieces have been falling into place to create an environment in which aid can be much more effective than its partially successful, partially frustrating record of the past thirty years:

The official aid approach is shifting to a new model that has shown to be productive in the more than a dozen countries where it is being tried out. That model, which runs under various IMF, World Bank, and United Nations labels, is quite different from the past one. Countries themselves take ownership of their own development and poverty reduction strategies. Governments consult civil society, business, and all foreign agencies as they formulate these strategies. They lay them out transparently, sector by sector, with performance indicators, and over a time frame that spans electoral cycles. And they coax foreign agencies, NGOs, and others into adopting a partnership and division-of-labor approach around them. Complementing this, aid is shifted away from self-standing projects towards more flexible funding at the level of the national budget or of the sector budget (e.g., the education budget). The new model also takes into account the broader definition of poverty—beyond just income poverty—and puts a lot of emphasis on empowerment.

 

 

There are new, powerful ideas for improving aid allocation. Crude but eye-opening research shows that aid has a positive impact in countries that follow sound policies in the first place, but zero or even negative impact in those that don’t.9 This suggests that aid will pull up to three times more people out of poverty every year if it is deployed mostly on poor people living in countries with good policy environments than if it is spread around indiscriminately across many countries. Of course, this creates terrible dilemmas for aid agencies: what to do about very poor, distressed people in poorly run countries? But the implications for successful poverty reduction are clear, and readily actionable.

Aid harmonization also holds the promise of higher aid effectiveness, to the point of saving the beneficiary countries at least 20 percent of the amount donated or lent—through lower transaction and procurement costs. Without such harmonization efforts, the average African country has to deal with 600 projects at any given time, receives 1,000 official visits a year, and writes 2,400 reports each quarter for the aid agencies or NGOs that sponsored the projects. This problem—along with costly habits of tying procurement to national suppliers of each donor country—is now being seriously addressed by national (bilateral) and multilateral aid authorities.

Four critical areas are increasingly being targeted by aid programs to help the receiving countries lift their own game: good governance, the business climate, education, and connectivity. All four areas are high-leverage—addressing them enables many other efforts to succeed where they would otherwise fail. Good governance and the eradication of corruption are the prerequisites for many other things to happen. They require a decent civil service, honest judges, the rule of law, indepen “dent supervisory authorities, parliamentary oversight—even good investigative journalists. A good business climate is essential to the 5–6 percent growth rates that massive poverty reduction demands in much of the developing world; it means acting on some fifty items, from sound banking through customs cleanups to microfinance.10 (I will discuss education and connectivity below.)

Together, these changes represent a quiet revolution in aid and poverty reduction programs. They could double or triple the impact of aid in the decades to come. But that quiet revolution is less than halfway engaged. There still is a major need for global action to push thousands of bilateral, multilateral, and NGO donors towards really working together along these new lines, with the developing countries in the driver’s seat and owning up to their own responsibilities. The best clients are the poor themselves: when they participate and take ownership of the programs that affect them, the effectiveness of those programs soars. In India, when people are alerted about the sums sent to their village for education or sanitation programs and asked to monitor the expenditures, the amount of money that actually serves the intended use is dramatically higher.

But raising the effectiveness of aid through this quiet, qualitative revolution is just one part of the global poverty challenge. The other one, without which the required massive reduction in poverty is unlikely to happen, is the quantitative challenge of channeling more resources from the rich to the developing countries. Official aid has shrunk to $55 billion a year, yet far more than this is required to get the job done, even in a high-effectiveness aid environment.

If the rich countries honored their pledge to devote 0.7 percent of their GDP to aid, $100 billion more would be available each year. A brave group of European countries—affectionately called the G0.7 and including the Netherlands, Sweden, Denmark, Norway, and Luxembourg—has shown it can be done by even exceeding this target. In addition, if the rich countries opened their markets more widely to the exports of poor countries and reduced the enormous subsidies to their own agriculture, this would be worth at least another $50–100 billion a year to the developing world—a tremendous boon for serious poverty reduction, even though not every increase in trade helps every poor person.

Even if the rich world stopped halfway on these two aid and trade items, some $75–100 billion more would accrue every year to the developing countries. This magnitude would put the world on track towards a serious step-up in the fight against poverty.

For perspective, compare these sums with:

the one-off $30 billion debt-relief package for the poorest, most highly indebted countries, launched in 1998 by the G7 and talked about almost to the exclusion of anything else;

the peace of $400 billion a year in defense savings realized worldwide between 1987 and today—with rich countries having cashed in 70 percent of these savings;11 and

the $360 billion a year that rich countries spend subsidizing their own agriculture.

This issue—fighting poverty in a major, definitive way—is truly global: it requires joint efforts by developed and developing countries. Not only is solving it the acid test for our ability to share our humanity, but it is also the test for how serious we are about solving global issues at large. Poverty is the top issue because it underlies many of the others. Fail on this one, fail on everything.”

 

Excerpt From: Rischard, Jean-Francois.

“High Noon: 20 Global Problems, 20 Years To Solve Them.” iBooks.