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Less Poor but More Unequal

Otaviano Canuto's picture

Photo: Scott WallaceFirst, the good news: The world has become considerably less poor. Today, 43 percent of people are considered to be living in poverty—that is, living on less than $2 per day—compared to 30 years ago when almost three-fourths of the developing world was doing so. Even more heartening is that extreme poverty—that is, living on less than $1.25 per day to meet the most basic human needs—has declined even more. In fact, the share of those living in this state has fallen by more than half, from 52 percent in 1981 to 22 percent in 2008.

Now, the bad news: Despite the substantial declines in global poverty, 2.5 billion people are still living in poverty (below the $2/day line), and 1.3 billion still are living in extreme poverty (below the $1.25/day line). What’s more, despite a reduction in international income inequality between countries, significant income disparities among citizens seems to remain unchanged on a global level, due in part to increased income disparities within newly emerging economies. But as long as poverty is falling around the world, should we even worry about income inequality?

Indeed, we should. Even if incomes are growing for everyone, persistent inequality should concern policy makers when perceptions of “unfairness” lead to political instability, when income inequality limits the potential for future growth and poverty reduction, and when inequality harms people’s opportunities and welfare.

Recent developments show that the effects of income inequality manifest themselves in many countries around the world, developed and developing alike. For instance, inequality has become a concern for high income countries that have seen increases in income disparities, including countries known to be relatively egalitarian, like Sweden, Finland and Denmark. It is also a concern in the UK and the US, where “occupy” movements have coalesced in protest of income and wealth disparities between the top “1” percent and the remaining “99”. And over the past year in the Arab world, the social unrest that swept the region serves, in part, as a reflection of deep injustices that result from little opportunity and hope for the youth.

As evidenced by these events, wealth inequality is seen by many as one of the most serious challenges facing the post crisis world. Debates over inequality—and the role governments should play—has polarized political and economic debates. How much should inequality matter or weigh in policy making? Are there tradeoffs between equity and efficiency (or growth), and if so, how should policymakers address them? How much is “too much” inequality for a society?

The issue of inequality has returned to the center of the development agenda and is seen by many as the most serious challenge facing both developing and developed nations. In response, I encourage you to take a look at the first issue of Inequality in Focus, a new series published by the World Bank’s Poverty and Equity unit. The series aims to inform the public policy debate on equity, inequality of opportunity, and socioeconomic mobility—key issues in tackling the problem of inequality and ensuring more inclusive development for all.

Follow @WBPoverty on Twitter for the latest on the World Bank's efforts to help countries reduce poverty.
 

Comments

Submitted by Laci on
Dear Otaviano, I found your article very interesting, but I do not really understand the content of the first two paragraphs. Is it about 2008 or 2012, and about the population of the whole world, or only about the developing part of the world? The numbers are strange. If we use data from 2008 (world pop.: 6.71 billion: http://www.census.gov/population/international/data/worldpop/table_population.php), the 43% is 2.88 instead of 2.5, and 22% is 1.48 instead of 1.3. Or if it is only about the developing regions, it implies that the population of the developing countries is 5.81 billion - or 5,9 using the 22%-1,25 definition - (which means that the population of the developed world is only 0.9 billion or even less with the other definition of poverty - I have not found data for this, but I think it is too low). The results from my calculations for year 2012 is also different from the ones in your article. Have I misunderstood something? Looking forward to your answer! Best wishes, Laci from Hungary

Submitted by Anonymous on
Many thanks for your comments, Laci. The figures cited in the blog post compare poverty levels between 1981 and 2008, as presented by Shaohua Chen and Martin Ravallion in 2012’s “Briefing Note: An Update to the World Bank’s Estimates of Consumption Poverty in the Developing World.” The 2.5 billion figure in the second paragraph was taken from preliminary estimates made in 2010, so indeed they differ slightly from the 2008 figures. For more detailed information, please see the most recent issue of Inequality in Focus: http://siteresources.worldbank.org/EXTPOVERTY/Resources/Inequality_in_Focus_April2012.pdf

Submitted by Donna Lopez on
Throughout the world, we need a better lens to clarify who the poor are. They are disproportionately the rural populations, the landless, the sub-sistence farmers of the developing world, a population which still dwarfs the urban populations especially in SSA, a geographic area that is landlocked and dissimilar from those Asian countries which have mitigated poverty in rural sectors. Geography, country dynamics and access to trade are very real factors that hinder SSA. It is in the rural areas throughout the globe, even in the middle of the United States where the indigenous native Americans live, often without electricity and with difficult access to remote hospital care which is at no cost. In SSA, it is all about capacity: social infrastructure that is absent (hygiene, sewage treatment, electricity, communication, roads that can access primary health care and markets, employment, care of people disabled by the prolific tropical disease pathogens that prey on poorly nourished people vulnerable to p. falciparum malaria/soil based helminths, etc). There is so much work to be done and the people who are the rural poor wish for the capacity to access decent livable lives for themselves and their children. Public health interventions need to be based on the tenets of Florence Nightingale and Dr. John Snow who understood that environmental issues as well as country-based standards of supplemented nutrition...these are key to mitigating diseases that feed rural poverty. It is all about disaggregating the key issues around poverty, disease and slow or stagnant development. Political will and reconsidering neoliberal economics will be key as will a new arrangement that brings the periphery of the world into the great pool of human knowledge and technical interventions. It is do-able.

Submitted by Anonymous on
Thanks for sharing your views, Donna. Indeed, the World Bank has been working to better identify the poor and to support the design and implementation of country poverty-reduction strategies through a variety of analytical and lending instruments. It aims to expand growth opportunities, reduce vulnerability to shocks, and improve poor people’s access to basic services. For more information on our poverty reduction work, I encourage you to visit our Poverty Reduction and Equity unit’s website at www.worldbank.org/poverty.

One of the problems here is that data may be even less reliable for the urban poor than for other groups in developing countries. Are household surveys really covering everyone who lives in the street, in slums and informal settlements? And properly correcting for the differences in urban and rural prices? Both for research and for service provision, I'm not sure the scale of the problem is well understood - more specific surveys and censuses on the number and living conditions of the urban poor are needed.

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