John Hoffmire: World poverty figures cut in half

Published: Monday, Feb. 3 2014 8:35 a.m. MST

Faustine Janjira prepares food at her home in Highfields, a high density surburb in Harare, Zimbabwe in this Tuesday, Oct, 17, 2006 file photo. In the past 22 years, the world has managed to reduce its extreme poverty rate by half. Although this is not enough, it still demonstrates a significant global accomplishment.

Tsvangirayi Mukwazhi, Associated Press

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Editor's note: Tom Steele wrote the vast majority of this piece.

In the past 22 years, the world has managed to reduce its extreme poverty rate by half. Although this is not enough, it still demonstrates a significant global accomplishment.

In 1990, extreme poverty was defined as subsisting on one dollar per day. That amount has since been changed to $1.25 to adjust for shifts in purchasing power. In June of last year, The Economist ran an article that focused on the present progress in reducing extreme poverty and how such reduction might continue in the future. In “Not Always with Us,” The Economist tracked the journey of extreme poverty, beginning at 43 percent of the world’s population in 1990 and dropping to 21 percent by 2010. This significant drop in poverty followed one of the U.N. millennium development goals, set by 147 nations in the year 2000. The goal was to cut poverty in half by 2015, and was accomplished five years early.

Now, Jim Yong Kim of the World Bank, President Barack Obama and leaders of several other countries, such as England, Liberia and Indonesia, have all renewed this goal, seeking to completely eradicate extreme poverty in the world by 2030. Is it possible to eradicate the remaining half of extreme poverty within that time frame? If so, how can we do it?

China accounted for nearly three-quarters of the recent reduction in extreme poverty.In just 30 years, China lowered the percentage of its population living in poverty from 84 percent to 10 percent. How can other countries continue to eliminate extreme poverty to meet the 2030 goal?

In “Not Always with Us,” the writers paint a picture of what must happen in order for the 2030 goal to be reached. First, in the next decade, India must follow China’s example. This nation must lead the next great wave of poverty reduction. However, this will be difficult given India’s recent slowing in economic indicators. Second, in the final decade before 2030, Sub-Saharan Africa must follow India. Africa presents a new and more difficult challenge than India and China because most of its extremely poor are far below the $1.25 per day line.

Many economists agree that household consumption is a better indicator of economic status than income. Observing consumption in relation to the $1.25 mark, the average consumption of Africa’s poorest is $.70 per day. It will be difficult to help these people to simply reach the extreme poverty line, much less to bring them out of poverty altogether.

How much does household consumption have to increase within India, Africa and developing countries throughout the world to eradicate extreme poverty by 2030? Since the year 2000, the average household consumption of developing countries has grown an average of 4.3 percent per year. To reach the 2030 goal, Martin Ravallion, the World Bank’s recent head of research, estimates that growth in household consumption would have to increase from 4.3 percent to 7.6 percent a year. This goal is very high and probably unfeasible.

However, Ravallion says that if the world maintained its post-2000 consumption rate growth, the number of people living in extreme poverty would drop from 1.2 billion in 2010 to 200 million in 2027, which would leave roughly 3 percent of the world’s population in extreme poverty. Although 3 percent is not the goal set by many countries’ leaders, it is more feasible than eradicating extreme poverty completely. If we can maintain a 4.3 percent growth in household consumption each year, it is likely that in 2030 we will see one billion more people living beyond extreme poverty.

John Hoffmire teaches at SaÏd Business School at the University of Oxford.

Tom Steele will finish his undergraduate degree at Brigham Young University and graduate with honors in April 2014.

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