Saturday, 11 April 2015

Some Very Interesting Facts Have Emerged About Poverty, Development and Inequality

There aren't many people in the world more informed on development and inequality than Branko Milanovic, the former lead economist in the World Bank's research department. He's just released a very informative article about the most recent findings on poverty, development and inequality. As you'd expect, and as some of us have been going on about for years, the picture shows that the globalised free market is the primary vehicle for improving living standards and lifting people out of poverty. As Milanovic, tells us, "We can actually find out for the first time, from a single and consistent data source, who the real winners and losers of globalization are". Here is perhaps the most significant finding:

"The bottom third, with the exception of the very poorest, became significantly better-off, and many people there escaped absolute poverty."

Yes, that's probably the most important finding. While it's true that, sadly, the bottom 5% haven't crept out of poverty as fast as we'd hoped (they are the ones for whom the free market still hasn't brought about the same benefits as everyone else), the rest of the bottom third saw real incomes rising between 40% to 70%. In fact, look at this data from CarpeDiem, which shows that in 1970 over 25% of the world's population was in poverty. Forty years later that number is as low as 5%.

What the picture doesn't show, of course, is that if we go back to before the Industrial Revolution almost all of the world's population would be in poverty compared with standards of living today. The reason that the bottom third have joined the rest of us and seen their wealth rise so much is because a great many of the poorer workers in emerging countries like China, India, Indonesia and Brazil have crept up into the mid-range as their countries have benefited from globalisation and the ability to trade more freely and openly.

The other thing you may note is that it is, unsurprisingly, the top 1% that have seen their per capita after-tax incomes rise the most. But that is only to be expected, as they are the 1% of the world's population doing most to increase the wealth of those in developing nations. And by the way, this top 1% isn't merely a handful of corporate fat cats piling up the millions - it is a group of about sixty million people earning over $50,000 a year. Given that people don't become wealthy without providing goods and services that people want, and without hiring staff to provide those goods and services, it is not difficult to imagine how much those 1% of people are contributing to the well-being of people in the world and to the rise of living standards across the globe.

You might also like to note this graph below, which shows the more important fuller picture - that as well as the increases of the top 1% and the bottom third, those who sit around the median (those between the 50th and 60th percentile of global income distribution) achieved an 80% real increase in incomes. It may be of interest to you too to note that those that sit between the 75th and 90th percentile of the global income distribution - what in the UK we'd call the working and middle classes - saw no real gains at all.

If, as is happening, the trade associated with the innovations of the richest 1% is helping to increase the scope of the global market and bring the poorest 50% into higher standard of living, we would expect to see those two groups experience income rises, and also the concomitant effect of increase in inequality in the wealthier nations, while at the same time see a decrease in inequality in the poorer nations. This is exactly what we do find.

But although the free market has been the main vehicle that has lifted us out of poverty and improved the vast majority of human beings' standards of living - there is, as mentioned, one group for whom this global success story still hasn't materialised - and that's the poorest 5% of the world's people. It's important that in being glad of all the good things the free market has done we don't forget those that have yet to be beneficiaries - and that we continue to speak out against (and where possible be proactive against) forces that remain a barrier to their progress.