Can the World Really End Poverty?

By Andy Sumner on

BANDUNG – World leaders and the UN have committed to end extreme poverty by 2030. Extreme poverty is defined as people living with less than US$1.90 a day. This was originally a dollar a day, but was revised as prices have risen.

However, beyond a lack of income, poverty is also about the resources and capabilities to build a sustainable livelihood. Poverty is reflected in malnutrition, limited access to education and other basic infrastructure and services, social discrimination and also the lack of participation in decision-making processes.

The 17 goals of the UN Sustainable Development Goals (SDGs) contain six that are directly related to eradicating poverty. These are: ending hunger, ensuring healthy lives and well-being, ensuring the quality of education for all boys and girls, ensuring the availability of water and sanitation and promoting inclusive growth including employment opportunities.

So, can the world really end poverty?

The average poverty line for all developing countries is high at $2.50 per person per day and the average for all countries is a poverty line of $5 a day. However, $10 a day might be the real end of poverty because this is the line associated with a permanent escape from poverty without the risk of falling back into poverty in the future.

Since the end of the Cold War, progress on poverty reduction has been good, although largely driven by a few countries, notably China. Ending global poverty will be framed by two important factors.

First, the remaining poor are concentrated in about 18 countries that account for about 85 percent of global poverty. Almost half of the world’s poor live in China, India and Nigeria. Overall, almost three-quarters of the world’s poor live in middle income countries such as these. A quarter live in the remaining 31 lower income countries.

Second, as these data suggest, the world’s poorest poor do not necessarily live in the poorest countries. That means these poor people have better prospects of escaping poverty. In those countries that are becoming richer in average per capita terms and achieving middle income status, although the incidence of poverty generally fell, the absolute numbers of poor people fell less than expected. This suggests that economic growth is essential, but not necessarily enough to end poverty.

In a new paper to be published soon with Chris Hoy at Sydney University, we project the eradication of poverty through various scenarios. We find that even on the most optimistic growth projections, a reliance solely on growth would take more than 200 years to fully end poverty at the lowest poverty line of $1.90. At the higher line of $10 it could take more than 500 years. In short, growth is essential but not enough even on the most optimistic growth projection to end extreme poverty by 2030. Fortunately, most developing countries have new capacity and resources to speed things up. We don’t need to wait 200 to 500 years.

In the same paper we look at two ways to speed things up. The first is new taxation on those above the $15 per day line around the world. This is the US poverty line. The second is a reallocation of regressive fossil fuel subsidy programs to cash transfers to the poor. We find that taxation could cover half the cost of ending poverty at $1.90 but much less at $2.50.

Progress on poverty reduction has been good, although largely driven by a few countries.

In contrast, the reallocation of fossil fuel subsidy spending could cover almost 70 percent of global poverty at $1.90 or $2.50. Indonesia is of course leading the world here and in other ways related to the end of poverty. Furthermore it maximizes the chances of ending poverty growth, which needs to be more inclusive than it has been to date.

Determinants of inclusive growth include domestic policies such as fiscal policies related to spending and transfers, labor market policies and the expansion of primary and secondary education and health insurance, as well as external factors such as the health of the global economy, demography and migration.

The domestic policies are within the control of governments even though external factors are rarely so. Era Dabla-Norris and other scholars find three factors raise the income share of the poor across countries. Those factors are expanded access to education and improved health outcomes and social transfers. Again, it looks like Indonesia is leading the world in ending global poverty.

So the good news is that it’s possible to end poverty at the lower poverty lines in another 15 years or so by around 2030. The bad news: Growth alone is unlikely to be enough to eradicate poverty even at the lower poverty lines. However, the final good news is that developing countries and international partners have the capacity to speed things up.

The reallocation of regressive fossil fuel subsidies in many countries would make a huge difference in increasing the chances of ending global poverty by 2030. Indonesia has demonstrated the reallocation of fossil fuel subsidies is possible. Indonesia is increasing spending to provide equal opportunities, particularly in education and health, which will make growth more inclusive.

Also, Indonesia is expanding spending on infrastructure to stimulate growth and development. If all countries were able to follow these steps it would make a huge difference in global poverty not only in terms of cash transfers but, in the longer run, in economic development and productive employment.

The writer is co-director of King’s International Development Institute, King’s College London and a Research Associate at the Center for Sustainable Development Goal Studies at Padjadjaran University in Bandung. This article is based on the author’s presentation at the launch of the Center on May 20. The article was originally published in The Jakarta Post on 11 June 2016.

Photo credit: Simone D. McCourtie / World Bank.