The World Bank’s goal of cutting extreme poverty to less than 3% by 2030 is not achievable, says poverty expert Dr. Richard Bluhm. Development goals should be more realistic and policies should aim to build up institutions that promote inter-ethnic trust and long-term economic growth.
World Bank President Jim Yong Kim says we can eradicate extreme poverty worldwide. In the last quarter of a century, the number of extreme poor has fallen by two-thirds: in 1990, 36% of the world’s population had to live on US$1.25 (€1.15) or less a day. By 2015, according to the most optimistic estimates, this figure has dropped to 12%. Reason enough to go on, says Kim; so the goal of cutting extreme poverty to less than 3% by 2030 should be achievable in theory.
Unfortunately for Kim, for the world, and especially for the poor themselves, this simply will not work, says Dr. Richard Bluhm, who gained his PhD from Maastricht University in March 2015, with a study on the evolution of extreme poverty worldwide. “Even in the most optimistic scenario, we do not see this happening,” says Bluhm. “The most that can be achieved is to bring the extreme poverty rate down to 8%.”
The fast decline in poverty in recent decades is almost entirely due to economic development in two countries: India and China. Success from the past gives clues to the future: poverty decline will simply slow down. In 1981 over 80% of the Chinese population lived below the poverty line. In 2010 the figure was just over 10%. “There are not many extremely poor people left in China and India, relatively speaking. Even if economic growth persists in these countries, the number of poor people will decrease more slowly,” adds Bluhm.
A new line for extreme poverty?
In recent decades in sub-Saharan Africa little progress has been made on average. Even if the rate of economic growth doubles over the next few decades, the number of poor people in the world will still decline at a much slower pace. This is because the poor are often much poorer in Africa than in Asia. Even if the growth in African countries remains steady, and to the benefit of the poor, it will take many years before the level of $1.25 a day is reached.
Further, if the World Bank continues to stand by this goal, it is bound to fail, and this is problematic. Bluhm says the organisation should raise the extreme poverty line from $1.25 to $2 per day: “That’s an income that can still be viewed as meagre. If we do that, the number of extreme poor will be much larger and we will have the chance to see the figure decrease in the coming years.”
Moreover, the $1.25 per day limit is gradually becoming irrelevant. With the exception of sub-Saharan Africa, the vast majority of people in most countries have already reached that income. A policy goal to raise the threshold income to $1.25 is no longer meaningful to them.
Bluhm’s research covered not only the future of poverty, but also the past. For example, what factors affect periods of economic downturn? A country that knows how to avoid periods of economic recession, or manages to keep them short, experiences higher growth over a longer period. Avoiding crises sounds like a laudable strategy, but it is almost impossible to achieve since there are so many reasons that can trigger a recession. Yet one factor does make a difference: countries with open economies are less prone to recessions, especially if they have an undervalued currency.
A link between openness and prosperity?
Bluhm also worked on the length of recessions, for which rather different factors play a role. Economic downturns last the longest in ethnically divided countries where there is almost no limit to government power. These are two aspects where Asian countries score significantly higher than African countries. African countries often have extremely ethnically divided societies. In almost all cases, one group dominates all others. “If the government fails to restrain itself, a large part of the population will never trust it. This means there will be no cooperation.”
Togo is one such example. The country is marked by a strong ethnic divide and the largest ethnic group, the Ewe, was held out of power for decades by semi-dictator Gnassingbé Eyadéma. This was clearly a recipe for trouble, as Togo slowly discovered. In the period studied by Bluhm, from 1951 to 2007, the country experienced just one period of economic recession – lasting 29 years, from 1979 until 2008. In that period the national income (GDP) per capita fell by as much as 54%. The Central African Republic fared little better: 27 years of recession, with a 46% drop of GDP per capita.
Poor countries that do not want to see their economies shrink are well advised to have a good administration that keeps its hands off of other people’s property. This sounds like simple advice, but what is it worth? “Our findings demonstrate the importance of having good institutions,” says Bluhm. “Polices should aim at creating a political system that helps to mitigate ethnic mistrust.”
Based on an interview in the Dutch newspaper De Volkskrant, published 31 March 2015.
Translated into English by Sueli Brodin and Howard Hudson.
See the related article and working paper here.
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