If economic development is a ladder with higher rungs representing steps up the path to economic well-being, there are roughly 1 billion people around the world, one-sixth of humanity, who live as the Malawians do: too ill, hungry, or destitute even to get a foot on the first rung of the development ladder. These people are the “poorest of the poor,” or the “extreme poor” of the planet. They all live in developing countries (poverty does exist in rich countries, but it is not extreme poverty). Of course, not all of these one billion people are dying today, but they are all fighting for survival each day. If they are the victims of a serious drought or flood, or an episode of serious illness, or a collapse of the world market price of their cash crop, the result is likely to be extreme suffering and perhaps even death. Cash earnings are pennies a day.
A few rungs up the development ladder is the upper end of the low-income world, where roughly another 1.5 billion people face problems like those of the young women in Bangladesh. These people are “the poor.” They live above mere subsistence. Although daily survival is pretty much assured, they struggle in the cities and countryside to make ends meet. Death is not at their door, but chronic financial hardship and a lack of basic amenities such as safe drinking water and functioning latrines are part of their daily lives. All told, the extreme poor (at around 1 billion) and the poor (another 1.5 billion) make up around 40 percent of humanity.
Another 2.5 billion people, including the Indian IT workers, are up yet another few rungs, in the middle-income world. These are middle-income households, but they would certainly not be recognized as middle class by the standards of rich countries. Their incomes may be a few thousand dollars per year. Most of them live in cities. They are able to secure some comfort in their housing, perhaps even indoor plumbing. They can purchase a scooter and someday even an automobile. They have adequate clothing, and their children go to school. Their nutrition is adequate, and some are even falling into the rich-world syndrome of unhealthy fast food.
Still higher up the ladder are the remaining 1 billion people, roughly a one-sixth of the world, in the high-income world. These affluent households include the billion or so people in the rich countries, but also the increasing number of affluent people living in middle-income countries—the tens of millions of high-income individuals in such cities as Shanghai, São Paolo, or Mexico City. The young professionals of Beijing are among the fortunate one-sixth of the world enjoying twenty-first-century affluence.
The good news is that well more than half of the world, from the Bangladesh garment worker onward, broadly speaking, is experiencing economic progress. Not only do they have a foothold on the development ladder, but they are also actually climbing it. Their climb is evident in rising personal incomes and the acquisition of goods such as cell phones, television sets, and scooters. Progress is also evident in such crucial determinants of economic well-being as rising life expectancy, falling infant mortality rates, rising educational attainment, increasing access to water and sanitation, and the like.
The greatest tragedy of our time is that one-sixth of humanity is not even on the development ladder. A large number of the extreme poor are caught in a poverty trap, unable on their own to escape from extreme material deprivation. They are trapped by disease, physical isolation, climate stress, environmental degradation, and by extreme poverty itself. Even though life-saving solutions exist to increase their chances for survival—whether in the form of new farming techniques, or essential medicines, or bed nets that can limit the transmission of malaria—these families and their governments simply lack the financial means to make these crucial investments. The world’s poor know about the development ladder: they are tantalized by images of affluence from halfway around the world. But they are not able to get a first foothold on the ladder, and so cannot even begin the climb out of poverty.
Our Generation’s Challenge
The very hardest part of economic development is getting the first foothold on the ladder. Households and countries at the very bottom of the world’s income distribution, in extreme poverty, tend to be stuck. Countries already on the ladder of development, such as Bangladesh and India, are generally making progress, even if it is uneven and sometimes painfully slow. Our generation’s challenge is to help the poorest of the poor to escape the misery of extreme poverty so that they might begin their own ascent up the ladder of economic development. The end of poverty, in this sense, is not only the end of extreme suffering but also the beginning of economic progress and of the hope and security that accompany economic development.
When I speak of the “end of poverty,” therefore, I will be speaking of two closely related objectives. The first is to end the plight of one-sixth of humanity that lives in extreme poverty and struggles daily for survival. Everybody on Earth can and should enjoy basic standards of nutrition, health, water and sanitation, shelter, and other minimum needs for survival, well-being, and participation in society. The second is to ensure that all of the world’s poor, including those in moderate poverty, have a chance to climb the ladder of development. As a global society, we should ensure that the international rules of the game in economic management do not advertently or inadvertently set snares along the lower rungs of the ladder in the form of inadequate development assistance, protectionist trade barriers, destabilizing global financial practices, poorly designed rules for intellectual property, and the like that prevent the low-income world from climbing up the rungs of development.
The end of extreme poverty is at hand—within our generation—but only if we grasp the historic opportunity in front of us. There already exists a bold set of commitments that is halfway to that target: the Millennium Development Goals (MDGs), the eight goals that all 191 UN member states unanimously agreed to in 2002 by signing the United Nations Millennium Declaration. These goals are important targets for cutting poverty in half by the year 2015, compared with a baseline of 1990. They are bold but achievable, even if dozens of countries are not yet on track to achieve them. They represent a crucial midstation on the path to ending extreme poverty by the year 2025. And the rich countries have repeatedly promised to help the poor countries to achieve them through increased development assistance and improved global rules of the game.
These, then, are the economic possibilities of our time:
• To meet the Millennium Development Goals by 2015;
• To end extreme poverty by 2025;
• To ensure well before 2025 that all of the world’s poor countries can make reliable progress up the ladder of economic development; and
• To accomplish all of this with modest financial help from the rich countries, more than is now provided, but within the bounds of what they have long promised.
To meet these challenges, we first have to understand how we got to where we are, for in that understanding we will also find the way forward.
Why Countries Fail to Achieve Economic Growth
The most common explanation for why countries fail to achieve economic growth often focuses on the faults of the poor: poverty is a result of corrupt leadership and retrograde cultures that impede modern development. However, something as complex as a society’s economic system has too many moving parts to presume that only one thing can go wrong. Problems can occur in different parts of the economic machine and can sometimes cascade, bringing the machine to a near halt.
The Poverty Trap: Poverty Itself as a Cause of Economic Stagnation
The key problem for the poorest countries is that poverty itself can be a trap. When poverty is very extreme, the poor do not have the ability—by themselves—to get out of the mess. Here is why: Consider the kind of poverty caused by a lack of capital per person. Poor rural villages lack trucks, paved roads, power generators, irrigation channels. Human capital is very low, with hungry, disease-ridden, and illiterate villagers struggling for survival. Natural capital is depleted: the trees have been cut down and the soil nutrients exhausted. In these conditions the need is for more capital—physical, human, natural—but that requires more saving. When people are poor, but not utterly destitute, they may be able to save. When they are utterly destitute, they need their entire income, or more, just to survive. There is no margin of income above survival that can be invested for the future.
This is the main reason why the poorest of the poor are most prone to becoming trapped with low or negative economic growth rates. They are too poor to save for the future and thereby accumulate the capital per person that could pull them out of their current misery . . . .
Even if the poverty trap is the right diagnosis, it still poses the question of why some impoverished countries are trapped and others are not. The answer often lies in the frequently overlooked problems of physical geography. Americans, for example, believe that they earned their wealth all by themselves. They forget that they inherited a vast continent rich in natural resources, with great soils and ample rainfall, immense navigable rivers, and thousands of miles of coastline with dozens of natural ports that provide a wonderful foundation for sea-based trade.
Other countries are not quite so favored. Many of the world’s poorest countries are severely hindered by high transport costs because they are landlocked; situated in high mountain ranges; or lack navigable rivers, long coastlines, or good natural harbors. Culture does not explain the persistence of poverty in Bolivia, Ethiopia, Kyrgyztan, or Tibet. Look instead to the mountain geography of a landlocked region facing crushing transport costs and economic isolation that stifle almost all forms of modern economic activity . . . .
Other kinds of geographical distress are also at play. Many countries are trapped in arid conditions with low agricultural productivity or vulnerability to prolonged droughts. Most of the tropics have ecological conditions that favor killer diseases like malaria, schistosomiasis, dengue fever, and dozens of others. Sub-Saharan Africa, in particular, has an ideal rainfall, temperature, and mosquito type that makes it the global epicenter of malaria, perhaps the greatest factor in slowing Africa’s economic growth throughout history.
Even when the private economy is not impoverished, the government may lack the resources to pay for the infrastructure on which economic growth depends. Governments are critical to investing in public goods and services like primary health care, roads, power grids, ports, and the like. The government may lack the financial means to provide these public goods, however, for at least three reasons. First, the population itself may be impoverished, so taxation of the population is not feasible. Second, the government may be inept, corrupt, or incapacitated, and thereby unable to collect tax revenues. Third, the government may already be carrying a tremendous load of debt (for example, debt carried forward from an earlier decade), and must use its limited tax revenue to service the debt rather than to finance new investments.
Economic development requires a government oriented toward development. The government has many roles to play. It must identify and finance the high-priority infrastructure projects, and make the needed infrastructure and social services available to the whole population, not just a select few. The government must create an environment conducive to investments by private businesses. Those investors must believe that they will be allowed to operate their business and to keep their future profits. Governments must exercise self-restraint in demanding bribes or side payments. Governments must also maintain internal peace and safety so the safety of persons and property is not unduly threatened, maintain judicial systems that can define property rights and honestly enforce contracts, and defend the national territory to keep it safe from invasion.
When governments fail in any of these tasks—leaving huge gaps in infrastructure, or raising corruption to levels that impair economic activity, or failing to ensure domestic peace—the economy is sure to fail, and often to fail badly. Indeed, in extreme cases, when governments are unable to perform their most basic functions, we talk about “state failures,” which are characterized by wars, revolutions, coups, anarchy, and the like.
Even when governments are trying to advance their countries, the cultural environment may be an obstacle to development. Cultural or religious norms in the society may block the role of women, for example, leaving half of the population without economic or political rights and without education, thereby undermining half of the population in its contribution to overall development. Denying women their rights and education results in cascading problems. Most important, perhaps, the demographic transition from high fertility to low fertility is delayed or blocked altogether. Poor households continue to have six or seven children because the woman’s role is seen mainly as child rearing, and her lack of education means that she has few options in the labor force. In these settings women often lack basic economic security and legal rights; when they are widowed, their social circumstances turn even more dreadful, and they are left completely impoverished without hope for improvement.
Similar cultural barriers may apply to religious or ethnic minorities. Social norms may prevent certain groups from gaining access to public services (such as schooling, health facilities, or job training). These minorities may be blocked from entering universities or public sector jobs. They may face harassment in the community, including boycotts of their businesses and physical destruction of property. In extreme circumstances, as occurred in East Africa with the Indian community, wholesale “ethnic cleansing” may ensue, with many fleeing for their lives.
It takes two to trade. Trade barriers erected by foreign countries can impede a poor country’s economic development. These barriers are sometimes political, as when a powerful country imposes trade sanctions on a regime that it does not like. These sanctions may aim to weaken or topple a despicable regime, but often they simply impoverish the population of the targeted country without toppling the regime. Many factors in addition to trade that may affect a country’s development can be manipulated from abroad for geopolitical reasons.
Lack of Innovation
Consider the plight of inventors in an impoverished country. Even if these inventors are able to develop new scientific approaches to meet local economic needs, the chances of recouping investments in research and development through later sales in the local market are very low. The local purchasing power to buy a new product is tiny, and will not provide for sufficient profits if an invention is successfully brought to market, even if the impoverished country has state-of-the-art patent legislation. The problem is not the property rights to the invention, but the size of the market.
The Demographic Trap
One reason for a poverty trap is a demographic trap, when impoverished families choose to have lots of children. These choices are understandable, yet the results can be disastrous. When impoverished families have large numbers of children, the families cannot afford to invest in the nutrition, health, and education of each child. They might only afford the education of one child, and may send only one son to school. High fertility rates in one generation, therefore, tend to lead to impoverishment of the children and to high fertility rates in the following generation as well. Rapid population growth also puts enormous stresses on farm sizes and environmental resources, thereby exacerbating the poverty.
A Global Compact to End Poverty
Ending global poverty by 2025 will require concerted actions by the rich countries as well as the poor, beginning with a “global compact” between the rich countries and poor countries. The poor countries must take ending poverty seriously, and will have to devote a greater share of their national resources to cutting poverty rather than to war, corruption, and political infighting. The rich countries will need to move beyond the platitudes of helping the poor, and follow through on their repeated promises to deliver more help. All of this is possible. Indeed, it is much more likely than it seems. But it needs a framework. My colleagues and I in the UN Millennium Project have proposed just such a framework, focused on the period until 2015, called the Millennium Development Goals-Based Poverty Reduction Strategy.
Today’s situation is a bit like the old Soviet workers’ joke: “We pretend to work, and you pretend to pay us!” Many poor countries today pretend to reform while rich countries pretend to help them, raising the cynicism to a pretty high level. Many low-income countries go through the motions of reform, doing little in practice and expecting even less in return. The aid agencies, on their part, focus on projects at a symbolic rather than national scale, just big enough to make good headlines. In 2002, the U.S. Agency for Inter-national Development (USAID), proudly trumpeted its West African Water Initiative, noting that “a reliable supply of safe water, along with adequate sanitation and hygiene, are on the front line in the combat against water-related disease and death.” Fair enough, but what was USAID’s actual contribution? A pitiful $4.4 million over three years. If West Africa has a population of some 250 million people, $4.4 million over three years would be less than a penny per person per year, enough perhaps to buy a Dixie cup, but probably not enough to fill it with water! . . .
So that I am not misunderstood, let me underscore that a global compact, like any contract, has at least two parties, and therefore responsibilities on both sides. Poor countries have no guaranteed right to meet the Millennium Development Goals or to receive development assistance from the rich countries. They only have that right if they themselves carry through on their commitments to good governance. The expansion of aid is predicated on a serious plan of action, combined with a demonstrated will to carry it out in a transparent and honest manner. Not all governments will want to, or be able to, make such a commitment, and those nations need not apply. Our compact, our commitment, in the rich countries should be to help all poor countries where the collective will is present to be responsible partners in the endeavor. For the others, where authoritarian or corrupt regimes hold sway, the consequences for the population are likely to be tragic, but the responsibilities of the rich world are also limited. Perhaps the most important action that rich countries can take in those circumstances is to help the well-governed neighbors of such countries to prove that there is help available for those that are organized politically to help themselves. The biggest problem today is not that poorly governed countries get too much help, but that well-governed countries get far too little . . . .
The donors have put great stress on the need for countries to improve their governance, but much too little stress on how donors themselves need to improve their own performance. As part of every MDG-based poverty reduction strategy, we need a donor plan that spells out in a transparent manner the way that donor commitments will be fulfilled. A donor plan should focus on four aspects of aid flows:
• Magnitude. Aid must be large enough to enable the recipient country to finance its investment plan.
• Timing. Aid must be long term enough to enable the recipient country to follow through on a ten-year program of scaling up.
• Predictability. Aid must be predictable enough so that stops and starts in the aid flows do not jeopardize the investment program or the macroeconomic stability of the recipient program.
• Harmonization. Aid must support the MDG-based poverty reduction strategy, and specifically the investment plan, rather than the pet projects of the aid agencies.
Taking Up the Challenge
As global prosperity has accelerated in the past two centuries, each generation has been called upon to meet new challenges in extending the possibilities of human well-being. Some have faced the harrowing challenge of defending reason itself against the hysterias and mass brutalities of communism, fascism, and other totalitarianisms of the twentieth century. Others have been blessed with the opportunity to expand the ambit of human freedom and reason, spared from war and equipped with increasingly powerful tools to improve the human condition. Our own generation lives with a precarious peace, one threatened both by terrorism and by the overly militaristic response of the United States, but a peace on which we can build if we can sustain it. Ending poverty is the great opportunity of our time, a commitment that would not only relieve massive suffering and spread economic well-being, but would also promote the other Enlightenment objectives of democracy, global security, and the advance of science.