World Bank: inequality threatens fight against extreme poverty

By AFP October 2, 2016 | 05:14 pm PT

Inequality is a key foe of ending poverty.

Extreme poverty has been falling steadily around the world, but eliminating it by 2030 could be stymied by unequal distribution of the gains of economic growth, the World Bank said Sunday.

Unless the gains of growth are steered better to those at the bottom of a country's economy, they could be left behind, warned the inaugural "Poverty and Shared Prosperity" report.

The report said gains particularly in China, India and Indonesia have led to a dramatic reduction in global poverty. In 2013, the latest year with comprehensive data, some 767 million people were living below the global poverty threshold of $1.90 per day.

While still a high number, that was 10.7 percent of the world's population, compared to 12.4 percent the year earlier.

"The world had almost 1.1 billion fewer poor in 2013 than in 1990, a period in which the world population grew by almost 1.9 billion people," the report said.

The biggest concentration remains in sub-Saharan Africa, with 41 percent of people mired in utter poverty, many of them rural based with little access to education.

In South Asia, the figure is 15.1 percent; Latina America and the Caribbean, 5.4 percent; and East Asia and the Pacific, 3.5 percent.

But it warned that gains in the future will be much tougher to achieve, in part because of the unexpectedly slow growth of the global economy, and because extreme poverty is being exacerbated by conflicts in the Middle East and Africa.

The report also highlighted inequality as a key foe of ending poverty. Economic growth cannot do that alone, it stressed. The countries most successful in eliminating extreme poverty are those where policies ensure that the bottom 40 percent of the population enjoys the strongest income gains as economic growth picks up.

"The larger the growth in incomes of the bottom 40, the more quickly prosperity is changing life for poor people in a society. The size of income growth among the bottom 40 defines a country’s level of success in boosting shared prosperity," the report said.

But if the gains of growth stay concentrated in the relatively well-off parts of the population, deep poverty will persist, it said.

Francisco Ferreira, who oversees the Bank's research programs on poverty, inequality and agriculture, said that while inequality has mounted in advanced economies, a number of emerging countries have been able to temper it with efforts to ensure the benefits of growth reach the poorest. The report highlights such achievements in Brazil, Cambodia, Mali, Peru, and Tanzania.

Recipe for success

The recipe for success is generally the same: maintaining macroeconomic stability and low inflation; ensuring labor markets function well so that growth translates into jobs and jobs into wages; economic diversification; building manufacturing and services industries on top of farming; and having proactive social policies like healthcare and education.

"Declining inequality is actually possible. It's not a pipe dream," he said. "The report has found over 40 such countries where inequality has declined.... It can and has been successfully reduced both in the world as a whole and in individual countries."

At the same time, he warned, even if global economic growth is firm over the next decade, if inequality is not tackled at the same time, the world will be unable to reach the World Bank's target of bringing extreme poverty down below three percent of the global population by 2030.

"Unless growth becomes more pro-poor and leads to faster gains at the bottom of the distribution following inequality, the target may well be out of reach."