Global progress in slashing poverty

Broad new studies suggest that the world has made extraordinary progress in slashing poverty in recent decades.

The magnitude of the change is the subject of strong debate. But the research suggests that the pace of economic progress has been rapid and sustained for decades, built on the foundations of relative political stability, rising trade, and economic liberalization in the postwar era.

One new study, published Thursday by the Institute for International Economics in Washington, finds that the proportion of the 6.1 billion people in the world who live on $1 a day or less shrank from 63 percent in 1950 to 35 percent in 1980 and 12 percent in 1999 (adjusted for inflation). By some other measures, the progress has been more modest. Still, economists agree that poverty has plunged in key nations such as India and especially China, thanks to slowing population growth as well as economic freedom.

"This is a smashing success for the world as a whole," says Harvard University economist Richard Cooper. "We are doing something right."

The news comes as the World Bank is about to open its annual meeting in Washington – an event that has been dogged in recent years by vocal protests that the Bank and its sister institution, the International Monetary Fund (IMF), have done too little for the world's poor.

The new economic research will not put an end to that controversy. Vast populations remain poor, and many still question the wisdom of World Bank policies.

Nonetheless, the research findings are relevant to the question of what policies should be followed by the those institutions and hundreds of other development groups striving to hasten the pace of world economic progress.

If dramatic gains are under way, the present mainstream policies – calling for open markets, free enterprise, and stern fiscal and monetary discipline – are working and correct. They need only "tinkering," as Mr. Cooper puts it.

But critics of IMF and World Bank policies maintain that such economic success stories as Japan, Taiwan, China, South Korea, and Singapore are rooted in more than just "free" markets. These nations have managed to grow rapidly, and thereby reduce poverty, by restraining imports when their domestic industries were young, pushing exports to rich nations, and putting controls on purely international financial flows. They have been open to foreign-owned factories but have often insisted that those investors share know-how on modern technologies.

Thus, some of the purely capitalist policies urged today, critics say, are damaging.

Measuring incomes and poverty in many developing countries is extremely difficult. Thus, studies are imprecise and conclusions controversial.

A Columbia University professor, Xavier Sala-i-Martin, published two working papers last spring tending to support the rapid-progress thesis. Looking at data from 125 nations, he finds that the number of extremely poor people declined by 235 million between 1976 and 1998, even though population grew hugely. The $1-a-day poverty rate (in 1985 value dollars; $532 a year in today's dollars) fell from 20 percent to 5 percent.

"Looking at the planet as a whole, never in history has poverty been eradicated so fast," says Mr. Sala-i-Martin. "The numbers have never looked better. The world is a better place."

CURIOUSLY, World Bank statistics show a far less positive picture. The Human Development Report of the United Nations Development Program (UNDP) finds that the number of people living in extreme poverty fell only to 22.7 percent in 1999 from 29 percent in 1990. The number of people living on $1 a day slipped to 1.15 billion from 1.27 billion.

"The level remains disturbingly high," the report notes.

The gap between the rich and poor in the world is clearly "grotesque," says UNDP economist David Stewart. But whether inequality within poor countries is shrinking is "ambiguous."

A key reason for the difference between the studies is varying statistical techniques. The Institute for International Economics study, by Indian economist Surjit Bhalla, uses national household surveys of income to find the distribution of income, and thus the level of poverty. This he mixes with aggregate national income statistics.

The World Bank uses the national household surveys of both consumption and income, resulting in less progress.

Whatever the technique, economists agree that rapid development in China and India is critical to the world picture.

China has 1.3 billion people, more than a fifth of the world's total population. According to China's official statistics, its economy has grown about 9 percent a year for two decades. That official number is in question. About 5 percent is more accurate, says Lester Thurow, an economist at the Massachusetts Institute of Technology. He looked at the growth in electricity usage in China's provinces to get his estimate. That rate is "still pretty good," he says.

After long enchantment with socialism and its government controls, India has moved in the direction of more free enterprise, and growth has risen for its 1.1 billion people in the last decade.

By the $1-a-day measure, America's poor are affluent indeed. But census numbers released Tuesday show a rise in those classified as poor – income at $18,104 or less for a family of four – to 32.9 million.

Elsewhere in the world, progress has been uneven, and often not so handsome.

Africa with its 500 million people has seen poverty worsen. Latin American progress has been "disappointing" in the last two decades, says William Easterly, an economist at the Center for Global Development in Washington. The Mideast and the former East bloc countries have seen poverty grow, though Russia has improved in the past two or three years.

Outside China and India, most developing countries are falling further behind the rich industrial nations, says Mr. Easterly, a former World Bank economist.

At the World Bank meeting this weekend, many critics will be urging debt forgiveness to help foster growth.

To Sala-i-Martin, the key to success in developing nations is not "charity." The US and other giants can do more by slashing farm subsidies and opening to imports.