Number of Poor Decreasing Worldwide, but Inequality Still a Problem

Over the past quarter century, the number of people living in extreme poverty has declined three times worldwide. However, prosperity growth remains rather uneven in its overall distribution. On January 13, 2017, Ana Revenga, the World Bank's Deputy Chief Economist, presented a report on the problems of global poverty and inequality.

The eradication of poverty and increasing overall worldwide prosperity are two interrelated goals of the World Bank. The Bank’s experts rely on a universal indicator to assess extreme poverty — this category includes people living on less than USD 1.90/day. The World Bank plans to reduce extreme poverty to 3% or less of the global population by 2030.

Thirty years ago, this goal might have seemed unrealistic. In 1990, 1.85 billion people (35% of the world’s population) lived below the extreme poverty line. However, since the 1990s, global poverty has been in rapid decline, both in absolute and relative terms. In 2013, the number of people living in extreme poverty came to 767 million persons (10.7% of the world’s population).

Why did this happen? First of all, this is the result of rapid economic growth, and hence improvements in welfare in the countries of South-East Asia (including China), as well as India. Despite these improvements, the number of extremely poor people in South Asia is still high - a third of the global poor live there. The worst situation is in Sub-Saharan Africa, where the number of people living in extreme poverty has increased over the past quarter century. At present, half of the extreme poor live in Sub-Saharan Africa. In most cases, this usually means rural populations with little or no formal education.

Global inequality has been steadily increasing since the industrial revolution. However, in the 1990s, for the first time in two hundred years, it started to decline (largely due to declining inequality between countries)

In developed countries and countries with medium development, including Russia, the population doesn’t need to fight for survival. These countries general focus on another goal recognized by the World Bank — boosting shared welfare in a given society. However, this is hard to achieve without reducing overall inequality.

The World Bank uses the indicators for the consumption and income of the 40% poorest citizens as a reference point. The income of this 40% increased in 60 out of 83 countries analyzed by the Bank. In 49 out of 83 countries, the income of the less wealthy grew faster than that of more prosperous citizens, while, at the same time, in 34 countries, there was an increase social stratification by wealth.

In general, the problem of inequality is complex. We can talk about inequality between individuals (global inequality), between countries, and within countries. Global inequality has been steadily increasing since the industrial revolution. However, in the 1990s, for the first time in two hundred years, it started to decline (largely due to declining inequality between countries). At the same time, inequality within countries had been growing for an extended period, and stopped increasing only in 2008 (in the midst of the economic crisis). Rising stratification within a given country, even when witnessing the actual growth of poor people’s incomes, results in an economic situation that can be subjectively considered much worse than it really is.

In addition to such psychological issues, countries face other, rather pragmatic reasons to be concerned about in regards to inequality. According to Ana Revenga and her colleagues, in-country inequality restrains the elaboration of common goals for development shared by different sectors of society. Instead, this situation preserves existing problems and prevents self-realization of a large number of talented people, thus reducing overall productivity in the economy.

One way to reduce inequality is investment in infrastructure and education, in tandem with the retraining of low-skilled workers and an overall emphasis on developing skills that will be in demand on a high-tech labor market. In particular, new skills investment should be cumulative. This process must start in childhood and be shaped throughout an individual’s life.

Countries may also apply fiscal policy methods, which, in the view of many experts, are not used enough. This also applies to Russia, where pensions remain largely an important tool for wealth redistribution. Furthermore, more progressive income tax with a greater role for capital and corporate income tax in state revenues would further reduce inequality, according to the World Bank’s experts.