Why Ending Extreme Poverty Isn't Good Enough

A courtyard in the village of Paltupur, Uttar Pradesh, India. India has the second highest percentage of malnourished children in the world, according to the 2012 annual Global Hunger Index Photograph by Sanjit Das/Bloomberg

At this year’s spring meetings of the World Bank and IMF, the world’s global finance ministers signed up to an ambitious target for progress against poverty. “We believe that we have a historic opportunity to end extreme poverty within a generation,” they declared, pledging to reduce the percentage of people living on less than $1.25 a day worldwide to 3 percent by 2030.

That would be a huge achievement. After all, for most of history, most of humanity has lived on less than $1.25 a day.  As recently as 1990, more than two-fifths of the population of the developing world lived in extreme poverty, and even today, the proportion remains close to one-fifth. Yet even lifting all the world’s poor above the $1.25-a-day line would hardly constitute victory in the war against extreme poverty. If anything, we need to get a lot more ambitious.

What is a reasonable “income floor” above which we should hope all people worldwide live? At the moment, we define $1.25 as extreme poverty and $2 as poverty, plain and simple. According to MIT economists Abhijit Banerjee and Esther Duflo, among those living on $2 a day or less in urban areas of Tanzania, only 21 percent have a water tap in their house. In rural areas, it is less than 2 percent. The number with access to electricity is similarly dire. In rural areas, nearly one in 10 children die before their first birthday—most from easily preventable diseases. Two dollars is not nearly enough to ensure the basics of the good life.

The global median income is around $3 to $4 a day. Despite the fact that 50 percent of the population of the planet lives on less than that today, that’s still an insufficient floor. Why? In part because it’s less than the cost of a vente caramel frappuccino at Starbucks, and it seems wrong that most of the planet would subsist for a day on what many happily throw away on a caffeinated milkshake. More significantly, that level of expenditure still doesn’t guarantee people a quality of life we should all deserve.

Lant Pritchett has estimated that those living on more than $2 a day in developing countries see infant mortality rates five times those of the poorest and most deprived areas of rich countries. It’s possible to reduce death rates considerably using very cheap techniques, from bed nets to vaccines, but at some point the approaches start getting more expensive. And at that point, having the kind of resources that can buy either a frappuccino or a course of antibiotics can be a matter of life and death.

Pritchett suggests the global floor should be something closer to the poverty lines of rich countries—around $15 per day. Other economists have suggested the “global middle class” bottoms out at an income of around $10 per day. Worldwide, somewhere shy of 2 billion make it over the $10 line. But only about two percent (PDF) of sub-Saharan Africa lives on more than $10 a day, compared with 51 percent who live at more than $1.25 a day. Unsurprisingly, ratchet up your income threshold for “poverty,” and  the poverty rates in developing countries skyrocket—but until you get above $10 per day, high-income economies still see a very small proportion of their population in “global poverty.”

That’s a sign of how much global wealth is skewed toward rich countries, and it also suggests that a world free of $10 poverty is eminently affordable. According to the World Bank, current world GDP is about $76.4 trillion, of which about 62 percent is consumed by households. If all 7 billion people on the planet lived on $10 a day, that would take $26 trillion, or (give or take) a $41 trillion global economy. If it weren’t for the incredible size of global income disparities, you could shrink the world’s economy, reduce our environmental footprint, and still get everyone over the poverty line. The OECD predicts world GDP will be about four times in 2050 what it is today. World population may have reached 9 billion. The GDP associated with getting all 9 billion people to an income of $10 would be less than one-fifth of the world’s $300 trillion-plus output by 2050.

There’s a lot more to quality of life than income. In fact, the greatest development success of the past 60 years has been to make the quality of life cheaper. That’s the only way to explain how Vietnam, a country with a GNI per capita of $2,861, where about 40 percent of the population lives on less than $2 a day, can still have a life expectancy of 75 years. And a declining cost of services is why countries that have been getting poorer have still seen drops in mortality and climbing education rates.

But income still matters. It gives people choices. It makes life easier, safer, and healthier. And there’s absolutely no reason to think that people in the rest of the world shouldn’t want to purchase the same comforts as people in the West do. So while we should do all we can to wipe out $1.25 a day poverty by 2030—and celebrate that day when it comes—that’s not the time to declare victory. Not until everyone lives on a decent income—perhaps 10 times what’s now considered to be “extreme” poverty—should we give up the fight.

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