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Lowering World Poverty Depends on India

Noah Smith is a Bloomberg View columnist. He was an assistant professor of finance at Stony Brook University, and he blogs at Noahpinion.
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Max Roser is at it again. The Oxford professor and master of economic data visualization has a new set of maps and charts showing how global income and inequality have changed during the last couple of centuries. The upshot is that while the world has gotten steadily richer that entire time, something very special and very good has happened in the last two decades. 

Make that two things. The first is that the number of people living in absolute poverty has plunged. The second is that the global distribution of income has become much more equal. 

Rich countries often define poverty in relative terms. For example, we might call someone "poor" who was in the bottom 20 percent of the income distribution. People in relative poverty will be unable to afford the luxuries that the middle and upper classes take for granted. Today, that might mean a big-screen TV, a new car, a large, well-maintained house or an education at an elite university. We call this state of affairs "poverty" because lower consumption levels often translate into lower social status, feelings of shame and failure, and reduced political influence. 

But we often forget that there is another, older, more terrible kind of poverty. "Absolute poverty" -- life on less than $2 a day -- means children with hungry bellies, teeth chattering from frigid winters without heating, infections that cripple and kill, sewage running in the streets. It means life reduced to a brutish existence. This kind of poverty has almost been wiped out in the developed world -- only the mentally ill, who are unable to claim government benefits, or undocumented immigrants, who are afraid to risk capture, might be in danger of absolute poverty in the U.S., the European Union nations, Japan or South Korea. 

The rest of the world, on the other hand, has long labored under the cruel whip of absolute poverty. For most of human history, this was the daily reality of almost everyone on the planet. In 1820, at the dawn of the Industrial Revolution, 94 percent of human beings still lived on the equivalent of less than $2 a day. The began to change with the coming of modern technology, but war, colonialism, high birth rates, and the slow spread of technology and good institutions limited the rate of poverty reduction. Still, by 1970 the absolute poverty rate had fallen to 60 percent. 

Then it fell off a cliff. By 2011, the global absolute poverty rate plunged to less than 10 percent. In other words, almost the entire world has now escaped the cruel grip of material deprivation. 

That is the first part of the story. The second part is declining global inequality. By the early 1990s, though far fewer people were poor, the global distribution of income was still incredibly unequal. Using data from a recent study by economists Christoph Lakner and Branko Milanovic, Roser plots the global distribution of income by region in 1993:

As you can see, the world in the early 1990s was still mostly divided into two big separate groups. At one end you had the developed countries of North America, Europe and the Pacific Rim. At the other end was a giant mass of humanity in East Asia, South Asia and Africa. 

But then things changed. While the world continued to get richer, China surged ahead in a burst of industrialization. By 2011, this huge country had filled in much of the gap in the middle of the income distribution:

The world now contains a robust middle class. It consists of China, plus a number of countries in Latin America, the Middle East and the old communist bloc. But that latter set consists largely of countries whose economies are tilted toward natural resources. China's hungry industrialization has boosted those nations enormously. Hence, China has defined the new global middle class. 

But the distribution of income still isn't a nice pretty bell curve. For that to happen, India -- the world's other supergiant country -- must join the party. Roser's graphs really bring home what a huge percentage of humanity is concentrated in China and India. One of those countries has caught up with the world average, but the other lingers behind. 

The future of global inequality, in other words, rests on India's shoulders. To join the global middle class, India must do much better. It must improve infrastructure and education. It must implement good governance and reduce harmful corruption. It must attract foreign investment and make growth a priority. And it must do all this while limiting its use of coal, in order to help halt the danger from global warming. 

It's a daunting task. So far, Prime Minister Narendra Modi has generally not been able to follow through on his promises of sweeping reform. But he, and India's other leaders, need to keep trying. The postcolonial world is still a very unequal place, and the only single country with the power to change that state of affairs is India.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author of this story:
Noah Smith at nsmith150@bloomberg.net

To contact the editor responsible for this story:
James Greiff at jgreiff@bloomberg.net