The last 50 years have seen growth faster than we have ever seen before. Indeed, in just the last 41 years, the share of the global population living in extreme poverty has fallen from 42% to less than 10%. Going closer, in my 20 years on this earth the poverty headcount ratio at $1.90 a day has fallen by almost 20%. Of course, these numbers appear higher by a massive increase in population over the same time period, but even in nominal terms there are now over 870 Million less people living in extreme poverty than there were in 2002.
None of this is to understate the scale of the problems we face. It is still the case that 9 Million children will die annually before their fifth birthday. In many countries, the average life expectancy does not exceed 55 and a woman in Sub-Saharan Africa has a 1 in 30 chance of dying in childbirth. Global poverty is an evil that remains real for an ever-shrinking, but still sizable, proportion of the world's population. By 2072, global poverty will be a tragic history, but an evil that has been eliminated.
A secret way to lift people out of poverty
In a way poverty can be considered the state of nature. A population starts with nothing and it is only by producing more it can be rich. For this reason, it is not surprising that it was not long ago that it was thought to be impossible to end global poverty. When 80% of people are in poverty (as was the case in 1820) it appears an insurmountable leap to go from that to 0%. This is why under mercantilism the dominant idea was that ending this poverty was economically disadvantageous. As Martin Ravallion put it
“Hunger encouraged work, and lack of it did the opposite” - Martin Ravallion.
In our lifetime we have found that, although poverty may be natural, it is not necessary. In 1981 88% of people in China lived in extreme poverty, by 2001 it was 32%, today it is less than 1%.
So, how did China do this? The answer is quite simple - increasing incomes. Extreme global poverty is a measure of very low incomes (relative to the purchasing power of money in an area), and by increasing incomes you eliminate poverty. However, this is much easier said than done. Luckily, we have an entire developed world to provide a model of this process.
Take Denmark as an example, once upon a time it was just as poor as Ethiopia - a country it is now at least 24x wealthier than. Ethiopian average incomes are around $3.30 a day, compared to Denmark’s $55 a day. Thus, to achieve that level average incomes must increase by 16.7-fold.
This sounds hard, and it is, but it’s possible. Denmark did it! The reason this is possible is because growth compounds.
The reason this is possible is because growth compounds. This means the more it grows, if it grows by X percent consistently, then the growth in nominal terms will be greater each year.
Between 1996 and 2016 we can see diverse, but large rates of average growth measured by GDP per capita in many countries: for example, Ethiopia, 5.4%; China, 9.9%; the United States averaged 1.6%. To obtain the number of years that it will take for incomes to double, we simply divide the numbers into 69 (the log of 2 times 100). This tells us, assuming growth stays constant, Ethiopian incomes every 13 years, Chinese every 7 and American every 44 years.
It is hard to overstate the impact this would have on human welfare, Bob Lucas put it eloquently in 1988
The consequences for human welfare involved in questions like these are simply staggering: Once one starts to think about them, it is hard to think about anything else - Bob Lucas
Will growth persist?
It is easy to paraphrase D:Ream in assuming that things can only get better, but this is not necessarily the case. Growth can stall1, and in some countries it can fall due to exogenous (external) factors. Take Rwanda as an example - between 1996 and 1997, due to the impacts of the Civil War, GDP per capita did fall by 4.55%.
However, we can assess pretty well whether economic growth will continue to occur by looking at some of the drivers of growth. I won’t go into much detail about growth theory but broadly we can see a positive correlation between rate of investment and output per worker, as well as a negative correlation between population growth rate and productivity.2
However, we do see there to be a strong positive correlation between technological progress and economic growth. This means that by taking advantage of innovation done in the developed world, developing countries can have a ‘leapfrog effect’ and grow a lot faster than the developed countries did themselves.
A common constraint on growth is the ability for Governments to levy the taxes required to spend the money needed to enforce contractual and property rights, the rule of law, and provide welfare to those in need. Indeed, 20 Sub-Saharan countries collect less than 13% of their GDP in taxes. Technology can assist in this process rather well. Take something like a mobile (cell) phone. To access a mobile money bank account one must own a phone and a personal SIM card. There are clear gains for the consumer with formalising their money in a bank account, since it will accrue interest and be held safely, explaining why this form of banking is becoming increasingly common in Africa, but it also benefits the Government because it allows for easier collection of taxes.
When America was developing for the first time the mobile had yet to be invented, so they could not take advantage of this innovation. In contrast, 83% of adults in developing economies in 2018 owned a mobile. These innovations are, and will continue to allow developing countries to grow faster than developed ones helping for the trend of poverty elimination to continue.
What may prevent global poverty from being eliminated
The biggest things that could prevent global poverty being eliminated by 2072 are the current constraints that exist on growth - namely, denied agglomeration effects. In effect, these are the gains that occur from people interacting with each other. Immigration is the largest example of this, since constraining the free movement of people often prevents the most efficient people benefiting from each other's efficiencies.
However, we have managed to create massive growth in the last few decades despite some of the highest legal barriers to immigration in human history. Moreover, it seems attitudes towards immigration in the developed world are becoming more liberal. Take the two graphs below from the US and UK respectively for instance:
We can assume political pressures, as well as the economic constraints of ageing populations in the West, will incentivise reduced barriers to immigration that will only lessen the harm these impose on developing nations economies.
The second biggest example of missed agglomeration effects for developing countries is protectionism. Whilst developed economies have largely eliminated the barriers to trade, this is not the case for many of the world's poorest countries.
Over the last decade we have seen significant growth in liberal attitudes to trade in the developed world, which is matched in the developing world. For example, a 2014 Pew Research Poll found that "
“A median of 87% of those surveyed in the developing world say trade is good for the economy, including 47% who say it is very good”
Consequently, we can also expect the long-term trend of trade barriers falling to continue.3
One cause for concern
Sadly, I cannot be completely optimistic. All else held equal, extreme poverty will be abolished by 2072, however there is one factor that could prevent this: climate change.
Unfortunately due to excessive emissions of hydrocarbons into our atmosphere, we have caused its temperature to increase at a rate faster than everyone can adapt to. There will inevitably be consequences from past mistakes, such as increased temperatures, more regular natural disasters and flooding of coastal communities.
The global poor are more likely to be threatened by this than the developed countries. Whilst I hope by 2072 that we have taken the steps to prevent future emissions, and I am confident we shall follow do so.
Innovation will help to achieve this goal. I recently read The Star Builders by Arthur Turrell and this makes an excellent case for the development of nuclear fusion, and COP26 went better than I expected (but still not perfect).
The harsh reality is that we can live in a world in 2072 without global poverty where everyone is living a much better standard of living than they are today. However, the one force that could realistically stop that is climate change. I’m not an extremist on this, and don’t think extinction is a risk, but it is clear that it is the greatest threat to the development of the poorest countries in the world, and thus must be addressed.
Some final thoughts
It is impossible to address what the world will look like in 2072. The innovations that will get us there likely have not been thought of yet, and who is to tell how much recent developments like artificial intelligence can help (or hinder) us. However, what we can tell for sure is that, all else held equal, the world is going to be a lot richer and (I hope) global poverty will be eliminated.
There really is no good reason why this trend should not continue other than climate change. The implications for human welfare of this fact are such that it demands our immediate attention and further action to incentivise current development is done in a green way, and the developed world lead the way in decarbonising themselves.
This blog was written as a submission for the blog prize run by Effective Ideas. Do check them out at https://effectiveideas.org/
This is beyond the blog, but a useful caveat is that this factor is probably over-dramatised. See: https://www.bis.org/publ/work407.pdf
Daron Acemoglu’s (sorry Maia) textbook on economic growth is very good. See: https://www.theigc.org/wp-content/uploads/2016/06/acemoglu-2007.pdf
I’m happy to elaborate on the benefits of trade and immigration on economic growth at some point, but I suspect most my readers will already be aware of this argument. The same goes for housing which I wrote about here -
This is a great summation of of the challenges and opportunities we face with regard to poverty.
It is worth noting that much of the global progress in the fight against poverty comes from one nation only-China. So, in that respect, the battle against poverty isn't quite as one-sided as it appears.
What's lost in this discussion, I think, is land reform. Countries like S. Korea, China, Singapore....etc kicked off their growth spurts by changing the way land is administered/owned. Africa could probably learn some lessons as to how to kick-start growth.
Ultimately, some kind of LVT probably make sense.