development equality growth

How much growth do the poorest get?

In the debate about inequality over the last couple of weeks, one of the recurring responses from neoliberal circles is that inequality is unavoidable, and nothing to get wound up about. As long as the global economy is growing, then the poorest are being lifted out of poverty. The rich may be getting richer faster than the poor are getting less poor, but it has to be that way, and tinkering with the system will make everyone worse off.

By way of reply, consider this graph from UNCTAD, from one of their discussion papers on what the post-MDG goals might be.

It shows who gets what when the global economy grows. Most of it goes to the richest, as we know. The poorest 60% get the slice represented here. We can then divide that slice up further.

The poorest 10% – those who need it most, for whom a tiny bit more is a matter of life and death – get that little red sliver there on the right.

shares-of-growth

To put some figures on it, for every $100 of growth in the global economy, the poorest 20% get 70 cents.

So yes, technically you could carry on making the rich richer and eventually you would end extreme poverty. UNCTAD estimate that the target for Millennium Goal number 1 would be met in Sub-Saharan Africa around 2049.

And we’re only talking about the most extreme poverty. If we take a more realistic figure of $5 a day as a poverty line, there will still be 3 billion people below that in 2030.

But yes, you could still argue that growth would be lifting people out of poverty.

Until you factor in climate change. This is where it comes unstuck, and as I’ve been arguing for the last seven years, why it’s so important to keep putting the environmental and developmental perspectives together.

The upshot is that the question of whether or not free market capitalism lifts people out of poverty is a red herring. The issue is whether it can do it fast enough, given that we don’t have forever.

This isn’t contrarian or anti-capitalist. It’s just maths and joined up thinking. Putting aside any potential solutions for a moment, is the logic faulty? It’s not a comfortable conclusion, and I’d be delighted to find I was wrong.

29 comments

  1. I don’t see any fault with your logic but there is a slight error in the article – you’ve stated that the slice of the pie is the share going to the poorest 40%, whereas the text of the graphic says it’s the slice going to the poorest 60%. Which, of course, only makes it worse.

  2. The first key point is that over the last 25 years when you could say the neo-liberal globalisation model has held sway we have seen the faster fall in poverty ever in human history. In 1990 47% of people in developing countries lived on less than $1.25 a day, today it is 22%. So while you may feel that the very poor are being lifted too slowly, the previously tried alternatives have done worse.

    The second is that of course the very poor are just that, very poor, so their economic activity is fairly small as compared to the wealthy countries of the world. But as Japan, South Korea and now China are showing you can start out very poor and catch up. And they did so by selling to the wealthier countries.

    When we look at African economies for instance we find that most are no bigger than the economies of English counties. Looking at cash amounts today is unhelpful. You need to look at trends of rates of growth. These are higher in the developing countries and thanks to the joy of compounding will mount up (Just imagine doing UNCTAD’s graph for China in 1975).

    I can understand that you are impatient that poverty still exists but it has been the lot of man for most of human history. In only 300 years we have raised ourselves hugely, a blink of an eye in the story of man. This really is breakneck speed.

    Now if we look at the SRES Scenarios the A1T follows the trends economic of the last 25 years with global growth of 3% in a globalized world and a linear growth in the efficiency of solar power then by 2100 global GDP would be $550 trillion, or about 10 times what it is now and poverty would be completely abolished. This model has a best estimate temperature rise of 2.4C. These estimates have since been updated but not by much.

    Now a 2.4C rise isn’t great but is one of the best outcomes and we will be much better able to afford adaptions. The important thing is that those who climate change will hit hardest, those living round the equator when many of the poorest live now, will have more resources to combat the effects of climate change.

    Now of course it all rests on if there will be some runaway climate change. Neither you nor I know, or do the climate scientists. But I’d much rather that as many people were rich if things go bad as we have more ways to deal with the consequences.

    1. I wouldn’t argue with most of that. What I’m interested in here is the purely practical question of what is possible in an age of climate change.

      As you point out, the IPCC’s scenarios do show what’s technically possible, but A1T includes assumptions like the complete phase-out of coal in favour of renewable energy. Technical possibility is very different from political possibility.

      As I’ve written about before, it is theoretically possible to have infinite economic growth on a finite planet, provided you can meet certain criteria. It’s just that getting every one of those conditions in place is a fantasy.
      https://makewealthhistory.org/2012/09/24/how-to-make-infinite-growth-possible/

      I would argue with your last sentence, which raises serious moral questions.

      1. Well, even without climate change, bad things happen, and you can better deal with them if you are richer. It doesn’t really matter if climate change is moral or not if it happens we need to deal with it.

        The alternative really is a counsel of despair – just leave some people in poverty because we got moral issues. Because you can’t take the wealth we have and spread it evenly around. Economics doesn’t work that way. We need to bring the poor up and they need us to get wealther to buy their goods.

          1. I don’t know, but that doesn’t sound right to me. I’m pretty sure A1T assumes a phase out of coal, but the current global trend on coal consumption is relentlessly upwards.

          2. A1T assumes the price of solar falls at the rate it has been for the last 25 years. Since under that assumption the price of solar power would soon undercut coal, why would you pay extra to burn it? Hence coal use would fall sharply.

        1. Of course you can deal with things better if you have more money, but it’s far more important that people on $1 a day get less poor than for rich people to get richer. The global economy disagrees, with the most vulnerable at the back of the queue.

          Yours is not an acceptable conclusion, because of the last bullet point in my post. In the course of making ourselves wealthier, we are likely to trigger serious climate change and lock the poor into their poverty.

          That’s why we have to get over our squeamishness about inequality and be prepared to consider more radical solutions.

          1. Our global economy raises the poor off $1.25 quicker than any system in history. So hardly fair to say the vulnerable are at the back of the queue. Your radical solutions would not make the poor richer.

            This is one of the places I think you are very confused. You say you want radical solutions and say there are alternative models but then point to Northern Europe as an example which is only different in small degrees and is still a rich economy focused on growing itself.

          2. Actually Sub-Saharan Africa was growing faster before the neo-liberal era, and many of the fastest growing economies have very mixed approaches, like China’s blend of planning and enterprise, or Singapore’s state owned corporations. It’s never as cut and dry as you like to claim.

            I’ve given you masses of examples over the years of this blog. You always have an excuse to dismiss them, and thus I don’t expect to ‘prove’ anything to you.

          3. Per capita growth is the figure that matters. Under that measure sub Saharan African growth was highest from 2000. That is why poverty has been falling there faster than ever before.

            If I understand you correctly you want a system that focuses economic growth on the poorest, does not contribute to climate change and reduces both income and wealth inequality. Oh and be less consumerist.

            None of your examples do all that. They all fail in one aspect or another. There are trade offs which you don’t seem recognise.

          4. There is no perfect example. Not sure how many times I have to say that. I don’t think anybody’s getting everything right. Where we seem to differ is that you think we’re the perfect model and it can’t be improved upon.

          5. I think the current liberal globalised free market, free trading, profit seeking capitalist economy is the best we have ever had, especially for the very poorest.

            There maybe something better out there but you haven’t suggested anything that could top it.

            I repeat, the current system has been the best for lifting the very poorest out of poverty that human history has ever seen. The burden on proof is therefore on those who seek to change it because you mess that up it is the poor who suffer.

    1. When you have a system that is working for the poor better than any system has in the past, as we undoubtedly do, then ‘radical solutions’ that you called for have the burden of proof, not the other way around.

      Nothing is perfect but we should beware clever sounding plans, not matter how Just they sound. Experience isn’t good.

        1. Did I say it couldn’t be improved? No, but those improvements have the burden of proof on them. Little that you have suggested meets that burden.

          You do seem confused. Some times you talk of radical changes focussing growth on the poor. Then other times slight changes to Western economies that would in no way focus growth in the poorest. You go from NEF to Oxfam report and then back pedal when challenged. Confused is the only word.

          1. Not really. Climate change requires radical change. There’s no ways about that, especially if we don’t want to screw over the poor.

            But, I agree with you that there’s no big alternative system waiting in the wings, and that previous attempts have not delivered the goods. The only solution I see then is to work from what we have, evolutionary change, rather than some massive shift to an untested theoretical system.

            Seems like a coherent view to me.

            As for burden of proof, isn’t that what this post is? I’ve just spelled out very clearly that our current system, in the context of climate change, is likely to leave billions of people locked out of prosperity.

          2. Of course that is predicated on climate change being at the upper end of the IPCC forecasts, of A1T not being the course we follow. Carbon tax and current technology trends and climate change isn’t a big issue. Thus it doesn’t require radical change and will within the century abolished absolute poverty.

            Now neither of us is a climate scientist and neither of us knows what the future holds. Climate change action is an insurance policy. You don’t make radical changes for insurance unless you really have to. Especially when radical action could easily endanger the world’s present success at reducing poverty.

  3. You can’t fall back on A1T and hope everything’s going to be okay. Not least because that’s a scenario for modelling, not a prediction. And it was outlined 15 years ago and replaced in the latest IPCC report.

    1. Well all the numbers banded around are models, not predictions including those you cite. You do choose from the upper end I note.

      The latest IPCC report has moved to Representative Concentration Pathways (RCPs). Again these are to help modelling but there are 4 that the IPCC has highlighted and the one that has the lowest warming is the one with the highest levels of GDP growth (RCP2.6). Again this follows similar trends to what happened in the 20th century. So while the models have changed the answers are similar and really don’t call for radical changes. Billions won’t be locked out of poverty unless we tinker with the golden goose that is currently raising billions up. That old globalised free trade market capitalism thing with its inequality.

      I don’t remove all paper from my house because that will make it less likely there is a terrible fire, because the likelihood is very low. I am careful with naked flames and have insurance but I don’t have to make radical changes that will harm how I live. Same here.

      1. RCP 2.6 relies almost entirely on carbon capture and storage for its results. It’s the optimistic techno-fix scenario. I’d like to hope it’s possible, but CSS is a pretty mixed picture right now.

        But the point is, even 2.6 is a radical pathway, requiring major changes to energy infrastructure and the way we do business. ‘Radical’ is a word Rajendra Pachauri regularly uses to describe the changes we need to see.

        So I’m not sure you really understand climate change, and your bizarre paper example kind of confirms that.

      2. I think I do understand climate change, just I don’t look at to worst possible outcomes and think that the basline.

        Climate change is a risk, and like any risk you seek sensible mitigation rather than major change on the off chance. That climate change is happening I take from scientists, what to do I look to economists, who broadly don’t see radical change required now.

        Of course as I thought this comes down to the word ‘radical’. You talk of Radical change then talk of evolutionary change. Contradictory language.

          1. Outside of their area a expertise experts are just as foolish as the man in the street, more so because they think they are smarter.

            Climate scientists area of knowledge is what CO2 does to the climate but how we stop people releasing it is a question of politics and principally economics. You look to those out of their area of expertise, that in a nutshell is your problem.

  4. As I’ve documented several times, economists tend to take the science and go ‘well that’s not possible’, and re-draw the boundaries. Stern did it for example, taking 500ppm as his baseline despite the science suggesting 400 or even 350ppm were more appropriate targets.

    McKinsey did the same thing. The more recent New Climate Economy report fudges it differently, by quietly aiming for a plan that just reduces risk rather than aiming for a real solution.
    https://makewealthhistory.org/2014/09/22/better-growth-better-climate-but-not-better-enough/

    This is the same logic behind the EU’s consistent failure to put credible fish quotas in place. The scientists say what’s sustainable, and then the economists and politicians revise it to something that won’t upset anybody.

    I don’t mean any disrespect to economists, and neither should we expect scientists to draw up policy. We just need to brief economists better and make sure that the science isn’t immediately sidelined when it is inconvenient. We need experts to work together – note, for example, that the New Climate Economy team didn’t include any scientists on its advisory board. Hence a report that tells everyone what they want to hear, but is ultimately built on sand.

    1. The thing economists do is look at the options and balance human welfare. Slightly more warming for a richer world is the kind of trade off they examine. Economists being wholly worried about human welfare.

      The IPCC still look to a range of 350 to 450 ppm to keep climate change within 2 degrees.Rather the point of the IPCC is to get a benchmark.for everyone else to work with.

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