For all of today’s bad news, we are also living through an amazing event: never before have so many people been lifted out of poverty over such a brief period of time.
Bao-Lien Luong remembers how, growing up in Ho Chi Minh City in the aftermath of the Vietnam War, even the basics were sometimes unaffordable luxuries.
“Things were tight,” says Luong, now Singapore-based human resources director, Asia Pacific, for Kimberly-Clark Professional.
“At some points in time, we did not have enough rice to eat. Instead, we ate sweet potato and cassava. The government would sometimes give us flour so we could make noodles.”
Although both her parents worked hard – her father was a manager in a state-owned factory and her mother was a teacher – Luong’s family, like millions of others in post-war Vietnam, was struggling to make ends meet.
Things began to improve when Luong’s aunt and grandmother, who had managed to move to the US, began to send back money and goods that could be sold. But the real breakthroughs came in 1986, when the Vietnamese Government instituted its doi moi reforms to shift the country to a market-oriented economy, and in 1992, when relations with the US began to normalise.
Like millions of her generation across East Asia, Luong saw opportunities suddenly opening up that were unheard of just a few years earlier.
A quarter of a century later, she works for a major multinational consultancy, earning more money than her parents could have dreamed of and travelling far and wide in the region. The struggles and privations of Luong’s early life now seem a world away.
“We are having better lives than our parents did,” she says. “They did not have the chances we do now.”
Luong’s rags-to-riches story is far from unique. In the past 30 years, arguably the most remarkable development has been the seminal decline in poverty across the world.
"This is the best story in the world today." Jim Yong Kim, World Bank
World Bank president Jim Yong Kim calls this emergence of millions from extreme poverty “the best story in the world today”. Global health statistician Hans Rosling believes it is “possibly the greatest story in all of human history”.
The poverty plunge
The worst sort of poverty is known as “absolute” or “extreme” poverty and relates to severe deprivation of basic human needs, including food, safe drinking water, sanitation, health, shelter, education and information.
The World Bank uses a monetary measurement to define it more narrowly: a person living on less than US$1.90 a day (in 2011 dollars and in “purchasing power parity” terms).
For most of human history, the vast majority of people have lived in poverty – the United Nations (UN) has estimated that as recently as 200 years ago, 80 per cent of the global population fell into this category. In 1981, that figure was 44 per cent and 30 years later it had dropped to 16.3 per cent, with more than 500 million climbing out of poverty in China, India and Africa alone.
The World Bank expects the latest figure from the end of last year to show that absolute poverty has now fallen to less than 10 per cent – or about 700 million.
China leads the way
Prior to this rapid transformation, economists had long been puzzling over the differences in global living standards.
“Once you start thinking about them, it’s hard to think about anything else,” the Nobel Prize-winning economist Robert Lucas famously remarked.
Conventional economic theory said poorer countries should start catching up, but as late as the 1980s that didn’t seem to be happening. At the start of the 1980s, a staggering 835 million of China’s citizens were living in absolute poverty. Twenty-nine years later, that had plunged to 156 million, and it is expected to have fallen even further since.
In India, the gains have been more modest: the number in extreme poverty edged down from 429 million to 361 million over the same period, although this occurred even as the country’s population soared.
Altogether, it is estimated there are currently 551 million people living in absolute poverty in Asia, including about a fifth of all Indians.
By contrast, in sub-Saharan Africa the number of people living in extreme poverty actually increased from 205 million to 414 million between 1981 and 2010, and reached 436 million last year. The region is now home to around half of the world’s poor.
This divergence gives a clue to what lies behind East Asia’s, and more particularly China’s, surge in prosperity.
CPA Q&A. Access a handpicked selection of resources each month and complete a short monthly assessment to earn CPD hours. Exclusively available to CPA Australia members.
Trade, not aid
As Bao-Lien Luong’s own experience shows, government policies, trade and economic growth have been pivotal in transforming lives and lifting millions out of poverty.
Professor Mark McGillivray is a research associate at the Oxford Poverty and Human Development Initiative at the University of Oxford and is a former chief economist of Australian Government overseas aid agency AusAID (now called Australian Aid).
He points to a number of factors in China and Vietnam that have enriched the lives of huge numbers of people: the governments in both these countries opened up markets to foreign trade and foreign direct investment, freed up their own internal markets and, in particular, de-collectivised agriculture so that small farmers could sell their own produce.
“China started to reform its economy in 1978, and Vietnam in 1986 after doi moi got the ball rolling,” says McGillivray, explaining that it was these changes to institutions and regulations that began to alleviate poverty rates.
Europe’s recovery from the devastation wrought by World War II involved a similar process, according to economist Paul Collier, who examined the dynamics of poverty and growth in his landmark book, The Bottom Billion.
Collier credits the US for Europe’s ability to bounce back and prosper. In the war’s aftermath, the US reversed two decades of economic protectionism and opened up its markets to international trade. It then institutionalised trade liberalisation through the General Agreement on Tariffs and Trade.
It also set up mutual support systems – NATO for security, the International Monetary Fund and the Organisation for Economic Co-operation and Development for finance, and the World Bank for development aid.
Fast-forward 50 years and a similar dynamic has worked to lift millions in East Asia out of poverty, says McGillivray. Institutional and policy reforms were the triggers for economic growth.
"Government policies, trade and growth have been pivotal in transforming lives."
Take Tanzania, a central African nation larger in size than France and with almost as many people. For two decades after independence, Tanzanians lived in an economic policy shambles, with prices held down and the currency pushed too high, to the detriment of the large agricultural sector that employs the majority of the nation’s poorest people.
“The economy collapsed and agriculture – 80 per cent of Tanzania’s poor live in rural areas – went backwards,” says McGillivray.
“Since 1986, when Tanzania introduced an economic reform program, it has managed to restore growth, and poverty rates are starting to fall.”
Healthier and happier
It is not just that households are becoming better off. As people escape from poverty, they are living longer and healthier lives.
In the past 15 years, life expectancy globally has increased by five years. Africa’s improvement has been even greater: 9.4 years. The life expectancies of people in the world’s poorest nations are beginning to catch up with lifespans in the richer nations.
As health outcomes improve – with factors such as a decline in child mortality rates – it’s unsurprising to learn that people’s general outlook and happiness levels are rising.
Added to this is the fact that people on average are earning more and wealth across the world has increased. In 2008, Nobel Laureate economist Angus Deaton asked people in 132 countries how they felt about their lot in life. The result showed a clear correlation between income and satisfaction – the better off people were, the happier they tended to be.
At a more basic level, the number of people in the world who still go hungry is estimated to be almost 800 million – about 176 million fewer than a decade ago. More than three-quarters of the 113 countries surveyed for The Economist’s Global Food Security Index experienced an improvement in food security in the past five years.
The end of poverty?
It is premature to call this the end of even absolute or extreme poverty, let alone relative poverty.
While countries such as China are well placed to benefit from the modern economy, others – particularly those that are small, remote and dependent on a handful of natural resources – are falling further behind.
Many Pacific island countries, for instance, are failing to keep pace with the rest of the world, and poverty persists. Dr Chakriya Bowman, senior fellow at the Center for Island Pacific Research and Development, says such countries “have struggled to benefit from the global economy”, in part because their governments too often lapse into “populist policies that protect a few wealthy traders”.
World economic growth and global trade are sluggish, and commodity prices, which buoyed many resource-rich developing countries after 2000, have plummeted in the past five years.
Former World Bank managing director and chief operating officer Sri Mulyani Indrawati (who was recently appointed Indonesia’s finance minister for the second time) says that commodity-exporting developing economies, many of them home to millions of the world’s poorest, “have been hit very hard” in the global growth slowdown.
With developing countries exposed to a slowdown in the growth of the working-age population, lacklustre productivity gains, geopolitical risks and the effects of climate change, Indrawati worries that many of those who recently escaped from poverty may slide back.
Development economists say poorer countries still need to reform tax systems, government spending, trade and investment rules and financial regulation.
Hans Rosling, however, argues that demographics are on the UN’s side. Families living in extreme poverty have, on average, five children, while those who have moved out of it have just two. Rosling says that this fact alone makes it feasible to end extreme poverty within a generation.
One of Rosling’s greatest frustrations is that the media fixates on war and chaos while largely ignoring the scale of the recent triumphs.
The continuing transformation
Bao-Lien Luong, for one, is in no doubt about what has happened.
At a recent 25-year reunion, Luong and her classmates from Ho Chi Minh City’s University of Education reminisced about how the bicycles ubiquitous in their youth had been almost entirely replaced by motorbikes and scooters.
Even more significant, however, is that most have gone on to careers in business, finance and sales – unimaginable for their parents. They are contributing to, and sharing in, one of the most astonishing economic transformations the world has ever seen.
Less poverty, greater inequality?
While hundreds of millions have escaped the bonds of absolute poverty in the past three decades, the benefits of growth have been far from evenly shared.
Even as the incomes and purchasing power of poor households in many countries have improved, the gap in wealth between them and the most well-off has widened – a phenomenon known as “relative poverty”. For instance, in the US since 1979, the before-tax incomes of the wealthiest 1 per cent of households have increased at four times the rate of the bottom 20 per cent in that country.
Relative poverty within countries, in particular, continues to grow. Former World Bank economist Martin Ravallion notes that much of the global reduction in poverty has been driven by rapid growth in just two large countries, China and India, which both started out very poor.
Growth in developing countries lifts millions out of poverty