Dazzled in Davos: What Bill Gates Forgot to Mention

Edward B. Barbier

At the 2014 World Economic Forum in Davos, Switzerland, the founder of Microsoft and leading global philanthropist Bill Gates, along with his wife Melinda, released the 2014 Gates Annual Letter “3 Myths That Block Progress for the Poor”.  In the letter, Gates notes that, since 1960, more than a billion people have risen out of extreme poverty.  He then goes on to make this bullish prediction:

“By 2035, there will be almost no poor countries left in the world… Every nation in South America, Asia, and Central America (with the possible exception of Haiti), and most in coastal Africa, will have joined the ranks of today’s middle income nations.”

I have no quarrel with such a prediction, optimistic though it might be.  I also don’t question the global poverty trends—they pretty much match what is stated in “The State of the Poor” of the World Bank’s Poverty Reduction and Economic Management Network (PREM).  According to the World Bank, extreme poverty has fallen by 25% in the past 30 years for the developing world.

However, what Bill Gates did not mention is the following.

First, the encouraging global poverty trends mask some important differences between and among developing countries.

The World Bank’s “State of the Poor” estimates that, over the past 30 years in low-income countries, the number of extremely poor individuals actually increased by more than 100 million.  What is more, the average income of the poor in these countries was stagnant, remaining almost as low in 2010 as it was in 1981.

In addition, the World Bank report points out that most of the 25% decline in extreme poverty across the developing world has occurred in China and India.  But “for the rest of the developing world, individuals living in extreme poverty today appear to be as poor as those living in extreme poverty 30 years ago.”

Second, with inequality worsening worldwide, average income per capita is an inaccurate indicator of the state of poverty within a country.

In the World Bank’s World Development Indicators, low-income economies are those in which 2012 gross national income (GNI) per capita was $1,035 or less.  Middle-income economies are those in which 2012 GNI per capita was between $1,036 and $12,615.  Thus, if Bill Gates is correct, and nearly all developing countries achieve at least middle-income status by 2035, it will be a remarkable accomplishment.

However, the Oxfam report “Working for the Few”, also released to coincide with Davos, finds that almost half of the world’s wealth is now owned by just one percent of the population, and seven out of ten people live in countries where economic inequality has increased in the last 30 years.  The combined wealth of the world’s richest 85 people is now equivalent to that owned by half of the world’s population—or 3.5 billion of the poorest people.

Third, poverty is not evenly distributed within countries.

The World Bank’s “State of the Poor” estimates that 78% of those living in extreme poverty in developing countries are in rural areas, and 63% of the extremely poor earn a living from agriculture. Since there are still around 1.2 billion poor people across the developing world, global poverty will remain largely a rural problem for the foreseeable future.

As I pointed out in a previous blog post, “The Hidden Global Poverty Problem”, around 1.3 billion people in developing countries live on marginal lands or fragile environments unsuitable for agriculture, and 430 million inhabit remote rural areas. At least half of the population in less favored areas (631 million) is extremely poor. Thus, the rural poor are clustered largely on less-favored lands in remote locations—a trend that will continue with projected increases in rural populations and inequality in the developing world.

In a policy research paper for the World Bank, I have argued that alleviating poverty in developing economies will therefore require a much more robust strategy than current global economic development efforts.  Specific policies need to be targeted at the poor where they live, especially the rural poor clustered in fragile environments and remote areas. This will require involving the poor in these areas in payment for ecosystem services, targeting investments directly to the rural poor, reducing their dependence on exploiting environmental resources, and tackling their lack of access to affordable credit, insurance, land, and transport. Where possible, efforts should be made to boost rural employment opportunities, especially for those poor households dependent on outside labor employment.

Such a comprehensive development strategy for alleviating global poverty is urgently needed—something else that Bill Gates forgot to mention at Davos.

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