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Why should rich nations help the poor? Because, morally, it is the right thing to do

800 million people went to bed hungry last night and 19,000 children will die today of easily preventable causes. Foreign aid alone isn’t the answer says David Hulme and the fixation with it means we miss more effective ways to promote development.

Over the last few years, UK aid has acted as a lightning rod for criticism as it has risen to meet the international target of 0.7% of Gross National Income (GNI), while other government spending has been subject to significant reductions.

The Daily Mail in particular has aggressively pursued a campaign against the aid budget and mobilised 230,000 supporters to sign a parliamentary petition calling for the 0.7% target to be scrapped as they claim it results in “huge waste and corruption”. The petition was recently debated by a packed room of MPs, the vast majority of whom lined up to defend UK aid spending, highlighting the positive impact it makes around the world.

UK aid is some of the most closely scrutinised in the world, by various parliamentary committees and independent external bodies. The Department for International Development is a leader in aid effectiveness and transparency, which helps drive up the standards of less progressive donors. And while the £12 billion annual aid budget is certainly a significant sum, it represents just 16p in every £10 of government spending. Collectively, we throw away much more in food waste (an estimated £19 billion) than we spend in aid.

However, I’m concerned that the apparent fixation we have on the aid budget in the UK means we’re ignoring even more effective ways to help poorer nations.

Foreign aid doesn’t equal development

The idea that development can be achieved largely through foreign aid alone has been discredited. Countries that have experienced significant improvements in the well-being of their population in recent years have largely achieved this through engaging with markets and international trade, boosted by the end of the Cold War, China’s return to the global economy and favourable commodity prices. The creation and diffusion of relatively simple technical knowledge about health, hygiene, nutrition, organization and technologies has also played an important role.  While effectively given aid, provided in the right context can provide vital assistance to people in need, it cannot ‘create’ development for whole societies.

If the UK and other rich nations are serious about helping to catalyse development across the world, there are five key policy areas that require urgent attention, which I explore in depth in my new book ‘ Should Rich Nations Help the Poor’ :

• Reform international trade policies so that poor countries and poor people can gain a greater share of the benefits derived from trade.
• Recognize international migration as an element of trade policy and a highly effective means of reducing poverty.
• Take action against climate change (mitigation and supporting adaptation) and take responsibility for the historical role of rich nations in creating global warming.
• Reform global finance to stop the siphoning off of income and assets from poor countries to rich countries by corporations and national elites.
• Limit the arms trade to fragile countries and regions and carefully consider support for military action (budgets, technology and even ‘feet on the ground’) in specific cases, such as the successful Operation Palliser in Sierra Leone.

Policy coherence lacking

This holistic approach to global development is the type of response envisaged by the Sustainable Development Goals (SDGs), which the UK signed up to just last September. However a recent report by the cross-party International Development Select Committee of MPs was highly critical of the lack of any sort of joined up thinking across government on key aspects of the 17 goals.

In strident tones, the report highlights “a fundamental absence of commitment to the coherent implementation of the SDGs across government.”  Without a proper cross government strategy, they fear “it is likely that areas of deep incoherence across government policy could develop, and progress made by certain departments could be easily undermined by the policies and actions of others.” A formal mechanism to ensure policy coherence across Whitehall is called for.

Many of the SDGs are inherently political, calling for reductions in inequality, improvements in governance and for gender equality. In many areas, national ownership by citizens and state are vital. However in other issues that go beyond aid, there’s a clear agenda for action by countries of the Global North. But it’s precisely these issues, such as international tax and trade reforms, which will be hampered without clear commitment and coordination across governments like the UK. If we continue to focus on aid alone as a proxy for development, it’s also these issues that won’t receive the attention they deserve from policymakers.

From climate change to spiralling inequality, given the challenges the world faces it’s both morally right and in our own self-interests for rich nations like the UK to help the poor. But if we’re unable to move beyond aid and properly consider the most effective ways we can help poor countries, we’ll leave a world to our children and grandchildren that’s more unstable, less secure and with more people mired in poverty than there needs to be.

About David Hulme

Professor of Development Studies Executive Director, Global Development Institute CEO, Effective States and Inclusive Development Research Centre

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Should Rich Nations Help the Poor? They Should...and So Should Emerging Powers

Issued on 04 December 2020

By Professor David Hulme, Global Development Institute

Despite the Covid-19 setback we live in an affluent world. We produce enough food to feed the entire planet and we have the resources to meet everyone’s basic needs. Reallocating just 1% of global wealth would eradicate extreme poverty at a stroke. Yet 3 billion people are deprived of at least one basic human need – food, potable water, sanitation, primary education, shelter, and others.  Almost 700 million people went to bed hungry last night and 19,000 children will die today of easily preventable causes.

As economic growth has slowed down, nationalism has been on the rise in many countries, and helping the distant poor has slid down the international agenda. This must be stopped. It is time to go back to basics and ask ‘should rich and rising nations help the poor…and, what are the best ways?’

This means looking beyond foreign aid and charity at the broader ways in which better-off countries can raise the prospects of poor people: trade, finance, climate change mitigation, migration, and others.

There are two main reasons for this. First, it is the right thing to do – the moral argument. Our common humanity means that those of us who are doing well should help those whose basic needs are not met.

Second, the ‘better-off’ would be foolish not to help the poor and their national governments. This argument is about ‘mutual benefit’. If we want a prosperous, environmentally sustainable, politically stable, and healthy world for ourselves (and our children and grandchildren), then we must help poor people wherever they happen to live. Issues such as new diseases, extreme weather events, international migration, organized crime and terrorism have transnational causes. They must be dealt with through global action built on multilateral cooperation. No country can solve these problems ‘by itself’.

The Covid-19 crisis provides an obvious example. This threatens the lives and livelihoods of people around the world.

While its worst impacts have been on the poor (uncounted deaths, hunger, disability, curtailed education) it also impacts on the better-off. Their business’s growth rates have slowed down, their children are in lockdown in universities in Australia, Europe and the US and their foreign travel plans are cancelled.

Worse could come: if the coronavirus mutates. As the UN’s World Health Organization advises, all countries need to work together to reduce disease transmission, create and internationally share a Covid-19 vaccine and be better prepared for the next pandemic. There will be one: new strains of Avian flu, Ebola, Lassa fever or the Zika virus.

So, how can rich and rising nations help the world’s poor and help themselves?

In the ‘West’, the orthodox answer has been through government-to-government foreign aid and charity. What has this achieved? We know that aid can work. Aid-financed campaigns have eradicated smallpox globally and polio is close to eradication; insecticide-treated bed-nets have driven down infant mortality rates in Africa; and millions of AIDS sufferers are alive and well today because of aid-financed antiretroviral medicines. But, it does not work all the time and critically, foreign aid has not created inclusive and sustainable development for recipients.

Looking beyond aid there is a growing consensus that economic structural transformation in poorer countries requires action by both the state and businesses. The state has an important role to play in technologically upgrading economic activity, providing infrastructure and public services (health, education, and social protection).  Commercial firms need to be dynamic and successfully compete in a globalized economy.

As I argue in my newly translated book ( Should Rich Nations Help the Poor? ), if high income and economically rising nations are serious about helping the world’s poor, they need to go beyond aid and adopt ‘joined-up’ policies for international development. First, reform international trade policies so that poor countries and poor people can gain a greater share of the benefits derived from trade. Second, take national and multilateral action against climate change through mitigation and supporting adaptation. Third, reform global finance to stop the illicit and illegal extraction of income from poor countries to rich countries by corporations and corrupt elites. Fourth, recognize international migration as a highly effective means of reducing poverty, achieving inclusive growth alongside meeting the needs of ageing populations, in Europe and east Asia.

Continuing with existing policies is not a viable policy option for two reasons.

Most obvious is climate change . The material foundation of humanity’s improved living standards over the last two centuries was achieved by carbon profligate economic processes. This cannot continue as global warming has set off disastrous environmental changes.  Globally, we must move to an environmentally sustainable economic model through the Paris Climate Agreement. But, that needs leadership. China could step forward and the US could collaborate.

Less obvious, but just as important, the rise in economic and social inequality in countries must be stopped. Contemporary global economic processes and social norms generate income and wealth inequalities on a previously unimaginable scale. The richest 1% of humanity (most of them living in China, Europe and the US) will soon own as much wealth as the remaining 99%. High levels of inequality hamper growth, undermine education and health services, exacerbate poverty and may lead to political decline – as seen in the UK and US.

This analysis sets a challenging agenda. We need an all-out war of ideas to raise levels of public understanding of why rich and rising nations must help poor people and poor countries.

We live in ‘one world’, and if we want good lives for ourselves and future generations, then environmental sustainability and global social justice must be pursued.

Multilateral action by rich and rising nations can systematically tackle the big issues for international development: trade, climate change, access to finance/technology, migration, and inequality. This may seem unlikely, but so did abolishing slavery, winning votes for women, establishing international humanitarian law and, the Paris Climate Agreement.

About The Author

David Hulme is Professor of Development Studies at the University of Manchester’s Global Development Institute and Global Agriculture, China Agricultural University, Beijing. He is also Chief Executive Officer of the Effective States and Inclusive Development Research Centre. 

First published in China Daily (Global Edition), 13 November 2020.

Image by Angela Yuriko Smith from Pixabay

Copyright © 2024 DSA Ireland

Digital Revolutionaries

By: Joe Hasell , Max Roser , Esteban Ortiz-Ospina and Pablo Arriagada

Global poverty is one of the most pressing problems that the world faces today. The poorest in the world are often undernourished , without access to basic services such as electricity and safe drinking water ; they have less access to education , and suffer from much poorer health .

In order to make progress against such poverty in the future, we need to understand poverty around the world today and how it has changed.

On this page you can find all our data, visualizations and writing relating to poverty. This work aims to help you understand the scale of the problem today; where progress has been achieved and where it has not; what can be done to make progress against poverty in the future; and the methods behind the data on which this knowledge is based.

Key Insights on Poverty

Measuring global poverty in an unequal world.

There is no single definition of poverty. Our understanding of the extent of poverty and how it is changing depends on which definition we have in mind.

In particular, richer and poorer countries set very different poverty lines in order to measure poverty in a way that is informative and relevant to the level of incomes of their citizens.

For instance, while in the United States a person is counted as being in poverty if they live on less than roughly $24.55 per day, in Ethiopia the poverty line is set more than 10 times lower – at $2.04 per day. You can read more about how these comparable national poverty lines are calculated in this footnote. 1

To measure poverty globally, however, we need to apply a poverty line that is consistent across countries.

This is the goal of the International Poverty Line of $2.15 per day – shown in red in the chart – which is set by the World Bank and used by the UN to monitor extreme poverty around the world.

We see that, in global terms, this is an extremely low threshold indeed – set to reflect the poverty lines adopted nationally in the world’s poorest countries. It marks an incredibly low standard of living – a level of income much lower than just the cost of a healthy diet .

From $1.90 to $2.15 a day: the updated International Poverty Line

What you should know about this data.

• Global poverty data relies on national household surveys that have differences affecting their comparability across countries or over time. Here the data for the US relates to incomes and the data for other countries relates to consumption expenditure. 2
• The poverty lines here are an approximation of national definitions of poverty, made in order to allow comparisons across the countries. 1
• Non-market sources of income, including food grown by subsistence farmers for their own consumption, are taken into account. 3
• Data is measured in 2017 international-$, which means that inflation and differences in the cost of living across countries are taken into account. 4

Global extreme poverty declined substantially over the last generation

Over the past generation extreme poverty declined hugely. This is one of the most important ways our world has changed over this time.

There are more than a billion fewer people living below the International Poverty Line of $2.15 per day today than in 1990. On average, the number declined by 47 million every year, or 130,000 people each day. 5

The scale of global poverty today, however, remains vast. The latest global estimates of extreme poverty are for 2019. In that year the World Bank estimates that around 650 million people – roughly one in twelve – were living on less than $2.15 a day.

Extreme poverty: how far have we come, how far do we still have to go?

• Extreme poverty here is defined according to the UN’s definition of living on less than $2.15 a day – an extremely low threshold needed to monitor and draw attention to the living conditions of the poorest around the world. Read more in our article, From $1.90 to $2.15 a day: the updated International Poverty Line .
• Global poverty data relies on national household surveys that have differences affecting their comparability across countries or over time. 2
• Surveys are less frequently available in poorer countries and for earlier decades. To produce regional and global poverty estimates, the World Bank collates the closest survey for each country and projects the data forward or backwards to the year being estimated. 6
• Data is measured in 2017 international-$, which means that inflation and differences in the cost of living across countries are taken into account . 4

The pandemic pushed millions into extreme poverty

Official estimates for global poverty over the course of the Coronavirus pandemic are not yet available.

But it is clear that the global recession it brought about has had a terrible impact on the world’s poorest.

Preliminary estimates produced by researchers at the World Bank suggest that the number of people in extreme poverty rose by around 70 million in 2020 – the first substantial rise in a generation – and remains around 70-90 million higher than would have been expected in the pandemic’s absence. On these preliminary estimates, the global extreme poverty rate rose to around 9% in 2020. 7

• Figures for 2020-2022 are preliminary estimates and projections by World Bank researchers, based on economic growth forecasts. The pre-pandemic projection is based on growth forecasts prior to the pandemic. You can read more about this data and the methods behind it in the World Bank’s Poverty and Shared Prosperity 2022 report. 8

Hundreds of millions will remain in extreme poverty on current trends

Extreme poverty declined during the last generation because the majority of the poorest people on the planet lived in countries with strong economic growth – primarily in Asia.

The majority of the poorest now live in Sub-Saharan Africa, where weaker economic growth and high population growth in many countries has led to a rising number of people living in extreme poverty.

The chart here shows projections of global extreme poverty produced by World Bank researchers based on economic growth forecasts. 9

A very bleak future is ahead of us should such weak economic growth in the world’s poorest countries continue – a future in which extreme poverty is the reality for hundreds of millions for many years to come.

• The extreme poverty estimates and projections shown here relate to a previous release of the World Bank’s poverty and inequality data in which incomes are expressed in 2011 international-$. The World Bank has since updated its methods, and now measures incomes in 2017 international-$. As part of this change, the International Poverty Line used to measure extreme poverty has also been updated: from $1.90 (in 2011 prices) to $2.15 (in 2017 prices). This has had little effect on our overall understanding of poverty and inequality around the world. You can read more about this change and how it affected the World Bank estimates of poverty in our article From $1.90 to $2.15 a day: the updated International Poverty Line .
• Figures for 2018 and beyond are preliminary estimates and projections by Lakner et al. (2022), based on economic growth forecasts. You can read more about this data and the methods behind it in the related blog post. 10
• Data is measured in 2011 international-$, which means that inflation and differences in the cost of living across countries are taken into account. 4

The rapid progress seen in many countries shows an end to poverty is possible

Each of the countries shown in the chart achieved large declines in extreme poverty over the last generation. 11

The fact that rapid progress against poverty has been achieved in many places is one of the most important lessons we can learn from the available data on extreme poverty.

For those who are not aware of such progress – which is the majority of people – it would be easy to make the mistake of believing that poverty is inevitable and that action to tackle poverty is hence doomed to fail.

The huge progress seen in so many places shows that this view is incorrect.

Interactive visualization requires JavaScript.

After 200 years of progress the fight against global poverty is just beginning

Over the past two centuries the world made good progress against extreme poverty. But only very recently has poverty fallen at higher poverty lines.

Global poverty rates at these higher lines remain very high:

• 25% of the world lives on less than $3.65 per day – a poverty line broadly reflective of the lines adopted in lower-middle income countries.
• 47% of the world lives on less than $6.85 per day – a poverty line broadly reflective of the lines adopted in upper-middle income countries.
• 84% live on less than $30 per day – a poverty line broadly reflective of the lines adopted in high income countries. 12

Economic growth over the past two centuries has allowed the majority of the world to leave extreme poverty behind. But by the standards of today’s rich countries, the world remains very poor. If this should change, the world needs to achieve very substantial economic growth further still.

The history of the end of poverty has just begun

How much economic growth is necessary to reduce global poverty substantially?

• The data from 1981 onwards is based on household surveys collated by the World Bank. Earlier figures are from Moatsos (2021), who extends the series backwards based on historical reconstructions of GDP per capita and inequality data. 13
• All data is measured in international-$ which means that inflation and differences in purchasing power across countries are taken into account. 4
• The World Bank data for the higher poverty lines is measured in 2017 international-$. Recently, the World Bank updated its methodology having previously used 2011 international-$ to measure incomes and set poverty lines. The Moatsos (2021) historical series is based on the previously-used World Bank definition of extreme poverty – living on less than $1.90 a day when measured in 2011 international-$. This is broadly equivalent to the current World Bank definition of extreme poverty – living on less than $2.15 a day when measured in 2017 international-$. You can read more about this update to the World Bank’s methodology and how it has affected its estimates of poverty in our article From $1.90 to $2.15 a day: the updated International Poverty Line .
• The global poverty data shown from 1981 onwards relies on national household surveys that have differences affecting their comparability across countries or over time. 2
• Such surveys are less frequently available in poorer countries and for earlier decades. To produce regional and global poverty estimates, the World Bank collates the closest survey for each country and projects the data forward or backwards to the year being estimated. 6
• Non-market sources of income, including food grown by subsistence farmers for their own consumption, are taken into account. This is also true of the historical data – in producing historical estimates of GDP per capita on which these long-run estimates are based, economic historians take into account such non-market sources of income, as we discuss further in our article How do we know the history of extreme poverty?

Explore Data on Poverty

About this data.

All the data included in this explorer is available to download in GitHub , alongside a range of other poverty and inequality metrics.

Where is this data sourced from?

This data explorer is collated and adapted from the World Bank’s Poverty and Inequality Platform (PIP).

The World Bank’s PIP data is a large collection of household surveys where steps have been taken by the World Bank to harmonize definitions and methods across countries and over time.

About the comparability of household surveys

There is no global survey of incomes. To understand how incomes across the world compare, researchers need to rely on available national surveys.

Such surveys are partly designed with cross-country comparability in mind, but because the surveys reflect the circumstances and priorities of individual countries at the time of the survey, there are some important differences.

Income vs expenditure surveys

One important issue is that the survey data included within the PIP database tends to measure people’s income in high-income countries, and people’s consumption expenditure in poorer countries.

The two concepts are closely related: the income of a household equals their consumption plus any saving, or minus any borrowing or spending out of savings.

One important difference is that, while zero consumption is not a feasible value – people with zero consumption would starve – a zero income is a feasible value. This means that, at the bottom end of the distribution, income and consumption can give quite different pictures about a person’s welfare. For instance, a person dissaving in retirement may have a very low, or even zero, income, but have a high level of consumption nevertheless.

The gap between income and consumption is higher at the top of this distribution too, richer households tend to save more, meaning that the gap between income and consumption is higher at the top of this distribution too. Taken together, one implication is that inequality measured in terms of consumption is generally somewhat lower than the inequality measured in terms of income.

In our Data Explorer of this data there is the option to view only income survey data or only consumption survey data, or instead to pool the data available from both types of survey – which yields greater coverage.

Other comparability issues

There are a number of other ways in which comparability across surveys can be limited. The PIP Methodology Handbook provides a good summary of the comparability and data quality issues affecting this data and how it tries to address them.

In collating this survey data the World Bank takes a range of steps to harmonize it where possible, but comparability issues remain. These affect comparisons both across countries and within individual countries over time.

To help communicate the latter, the World Bank produces a variable that groups surveys within each individual country into more comparable ‘spells’. Our Data Explorer provides the option of viewing the data with these breaks in comparability indicated, and these spells are also indicated in our data download .

Global and regional poverty estimates

Along with data for individual countries, the World Bank also provides global and regional poverty estimates which aggregate over the available country data.

Surveys are not conducted annually in every country however – coverage is generally poorer the further back in time you look, and remains particularly patchy within Sub-Saharan Africa. You can see that visualized in our chart of the number of surveys included in the World Bank data by decade.

In order to produce global and regional aggregate estimates for a given year, the World Bank takes the surveys falling closest to that year for each country and ‘lines-up’ the data to the year being estimated by projecting it forwards or backwards.

This lining-up is generally done on the assumption that household incomes or expenditure grow in line with the growth rates observed in national accounts data. You can read more about the interpolation methods used by the World Bank in Chapter 5 of the Poverty and Inequality Platform Methodology Handbook.

How does the data account for inflation and for differences in the cost of living across countries?

To account for inflation and price differences across countries, the World Bank’s data is measured in international dollars. This is a hypothetical currency that results from price adjustments across time and place. It is defined as having the same purchasing power as one US-$ would in the United States in a given base year. One int.-$ buys the same quantity of goods and services no matter where or when it is spent.

There are many challenges to making such adjustments and they are far from perfect. Angus Deaton ( Deaton, 2010 ) provides a good discussion of the difficulties involved in price adjustments and how this relates to global poverty measurement.

But in a world where price differences across countries and over time are large it is important to attempt to account for these differences as well as possible, and this is what these adjustments do.

In September 2022, the World Bank updated its methodology, and now uses international-$ expressed in 2017 prices – updated from 2011 prices. This has had little effect on our overall understanding of poverty and inequality around the world. But poverty estimates for particular countries vary somewhat between the old and updated methodology. You can read more about this update in our article From $1.90 to $2.15 a day: the updated International Poverty Line .

To allow for comparisons with the official data now expressed in 2017 international-$ data, the World Bank continues to release its poverty and inequality data expressed in 2011 international-$ as well. We have built a Data Explorer to allow you to compare these, and we make all figures available in terms of both sets of prices in our data download .

Absolute vs relative poverty lines

This dataset provides poverty estimates for a range of absolute and relative poverty lines.

An absolute poverty line represents a fixed standard of living; a threshold that is held constant across time. Within the World Bank’s poverty data, absolute poverty lines also aim to represent a standard of living that is fixed across countries (by converting local currencies to international-$). The International Poverty Line of $2.15 per day (in 2017 international-$) is the best known absolute poverty line and is used by the World Bank and the UN to measure extreme poverty around the world.

The value of relative poverty lines instead rises and falls as average incomes change within a given country. In most cases they are set at a certain fraction of the median income. Because of this, relative poverty can be considered a metric of inequality – it measures how spread out the bottom half of the income distribution is.

The idea behind measuring poverty in relative terms is that a person’s well-being depends not on their own absolute standard of living but on how that standard compares with some reference group, or whether it enables them to participate in the norms and customs of their society. For instance, joining a friend’s birthday celebration without shame might require more resources in a rich society if the norm is to go for an expensive meal out, or give costly presents.

Our dataset includes three commonly-used relative poverty lines: 40%, 50%, and 60% of the median.

Such lines are most commonly used in rich countries, and are the main way poverty is measured by the OECD and the European Union .More recently, relative poverty measures have come to be applied in a global context. The share of people living below 50 per cent of median income is, for instance, one of the UN’s Sustainable Development Goal indicators . And the World Bank now produces estimates of global poverty using a Societal Poverty Line that combines absolute and relative components.

When comparing relative poverty rates around the world, however, it is important to keep in mind that – since average incomes are so far apart – such relative poverty lines relate to very different standards of living in rich and poor countries.

Does the data account for non-market income, such as food grown by subsistence farmers?

Many poor people today, as in the past, rely on subsistence farming rather than a monetary income gained from selling goods or their labor on the market. To take this into account and make a fair comparison of their living standards, the statisticians that produce these figures estimate the monetary value of their home production and add it to their income/expenditure.

Research & Writing

Despite making immense progress against extreme poverty, it is still the reality for every tenth person in the world.

$2.15 a day: the updated International Poverty Line

What does the World Bank’s updated methods mean for our understanding of global poverty?

Global poverty over the long-run

How do we know the history of extreme poverty?

Joe Hasell and Max Roser

Breaking out of the Malthusian trap: How pandemics allow us to understand why our ancestors were stuck in poverty

The short history of global living conditions and why it matters that we know it

Poverty & economic growth.

The economies that are home to the poorest billions of people need to grow if we want global poverty to decline substantially

Global poverty in an unequal world: Who is considered poor in a rich country? And what does this mean for our understanding of global poverty?

What do poor people think about poverty?

More articles on poverty.

Three billion people cannot afford a healthy diet

Hannah Ritchie

Homelessness and poverty in rich countries

Esteban Ortiz-Ospina

OWID Data Collection: Inequality and Poverty

Joe Hasell and Pablo Arriagada

Interactive Charts on Poverty

Official definitions of poverty in different countries are often not directly comparable due to the different ways poverty is measured. For example, countries account for the size of households in different ways in their poverty measures.

The poverty lines shown here are an approximation of national definitions, harmonized to allow for comparisons across countries. For all countries apart from the US, we take the harmonized poverty line calculated by Jolliffe et al. (2022). These lines are calculated as the international dollar figure which, in the World Bank’s Poverty and Inequality Platform (PIP) data, yields the same poverty rate as the officially reported rate using national definitions in a particular year (around 2017).

For the US, Jolliffe et al. (2022) use the OECD’s published poverty rate – which is measured against a relative poverty line of 50% of the median income. This yields a poverty line of $34.79 (measured using 2017 survey data). This however is not the official definition of poverty adopted in the US. We calculated an alternative harmonized figure for the US national poverty using the same method as Jolliffe et al. (2022), but based instead on the official 2019 poverty rate – as reported by the U.S. Census Bureau.

You can see in detail how we calculated this poverty line in this Google Colabs notebook .

Jolliffe, Dean Mitchell, Daniel Gerszon Mahler, Christoph Lakner, Aziz Atamanov, and Samuel Kofi Tetteh Baah. 2022. Assessing the Impact of the 2017 PPPs on the International Poverty Line and Global Poverty. The World Bank. Available to read at the World Bank here .

Because there is no global survey of incomes, researchers need to rely on available national surveys. Such surveys are designed with cross-country comparability in mind, but because the surveys reflect the circumstances and priorities of individual countries at the time of the survey, there are some important differences. In collating this survey data the World Bank takes steps to harmonize it where possible, but comparability issues remain.

One important issue is that, whilst in most high-income countries the surveys capture people’s incomes, in poorer countries these surveys tend to capture people’s consumption. The two concepts are closely related: the income of a household equals their consumption plus any saving, or minus any borrowing or spending out of savings.

To help communicate the latter, the World Bank produces a variable that groups surveys within each individual country into more comparable ‘spells’ (which we include in our data download ). Our Data Explorer provides the option of viewing the data with these breaks in comparability indicated.

The international-$ is a hypothetical currency that results from price adjustments across time and place. It is defined as having the same purchasing power as one US-$ in a given base year – in this case 2017. One int.-$ buys the same quantity of goods and services no matter where or when it is spent. There are many challenges to making such adjustments and they are far from perfect. But in a world where price differences across countries and over time are large it is important to attempt to account for these differences as well as possible, and this is what these adjustments do. Read more in our article From $1.90 to $2.15 a day: the updated International Poverty Line .

​​According to World Bank data, in 1990 there were 2.00 billion people living in poverty, and in 2019 that had fallen to 0.648 billion. The average fall over the 29 years in between is: (2.00 billion – 0.648 billion)/29 = 46.6 million. Dividing by the number of days (29 x 365) gives the average daily fall: (2.00 billion – 0.648 billion)/(29 x 365) = 128,000. (All figures rounded to 3 significant figures).

The projections are generally made on the assumption that incomes or expenditure grow in line with the growth rates observed in national accounts data. You can read more about the interpolation methods used by the World Bank in Chapter 5 of the Poverty and Inequality Platform Methodology Handbook.

We use the figures presented in the World Bank’s Poverty and Shared Prosperity 2022 report. Earlier estimates were also published in Lakner, C., Mahler, D.G., Negre, M. et al. How much does reducing inequality matter for global poverty?. J Econ Inequal (2022). https://doi.org/10.1007/s10888-021-09510-w . Available online here .

Earlier estimates were also published in Lakner, C., Mahler, D.G., Negre, M. et al. How much does reducing inequality matter for global poverty?. J Econ Inequal (2022). https://doi.org/10.1007/s10888-021-09510-w . Available online here .

The figures are taken from a World Bank blog post by Nishant Yonzan, Christoph Lakner and Daniel Gerszon Mahler. The post builds on and updates the estimates published by Lakner et al. (2022).In September 2022, the World Bank changed from using 2011 international-$ to 2017 international-$ in the measurement of global poverty. The International Poverty Line used by the World Bank and the UN to define extreme poverty was accordingly updated from $1.90 a day (in 2011 prices) to $2.15 (in 2017 prices).In order to match up to the projected figures, the extreme poverty estimates shown here relate to a previous release of the World Bank’s data using data expressed in 2011 prices, which vary slightly from the latest data in 2017 prices. You can read more about this change and how it affected the World Bank estimates of poverty in our article From $1.90 to $2.15 a day: the updated International Poverty Line .Lakner, C., Mahler, D.G., Negre, M. et al. How much does reducing inequality matter for global poverty?. J Econ Inequal (2022). https://doi.org/10.1007/s10888-021-09510-w . Available online here .

We use the figures provided in the blog post, which extend the methods presented in Lakner et al. (2022).Lakner, C., Mahler, D.G., Negre, M. et al. How much does reducing inequality matter for global poverty?. J Econ Inequal (2022). https://doi.org/10.1007/s10888-021-09510-w . Available online here .

Shown are those countries with a decline of more than 30 percentage points over a period of 15 years or more.There are a number of ways in which comparability across the different household surveys on which this data is based can be limited. These affect comparisons both across countries and within individual countries over time.The World Bank’s Poverty and Inequality Platform Methodology Handbook provides a good summary of the comparability and data quality issues affecting this data and how it tries to address them. In collating this survey data the World Bank takes a range of steps to harmonize it where possible, but comparability issues remain. To help communicate the latter, the World Bank produces a variable that groups surveys within each individual country into more comparable ‘spells’. Our Data Explorer provides the option of viewing the data with these breaks in comparability indicated.

You can read more about how the World Bank sets these higher poverty lines, as well as the International Poverty Line against which it measures extreme poverty, in our article From $1.90 to $2.15 a day: the updated International Poverty Line . To the three poverty lines adopted officially by the World Bank – $2.15, $3.65 and $6.85 – we add a higher line broadly consistent with definitions of poverty in high income countries. See our article Global poverty in an unequal world: Who is considered poor in a rich country? And what does this mean for our understanding of global poverty?

For details of the methods used to produce the long-run poverty data see, Moatsos, M. (2021). Global extreme poverty: Present and past since 1820. In van Zanden, Rijpma, Malinowski and Mira d’Ercole (eds.) How Was Life? Volume II: New Perspectives on Well-Being and Global Inequality since 1820. Available from the OECD here .

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The impact of COVID-19 on global extreme poverty

Subscribe to the sustainable development bulletin, homi kharas homi kharas senior fellow - global economy and development , center for sustainable development.

October 21, 2020

How has COVID-19 affected extreme income poverty across the world? We may never know the full answer. Poverty data is typically drawn from household surveys, and for obvious reasons it is nigh impossible to conduct proper surveys under current conditions in many countries. But we do know that the strongest driver of poverty is economic growth and for this indicator, the International Monetary Fund has just produced new estimates for 2020 and beyond from which inferences can be made as to the impact on poverty. Interested readers can access poverty estimates for every country in the world on the World Poverty Clock , a tool with which I am associated.

The results are sobering. Table 1 shows topline figures, built up from an analysis of 183 countries for which data is reported.

The first row of Table 1 shows a baseline of poverty estimates made in late 2019. A total of 650 million people were thought to be in extreme poverty in 2019 and, given likely growth trajectories, poverty was on a path of a steady reduction in most countries, as well as in the aggregate.

Today, the pattern is quite different. Some small data updates affect the historical record—2019 may have been a better year than previously believed, with slightly fewer poor people in the world. But in 2020, the impact of collapsing growth will be substantial.

Compared to 2019, poverty in 2020 could rise by 120 million people. Compared to the baseline path for poverty, the 2020 figure is 144 million people higher. Some of this will be offset as economies start to recover in 2021, but the longer-term scenario suggests that half of the rise in poverty could be permanent. By 2030, the poverty numbers could still be higher than the baseline by 60 million people.

Figure 1 shows the top 10 countries where extreme poverty is likely to rise the most. Far and away the biggest impact is likely to be felt in India. India is a particular case in having a large number of highly vulnerable people, only recently escaped from poverty, coupled with a very significant expected fall in economic growth. India’s per capita growth rate for 2020 has been revised downwards to about -11 percent this year, one of the deepest recessions in the world. This has sharply altered its poverty trajectory that had been trending downwards. India recently gave up its title as the country with the largest number of extreme poor to Nigeria but will reclaim its title this year, adding 85 million people to its poverty rolls in 2020.

COVID-19 is widely viewed as a temporary shock to economic growth, and indeed the experience of China, which has had a sharp V-shaped recession and recovery, shows this could be the case. For the majority of countries, however, the economic damage could be more long-lasting, and this is the real risk to families that have been pushed below the poverty line. The experience of living with poverty for short periods of time is harsh, but some families have coping mechanisms—assets they can sell, assistance from governments, relatives, and neighbors. But over longer periods of time, poverty leaves permanent scars—malnutrition, susceptibility to disease, missed schooling. For this reason, it is useful to look at the longer-term impact of COVID-19 on poverty, despite all the caveats associated with any decadelong economic forecasts.

Figure 2 provides an estimate of the countries that could have the deepest, long-lasting impact of COVID-19 on poverty. With the exception of Venezuela and Yemen, they are all in Africa. The Asian countries that appear in Figure 1—Bangladesh, India, and the Philippines—disappear from Figure 2 because trend growth rates in Asia are higher, so the impact of recession on poverty is quickly reversed. By contrast, in the African countries that are listed in Figure 2, trend economic growth is slow, so the impact of COVID-19 could set back development for several years. Indeed, for some of the countries with high levels of poverty, like Nigeria and the Democratic Republic of Congo, poverty numbers in 2030 could exceed those in 2020.

The countries listed in Figure 2 are those where the largest effort is needed to offset COVID-19’s impact on the poorest families, by international and domestic, official, and philanthropic actors.

The growing role of cash transfers

While the trajectories summarized above look grim, they are not set in stone. An important lesson from the response to COVID-19 is that cash transfers to poor households can be quickly and effectively deployed. Several countries now have digitized rolls of families eligible for social assistance, along with a capability of making cash payments directly into bank accounts or into mobile wallets from which cash can be extracted at registered dealers. For example, Pakistan introduced the Ehsaas Emergency Relief program in April 2020, designed to provide 12 million families with a cash equivalent of $75. Thanks to a national registration scheme, families could simply send an SMS message to a designated number with their ID number to find out if they were eligible to receive support or not. Simple criteria such as foreign travel, vehicle registration, and monthly phone bill were cross-checked against broader socioeconomic data to determine eligibility. Once eligibility was confirmed, a family member could use a previously issued biometric ID card to receive cash at any one of 18,000+ branches of two local banks.

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Not all countries have such systems in place. But they could. The largest digital ID system in the world is India’s Aadhar unique identification, with over 1.2 billion people registered. A similar approach could be used for a digital moonshot that would register all Africans within a decade at modest cost.

If such systems could be put in place, extreme poverty could be eradicated at a global cost of around $100 billion. This is the size of the poverty gap, post-COVID-19. Figure 3 shows that the number had already stabilized at around $90 billion before COVID-19, and has now been pushed higher.

The poverty gap can be filled by a combination of domestic and international resources. It can be compared to official aid of $105 billion in 2018 (net disbursements to developing countries). It is less than the $130 billion in debt service owed by developing countries in 2020, of which about half will go to private lenders. It is well under 1 percent of the $11 trillion being spent by advanced economies to protect their own citizens and businesses from the impact of COVID-19. It is a fraction of the $2.5 trillion that the IMF has indicated that developing countries should spend to respond appropriately to COVID-19.

There is no technological or financial reason to accept the reversals in global poverty being wrought by COVID-19. The damage is due to a lack of political will and international leadership on the issue.

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Development Solutions: How to be sensitive

Half of the world’s poor live in fragile or conflict-affected countries. To end poverty, we need to break the cycle of fragility with special conflict development solutions

• Part of the series "Development Solutions"
• 1 July 2020

By Mariella Ciuffreda, Sladjana Cosic and Harald Schölzel

No poverty . Some might call it a utopian ideal, but it is an achievable feat. Eliminating poverty is not just an economic necessity. It is our global responsibility. “ No poverty ” is the first among the United Nations Sustainable Development Goals, our blueprint for a better and more sustainable future for all. The 17 goals, intended to be achieved by 2030, are interdependent. If we cannot meet one of them, we fail at all of them.

But poverty is more than just a lack of money or assets. It is lack of food and shelter, as well as lack of access to affordable education, healthcare and basic infrastructure services. To solve poverty, we need to address the underlying issues that contribute to it. Fragility is a critical one.

Today, half of the world’s poor people live in fragile or conflict-affected countries 1 . By 2030, up to 80% of the extremely poor are projected to be living in fragile contexts 2 . Note that’s the same year by which we are supposed to end poverty altogether. This is why fragility has been recognised as a key impediment to the achievement of Sustainable Development Goals, and to our efforts to promote peace and prosperity 3 .

Today, half of the world’s poor people live in fragile or conflict-affected countries . By 2030, up to 80% of the extremely poor are projected to be living in fragile contexts

States of fragility

Addressing fragility will require investment, one that will strengthen countries’ institutions and make their economies and societies more resilient. This is why many international financial institutions, including the European Investment Bank, are scaling up the volume and types of financing they provide to fragile contexts through both public and private sector investments.

But how do we even determine which country is fragile? Fragility is characterised by unstable institutions and poor governance, which result in weak political, fiscal, security and service delivery functions. Fragile states are either unable or unwilling to fulfil these core functions for the majority of, or for specific sections of society. They are also more likely to experience violent conflict.

The link between conflict and fragility is clear. To understand conflict’s causes and drivers, one has to consider the overall institutional framework of the country. Fragility of both institutions and societies are key risk factors for conflict.

Fragility and conflict have been identified as critical development challenges , both for low- and middle-income countries, and they represent a major trap for developing countries. Since 2010, we have seen a dramatic spike in the number of violent conflicts 4 . From highly internationalised conflicts, such as the war in Syria, to localised conflicts in east Ukraine, northern Mali, and Mindanao in the Philippines.

But fragility is about more than just conflict. A country doesn’t need to experience an outright violent conflict to be deemed fragile.

To understand how fragile a country is, the European Investment Bank relies on specialised sources, such as the Organisation for Economic Co-operation and Development. Its 2020 States of Fragility report lists 57 fragile states. The European Investment Bank has planned or active operations in 39 of them . Other relevant sources include the World Bank’s Harmonized List of Fragile Situations , and the Global Peace Index .

Sense and sensitivity in conflict development solutions

Not to invest in countries affected by fragility, conflict and high levels of violence, would be to disregard two billion people living in them. The European Investment Bank has a long record of investing in fragile contexts inside and outside Europe.

The Bank itself was born at the heart of the European peace project. World War II wounds were still healing back when the EIB was founded. Economic integration was a major aspect of peacebuilding in Europe, and the European Investment Bank played a central role in it.

In the aftermath of the conflicts in former Yugoslavia in the 1990s, the Bank emerged as the leading international financier supporting reconstruction in the Western Balkans . More recently, the EIB developed, together with the European Commission, a €200 million Early Recovery Programme to support the conflict-affected areas in Ukraine . The United Nations Development Programme is helping ensure the transparency of the programme’s implementation .

Since the civil war broke out in Mali in 2012, the EIB has supported small businesses and financed water and energy infrastructure in the country. In the capital, Bamako, the Bank worked to provide clean water to more than half a million people , many of whom have fled the conflict-hit north of the country. The Bank is also contributing to the peacebuilding process in Colombia, having approved more than €600 million in financing for infrastructure projects since 2006. It set up an office in Bogotá to promote economic and social development on the continent.

To strengthen the effectiveness of our development interventions and maximize positive impact on peace, the Bank has developed a conflict sensitive approach .

The European Investment Bank’s conflict sensitive approach aims to:

• reduce the risk of the conflict and fragility derailing the project
• avoid the risk of conflict being exacerbated by the project and
• contribute to conflict prevention and peacebuilding efforts through its investments.

Conflict sensitivity refers to the awareness of risks related to conflict, but also of the impact the project can have on the conflict itself – both in positive and negative terms.

Public and private investors need to understand that their investments don’t happen in a vacuum. Their financing can tilt the potential conflict one way or another. They can have a positive influence by contributing to conflict prevention and stabilisation. They can also unintentionally aggravate things.

To help its staff translate the principles of conflict sensitivity into action, the European Investment Bank set up a Conflict Sensitivity Helpdesk . The Helpdesk is run in collaboration with internationally renowned experts from two conflict-specialist organisations, Saferworld and Swisspeace . They help the EIB by assessing contextual risks and opportunities, and making recommendations for project adjustments, in order to make them more conflict sensitive. One of the projects in question is the desalination plant in Gaza.

Bringing water to Gaza

Gaza has a water crisis. Only 3% of its freshwater meets the World Health Organization’s quality guidelines. One of the most densely populated places in the world, Gaza faces the worst drinking-water conditions in the region. After a decade of work, however, we are close to securing clean water to two million people.

The solution: a desalination plant powered partly by solar energy , which will provide 55 million cubic meters of quality drinking water a year feeding a rehabilitated and upgraded water distribution network. This project is a result of an international collaboration spearheaded by the European Investment Bank, and its €580 million cost will be split equally between Western and Arab partners.

It’s a story over a decade in the making, due to the lack of stability in the region and the complex political context.

Anywhere else, this project might have been easy to implement. But Israel gives approval for the entry of materials and people into Gaza and takes a special interest in “dual use” materials that it considers potential security concerns. Thanks to the commitment of the parties involved, a solution has been found, which will enable the materials to travel to Gaza so the plant can be constructed.

The EIB’s Conflict Sensitivity Helpdesk supports the project by providing relevant political economy insights and suggesting appropriate measures for project preparation

The idea for a desalination plant had been recommended years before the EIB stepped in, but as many development projects in fragile areas it required an increased commitment and resourcefulness.

A common thread

Fragility is a complex phenomenon. As such it is closely linked to other significant development themes, among which climate change, gender equality, and migration and forced displacement are notable. The European Investment Bank is making important contributions in each of these.

I. Climate change

Climate change is a major driver of fragility and a threat multiplier.This doesn’t mean that conflicts emerge solely due to climate change, but that its impact often exacerbates the existing fragility. It is also likely to result in an increase in conflict and violence. On the other hand, conflict and fragility negatively affect the country’s ability to respond and adapt to climate change. The relationship is troublesome both ways.

However, climate action intervention can also contribute to conflict prevention. Reducing fragility—thereby improving a country’s ability to respond and adapt to climate change—contributes to the success of environmental and climate investments. As the EU climate bank , the EIB seeks to apply its experience in climate finance and reinforce the work on supporting climate projects in fragile contexts.

II. Gender equality

Gender considerations should be fully integrated in post-conflict and conflict-prevention policies and programmes. There is a strong correlation between women’s empowerment and gender equality and peace levels in a country 6 . A 2015 global study even named gender equality the number one predictor of peace. If you contribute to gender equality, you contribute to conflict prevention in a fragile context.

Women suffer disproportionately from the effects of violent conflict. At the same time, women have a critical role to play in peacebuilding, even though they are often excluded from positions of power. During conflict and post-conflict, women take on the roles of community mobilisers, often lead the recovery efforts and provide humanitarian aid. Women played a critical role in economic recovery in the aftermath of the 1994 genocide in Rwanda and in the Colombian peace negotiations, the result of which is internationally recognised as history’s most inclusive peace deal .

Since 2018, the European Investment Bank has provided training to its staff focusing on the connection between gender equality and fragility, and seeks to operationalize it by embedding gender equality in everything we do in fragile contexts.

III. Migration and forced displacement

An unprecedented 70.8 million people have been forced from their homes in 2019. Among them 25.9 million refugees 7 . The overwhelming part, however, were internally displaced people impacted by conflict. It’s no wonder migration and forced displacement have become major areas of focus for global development policy makers and institutions in recent years.

In 2016, the European Investment Bank launched the Economic Resilience Initiative , as part of the European Union’s response to the challenges in the Southern Neighbourhood and Western Balkans. The Economic Resilience Initiative blends funds from donors with EIB financing. It is designed to help these regions respond to crises such as refugee migration, economic downturns, political instability and natural disasters. The initiative is also focusing on creating employment and enhancing economic growth.

How things should be done

There were 54 active conflicts in the world in 2019 5 . To break the cycle of fragility and conflict we need to help these societies and their institutions recover. We need to invest in these countries, but in a way that will empower people and create the conditions for them to invest in their own lives. How can investors do that without making a bad situation worse?

Uppsala Conflict Data Program.

First, fragile states are not “blank slates” – or blank states, on which one can build new economic and social systems from scratch . This means dealing with the remnants of its institutions, however compromised they might be.

If investing in a fragile context, one needs to understand the local context. Not all fragile situations are the same. Avoid the “one size fits all” approach. Adapt strategies, products and services to fit the current and future needs of people and societies, which allow them to be flexible and resilient in times of crisis.

Expect that the project might take longer to get off the ground compared to regular circumstances. We mustn’t look for a quick fix, but rather a long-term solution. Economic investment alone might create wealth, but this wealth can be destroyed if the conflict re-emerges. This is why we need to apply a conflict sensitive approach and focus on conflict prevention. The investment should enable inclusion of different sections of society, especially those groups that are in danger of being excluded and under-represented. Ensuring an inclusive stakeholder engagement , which specifically targets marginalised groups, can lead to better development outcomes and higher levels of trust from local communities. Continuous inclusive stakeholder engagement is essential in countries where the sources of violence and conflict may be exclusion, discrimination, and marginalisation.

The main contribution of investment to conflict prevention is in providing conditions for self-sustaining economic growth, accompanied by significant employment creation and income generation. This is crucial to build peace in post-conflict situations. Employment is particularly important to short-term stability as it enables reintegration of ex-combatants and returnees.

Fragile states are not “blank slates” – or blank states, on which one can build new economic and social systems from scratch.

Partnerships with local communities, civil society organisations and relevant international organisations are especially vital in fragile and conflict-affected countries. These can strengthen project implementation and lead to efficiency savings, improved targeting of beneficiaries and potential innovations – all of which can help improve project outcomes and sustainability as well as enhance stakeholders’ sense of ownership.

Finally, the idea behind investment in post-conflict countries is not to restore these societies to the very pre-war conditions that fuelled the conflict in the first place. But to support the transformation of these societies politically, economically and socially by building institutional resilience and creating conditions for investment. Helping these countries make their institutions stronger and providing people with the support to rebuild their lives and livelihoods is the only way of breaking the vicious cycle of fragility and poverty.

Mariella Ciuffreda is a policy officer at the European Investment Bank. Sladjana Cosic is a senior social development specialist at the Environment, Climate and Social Office (ECSO) of the European Investment Bank. Harald Schölzel is a water engineer at the European Investment Bank.

• The New European Consensus on Development, signed by the European Union and its Member States on 7 June 2017, stresses that "countries in situations of fragility or affected by conflict require special attention and sustained international engagement in order to achieve sustainable development" and that "the development cooperation of the EU and its Member States will be targeted where the need is greatest and where it can have most impact, especially in Least Developed Countries and in situations of fragility and conflict”.
• Uppsala Conflict Data Program

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Ending Poverty

The COVID-19 pandemic has caused an increase in the number of people living in extreme poverty, for the first time in a generation. Progress in important areas, such as childhood vaccination and income equality between countries has been reversed, which has not happened in the past three decades. If the current trend continues, it is projected that by 2030, a shocking 575 million people will still be living in extreme poverty, and 84 million children will not be able to attend school. It is estimated that it will take almost 300 years to eliminate discriminatory laws, end child marriage and close gender gaps in legal protection. In 2020, with 71 million more people living in extreme poverty than the year before, the COVID-19 crisis caused the biggest setback in global poverty reduction in decades.

In 2020, with 71 million more people living in extreme poverty than the year before, the COVID-19 crisis caused the biggest setback in global poverty reduction in decades. In April 2020, the United Nations issued a framework for the immediate socio-economic response to COVID-19  and created the Secretary-General's UN COVID-19 Response and Recovery Fund .

From 1990 to 2014, the world made remarkable progress in reducing extreme poverty, with over one billion people moving out of that condition. The global poverty rate decreased by an average of 1.1 percentage points each year, from 37.8 percent to 11.2 percent in 2014. However, between 2014 and 2019, the pace of poverty reduction slowed to 0.6 percentage points per year, which is the slowest rate seen in the past three decades. Within the 24-year period, most of the poverty reduction was observed in East Asia and the Pacific, as well as South Asia.

What is Poverty?

Poverty entails more than the lack of income and productive resources to ensure sustainable livelihoods. Its manifestations include hunger and malnutrition, limited access to education and other basic services, social discrimination and exclusion, as well as the lack of participation in decision-making. In 2015, more than 736 million people lived below the international poverty line. Around 10 per cent of the world population (pre-pandemic) was living in extreme poverty and struggling to fulfil the most basic needs like health, education, and access to water and sanitation, to name a few. There were 122 women aged 25 to 34 living in poverty for every 100 men of the same age group, and more than 160 million children were at risk of continuing to live in extreme poverty by 2030.

Poverty facts and figures

• According to the most recent estimates, in 2023 almost 700 million people around the world were subsisting on less than $2.15.
• The share of the world’s workers living in extreme poverty fell by half over the last decade: from 14.3 per cent in 2010 to 7.1 per cent in 2019. However, in 2020 it rose for the first time in two decades after the COVID-19 pandemic.
• It is projected that the global goal of ending extreme poverty by 2030 will not be achieved , with almost 600 million people still living in extreme poverty.
• One out of six children lives in extreme poverty . Between 2013 and 2022, the number of children living on less than US$2.15 a day decreased from 383 million to 333 million, but the economic impact of COVID-19 led to three lost years of progress. 
• In 2021, 53 per cent of the world’s population – 4.1 billion people – did not benefit from any form of social protection .

Poverty and the Sustainable Development Goals

Ending poverty in all its forms is the first of the 17 Sustainable Development Goals (SDGs) of the  2030 Agenda for Sustainable Development .

The SDGs’ main reference to combatting poverty is made in  target 1.A : “Ensure significant mobilization of resources from a variety of sources, including through enhanced development cooperation, in order to provide adequate and predictable means for developing countries, in particular least developed countries, to implement programmes and policies to end poverty in all its dimensions.”

The SDGs also aim to create sound policy frameworks at national and regional levels, based on pro-poor and gender-sensitive development strategies to ensure that by 2030 all men and women have equal rights to economic resources, as well as access to basic services, ownership and control over land and other forms of property, inheritance, natural resources, appropriate new technology and financial services, including microfinance.

Measuring Poverty

There has been marked progress in reducing poverty over the past decades. In 2015, 10 per cent of the world’s population lived at or below $1.90 a day -down from 16 per cent in 2010 and 36 per cent in 1990- while in 2023 almost 700 million people around the world were subsisting on less than $2.15.

At current rates of progress, the world will likely not meet the global goal of ending extreme poverty by 2030 , with estimates indicating that nearly 600 million people will still be struggling with extreme poverty then.

Extreme poverty is concentrated in places where it will be hardest to eradicate— among the least developed countries, in conflict-affected areas, and in remote, rural areas. The outlook is also grim for the nearly 50 percent of the world’s population who live on less than $6.85 a day – the measure used for upper-middle-income countries.

Global Action

The 2030 Agenda for Sustainable Development promises to leave no one behind and to reach those furthest behind first. Meeting this ambitious development agenda requires visionary policies for sustainable, inclusive, sustained and equitable economic growth, supported by full employment and decent work for all, social integration, declining inequality, rising productivity and a favorable environment. In the 2030 Agenda, Goal 1 recognizes that ending poverty in all its forms everywhere is the greatest global challenge facing the world today and an indispensable requirement for sustainable development.

While progress in eradicating extreme poverty has been incremental and widespread, the persistence of poverty, including extreme poverty remains a major concern in Africa, the least developed countries, small island developing States, in some middle-income countries, and countries in situations of conflict and post-conflict countries. In light of these concerns, the General Assembly, at its seventy-second session, decided to proclaim the Third United Nations Decade for the Eradication of Poverty  (2018–2027). The objective of the Third Decade is to maintain the momentum generated by the implementation of the  Second United Nations Decade for the Eradication of Poverty  (2008-2017) towards poverty eradication. Further, the 3rd Decade is also expected to support, in an efficient and coordinated manner, the internationally agreed development goals related to poverty eradication, including the Sustainable Development Goals.

Department of Economic and Social Affairs (DESA)

In 1995, the  World Summit for Social Development  held in Copenhagen, identified three core issues: poverty eradication, employment generation and social integration, in contributing to the creation of an international community that enables the building of secure, just, free and harmonious societies offering opportunities and higher standards of living for all.

Within the  United Nations system , the  Division for Social Policy and Development (DSPD)  of the  Department of Economic and Social Affairs (DESA)  acts as Focal Point for the United Nations Decade for the Eradication of Poverty and undertakes activities that assist and facilitate governments in more effective implementation of the commitments and policies adopted in the Copenhagen Declaration on Social Development and the further initiatives on Social Development adopted at the 24th Special session of the General Assembly.

A potential game-changer in accelerating SDG progress

At the 2023 SDG Summit held at the UN’s headquarters in New York, the General Assembly adopted a political declaration to accelerate action to achieve the 17 Sustainable Development Goals (SDG). The document aims to drive economic prosperity and well-being for all people while protecting the environment. In addition, it includes a commitment to financing for developing countries and supports the proposal of an SDG Stimulus of at least $500 billion annually, as well as an effective debt-relief mechanism.

• International Day for the Eradication of Poverty

Through  resolution 47/196  adopted on 22 December 1992, the General Assembly declared 17 October as the  International Day for the Eradication of Poverty .

The observance of the International Day for the Eradication of Poverty can be traced back to 17 October 1987. On that day, over a hundred thousand people gathered at the Trocadéro in Paris, where the Universal Declaration of Human Rights was signed in 1948, to honour the victims of extreme poverty, violence and hunger. They proclaimed that poverty is a violation of human rights and affirmed the need to come together to ensure that these rights are respected. These convictions are inscribed on a commemorative stone unveiled that day. Since then, people of all backgrounds, beliefs and social origins have gathered every year on October 17th to renew their commitment and show their solidarity with the poor.

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Why Do Some Countries Develop and Others Not?

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• First Online: 21 March 2019

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This chapter discusses the reasons why countries develop or remain poor. It examines the many reasons advanced for this and provides fresh perspectives on historical experience and the academic literature. It looks both backward over the past 70 years and forward to consider new factors shaping the development of nations and the roles of businesses, governments and individuals everywhere.

This chapter draws extensively on Ian Goldin, The Pursuit of Development: Economic Growth, Social Change and Ideas , Oxford University Press, 2017. Readers are referred to the book for the full references and for recommendations and further reading.

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Keynes, Economic Development and the Developing Countries

Development Economics

Jakob de Haan Recommends “Why Nations Fail: The Origins of Power, Prosperity, and Poverty” by Daron Acemoglu and James Robinson

1 introduction.

How individuals and societies develop over time is a key question for global citizens. Too many people in the world still live in extreme poverty. About one billion people live on less than $1.25 a day (the World Bank’s definition of extreme or absolute poverty) while about 2.2 billion people live on less than $2 per day. What can be done about this?

Development Studies as an academic discipline is relatively new, but the questions being asked are not—philosophers have puzzled over them for millennia. There are many definitions of development and the concept itself has evolved rapidly over recent decades. To develop is to grow, which many economists and policy-makers have taken to mean economic growth. Yet development is not confined to economic growth. Development is no longer the preserve of economists and the subject itself has enjoyed rapid evolution to become the subject of interdisciplinary scholarship drawing on politics, sociology, psychology, history, geography, anthropology, medicine and many other disciplines.

2 Why Do Some Countries Develop and Others Not?

A hundred years ago, Argentina was amongst the seven wealthiest nations in the world, but now ranks 43rd in terms of real per capita income. In 1950, Ghana’s per capita income was higher than that of South Korea; now South Korean people are more than 11 times wealthier than the citizens of Ghana. Meanwhile, more than 20 failed states and over a billion people have seen little progress in development in recent decades, whilst over three billion people have seen remarkable improvements in health, education and incomes.

Within countries, the contrast is even greater than between countries. Extraordinary achievements enjoyed by some occur alongside both the absolute and relative deprivation of others. What is true for advanced societies, such as the United Kingdom and United States, is even more so in most, but not all, developing countries.

Many factors accounting for the successes and failures in the extreme unevenness of development outcomes. There is an extensive literature which seeks to explain outcomes on the basis of natural resource endowments, geography, history, cultural or other.

Overall, the evidence points to divergence—rather than convergence—in recent decades, although there is some variation amongst geographical sub-groupings, with a set of Southeast Asian economies (the “tigers”) displaying evidence of convergence. In 1993 Parente and Prescott studied 102 countries over the period from 1960 to 1985. They found that disparities in wealth between rich and poor countries persist, despite an average increase in incomes, although there is some evidence of dramatic divergence within Asia, which is consistent with some South East Asian economies—Japan, Taiwan, South Korea and Thailand—catching up with the West. Li and Xu, have highlighted the extent to which the real incomes of seven South East Asian economies have grown 3.5 times (Malaysia) to 7.6 times (China) faster than the United States and the G10 economies for the period from 1970 to 2010.

The World Bank attributed the “East Asian Miracle” to sound macroeconomic policies with limited deficits and low debt, high rates of savings and investment, universal primary and secondary education, low taxation of agriculture, export promotion, promotion of selective industries, a technocratic civil service, and authoritative leaders. However, the Bank failed to highlight the extent to which the achievements came at the expense of civil liberties, and that far from being free markets the governments concerned subjugated the market (and suppressed organised labour), often with the generous support of the United States and other development and military aid programmes, following the Korean and Vietnam Wars.

Others have argued that South East Asia’s relative success had more to do with pursuing strategic rather than “close” forms of integration with the world economy. In other words instead of opting for unbridled economic liberalisation in line with the Neo-Classical market friendly approach to development, countries such as Japan, South Korea and Taiwan selectively intervened in the economy in an effort to ensure that markets flourished. Several well-known commentators including Ajit Singh, Alice Amsden and Robert Wade have documented the full range of measures adopted by these countries, which appear to constitute a purposive and comprehensive industrial policy. These measures include the use of long-term credit (at negative real interest rates), the heavy subsidization and coercion of exports, the strict control of multinational investment and foreign equity ownership of industry (in the case of Korea), highly active technology policies, and the promotion of large scale conglomerates together with restrictions on the entry and exit of firms in key industrial sectors. The relative contribution of selective forms of intervention on the one hand, and market friendly liberalisation and export orientation on the other, to the success of the South East Asian economies remains a subject of debate.

2.1 Poverty and Inequality

Income measures are only one dimension of poverty. Other indicators, including those relating to infant and child mortality, illiteracy, infectious disease, malnutrition and schooling are also important. A number of countries have made extraordinary strides in overcoming poverty. In some, progress has been across the board, whereas others have managed to achieve very significant progress on one dimension but fallen back on others. With similar levels of average per capita incomes, in Bangladesh average life expectancy is 71, whereas in Zimbabwe it is 60 and in Tanzania it is 61.

Inequality between countries and within countries requires an analysis which goes beyond the headline economic indicators. While average per capita incomes are growing in most countries, inequality is also growing almost everywhere. The world’s richest 20% of people account for three quarters of global income and consume about 80% of global resources, while the world’s poorest 20% consume well under 2% of global resources. Where poor people are is also changing. Twenty years ago over 90% of the poor lived in low income countries; today approximately three quarters of the world’s estimated one billion people living on less than $1.25 per day live in middle income countries.

2.2 Explaining Different Development Trajectories

Every country is unique. Yet it is still possible to identify a range of factors that affect development trajectories. A number of economic historians have shown that patterns of resource endowments can reinforce inequalities and favour elites, with this in turn leading to “capture” and predatory institutional development. The resource curse has been examined by Paul Collier (2007), Jeffrey Frankel, and others, who have shown that ample endowments of natural resources may be linked with stunted institutional development, particularly in the case of mining and oil. In mining and oil multinational or local investors have often operated behind a veil of secrecy. The awarding of contracts for extractive industries provides a source of power and patronage to corrupt leaders. Evidence of corruption by international firms who have made offshore payments through international banks provides a clear example of how both advanced and developing countries have a responsibility to clamp down on corrupt practices, not least in mitigating the risks associated with the extraction of natural resources.

For the classical and neo-classical economists, as well as their critics on the Left, natural and human resource endowments were a key determinant of trade and market integration. While the former group argued that revealed comparative advantage would lead to development, the critics argued the opposite, concluding that it would lead to more uneven development. Both groups saw international trade as a critical determinant of growth, explaining the convergence (or divergence) of growth rates and global incomes, with Dani Rodrik, Jeffrey Sachs and Andrew Warner, Jeffrey Frankel and David Romer, and David Dollar and Aart Kray contributing conflicting evidence of the relationship between trade and development.

Jared Diamond, Jeffrey Sachs and others explain development outcomes by providing geographical explanations . They argue that moderate advantages or disadvantages in geography can lead to big differences in long-term economic performance and that poor economic performance can be explained in terms of the “bad geography” theses. Geography is thought to affect growth in at least four ways. Firstly, economies with coastal regions, and easy access to sea trade, or nearby large markets have lower transport costs and are likely to outperform economies that are distant and landlocked. Secondly, tropical climatic zones face a higher incidence of infectious diseases, and malaria, bilharzia and other parasitic infections which hold back economic performance by reducing worker productivity. For example, in 2015, malaria caused an estimated 438,000 deaths mostly among sub-Saharan African children. In addition, a high incidence of disease can raise fertility rates and add to the demographic burden of a country. Thirdly, geography affects agricultural productivity in a variety of ways. Grains are less productive in tropical zones, with a hectare of land in the tropics yielding on average around one-third of the yield in temperate zones. Fragile soils in the tropics and extreme weather are part of the explanation, as is the higher incidence of pests and parasites which damage crops and livestock. Fourthly, as the tropical regions have lower incomes and crop values, agri-businesses invest less in tropical regions, and national research institutions are similarly poorer. The implication is that international agencies, such as the Consultative Group for International Agricultural Research (CGIAR)—which is donor funded—have a particular responsibility to raise the output of tropical agriculture. A similar point can be made with respect to tropical diseases, with low purchasing power holding back development of drugs to combat many of the most significant tropical diseases.

William Easterly and Ross Levine as well as Rodrik and others, have argued that the impact of geography is regulated through institutions and that good governance and institutions can provide the solution to bad geography. For example, good governments can build efficient roads and irrigation systems, and invest in vital infrastructure as well as enforce legal contracts and curb corruption. In short, good governance minimises uncertainty and transaction costs and can overcome bad geography. However, bad governance does not. For Easterly there are too many “Ifs, buts and exceptions” to Sachs’ bad geography thesis. Destructive governments rather than destructive geography may also explain the poverty of nations.

Rodrik and others argue that it is the quality of institutions —property rights and the rule of law—that ultimately matters. Once the quality of institutions is taken into account (statistically “controlled for” using econometric techniques), the effect of geography on economic development fades away. However, as Rodrik notes, the policy implications associated with the “institutions rule” thesis are difficult to discern and likely to vary according to context. This in part is because institutions are partly endogenous and co-evolve with economic performance. As countries become better off they have the capacity to invest in more education and skills and better institutions, which in turn makes them better off.

For Daron Acemoglu, Smon Johnson and James Robinson, the development of institutions which facilitate or frustrate development, are rooted in colonialism and history . These authors argue that contemporary patterns of development are largely the result of different forms of colonialism and the manner in which particular countries were, or were not, settled over the past 500 years. The purposes and nature of colonial rule and settlement shaped institutions which have had lasting impacts. In countries with high levels of disease, high population density, and lots of resources, colonial powers typically set up “extractive states” with limited property rights and few checks against government power in order to transfer resources to colonizers, such as was the case in the Belgium Congo. In countries with low levels of disease and low population density, but also less easily extractable resources, settlement was more desirable and colonial powers attempted to replicate European institutions—strong property rights and checks on the abuse of power—and made an effort to develop agriculture and industry as was the case in Canada, United States, Australia and New Zealand. According to this thesis, the legacy of colonialism led to an institutional reversal that made poor countries rich, and rich countries poor.

Although we may well live in a world shaped by natural resource endowments, geography, history and institutions, politics and power can still play a decisive role in terms of driving economic performance and determining vulnerability to poverty. In Amartya Sen’s Poverty and Famines , he showed that political power and rules that are embedded in ownership and exchange determine whether people are malnourished or have adequate food, and that malnourishment is not mainly the result of inadequate food supply. Sen shows how droughts in North Africa, India and China in the nineteenth and Twentieth centuries were catastrophic for social and political reasons, with power relations, not agricultural outcomes, leading to widespread starvation and destruction of the peasantry. In 1979, Colin Bundy, in The Rise and Fall of the South African Peasantry was among a new wave of historians who argued that colonialism led to the deliberate collapse of a previously thriving domestic economy. In 1997, Jared Diamond’s, Blood, Germs and Steel , while emphasising the importance of geography and history, showed how technology, culture, disease and other factors led to the destruction of native American and other previously thriving communities. These authors, echoing Marx, highlighted the extent to which development can be a very bloody business, even if the longer term consequences may be to bludgeon societies into a new era.

If the abuse of power can set development back, what about the counter argument that democracy leads to more rapid and equitable development outcomes? According to Irma Adelman, the long-term factors governing the association between development and democracy include the growth of middle classes, increase in quantity and quality of education, urbanisation (including more infrastructures), the need for participation in development strategies, and the need to manage the psychological and social strains arising from change. Acemoglu, Robinson and others went further in 2014, arguing that democracy does cause growth, and that it has a significant and robust positive effect on GDP. Their results suggest that democracy increases future GDP by encouraging investment, increasing schooling, and inducing economic reforms, improving public good provision, and reducing social unrest. The difficulty of defining democracy, and the weight attached to the non-democracies which have enjoyed very rapid growth, such as China and Singapore, as well as the slowing of growth and paralysis in decision making in many parts of Latin America, Europe and other democratic regions means that the academic jury remains divided on the relationship between development and democracy.

3 What Can Be Done to Accelerate Development?

Peace and stability are essential for development as conflict and war leads to development in reverse, destroying not only lives, but also the infrastructure and cohesion which are fundamental to development. Literacy and education—and particularly the role of education for women—are vital, not least in overcoming gender inequities. The literature shows that these are key contributors to declining fertility and improved family nutrition and health. Infrastructure investments, particularly in clean water, sewerage and electricity, as well as rural roads, are essential for growth and investment, as they are for achieving improved health outcomes. The rule of law and the establishment of a level playing field, through competition and regulatory policies are vital for ensuring that the private sector is allowed to flourish. The capturing of the market by monopolies or small elites, often with the connivance of politicians or civil servants, is shown to lead to the skewing of development and growing inequality.

No country is an island economically and the way that countries engage with the rest of the world is a key determinant of their development outcomes. The increasing integration of the world, in terms of financial, trade, aid and other economic flows, as well as health, educational, scientific and other opportunities requires an increasingly sophisticated policy capability. So too does the management of the risks associated with increased integration into the global community. The threat posed by pandemics, cyberattacks, financial crises and climate change and other global developments could derail the best laid development efforts. Systemic risks have a particularly negative impact on development outcomes, and without exception tend to have negative distributional consequences. The existence of effective policies, or their absence, shapes the harvesting of the upside opportunities and mitigation of the risks.

3.1 Literacy, Education and Health

There are both theoretical and empirical reasons for believing that literacy and education are essential for economic and social development. The education of girls has served to reduce widespread gender inequalities and has improved the relative position of women in poor countries. The education and empowerment of women has been associated with improvements in a range of development outcomes, and is associated with sharp falls in infant mortality and fertility.

The links between education, health and development are many and varied; in many contexts “all good things” (or “bad things”) go together. The demographic transition describes how fertility and mortality rates change over the course of economic and social development. In the early or first phase of development birth rates and mortality rates are high due to poor education, nutrition and healthcare. In such circumstances, characteristic of many developing countries prior to the Second World War, population growth remains low. As living standards, nutrition and public health improve during the second phase of the transition, mortality rates tend to decline. As birth rates remain high, population growth becomes increasingly rapid. Historically, much of Africa, Asia and Latin America experienced this trend during the second half of the twentieth century.

Over half the countries in the world, including many developing countries, have now entered the third stage of demographic transition. This is characterised by improvements in education and health along with changes in technology, including the widespread availability of contraceptives, which give women greater choice. In this stage, urbanisation and greater female participation in the workforce reduces the economic and social benefit of having children and raises the costs. In the fourth stage of the demographic transition, both mortality and birth rates decline to low or stable levels and population growth begins to fall. Many developed countries have passed this stage and face the prospect of zero or negative population growth. As this trend continues, countries experience a rapid decline in fertility, to below replacement level. The combination of rapidly falling fertility and continued increases in life expectancy leads to rapid increases in median ages, with these projected to double in all regions, except for Africa, in the period to 2050.

3.2 Gender and Development

Gender inequalities and unequal power relations skew the development process. In many developing countries women’s opportunities for gainful forms of employment are limited to subsistence farming—often without full land ownership rights or access to credit and technology that might alter production relations and female bargaining power. In many societies, women are confined either to secluded forms of home-based production that yield low returns, or to marginal jobs in the informal economy where income is exceptionally low and working conditions are poor. In addition women typically have to endure the “double burden” of employment and domestic work—the latter includes housework, preparing meals, fetching water and wood, and caring for children—amongst many other tasks.

A range of studies over the last four decades have shown that households do not automatically pool their resources, and that who earns and controls income can make a major difference to household well-being. Numerous empirical studies examining the relationship between women’s market work, infant feeding practices and child nutrition indicate that the children of mothers with higher incomes are better nourished. In the gold mining industry in Africa for example an increase in women’s wage earning opportunities has been shown to be associated with the removal of healthcare barriers, the halving of infant mortality rates—especially for girls—and a reduction in the acceptance rate of domestic violence by 24%.

The distribution of benefits and burdens becomes more equitable when women have a stronger voice and more access to education and employment. Improving women’s economic opportunities can prove a highly effective way to reduce poverty and improve women’s relative position and that of their children. Ensuring that more women are enrolled in education, can read, write and count, and have appropriate skills for jobs are also likely to improve the overall well-being of households. Steps to tackle restrictive cultural norms and laws regarding women’s education, participation in the labour force, ownership of land and other assets, inheritance rights, marriage and freedom to participate in society make important contributions in this regard.

Many of these initiatives are likely to translate into specific sectoral priorities and policies—for example vocational training, access to cheap transport, and access to saving and credit markets. Women are disadvantaged in the credit market as they typically have no collateral. Innovative microfinance schemes have sought to overcome this by providing flexible loans on favourable terms, often requiring no collateral or with zero interest, for investment in small scale productive activities—such as rearing chickens or a goat. The most well-known example is the Grameen Bank, which has been providing finance to poor Bangladeshis since the late 1970s. By 2015 cumulative disbursement of loans exceeded $16 billion and the bank had provided loans to over seven million individuals, 97% of whom are women.

The participation of women in the workplace together with gender differences in pay, promotion and business leadership are important aspects of empowerment. Political representation and gender disparities in healthcare and education (often reflecting “boy preference” in many parts of the world) are also key indicators of social progress. Since the introduction of the MDGs in 1990, women in many countries have made progress towards parity with men, although much more still needs to be done. Significant progress has been made in terms of tackling female infant mortality and enabling your girls to attend school, although gross disparities between men and woman persist across the board. Despite some notable progress, so too do practices which fundamentally constrain women, such as female genital mutilation, which affects at least 125 million women in over 29 countries.

Less progress has been made in terms of women’s employment in the labour market—especially in Asia where ground has actually been lost over the last 25 years. This may have far reaching implications beyond our concern with fairness and gender justice. A recent speculative study suggests that advancing gender equality in the workplace could add as much as $12 trillion to global GDP by 2025 (assuming every country in the world could match the performance of its fastest improving neighbour in terms of progress towards gender equality). While the advanced economies have the most to gain, developing countries and regions could expect to benefit from significant increases in income by 2025 including India ($0.7 trillion or 11% of GDP), Latin America ($1.1 trillion or 14% of GDP), China ($2.5 trillion or 12% of GDP), sub-Saharan Africa ($0.3 trillion or 12% of GDP), and the Middle East and North Africa ($0.6 trillion or 11% of GDP) (amongst other countries and regions).

Knowing that education, health and nutrition, and gender equity—amongst other things—are important for development is only the start. Developing policies to tackle these issues is a major challenge. In many countries, for example, the failure of education systems relate to a lack of quality rather than quantity of resources spent. In India case studies have catalogued a number of issues including poorly trained and qualified teachers, mindless and repetitive learning experiences, lack of books and learning material, poor accountability of teachers and unions, school days without formal activities, and high rates of absenteeism amongst staff and students. Moreover, improving outcomes is more complex than finding money for school fees or budgets for teachers. Issues such as having appropriate clothes for the walk to school or the availability of single sex toilets at school can play a decisive role, especially for girls.

3.3 Agriculture and Food

Agriculture provides the main source of income and employment for the 70% of the world’s poor that live in rural areas. The price and availability of food and agricultural products also dramatically shapes the nutrition and potential to purchase staples for the urban poor.

Policies which discriminate against farmers and seek to create cheap urban food by holding down agricultural prices can perversely lead to rising poverty, especially where the bulk of the poor are in the countryside. Low agricultural prices depress rural incomes, as well as the production and supply of food and agricultural products. The urban poor are however more politically powerful than the rural poor, not least as they are present in capital cities. An important contributor to the French Revolution of 1789 was the doubling of bread prices, and urban food protests have continued to pose a serious threat to governments.

Whereas in many developing countries farmers are discriminated against through price controls or restrictions on exports, which keep the price of their products artificially low, in many of the more advanced economies, and notably in the United States, European Union and Japan, certain groups of farmers have achieved an extraordinarily protected position. Tariff barriers and quotas which restrict imports, together with production, input subsidies, tax exemptions and other incentives benefit a small group of privileged farmers at the expense of consumers and taxpayers in the advanced economies. This fundamentally undermines the prospects of farmers in developing countries, who are unable to export the products that they are competitive in. It also makes the prices of these products more volatile on global markets, as only a small share of global production is traded so that the international markets become the residual, onto which excess production is dumped.

An added cause of instability is that the concentration of production in particular geographic areas of the United States and Europe increases the impact of weather related risks which exacerbates the instability in world food prices. Because farmers in many developing countries cannot export protected crops, they are compelled to concentrate their production in crops that are not produced in the advanced economies, and produce coffee, cocoa and other solely tropical agricultural commodities. This reduces diversification and leads to excessive specialisation in these commodities, depressing prices and raising the risks associated with monocultures. The levelling of the agricultural playing field, which has been a key objective of the Doha Development Round of Trade Negotiations, which was initiated by the World Trade Organization (WTO) in 2001, remains a key objective of development policy.

3.4 Infrastructure

Infrastructure is the basic physical and organisational structures and facilities required for the development of economies and societies. Infrastructure includes water and sanitation, electricity, transport (roads, railways and ports), irrigation and telecommunications. Infrastructure provides the material foundations for development. Investments in infrastructure tend to require very large and indivisible financial outlays and regular maintenance. These investments shape the evolution of cities, markets and economies for generations and lock in particular patterns of urbanisation and water and energy use. Prudent investment in energy and transport infrastructure can have a significant impact on environmental sustainability through ensuring lower emissions, higher efficiency and resilience to climate change. Investment in sewerage and sanitation, as well as recycling of water, similarly has a vital role to play in reducing water-use and pollution.

Public private partnerships can play a major role, especially in urban areas and in telecommunications and energy. Project finance and a range of other private investment structures are being used in a growing number of developing countries to encourage private investment in infrastructure. The outcomes have been decidedly mixed. In the United Kingdom, which has a reasonably sophisticated policy environment, public-private partnerships have been found by the National Audit office to provide poor value for money. In developing countries, following the bankruptcies of toll roads in Mexico and water utilities in Argentina, lessons have been learnt and developing countries now account for well over half of the private investments in infrastructure globally. Given infrastructure demands and the shortage of adequate government finance, there is a growing need for private power, telecommunications and other infrastructure investors to finance construction and operations. The mixed experience in recent decades points to the need for caution and the establishment of independent and powerful regulators to protect consumer interests from what can become natural monopolies or oligopolies.

3.5 Legal Framework and Equity

Laws serve to shape societies and, in particular, affect the nature of the relationships of citizens to each other and to their governments. Legal frameworks include the “systems of rules and regulations, the norms that infuse them, and the means of adjudicating and enforcing them”. The rule of law has shaped development processes through the operation of laws, regulation and enforcement; enabled conditions and capacities necessary to development outcomes; and remained a core development end in itself. Therefore, the rule of law is of fundamental importance to development outcomes as it expresses and enables a society’s conception of social and economic justice, and more specifically its attitudes to extreme poverty and deprivation. It also frames wealth, resource and power (re)distribution.

An effective legal and judicial system is an essential component for economic development, as it is for human development and basic civil liberties. Ensuring that decision making and justice are not determined by individual favours or corruption and that all citizens have equal access to the rule of law is vital to overcoming inequality and social exclusion. It is also required for the creation of transparent and well-functioning financial and other markets.

The relationship between the legal system and development is complex. In 1990, Douglas North and others pointed to a high positive correlation between the protection of property rights and long-term economic growth. Critics question whether the protection of property rights is a cause or a consequence of economic development. In this respect several studies have shown that access to legal information and the rule of law can enhance participation and promote socio-economic development by empowering the poor and marginalised, to claim rights, take advantage of economic and social opportunities and resist exploitation. The law and the courts can play an important role in defining identity and guaranteeing economic and social opportunities. The rule of law can improve access to service delivery by reallocating rights, privileges, duties and powers. Strengthening legal institutions that prevent violence and crimes that undermine the well-being of citizens promotes development.

Legal institutions that promote accountability and transparency, and curb corruption can similarly facilitate development. Consistent and fair regulation and dispute resolution facilitates the smooth operation of the market system, and reduces the opportunities for corruption, nepotism and rent seeking. The rule of law can also protect the environment and natural resources and promote sustainable development by enshrining workers, social and environmental rights in constitutions and legislation.

4 The Future of Development

Over the past 75 years ideas about the responsibility of development have shifted from the colonial and patronising view that poor countries were incapable of developing on their own and required the guidance and help of the rich colonial powers, to a view that each country has a primary responsibility over its own development aims and outcomes and that development cannot be imposed from outside. However, while both simple colonial and Marxist ideas of the interplay of advanced and developing countries are discredited, foreign powers and the international community can still exercise a profoundly positive or negative impact on development. This goes well beyond development aid as international trade, investment, security, environmental and other policies are typically more important. The quantity and quality of aid, the type of aid, as well as its predictability and alignment with national objectives nevertheless can play a vital role in contributing to development outcomes, particularly for low income countries and the least developed economies. Access to appropriate technologies and capacity building helps to lay the foundation for improved livelihoods. So although development is something which countries and citizens must do for themselves, the extent to which the international community is facilitating or frustrating development continues to influence and even at times dramatically shape development trajectories.

The extraordinary progress made in poverty reduction is evidence that development does happen. As is evident in Fig. 1 , the number of people living under $1.25 a day (at 2005 PPP) fell by almost 900 million between 1990 and 2011, even though the population of developing countries increased by over 2 billion over the same period. Much of this decline is attributable to the progress made in China, and to a lesser extent East Asia and India. The greatest development challenge remains in sub-Saharan Africa. We showed earlier that, particularly for the poorest countries, aid remains central to development efforts, but that aid also plays a vital role in other countries and in addressing public goods.

People living on less than $1.90 per day by region (1990–2013). Source: Ian Goldin, Development: A Very Short Introduction, Oxford University Press, 2018. (Reprinted with kind permission by © Oxford University Press 2018. All Rights Reserved.)

The latest poverty estimates for 2015 point to a further reduction in the number of people living below the $1.25 poverty line, to around 835 million, the vast majority of whom continue to be located in South Asia (310 million) and sub-Saharan Africa (383 million). By 2030 the number of people living below the $1.25 poverty line is projected to halve again (to around 411 million), with the vast majority of gains being made in South Asia where 286 million people are expected to escape extreme poverty.

In October 2015, the World Bank introduced a new “extreme poverty” line of $1.90 per day at 2011 PPP. The new poverty line has implications for the number of people classified as poor and implies re-estimating historical poverty rates (Table 1 ). The latest headline figure for 2012—the most recent year for which globally comparable data is available—suggests that close to 900 million people (or 12.8% of the global population) live in extreme poverty. The majority are located in South Asia and sub-Saharan Africa, and to a lesser extent in South East Asia. Although global income poverty has been reduced dramatically (irrespective of the poverty line adopted), it important to remember that progress on many of the social indicators featured in the MDGs and SDGs has been slower.

It is now widely recognised that while governments must set the stage and invest in infrastructure, health, education and other public goods, the private sector is the engine of growth and job creation.

The coherence of aid and other policies is an important consideration. For example, supporting agricultural systems in developing countries requires not only investments in rural roads and irrigation, but also support for international research which will provide improved seeds, trade reform which allows access to crops, and actions which will stop the devastating impact of climate change on agricultural systems in many of the poorest countries. As noted earlier, the establishment of a level playing field for trade, and in particular the reduction of the agricultural subsidies and tariff and non-tariff barriers in rich countries that severely discriminates against agricultural development and increase food price instability, would provide a greater impetus for many developing countries than aid. Not all trade is good, and the prevention of small arms trade, toxic waste, slave and sex trafficking and other illicit trade should be curtailed and corruption dealt with decisively. The prevention of transfer pricing and of tax avoidance is important in building a sound revenue base which provides the means for governments to invest in infrastructure and health, education and other systems which provide the foundation for development.

The provision of global public goods , for example by improving the availability, price and effectiveness of vaccinations and drugs, especially against tropical diseases and the treatment of HIV/AIDS, is a similarly important contribution for the international community. The creation of an intellectual property regime that allows for affordable drugs and the encouragement of research on drugs and technologies that foster development, not least in agriculture, is another essential role for the international community.

The international community has a central role to play in the protection and restoration of the global commons, not least with respect to climate change and the environment. The establishment of global security and the implementation of agreements which seek to prevent genocide and facilitate the safe movement and fair treatment of migrants and refugees is another key responsibility of the international community. So too is the prevention of systemic risks. Poor people and poor countries are most vulnerable to all forms of risk, and so international efforts to reduce systemic risks which cascade over national borders is another area which requires the coming together of the international community.

Development is a national responsibility, but in an increasingly integrated world the international community has a greater responsibility to help manage the global commons as an increasing share of problems spill over national borders. All countries of the world share a collective responsibility for the planet, but the bigger and more advanced the country, the larger the share of this responsibility that it is capable of shouldering.

4.1 Our Common Future

As individuals get wealthier and escape poverty the choices they make increasingly impact on others. The tension between individual choice and collective outcomes is not new, with the study of the management of commons going back at least 500 years. Commons were shared lands, rivers or other natural resources over which citizens had access. In England, the rights of access became defined in common law . Many of these rights were removed in the enclosure movement which in the eighteen century converted most of the common lands into private property.

The tragedy of the commons refers to the overexploitation of common resources. Early examples include the overfishing of rivers, overgrazing of village fields or depletion of underground water. The management of the commons has led to the development of customary and more recently legally enforceable rules and regulations which limit the exploitation of shared resources. In recent decades however, the pressure on common resources, and in particular on the global commons , has grown with population and incomes. The global commons refers to the earth’s shared natural resources, and includes the oceans, atmosphere, Polar Regions and outer space.

Development has meant that we are moving from a world of barely 500 million middle class consumers in the 1980s to a world of over 4 billion middle class consumers in the coming decade. This triumph of development is a cause for celebration. But it provides a source for growing alarm about our ability to cooperate and coexist in a sustainable manner on our beautiful planet. Greater individual choice is for many regarded as a key objective and outcome of development processes. Other outcomes include increasing life expectancy, higher incomes and rising consumption. Development has resulted in rapid population growth—two billion more people over the past 25 years with a further two billion plus expected by 2050. And globalisation has seen not only more connectivity but also an increase in the global flows of goods and services, with the sourcing of products and services from more distant places. The pressure on scarce resources has never been greater. Nor has the difficulty of managing them.

The result is a sharp rise in the challenge of managing the global commons, coupled with the rise of new collective challenges. Antibiotic resistance is one of these new challenges. While it is rational for individuals to take antibiotics to defeat infections, the more that people take antibiotics, the higher the risk of resistance. When combined with the growing use of antibiotics in animals, there is an escalating risk of antibiotic resistance, which would lead to rapid declines in the effectiveness of antibiotics, with dramatically negative consequences on these essential components of modern medicine. Other examples of the tension between our individual choice and collective outcomes include the consumption of tuna and other fish which are threatened with extinction, or our individual use of fossil fuel energy and the resulting collective implications for climate change.

As development raises income and consumption and increases connectivity, the spillover impact of individual actions grows. Many of these spillovers are positive. Evidence includes the close correlation between urbanisation and development. When people come together they can do things that they could never achieve on their own. However as incomes rise, so too do the often unintended negative spillover effects, with examples including obesity, diabetes, climate change, antibiotic resistance and biodiversity loss. Rising inequality and the erosion of social cohesion are also growing risks.

As Sen has explained, a key objective of development is freedom. Freedom to avoid want and starvation, to overcome insecurity and discrimination, and above all to be capable of achieving those things we have reason to value. But with this freedom comes new responsibilities. Our individual contribution to our shared outcomes and as guardians of future generations rises with our own development. If development is to be realised for all people, now and in the future, it is vital that we too develop as individuals. We need to ensure that we are free of the ignorance of how our actions interact with others. Development brings new responsibilities as well as freedoms.

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Goldin, I. (2019). Why Do Some Countries Develop and Others Not?. In: Dobrescu, P. (eds) Development in Turbulent Times. Springer, Cham. https://doi.org/10.1007/978-3-030-11361-2_2

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Corruption is a Global Problem for Development. To Fight It, We All Have a Role to Play

Oped published in French in La Tribune Afrique, June 13, 2023.

Oped by Ousmane Diagana, World Bank Vice President for Western and Central Africa and Mouhamadou Diagne, World Bank Vice President for Integrity.

Every day, we hear about the onslaught of crises facing the world—from climate change to conflict, inflation and debt, and the ongoing recovery from a years-long pandemic. Add to them the prospect of slow economic growth , and our efforts to overcome these challenges seem rife with obstacles. For developing countries, many with limited and already stretched resources, the confluence of crises will be especially difficult to navigate.

But if we are to achieve success over the challenges of our time, there is one scourge we cannot fail to confront: corruption.

The unfortunate truth is that corruption persists in all countries. It manifests in many ways—from petty bribes and kickbacks to grand theft of public resources. With advances in technology, corruption has increasingly become a transnational challenge without respect for borders, as money can now move more easily in and out of countries to hide illicit gains.

Corruption is also a fundamental problem for development.

Corruption harms the poor and vulnerable the most, increasing costs and reducing access to basic services, such as health, education, social programs, and even justice. It exacerbates inequality and reduces private sector investment to the detriment of markets, job opportunities, and economies. Corruption can also undermine a country’s response to emergencies, leading to unnecessary suffering and, at worst, death. Over time, corruption can undermine the trust and confidence that citizens have for their leaders and institutions, creating social friction and in some contexts increasing the risk of fragility, conflict, and violence.

To prevent these negative impacts, we must confront corruption with determined and deliberate action. For the World Bank Group, fighting corruption in development has been a long-standing commitment in our operational work. This commitment is reflected in our support for countries in building transparent, inclusive, and accountable institutions , but also through initiatives that go beyond developing countries to also include financial centers, take on the politics of corruption more openly than before, and harness new technologies to understand, address, and prevent corruption.  

Indeed, across western and central Africa in particular, it is one of the World Bank Group’s strategic priorities to emphasize issues of good governance, accountability, and transparency among our partner countries, with the aim of reducing corruption. We recognize that transparency in public affairs and the accountability of high-level officials are fundamental to the trust of citizens in their government and the effective delivery of public services. Working to rebuild and bolster trust between citizens and the state is critical today, especially in countries affected by fragility, conflict and violence that make up half of the countries in this region alone.

Across Africa, World Bank Group support is helping countries face these challenges. Recent investments in the Republic of Congo , Ghana , and Morocco , for example, will support institutional governance reforms to improve the performance and transparency of service delivery. In Kenya, our support will further fiscal management reforms for greater transparency in public procurement , thereby reducing opportunities for corruption. Strengthening citizen-state engagement is key: In Burkina Faso, for example, a World Bank-funded project helped the national government improve citizen engagement and public sector accountability through the development of a digital tool to monitor the performance of municipal service delivery. 

The World Bank Group’s commitment to fighting corruption is also reflected in robust mechanisms across the institution that enhance the integrity of our operations. Our independent Integrity Vice Presidency (INT) works to detect, deter, and prevent fraud and corruption involving World Bank Group funds. Over two decades of INT’s work, the World Bank has sanctioned more than 1,100 firms and individuals, often imposing debarments that make them ineligible to participate in the projects and operations we finance. In addition, we have enforced more than 640 cross-debarments from other multilateral development banks, standing with our MDB partners to help keep corruption out of development projects everywhere. Nevertheless, we must remain vigilant to the risks of fraud and corruption that remain.

The World Bank Group also leverages its position as global convener to support anticorruption actors at all levels and from around the world. That is why we are pleased to have organized the next edition of the World Bank Group’s International Corruption Hunters Alliance (ICHA) to take place in Abidjan, Côte d’Ivoire, on June 14-16, 2023.

The ICHA forum is an opportunity for front-line practitioners committed to fighting corruption as well as policy makers and representatives from the private sector and civil society, to come together to share knowledge, experience, and insights for confronting corruption. For the first time since its inception in 2010, we are hosting the ICHA forum in an African country. This reflects the reality that the negative impacts of corruption can be more devastating for developing countries, who face unique challenges and have fewer resources to overcome them. Yet, it also acknowledges that there is a wealth of anticorruption strengths, skills, and expertise from these countries that we must draw upon.

Together, we can affirm that through our collective action, we can advance the fight against corruption even in an era of crises.  

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Beyond Intractability

The Hyper-Polarization Challenge to the Conflict Resolution Field We invite you to participate in an online exploration of what those with conflict and peacebuilding expertise can do to help defend liberal democracies and encourage them live up to their ideals.

Follow BI and the Hyper-Polarization Discussion on BI's New Substack Newsletter .

Hyper-Polarization, COVID, Racism, and the Constructive Conflict Initiative Read about (and contribute to) the  Constructive Conflict Initiative  and its associated Blog —our effort to assemble what we collectively know about how to move beyond our hyperpolarized politics and start solving society's problems. 

By Olympio Barbanti, Jr. Originally Published October 2003; Current Implications section added by Heidi Burgess in April 2017.

Current Implications

This article is really interesting to apply 14 years later.  Not only was it written in an earlier political and economic era, but it was written by a Brazilian scholar who viewed inequality from the point of view of developed versus less developed countries. More...

Introduction

In the age of globalization, the gap between high and low income countries is not only persisting, but in many cases it is widening, as the OECD (Organization for Economic Cooperation and Development)[1] has shown in its study of Luxembourg. While the existence of such a divide is unquestionable, its origins, structure, and consequences are not. Could one, for example, securely say that income gaps lead to conflict? Is it possible to relate intractability to this divide? Rather than answer these thorny questions, this article explores the debate with the aim of identifying its key arguments. But first, it is necessary to clarify some concepts.

Poverty, Inequality and Welfare

Poverty: Poverty has been approached in both absolute and relative terms. "Absolute poverty" is a measurable quantity referring to a lack of the basic resources needed to maintain a minimum of physical health, normally calculated in calories or nutritional levels. "Relative poverty" has a qualitative dimension. It refers to general standards of living in different societies, taking into account culturally sensitive interpretations of poverty, and variations between and within societies over time.

Inequality: For those concerned with social policies and economic growth, inequality is normally interpreted as lack of equality of condition, that is lack of achievement of any given welfare indicator (e.g. income, consumption) or any valuable attribute of a population. For example, the larger the difference in income between a country's rich and poor, the larger the inequality. Note that reduction of poverty levels within any given society may not imply a reduction of inequality, because all classes in society may benefit simultaneously from economic growth, keeping the same proportion among them. While it seems clear that inequality is undesirable, there is a great deal of debate over the desirability of total equality. One debate over equality questions is the meaning and value of concepts such as class, status, power, and authority. These cannot, it is argued, be completely equalized without suppressing other values such as personal freedom and individualism.

Welfare: It has a much broader meaning, referring to the general state of well-being that an "entity" enjoys. Here, "entity" can be taken as a person or as a state, thus one can speak in terms of "personal well-being" or "welfare of the state."

Economic Logic and the Development Discourses

Classical economists have been largely influenced by Kuznet's 1955 postulate that suggests that in the early stages of economic growth in developing countries, inequality will tend to worsen, while at later stages there will be a better distribution of income.[2] Therefore, inequality, as well as poverty, Kuznet argued, could be tackled by efficient economic policy -- in other words, by rational development .

Though Kuznets's hypothesis influenced the study of income distribution for nearly four decades, others had previously established a direct casual relationship between economic development and overall betterment in people's life. This connection gained international political meaning on January 20, 1949, the day President Truman took office. In his Inaugural Address, Truman[3] said:

We must embark on a bold new program for making the benefits of our scientific advances and industrial progress available for the improvement and growth of underdeveloped areas. The old imperialism -- exploitation for foreign profit -- has no place in our plans. What we envisage is a program of development based on the concepts of democratic fair dealing.

As Sachs[4] notes, Truman's speech "created" underdevelopment, by attaching a positive meaning to America's political institutions, which were built on "scientific advances and industrial progress." Development, then, could be achieved through science and material progress. The president also pointed out how politics and economics should work together to achieve development through "fair dealing."

For two at least decades, this rationalist view of development informed aid assistance to Third World countries. Underlying these ideas was the Weberian concept of modern (rational, urban, disciplined) versus traditional (superstition, rural, undisciplined). Weber's "spirit of capitalism" defined a life-style that reconciled discipline, diligence, and moderation, a rational hard-working principle necessary to turn "peasants into laborers."[5] The physical distance from the natural environment, and the very nature of non-agricultural activities, would disperse superstition, an essential characteristic of traditional/rural societies. Thus, development thinking rewarded rational behavior, linked to urban entrepreneurship and capitalist development.

It was only at the beginning of the 1970s that this development model was challenged within the circles of classical economics. Robert S. McNamara, then president of the World Bank, questioned the usefulness of economic definitions of development, and opened an avenue for a more humanist way of thinking that emerged later in the decade when the International Labor Office sponsored the "Basic Needs Approach."

Since then, development theories have changed character: they have begun to consider human dimensions involved in economic development, and questioned the real meaning of "development" to the poor. Welfare economists, such as Amartya Sen, have forcefully introduced new concepts, such as human-centered development. The concept of " empowerment " has also become central in the analysis of developing countries, which many prefer to call Less Developed Countries (LDCs).

At the same time, classical economists[6] have proven, with observations from 108 countries, that there is no support for Kusnet's hypothesis that inequality falls as economic development advances.[7] Therefore, there is a growing perception that the main casual relationship between inequality and economic growth is in fact the opposite: inequality is likely to obstruct the rate and quality of economic growth. It is therefore possible that a country could continue its economic development regardless of the inequalities its economy produces. Growth with inequality is an explosive mixture, one in which the very rich and the very poor live side by side in large urban centers. This fuels many forms of social conflict.

Double-standard "free" trade

Since Truman's inaugural words, the capitalist system has logged an incredible number of achievements. The technological revolution has brought a new standard of wealth, health and comfort to the peoples of First World countries, as well as great accomplishments in LDCs. According to E.A. Brett, these achievements have been possible due to a new institutional framework that supports "competitive markets, political freedoms, universal education, encourages objective scientific research, allows social and political criticism, and provides safety nets to reduce risk and deprivation."[8]

But Brett also observes that these achievements come with conflict. "Reducing scarcity," says Brett, "has created a crisis of sustainability as our propensity to consume exceeds our capacity to conserve diversity and control wastes; removing national barriers has exposed poor and ill-equipped peoples to the threats as well as the benefits of free trade and competitive markets; globalizing communications has reduced cultural diversity and exposed everyone to the temptations of an often materialistic and trivial international media industry."[9] In addition, Brett analyses the demands of competition in the capitalist setting, transforming workers into workaholics, with implications for stress-related illnesses, family breakdown, and the loss of traditional values and community solidarity.

The internationalization of the economy has had a direct impact in one of LDCs most important sectors: the international trade in agricultural and livestock commodities. Lagging behind in terms of industrialization, it is in the commodity market that LDCs may be competitive due to innate comparative advantages such as weather, soil, specific products, and labor costs. It is by commercializing their natural products, either raw or (semi) processed, that LDCs may achieve a balance of trade surplus. However, it is also in the agricultural markets that rich countries' policies have been most contradictory.

For example, global cotton prices have fallen by 50 percent since the mid-1990s. According to an Oxfam report,[10] when adjusted for inflation, prices are now lower than at any time since the Great Depression of the 1930s. However, as the study points out, despite its rhetoric of economic liberalism, the United States' cotton subsidies give its cotton producers an unnatural place in world market. It is only because of these subsidies that U.S. cotton is globally competitive. "Every acre of cotton farmland," says Watkins, "attracts a subsidy of $230, or around five times the transfer for cereals. In 2001/02 farmers reaped a bumper harvest of subsidies amounting to $3.9 billion -- double the level in 1992."[11] This is larger than the entire USAID budget for Africa's 500 million people, and also larger than the entire GDP (Gross Domestic Product) of a country like Burkina Faso.

The problem is not liberalization of trade. As McKay et al. have discussed, trade liberalization "can have significant impacts on poverty which may be either positive or negative."[12] Liberalization may have positive impacts in the long run because, "it stimulates broadly based economic growth." Nevertheless, as the authors state, "it can still have significant adverse effects on particular groups...especially in the short term."[13] The problem is "double-standard" liberalism, one which may spread the gospel of democratic free trade, and at the same time put people's livelihoods at risk

This is also the case with the European Union's Common Agricultural Policy, which, among other roles, protects the income of its member nations' dairy farms "through a system of price support, production quotas, import restrictions, and export subsidies."[14] According to Fowler et al, "milk production is the most important agricultural activity in the majority of EU member states," and is particularly important in France, Germany, the Netherlands, Ireland, Italy, and the UK, representing around 14 percent of agricultural production, or $38 billion, and involving 600,000 farmers.[15]

Arguing the need to attend to its own internal market, the EU introduced a system of production quotas in 1984, which was set at 120 million tons of milk per year. This is 110 per cent of today's domestic consumption, which means that a large export surplus was built into the quota system. In addition, the dairy sector receives subsidies of around $16 billion -- 40 percent of dairy production. This is, says Fowler, "equivalent to more than $2 per day per cow. Half the world's people live on less than this amount."[16]

The damage is twofold. First, within the EU, subsidies are monopolized by the dairy processing and exporting industries, which have concentrated production, transportation, distribution and trade at the expense of the small farmer. So, "the number of EU dairy farmers has fallen by more than 50 percent over the past decade, while average herd size has increased by 55 percent."[17] The same concentration of production at the hands of large transnational companies effects LDCs. Low-priced dairy products from the EU are shipped to countries like Jamaica, Dominican Republic, Argentina, and India where they undermine local small-scale production.

The cases of U.S. cotton and EU dairy subsidies are just two examples of how economic globalization has benefited a few large companies and producers while damaging the small, mostly in developing countries. There are many other cases in the commodity sector as well as in the financial sector. However, the core discussion here is whether, and how, this state of affairs leads to social conflict.

Rich-poor relations and social conflicts

The development discourse and practice has been based on a rational approach that assumes that economic growth benefits all society, reducing both poverty and inequality. "Good" development, moreover, would be achieved by those LDCs that follow Western political institutional models, echoing Truman's view of "development based on the concepts of democratic fair dealing." However, it is clear that in at least two sectors important to rich countries, cotton and milk, the dealing has been far from fair.

This may have some implications for social conflicts in LDCs. Recent research carried out for the World Bank by Fajnzylber et al., for example, claims to have found substantial evidence indicating a sharp increase in violence during the last decade of ever-increasing globalization.[18] This violence was measured using recorded homicide rates in both the two poorest regions of the world (Latin America and sub-Saharan Africa), and where growth of inequality has been fastest (Eastern Europe, Russia, and Central Asia).

Additionally, econometric research on Brazil carried out for the World Bank has found increasing demand for public safety in both poor and richer neighborhoods.[19] These studies show that both poverty and inequality have risen in the last decade. By 1998, 1.2 billion people still lived on less than a dollar a day, and 2.8 billion on less than two. If so, the "quality" of development has been widely compromised. A development that takes place without "quality," that is, without fairness, is a development undermined by intense and diverse forms of social conflicts.

While figures on crime may illustrate the situation, there are dimensions to current relations between rich and poor countries that both reveal the depth of inequality between the two as well as possibilities of transforming or resolving this disparity and its resulting social conflicts.

First, the dual behavior of rich countries has undermined LDCs' faith in the possibilities of alternative dispute resolution (ADR) methods. This is partially because dispute settlement mechanisms existent at the global level (like those from the World Trade Organization -- WTO), have not been able to counter rich-countries' biased trade policies. Also, the Western framework of democratic institutions that has given support, and meaning, to economic liberalism and therefore to "fair dealing" has itself been called into question. There is therefore a vacuum of meaning in Western democratic institutions that support ADR.

Second, expanding inequality has reinforced the power of local elites in LDCs, who, in many cases, achieved prominence under a colonial power. The situation today could be called a "new colonialism" with two levels. The first level involves the power of the rich over the majority of the poor. The second has to do with the use of that power in relation to globalization: within the unstable political and economic setting of LDCs, inside information is vital for international businessmen. Those who hold economic, political and/or informational power in LDCs are in a position to channel investment and/or development where they want. The overall result is an even larger imbalance of power , which restrains fair negotiation and conflict transformation/resolution practices. To some extent, local-scale rich-poor conflicts mirror the conflicts between LDCs and the rich nations.

Third, the contradiction between rich nations' development aid intentions and their actual trade practices has a negative result among LDC populations. A country's commercial practice, like its culture, can be, rightly or wrongly, identified with its people's beliefs. American trade practices, for example, are the practices that Americans supposedly defend. It could be argued, therefore, that the attacks on the World Trade Center and the Pentagon were attacks on what the perpetrators' identified as symbols of the main source of LDCs' growing poverty and inequality: American trade policy and its military.

Development economics also have to do with human values. Globalization brings about a change in people's lifestyles and behaviors. Forms of alternative income earning have grown faster than formal and secure employment. Global companies have maintained control over planning, and sent to LDCs all stages of production that involve financial and human risk. Life in LDCs has become more unstable, generating and/or expanding many different types of conflict, from crime to intra-household violence, from environmental destruction to unfair competitive practices in human relations and commerce.

Finally, the logic of globalization tends to homogenize once diverse institutions and the cultural frameworks derived from them. This brings conflict in different forms, as local culture institutions and structures have to adapt or risk dying out. This includes ADR practices themselves: their introduction in LDCs may become a source of conflict if indigenous forms of negotiation, based on local values and cultures, are not taken into account.

This list is not complete. Inequality has more faces and more links to social conflict than this paper has the room to discuss. The issues raised here -- the connections between peoples' welfare and social conflict at both local and global levels -- deserve further analysis.

This article is really interesting to apply 14 years later.  Not only was it written in an earlier political and economic era, but it was written by a Brazilian scholar who viewed inequality from the point of view of developed versus less developed countries. Neither he, nor we, at the time, were focusing on conflicts between the rich and the poor as being something that affected people and politics within developed countries.  We particularly weren't thinking about such conflicts as concerning US politics. But it did then, and it does even more so now, as inequality has been increasing in the U.S. for at least that long.  

Certainly many of Barbanti's observations remain true in this different context and time. Development (translated into increased prosperity, perhaps, in the US) does not reduce inequality; it may actually increase it. Class, status, power, and authority cannot be equalized, without suppressing other values such as personal freedom and individualism.  

As he perceptively argued, trade is not an equalizer, but rather a driver of inequality.  But neither he, nor we, in 2003, considered the argument that trade would be hurting the US economy or its citizens.  His argument was that trade was structured to benefit rich countries at the expense of the poor. In some sense, that is still true.  But many in the U.S. feel that trade is hurting them as well, which is why President Trump promised in his campaign to renegotiate or pull out of NAFTA as well as several other international trade agreements. (It should be noted that his tone has softened considerably since he has taken office.)

So I urge you to read this article with an eye to what applies now, and what doesn't.  And regardless of your answers, what clearly does apply is that conflicts between rich people and poor people, both within and between countries, is very complex and intractable.  

--Heidi Burgess   May 10, 2017.

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[1] OECD, Income Distribution in OECD Countries: Evidence from the Luxembourg Income Study (Paris: OECD, 1995).

[2] S. Kuznets, "Economic Growth and Income Inequality," American Economic Review 45, no. 1(1955): 1-28.

[3] Harry S. Truman, "Inaugural Address, January 20, 1949," in Documents on American Foreign Relations (Connecticut: Princeton University Press, 1967).

[4] Wolfgang Sachs, ed., The Development Dictionary -- A Guide to Knowledge as Power (London: Zed Books, 1995).

[5] Weber M., The Protestant Ethic and the Spirit of Capitalism , (London: Unwin University Press, 1971).

[6] K. Deininger and L. Squire, "A New Data Set Measuring Income Inequality," World Bank Economic Review 10 (1996): 565-591.

[7] See international inequality database at http://www.worldbank.org/research/growth/absineq.htm .

[8] E. A. Brett, (2000) "Development Theory, Universal Values and Competing Paradigms: Capitalist Trajectories and Social Conflict," LSE Development Studies Institute -- Working Paper Series No. 00-02 , (London: London School of Economics, 2000), 20.

[10] K. Watkins, "Cultivating Poverty -- The Impact of U.S. Cotton Subsidies on Africa," Oxfam Briefing Paper 30 (Oxford: Oxfam, 2002).

[11] ibid, 2.

[12] A. McKay and others, "A Review of Empirical Evidence on Trade, Trade Policy and Poverty - A Report to the Department for International Development (DFID), prepared as background document for the Second Development White Paper," mimeo (London, DFID, 2000), 45.

[13] ibid, 45.

[14] P. Fowler and others, "Milking the CAP -- How Europe's dairy regime is devastating livelihoods in the developing world," Oxfam Briefing Paper 34 (Oxford: Oxfam, 2002), 4.

[15] ibid, 4.

[16] ibid, 7.

[17] ibid, 2.

[18] P. Fajnzylber, D. Lederman and N. Loayza, "Determinants of Crime Rates in Latin America and the World," World Bank Latin America and the Caribbean Viewpoints Series Paper (Washington, D.C.: World Bank, 1998).

[19] M. Pradhan and M. Ravallion, "Demand for Public Safety," Free University and the World Bank , mimeo (Washington, D.C., World Bank, 1998).

Use the following to cite this article: Barbanti, Jr., Olympio . "Rich / Poor Conflicts." Beyond Intractability . Eds. Guy Burgess and Heidi Burgess. Conflict Information Consortium, University of Colorado, Boulder. Posted: October 2003 < http://www.beyondintractability.org/essay/rich-poor >.

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World Hunger: A Moral Response

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This article explores whether or not people have a moral obligation to feed poor nations from several different aspects.">

Between now and tomorrow morning, 40,000 children will starve to death. The day after tomorrow, 40,000 more children will die, and so on throughout 1992. In a "world of plenty," the number of human beings dying or suffering from hunger, malnutrition, and hunger-related diseases is staggering. According to the World Bank, over 1 billion people—at least one quarter of the world's population—live in poverty. Over half of these people live in South Asia; most of the remainder in sub-Saharan Africa and East Asia.

The contrast between these peoples and the populations of rich nations is a stark one. In the poor nations of South Asia, the mortality rate among children under the age of 5 is more than 170 deaths per thousand, while in Sweden it is fewer than 10. In sub-Saharan Africa, life expectancy is 50 years, while in Japan it is 80.

These contrasts raise the question of whether people living in rich nations have a moral obligation to aid those in poor nations. Currently, less than 1/2 of 1% of the total world gross national product is devoted to aiding poverty-stricken nations. In 1988, the amount of aid from the U S. amounted to only 0.21% of its GNP. In 1990, the World Bank urged the international community to increase aid to poor countries to 0.7% of their GNP. If this goal is reached, poverty could be reduced by as much as 40% by the end of this decade. What is the extent of our duty to poor nations?

We Have No Obligation to Aid Poor Nations Some ethicists argue that rich nations have no obligation to aid poor nations. Our moral duty, they claim, is always to act in ways that will maximize human happiness and minimize human suffering. In the long run, aiding poor nations will produce far more suffering than it will alleviate. Nations with the highest incidence of poverty also have the highest birthrates. One report estimates that more than 90% of the world's total population growth between now and the year 2025 will occur in developing countries. Providing aid to people in such countries will only allow more of them to survive and reproduce, placing ever greater demands on the world's limited food supply. And as the populations of these countries swell, more people will be forced onto marginal and environmentally fragile lands, leading to widespread land degradation, further reducing the land available for food production. The increase in demands on the limited food supply combined with a decrease in the production of food will threaten the survival of future generations of all peoples, rich and poor.

Others claim that, even in the short-run, little benefit is derived from aiding poor nations. Aid sent to developing countries rarely reaches the people it was intended to benefit. Instead, it is used by oppressive governments to subsidize their military or spent on projects that benefit local elites, or ends up on the black market. Between 1978 and 1984, more than 80% of 596 million of food aid sent to Somalia went to the military and other public institutions. In El Salvador, 80% of U.S. aid in dry milk ended up on the black market. Furthermore, giving aid to poor countries undermines any incentive on the part of these countries to become self-sufficient through programs that would benefit the poor, such as those that would increase food production or control population growth. Food aid, for example, depresses local food prices, discouraging local food production and agricultural development. Poor dairy farmers in El Salvador have found themselves competing against free milk from the U.S. As a result of aid, many countries, such as Haiti, Sudan, and Zaire, have become aid dependent.

Some ethicists maintain that the principle of justice also dictates against aiding poor nations. Justice requires that benefits and burdens be distributed fairly among peoples. Nations that have planned for the needs of their citizens by regulating food production to ensure an adequate food supply for the present, as well as a surplus for emergencies, and nations that have implemented programs to limit population growth, should enjoy the benefits of their foresight. Many poor nations have irresponsibly failed to adopt policies that would stimulate food production and development. Instead, resources are spent on lavish projects or military regimes. Consider the $200 million air-conditioned cathedral recently constructed in the impoverished country of Cote D'Ivoire. Or consider that, in 1986, developing countries spent six times what they received in aid on their armed forces. Such nations that have failed to act responsibly should bear the consequences. It is unjust to ask nations that have acted responsibly to now assume the burdens of those nations that have not.

Finally, it is argued, all persons have a basic right to freedom, which includes the right to use the resources they have legitimately acquired as they freely choose. To oblige people in wealthy nations to give aid to poor nations violates this right. Aiding poor nations may be praiseworthy, but not obligatory.

We Have an Obligation to Aid Poor Nations Many maintain that the citizens of rich nations have a moral obligation to aid poor nations. First, some have argued, all persons have a moral obligation to prevent harm when doing so would not cause comparable harm to themselves. It is clear that suffering and death from starvation are harms. It is also clear that minor financial sacrifices on the part of people of rich nations can prevent massive amounts of suffering and death from starvation. Thus, they conclude, people in rich nations have a moral obligation to aid poor nations. Every week more than a quarter of a million children die from malnutrition and illness. Many of these deaths are preventable. For example, the diarrhea disease and respiratory infections that claim the lives of 16,000 children every day could be prevented by 10 cent packets of oral rehydration salts or by antibiotics usually costing under a dollar. The aid needed to prevent the great majority of child illness and death due to malnutrition in the next decade is equal to the amount of money spent in the U.S. to advertise cigarettes. It is well within the capacity of peoples of rich nations as collectives or as individuals to prevent these avoidable deaths and to reduce this misery without sacrificing anything of comparable significance. Personalizing the argument, Peter Singer, a contemporary philosopher, writes:

Just how much we will think ourselves obliged to give up will depend on what we consider to be of comparable moral significance to the poverty we could prevent: color television, stylish clothes, expensive dinners, a sophisticated stereo system, overseas holidays, a (second ?) car, a larger house, private schools for our children . . . none of these is likely to be of comparable significance to the reduction of absolute poverty.

Giving aid to the poor in other nations may require some inconvenience or some sacrifice of luxury on the part of peoples of rich nations, but to ignore the plight of starving people is as morally reprehensible as failing to save a child drowning in a pool because of the inconvenience of getting one's clothes wet.

In fact, according to Singer, allowing a person to die from hunger when it is easily within one's means to prevent it is no different, morally speaking, from killing another human being. If I purchase a VCR or spend money I don't need, knowing that I could instead have given my money to some relief agency that could have prevented some deaths from starvation, I am morally responsible for those deaths. The objection that I didn't intend for anyone to die is irrelevant. If I speed though an intersection and, as a result, kill a pedestrian, I am morally responsible for that death whether I intended it or not.

In making a case for aid to poor nations, others appeal to the principle of justice. Justice demands that people be compensated for the harms and injustices suffered at the hands of others. Much of the poverty of developing nations, they argue, is the result of unjust and exploitative policies of governments and corporations in wealthy countries. The protectionist trade policies of rich nations, for example, have driven down the price of exports of poor nations. According to one report, the European Economic Community imposes a tariff four times as high against cloth imported from poor nations as from rich ones. Such trade barriers cost developing countries $50 to $100 billion a year in lost sales and depressed markets. Moreover, the massive debt burdens consuming the resources of poor nations is the result of the tight monetary policies adopted by developed nations which drove up interest rates on the loans that had been made to these countries. In 1989, Third World countries owed $1.2 trillion nearly half of their total CNP to banks and governments in industrial countries. According to one report, since 1988, $50 billion a year has been transferred from poor nations to rich nations to service these debts.

Those who claim that wealthy nations have a duty to aid poor nations counter the argument that aiding poor nations will produce more suffering than happiness in the long run. First, they argue, there is no evidence to support the charge that aiding poor nations will lead to rapid population growth in these nations, thus straining the world's resource supply. Research shows that as poverty decreases, fertility rates decline. When people are economically secure, they have less need to have large families to ensure that they will be supported in old age. As infant mortality declines, there is less need to have more children to insure against the likelihood that some will die. With more aid, then, there is a fair chance that population growth will be brought under control.

Moreover, contrary to popular belief, it is rich countries, not poor countries, that pose a threat to the world's resource supply. The average American uses up to thirty times more of the world's resources than does the average Asian or African. If our concern is to ensure that there is an adequate resource base for the world's population, policies aimed at decreasing consumption by rich nations should be adopted.

Those who support aid to poor nations also counter the argument that aid to poor nations rarely accomplishes what it was intended to accomplish. As a result of aid, they point out, many countries have significantly reduced poverty and moved from dependence to self reliance. Aid has allowed Indonesia, for example, to reduce poverty from 58% to 17% in less than a generation. There are, unfortunately, instances in which the poor haven't benefitted from aid, but such cases only move us to find more effective ways to combat poverty in these countries, be it canceling debts, lowering trade restrictions, or improving distribution mechanisms for direct aid. Furthermore, poor nations would benefit from aid if more aid was sent to them in the first place. In 1988, 41% of all aid was directed to high-income and middle-income countries, rather than to low income countries. According to the World Bank, only 8% of U.S. aid in 1986 could be identified as development assistance devoted to low income countries. Obviously poor countries can't benefit from aid if they're not receiving it.

Finally, it is argued, all human beings have dignity deserving of respect and are entitled to what is necessary to live in dignity, including a right to life and a right to the goods necessary to satisfy one's basic needs. This right to satisfy basic needs takes precedence over the rights of others to accumulate wealth and property. When people are without the resources needed to survive, those with surplus resources are obligated to come to their aid.

In the coming decade, the gap between rich nations and poor nations will grow and appeals for assistance will multiply. How peoples of rich nations respond to the plight of those in poor nations will depend, in part, on how they come to view their duty to poor nations--taking into account justice and fairness, the benefits and harms of aid, and moral rights, including the right to accumulate surplus and the right to resources to meet basic human needs.

"I begin with the assumption that suffering from lack of food, shelter, and medical care are bad.... My next point is this: if it is within our power to prevent something bad from happening, without thereby sacrificing anything of comparable moral importance, we ought, morally, to do it." --Peter Singer

Further reading

Brown, L. R. State of the World 1990: A Worldwatch Institute Report on progress toward a sustainable society. New York: W.W. Norton & Company, 1990.

Hardin, G. Lifeboat ethics: "The case against helping the poor." Psychology Today , September 1974, 8, pp. 38-43; 123-126.

Helmuth, J. W. "World hunger amidst plenty." USA Today , March 1989, 117, pp. 48-50. Singer, P. "Famine, affluence, and morality." Philosophy and Public Affairs , Spring 1972, 1, (3), pp. 229-243.

Worid Bank. World development report 1990: Poverty . Oxford: Oxford University Press, 1990.

World Commission on Environment and Development. Our common future. Oxford: Oxford University Press, 1987.

This article was originally published in Issues in Ethics - V. 5, N. 1 Spring 1992

At the NABJ convention in Chicago on July 31st, Donald Trump Asked Rachel Scott To Define DEI. She Should Have.

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Stockholders pay the price when executives and directors choose profits over ethics.

Unrest in Bangladesh reflects young people’s struggle to find decent work in the world’s poorest nations

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Protests that started as a student movement driven by longstanding dissatisfaction over a quota system to allocate government jobs in Bangladesh have precipitated a change in the country’s political leadership.

These jobs, of which 30% were reserved for independence war veterans and their relatives, are highly sought after. The rate of youth unemployment in Bangladesh is three times higher than the national average and, according to a survey from 2013, around a fifth of students want to work in the public sector.

But the issue of youth unemployment and underemployment is by no means exclusive to Bangladesh . In fact, young people in many low-income countries find decent work hard to come by. A mere one-in-five people aged between 25 and 29 in these countries have a secure job that lasts longer than a year, with a paying employer and a contract.

Many young people instead patch together several activities to make a living or end up migrating for work. Some take on debt or badly paid and sometimes dangerous jobs. Others take up gambling in the hope of generating an income.

A youthful population can be a driver for development . South Korea’s per capita GDP growth of 2,200% between 1950 and 2008, for instance, has been linked to investment in the country’s youth. But in many places around the world, the foundations on which young people can build a future are fragile.

The overriding issue in many lower-income countries is that there simply aren’t enough jobs for the number of young people that want them. In stark contrast to wealthy countries where low birth rates and long life expectancy combine to create an ageing population, many middle and low-income countries have large and sometimes growing youth populations.

At the same time, valuable sources of employment in lower-income countries have been lost. This can, in part, be traced back to the 1980s and 1990s when loans and other forms of financing were provided to low-income countries on the condition that they make structural economic reforms.

These reforms have included liberalising trade, reforming taxes and public investment, reducing government spending, and introducing wage restraints and employment flexibility. They have resulted in job losses and layoffs in many countries, including from the public sector.

Permanent contracts and reliable hours of work are also relatively rare. More than half of all workers globally were in informal employment in 2024, which means they are not covered by national labour legislation and social protection. And research has found that young workers experience higher levels of informality than their older counterparts.

Despite improvements in educational attainment in lower-income countries, young people often struggle to enter the labour market. Within this context, many are forced to flee their country altogether.

The current exodus of young people from Nigeria, which has been nicknamed a japa wave after the Yoruba word for run or flee, is a case in point.

In 2019, more than a quarter of young Nigerians were classified as “not in education, employment or training” ( Neet ). And the number of Nigerian passports newly issued or renewed nearly doubled between 2021 and 2022, from 1 million to 1.9 million .

Read more: Young middle-class Nigerians are desperate to leave the country: insights into why

Things are particularly hard for young women. There are twice as many Neet young women globally as there are young men. In most countries, including lower-income countries, women face additional structural barriers in their search for decent work.

These include social norms on the extent of young women’s labour market participation and restrictive stereotypes concerning the types of employment deemed appropriate for them.

A variety of other factors have compounded the missing jobs crisis . Climate change is rendering young people’s working lives more precarious . Meanwhile, some young people were forced to take up new debt and more dangerous work during the pandemic just to get by .

Securing better jobs

Most efforts to help young people secure better jobs in low-income countries focus on providing them with education and training opportunities. But these interventions miss the heart of the issue: that young people cannot access decent work opportunities if those opportunities do not exist.

The key is to boost labour market demand and create better quality jobs. This can be achieved, in part, by prioritising employment and job creation in economic policy .

In 2023, the African Union and International Labour Organization unveiled a youth employment strategy for Africa . The strategy aims to create jobs for young people by directing investment into key areas for future youth employment: the green, care and digital industries.

Entrepreneurship is also seen as a crucial avenue for supplying more jobs in low-income countries. In fact, small- and medium-sized enterprises and mid-sized companies are responsible for almost 70% of jobs globally .

The Mastercard Foundation’s Young Africa Works strategy , which aims to help 30 million young people in Africa secure employment by 2030, sees entrepreneurs and small businesses as the engine for job creation.

However, such an approach requires a degree of caution as entrepreneurship tends to have high rates of failure. In Uganda , just 30% of small businesses reach their third birthday. And more than 70% of micro, small and medium businesses in South Africa fold within seven years.

The recent uprising in Bangladesh highlights the capacity for young people to drive societal change. The engagement and empowerment of young people are key for finding solutions to the widespread and persistent challenge of youth underemployment.

But the burden to solve this structural issue should not fall entirely on young people themselves. A transition to economies that are rich in jobs for young people can, if done well, help us tackle climate change and the care crisis, providing strong foundations for our shared present and future .

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Poor countries essay

Globalization is a much-maligned word in political, intellectual and academic circles. The markets are flooded with Anti globalist works. Anti globalists have such literary and intellectual stars such as Joseph Stiglitz (Nobel prize winner and best-selling author-‘Globalization and its discontents’) vouching for their arguments. In this scenario comes “ In defense of Globalization’ by Jagdish Bhagwati, a faculty member at Columbia University with excellent academic and professional credentials and a scholar of world repute on Trade theory and economics.

“ In Defense of Globalization’ takes on the Anti globalists by the collar with relentless economic logic and puts forth a cogent argument in favor of Globalization. This brings a balance in the two viewpoints between the two opposing stances. The book addresses a slew of accusations against globalizations: that it increases poverty, encourages child labor and gender discrimination, threatens democracy and fosters cultural imperialism, lowers wages, brings down labor standards, damages the environment and helps in the new wave of global imperialism by the Multinational corporations.

Instead he puts forward the idea that globalization has the opposite effect. It rests on the argument that globalisation and free trade increases economic growth and economic growth reduces poverty. Thus globalization has helped to decrease poverty and that too with a socially benign and human face. The essence of this book is in various chapters devoted to proving this basic argument. In the first chapter he examines the philosophy and motivation behind the Anti Globalization movement.

It leads to the second chapter where he points out that globalization unlike the war cry of the opposition is not only economically but also socially benign. In this context, globalization is good but not adequate enough to deal with all the economic problems of the world. Next he addresses the role of N. G. O’s. Bhagwati’s book deals with an analysis of the N. G. O movement. He acknowledges the role of the movement in determining the salience, shape and content to the globalization debate the world over. The N. G.

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• NORWEGIAN SCHOOL OF ECONOMICS essay

O movement has acquired a global character with greater influence. He makes a complaint against American and European N. G. O’ that they lack transparency and that they speak for the poor without consulting them. Western N. G. O’s and developing country counterparts often have diametrically opposite views on issues but the former being wealthier and more media savvy tend to garner all the attention and weight age. He is critical of N. G. O’s that are engaged in campaigning against free trade and also rebuke their reservations against globalization as rubbish.

The next question addressed is whether poverty has been reduced or increased in the globalised era. To show that. Globalization eases poverty, Bhagwaty recounts the case of two continents-In 1970; average African incomes were 30 % higher than average Asian incomes. Thirty years later, African incomes were stagnant and at half the rate of Asian incomes. Bhagwati attributes this turnaround mainly to the fact that Asia had opened its markets to free trade while Africa had not. In 1970, Africa was home to 10% of world’s poor and Asia about 75%.

But thirty years later, Africa had more than a third of the world’s poor while Asia had only 15%. The case of India and China are also remarkable. During three decades that it was a closed economy, India grew at a slow 4% and poverty rate hovered at 55%. But since the two decades it opened its economy, it grew at 5%, and poverty dropped to 26%. China’s experience from protection to free market era poverty rates was a reduction from 28% to 9%. These figures prove that there is a positive relationship between trade liberalization and poverty alleviation.

The question of child labor is controversial. Facing the charge that free trade encourages child labor, Bhagwati cites the case of Vietnamese rice farmers in the 1990’s. When restrictions on their ability to export were relaxed, they could sell at higher prices in the world markets. They got higher incomes and surprisingly used the additional income to send their children to school, mainly girl children. Demanding poor countries ban child labor can backfire. In 1993 fearing an American legislation, the Bangladeshi textile industry fired 50,000 children from factories.

Tragically, these children did not return to school but entered other worse professions like prostitution and other degrading occupations. Women, Bhagwati points out, enjoy the benefits of earning additional income for their families and do not mind putting longer hours etc as long as they are able to enjoy this new found financial independence. Regarding labor rights and wages, the Multinational corporations are not the dragons as they are made out to be. Bhagwati refers to a spate of recent studies to show that Multi nationals when they operate in developing countries do not depress living standards.

They pay a wage premium above the local wage rate, mostly up to 10% and sometimes more. Nor is there any evidence that these companies deliberately seek out countries, which do not have labor laws or legal safeguards for workers. Bhagwati also addresses the question of cultural imperialism. The Rule of America or the culture of Mc World is looked upon with suspicion by the anti globalists. But Bhagwati points to the case of Salman Rushdie, a writer who blends Bombay slang and perfect English in novels borrowing techniques of magical realism from South American authors.

This is the era of the cultural hot pot, mixing of cultures and the reality of the global village. Bhagwathi also points out that economic growth coupled with environmental regulation will not lead to pollution. A country’s environment quality tends to improve with sustained economic growth because economic activity shifts from pollution intensive primary production and manufacturing to services. At between $5000 to $6000 annual per capita income growth and environment gains go hand in hand. Most countries are still far from this level.

But many are beginning to see that environment quality will improve at a lower threshold. Examples of environmental regulation are-He recommends a retroactive tax on carbon dioxide emission over the past century the proceeds of which could help developing countries reduce their green house gas emissions. He also recommends that multinational companies must practice the same environmental standards in the developing countries sin their home countries. The U. S. in my opinion should not impose labor and environmental standards in trade with poor countries.

Bhagwati points out those U. S. multi nationals are not in the bad habit of seeking countries with low labor standards but seek high wage high standard countries. If they do invest in a poor country they pay a wage that is some percentages higher than the local wage. The result is not a ‘race to the bottom’ but a ‘race to the top Bhagwati is less keen on the freer movement of capital across national borders. He attributes the financial meltdowns of the 1990’s to a ‘Wall street Treasury House complex’ that had put pressure on developing countries to liberalize capital flows.

He squarely blames energetic lobbying by Wall Street firms to be the original cause of these financial crises in East Asia. Bhagwati is not completely blind to the faults of markets and multinationals. For instance he deplores the lobbying by big Pharmaceutical companies for patent protection in the WTO to the detriment of developing countries. He also thinks that U. S. treasury and I. M. F should not have pressurized Asian countries to open up their financial markets before they were ready for it. Yet, Bhagwati does not give up hope on capitalism.

He thinks that the world is on the right track and that capitalism is a system that will undermine privilege and open up opportunity for many. Based on his arguments, I am also of the opinion that the best way for countries to escape from poverty is to better integrate with the world economy. At last, Bhagwati gives a cautionary message. Globalisation has to be managed, especially the speed at which it is progressing and also what policies and regulations have to be put in place to minimize its adverse negative social and economic effects.

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Guest Essay

The China Hangover Is Here

By Michael Beckley

Mr. Beckley is the author of “Danger Zone: The Coming Conflict With China.”

In the 2000s, former President Hugo Chávez of Venezuela bet his country’s economic future on a rising China, securing tens of billions of dollars in investments and loans-for-oil deals. It paid off at first. China voraciously consumed Venezuelan oil and financed infrastructure projects, such as a high-speed railway and power plants.

The 2010s brought a reckoning. Oil prices fell, and growth in Chinese oil demand slowed along with its economy. Venezuela’s oil export revenues plummeted, to $22 billion in 2016 from more than $73 billion in 2011. Misrule by Mr. Chávez and his handpicked successor, Nicolás Maduro, and myriad other domestic problems already had Venezuela on the brink; the gamble on China helped push it over the edge. In 2014, Venezuela’s economy collapsed. People scavenged for food in garbage dumps, hospitals were short of essential medicines and crime surged. Since then, nearly eight million people have fled the country. China largely cut Venezuela off from new credit and loans , leaving behind a slew of unfinished projects .

Venezuela’s over-dependence on China was an early warning that the world ignored. Dozens of other countries that rode China’s rise are now at serious risk of financial distress and debt default as the Chinese economy stagnates. Yet China refuses to offer meaningful foreign debt relief and is doubling down at home on its protectionist trade practices when it should be undertaking reforms to free up and restart its economy, the world’s second-largest and a crucial engine of global growth.

That is the flip side of China’s “miracle.” After the 2008 global financial crisis, the world needed an economic savior, and China filled that role. Starting in 2008, it pumped $29 trillion into its economy over nine years — equivalent to about one-third of global G.D.P. — to keep it going. The positive ripple effects were felt worldwide: From 2008 to 2021 China accounted for more than 40 percent of global growth . Developing countries eagerly attached themselves to what seemed like an unstoppable economic juggernaut, and China became the top trading partner for most of the world’s nations. Like Venezuela, many discovered that the booming Chinese economy was a lucrative new market for their commodity exports, and they leaned heavily into that, allowing other sectors of their economies to languish.

China also lent more than $1 trillion abroad, largely for infrastructure projects to be built by Chinese companies under its Belt and Road Initiative. Over the past two decades, one in three infrastructure projects in Africa was built by Chinese entities. The long-term debt risks for fragile developing economies were often ignored.

Chinese lending has slowed to a trickle

Annual foreign lending

$90 billion

$87 billion

Source: Boston University Global Development Policy Center

China’s economic growth has slowed sharply over the last few decades

China has consistently reported higher economic growth than outside sources estimate. While The Conference Board in recent years estimated numbers close to China’s, Rhodium Group estimated much smaller growth.

15% annual growth of G.D.P.

Reported by China

Estimated by

The Conference Board

Estimated by Rhodium Group

Sources: National Bureau of Statistics of China; The Conference Board; Rhodium Group

China is a major trading partner across the world

Share of total trade with China

10 percent or less

more than 10 percent

No recent data availabe

No recent data available

More than 10 percent

Source: United Nations Comtrade

Note: Trade data as of 2023. For countries where 2023 data is not available, the most recent year is used. Trade figures are reported annually from each nation and may still be incomplete.

China has been one of the world’s largest lenders to emerging markets

Aggregate external public debt owed by developing and emerging markets

$400 billion

International

Monetary Fund

Sources: Horn et al. (2021) “ China's Overseas Lending ,” Journal of International Economics; World Bank; Paris Club; International Monetary Fund

Note: Chart shows debt owed by developing and emerging markets included in the World Bank International Debt Statistics. Data on public debt owed to China is incomplete after 2017.

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The September/October issue is now available online

China’s Real Economic Crisis

Why Beijing Won’t Give Up on a Failing Model

By Zongyuan Zoe Liu

The Chinese economy is stuck. Following Beijing’s decision, in late 2022, to abruptly end its draconian “zero COVID” policy, many observers assumed that China’s growth engine would rapidly reignite. After years of pandemic lockdowns that brought some economic sectors to a virtual halt, reopening the country was supposed to spark a major comeback. Instead, the recovery has faltered, with sluggish GDP performance, sagging consumer confidence, growing clashes with the West, and a collapse in property prices that has caused some of China’s largest companies to default. In July 2024, Chinese official data revealed that GDP growth was falling behind the government’s target of about five percent. The government has finally let the Chinese people leave their homes, but it cannot command the economy to return to its former strength.

To account for this bleak picture, Western observers have put forward a variety of explanations. Among them are China’s sustained real estate crisis, its rapidly aging population, and Chinese leader Xi Jinping’s tightening grip on the economy and extreme response to the pandemic. But there is a more enduring driver of the present stasis, one that runs deeper than Xi’s growing authoritarianism or the effects of a crashing property market: a decades-old economic strategy that privileges industrial production over all else, an approach that, over time, has resulted in enormous structural overcapacity. For years, Beijing’s industrial policies have led to overinvestment in production facilities in sectors from raw materials to emerging technologies such as batteries and robots, often saddling Chinese cities and firms with huge debt burdens in the process.

Simply put, in many crucial economic sectors, China is producing far more output than it, or foreign markets, can sustainably absorb. As a result, the Chinese economy runs the risk of getting caught in a doom loop of falling prices, insolvency, factory closures, and, ultimately, job losses. Shrinking profits have forced producers to further increase output and more heavily discount their wares in order to generate cash to service their debts. Moreover, as factories are forced to close and industries consolidate, the firms left standing are not necessarily the most efficient or most profitable. Rather, the survivors tend to be those with the best access to government subsidies and cheap financing.

Since the mid-2010s, the problem has become a destabilizing force in international trade, as well. By creating a glut of supply in the global market for many goods, Chinese firms are pushing prices below the break-even point for producers in other countries. In December 2023, European Commission President Ursula von der Leyen warned that excess Chinese production was causing “unsustainable” trade imbalances and accused Beijing of engaging in unfair trade practices by offloading ever-greater quantities of Chinese products onto the European market at cutthroat prices. In April, U.S. Treasury Secretary Janet Yellen warned that China’s overinvestment in steel, electric vehicles, and many other goods was threatening to cause “economic dislocation” around the globe. “China is now simply too large for the rest of the world to absorb this enormous capacity,” Yellen said.

Despite vehement denials by Beijing, Chinese industrial policy has for decades led to recurring cycles of overcapacity. At home, factories in government-designated priority sectors of the economy routinely sell products below cost in order to satisfy local and national political goals. And Beijing has regularly raised production targets for many goods, even when current levels already exceed demand. Partly, this stems from a long tradition of economic planning that has given enormous emphasis to industrial production and infrastructure development while virtually ignoring household consumption. This oversight does not stem from ignorance or miscalculation; rather, it reflects the Chinese Communist Party’s long-standing economic vision.

As the party sees it, consumption is an individualistic distraction that threatens to divert resources away from China’s core economic strength: its industrial base. According to party orthodoxy, China’s economic advantage derives from its low consumption and high savings rates, which generate capital that the state-controlled banking system can funnel into industrial enterprises. This system also reinforces political stability by embedding the party hierarchy into every economic sector. Because China’s bloated industrial base is dependent on cheap financing to survive—financing that the Chinese leadership can restrict at any time—the business elite is tightly bound, and even subservient, to the interests of the party. In the West, money influences politics, but in China it is the opposite: politics influences money. The Chinese economy clearly needs to strike a new balance between investment and consumption, but Beijing is unlikely to make this shift because it depends on the political control it gets from production-intensive economic policy.

For the West, China’s overcapacity problem presents a long-term challenge that can’t be solved simply by erecting new trade barriers. For one thing, even if the United States and Europe were able to significantly limit the amount of Chinese goods reaching Western markets, it would not unravel the structural inefficiencies that have accumulated in China over decades of privileging industrial investment and production goals. Any course correction could take years of sustained Chinese policy to be successful. For another, Xi’s growing emphasis on making China economically self-sufficient—a strategy that is itself a response to perceived efforts by the West to isolate the country economically—has increased, rather than decreased, the pressures leading to overproduction. Moreover, efforts by Washington to prevent Beijing from flooding the United States with cheap goods in key sectors are only likely to create new inefficiencies within the U.S. economy, even as they shift China’s overproduction problem to other international markets.

To craft a better approach, Western leaders and policymakers would do well to understand the deeper forces driving China’s overcapacity and make sure that their own policies are not making it worse. Rather than seeking to further isolate China, the West should take steps to keep Beijing firmly within the global trading system, using the incentives of the global market to steer China toward more balanced growth and less heavy-handed industrial policies. In the absence of such a strategy, the West could face a China that is increasingly unrestrained by international economic ties and prepared to double down on its state-led production strategy, even at the risk of harming the global economy and stunting its own prosperity.

FACTORY DEFECTS

The structural issues underlying China’s economic stasis are not the result of recent policy choices. They stem directly from the lopsided industrial strategy that took shape in the earliest years of China’s reform era, four decades ago. China’s sixth five-year plan (1981–85) was the first to be instituted after Chinese leader Deng Xiaoping opened up the Chinese economy. Although the document ran to more than 100 pages, nearly all of it was devoted to developing China’s industrial sector, expanding international trade, and advancing technology; only a single page was given to the topic of increasing income and consumption. Despite vast technological changes and an almost unrecognizably different global market, the party’s emphasis on China’s industrial base remains remarkably similar today. The 14th five-year plan (2021–25) offers detailed targets for economic growth, R & D investment, patent achievement, and food and energy production—but apart from a few other sparse references, household consumption is relegated to a single paragraph.

In prioritizing industrial output, China’s economic planners assume that Chinese producers will always be able to offload excess supply in the global market and reap cash from foreign sales. In practice, however, they have created vast overinvestment in production across sectors in which the domestic market is already saturated and foreign governments are wary of Chinese supply chain dominance. In the early years of the twenty-first century, it was Chinese steel, with the country’s surplus capacity eventually exceeding the entire steel output of Germany, Japan, and the United States combined. More recently, China has ended up with similar excesses in coal, aluminum, glass, cement, robotic equipment, electric-vehicle batteries, and other materials. Chinese factories are now able to produce every year twice as many solar panels as the world can put to use.

For the global economy, China’s chronic overcapacity has far-reaching impacts. With electric vehicles, for instance, carmakers in Europe are already facing stiff competition from cheap Chinese imports. Factories in this and other emerging technology sectors in the West may close or, worse, never get built. Moreover, high-value manufacturing industries have economic effects that go far beyond their own activities; they generate service-sector employment and are vital to sustaining the kinds of pools of local talent that are needed to spur innovation and technological breakthroughs. In China’s domestic market, overcapacity issues have provoked a brutal price war in some industries that is hampering profits and devouring capital. According to government statistics, 27 percent of Chinese automobile manufacturers were unprofitable in May; at one point last year, the figure reached 32 percent. Overproduction throughout the economy has also depressed prices generally, causing inflation to hover near zero and the debt service ratio for the private nonfinancial sector—the ratio of total debt payments to disposable income—to climb to an all-time high. These trends have eroded consumer confidence, leading to further declines in domestic consumption and increasing the risk of China sliding into a deflationary trap.

When Beijing’s economic planners do talk about consumption, they tend to do so in relation to industrial aims. In its brief discussion of the subject, the current five-year plan states that consumption should be steered specifically toward goods that align with Beijing’s industrial priorities: automobiles, electronics, digital products, and smart appliances. Analogously, although China’s vibrant e-commerce sector might suggest a plethora of consumer choices, in reality, major platforms such as Alibaba, Pinduoduo, and Shein compete fiercely to sell the same commoditized products. In other words, the illusion of consumer choice masks a domestic market that is overwhelmingly shaped by the state’s industrial priorities rather than by individual preferences.

This is also reflected in policy initiatives aimed at boosting consumer spending. Consider the government’s recent effort to promote goods replacement. According to a March 2024 action plan, the Ministry of Commerce, together with other Chinese government agencies, has offered subsidies to consumers who trade in old automobiles, home appliances, and fixtures for new models. On paper, the plan loosely resembles the “cash for clunkers” program that Washington introduced during the 2008 recession to help the U.S. car industry. But the plan lacks specific details and relies on local authorities for implementation, rendering it largely ineffective; it has notably failed to lift the prices of durable goods. Although the government can influence the dynamics of supply and demand in China’s consumer markets, it cannot compel people to spend or punish them if they do not. When income growth slows, people naturally tighten their purses, delay big purchases, and try to make do for longer with older equipment. Paradoxically, the drag that overcapacity has placed on the economy overall means that the government’s efforts to direct consumption are making people even less likely to spend.

DEBT COLLECTORS

At the center of Beijing’s overcapacity problem is the burden placed on local authorities to develop China’s industrial base. Top-down industrial plans are designed to reward the cities and regions that can deliver the most GDP growth, by providing incentives to local officials to allocate capital and subsidies to prioritized sectors. As the scholar Mary Gallagher has observed, Beijing has fanned the flames by using social campaigns such as “common prosperity”—a concept Chinese leader Mao Zedong first proposed in 1953 and that Xi revived at a party meeting in 2021—to spur local industrial development. These planning directives and campaigns put enormous pressure on local party chiefs to achieve rapid results, which they may see as crucial for promotion within the party. Consequently, these officials have strong incentives to make highly leveraged investments in priority sectors, irrespective of whether these moves are likely to be profitable.

This phenomenon has fueled risky financing practices by local governments across China. In order to encourage local initiative, Beijing often does not provide financing: instead, it gives local officials broad discretion to arrange off-balance-sheet investment vehicles with the help of regional banks to fund projects in priority sectors, with the national government limiting itself to specifying which types of local financing options are prohibited. About 30 percent of China’s infrastructure spending comes from these investment vehicles; without them, local officials simply cannot do the projects that will win them praise within the party. Inevitably, this approach has led to not only huge industrial overcapacity but also enormous levels of local government debt. According to an investigation by The Wall Street Journal, in July, the total amount of off-the-book debts held by local governments across China now stands at between $7 trillion and $11 trillion, with as much as $800 billion at risk of default.

Although the scale of debt may be worse now, the problem is not new. Ever since China’s 1994 fiscal reform, which allowed local governments to retain a share of the tax revenue they collected but reduced the fiscal transfers they received from Beijing, local governments have been under chronic financial strain. They have struggled to meet their dual mandate of promoting local GDP growth and providing public services with limited resources. By centralizing financial power at the national level and offloading infrastructure and social service expenditures to regions and municipalities, Beijing’s policies have driven local governments into debt. What’s more, by stressing rapid growth performance, Beijing has pushed local officials to favor quickly executed capital projects in industries of national priority. As a further incentive, Beijing sometimes offers limited fiscal support for projects in priority sectors and helps facilitate approvals for local governments to secure financing. Ultimately, the local government bears the financial risk, and the success or failure of the project rests on the shoulders of the party’s local chief, which leads to distorted results.

A larger problem with China’s reliance on local government to implement industrial policy is that it causes cities and regions across the country to compete in the same sectors rather than complement each other or play to their own strengths. Thus, for more than two decades, Chinese provinces—from Xinjiang in the west to Shanghai in the east, from Heilongjiang in the north to Hainan in the south—have, with very little coordination between them, established factories in the same government-designated priority industries, driven by provincial and local officials’ efforts to outperform their peers. Inevitably, this domestic competition has led to overcapacity and high levels of debt, even in industries in which China has gained global market dominance.

Every year, Chinese factories produce twice as many solar panels as the world can use.

Take solar panels. In 2010, China’s State Council announced that strategic emerging industries, including solar power, should account for 15 percent of national GDP by 2020. Within two years, 31 of China’s 34 provinces had designated the solar-photovoltaic industry as a priority, half of all Chinese cities had made investments in the solar-PV industry, and more than 100 Chinese cities had built solar-PV industrial parks. Almost immediately, China’s PV output outstripped domestic demand, with the excess supply being exported to Europe and other areas of the world where governments were subsidizing solar-panel ownership. By 2013, both the United States and the European Union imposed antidumping tariffs on Chinese PV manufacturers. By 2022, China’s own installed solar-PV capacity was greater than any other country’s, following its aggressive renewable energy build-out. But China’s electric grid cannot support additional solar capacity. With the domestic market completely saturated, solar manufacturers have resumed offloading as much of their wares as possible onto foreign markets. In August 2023, the U.S. Commerce Department found that Chinese PV producers were shipping products to Cambodia, Malaysia, Thailand, and Vietnam for minor processing procedures to avoid paying U.S. antidumping tariffs. China’s PV-production capacity, already double the global demand, is expected to grow by another 50 percent in 2025. This extreme oversupply caused the utilization rate in China’s finished solar power industry to plummet to just 23 percent in early 2024. Nevertheless, these factories continue operating because they need to raise cash to service their debt and cover fixed costs.

Another example is industrial robotics, which Beijing began prioritizing in 2015 as part of its Made in China 2025 strategy. At the time, there was a clear rationale for building a stronger domestic robotics industry: China had surpassed Japan to become the world’s largest buyer of industrial robots, accounting for about 20 percent of sales worldwide. Moreover, the plan seemed to achieve striking results. By 2017, there were more than 800 robotics companies and 40 robotics-focused industrial parks operating across at least 20 Chinese provinces. Yet this all-in effort did little to advance Chinese robotics technology, even as it created a huge industrial base. In order to meet Beijing’s ambitious production targets, local officials tended to invest in mature technologies that could be scaled quickly. Today, China has a large excess capacity in low-end robotics yet still lacks sufficient capacity in high-end autonomous robotics that require indigenous intellectual property.

Overcapacity in low-end production has plagued other Chinese tech industries, as well. The most recent example is artificial intelligence, which Beijing designated as a priority industry in its last two five-year plans. In August 2019, the government called for the creation of about 20 AI “pilot zones”—research parks that have a mandate to use local-government data for market testing. The aim is to exploit China’s two greatest strengths in the field: the ability to quickly build physical infrastructure, and thereby support the agglomeration of AI companies and talent, and the lack of constraints on how the government collects and shares personal data. Within two years, 17 Chinese cities had created such pilot zones, despite the disruption of the coronavirus pandemic and the government’s large-scale lockdowns. Each of these cities has also adopted action plans to induce further investments and data sharing.

On paper, the program seems impressive. China is now second only to the United States in AI investment. But the quality of actual AI research, especially in the field of generative AI, has been hindered by government censorship and a lack of indigenous intellectual property. In fact, many of the Chinese AI startups that have taken advantage of the strong government support are producing products that still fundamentally rely on models and hardware developed in the West. Similar to its initiatives in other emerging industries, Beijing risks wasting enormous capital on redundant investments that emphasize economies of scale rather than deep-rooted innovation.

RACE OF THE ZOMBIES

Paradoxically, even as Beijing’s industrial policy goals change, many of the features that drive overcapacity persist. Whenever the Chinese government prioritizes a new sector, duplicative investments by local governments inevitably fuel intense domestic competition. Firms and factories race to produce the same products and barely make any profit—a phenomenon known in China as nei juan, or involution. Rather than try to differentiate their products, firms will attempt to simply outproduce their rivals by expanding production as fast as possible and engaging in fierce price wars; there is little incentive to gain a competitive edge by improving corporate management or investing in R & D. At the same time, finite domestic demand forces firms to export excess inventory overseas, where it is subject to geopolitics and the fluctuations of global markets. Economic downturns in export destinations and rising trade tensions can stymie export growth and worsen overcapacity at home.

These dynamics all contribute to a vicious cycle: firms backed by bank loans and local government support must produce nonstop to maintain their cash flow. A production halt means no cash flow, prompting creditors to demand their money back. But as firms produce more, excess inventory grows and consumer prices drop further, causing firms to lose more money and require even more financial support from local governments and banks. And as companies go more deeply into debt, it becomes harder for them to pay it off, compounding the chance that they become “zombie companies,” essentially insolvent but able to generate just enough cash flow to meet their credit obligations. As China’s economy has stalled, the government has reduced the taxes and fees levied on firms as a way to spur growth—but that has reduced local government revenue, even as social-services expenditures and debt payments rise. In other words, the close financial relationship between local governments and the firms they support has created a wave of debt-fueled local GDP growth and left the economy in a hard-to-reverse overcapacity trap.

Yet even now, China shows few signs of reducing its reliance on debt. Xi has doubled down on his campaign for China to achieve technological self-sufficiency, amid intense geopolitical competition with the United States. As Beijing sees it, only by investing even more in strategic sectors can it protect itself from isolation or potential economic sanctions by the West. Thus, the government is concentrating on funding advanced manufacturing and strategic technologies and discouraging investments that it sees as distracting, such as in the property sector. In order to promote more indigenous high-end technology, Chinese policymakers have in recent years mobilized the entire banking system and set up dedicated loan programs to support research and innovation in prioritized sectors. The result has been a tendency to deepen, rather than correct, the structural problems leading to excess investment and production.

For example, in 2021, the China Development Bank created a special loan program for scientific and technological innovation and basic research. By May 2024, the bank had distributed more than $38 billion worth of loans to support critical, cutting-edge sectors, such as semiconductors, clean energy technology, biotech, and pharmaceuticals. In April, the People’s Bank of China, along with several government ministries, launched a $69 billion refinancing fund—to fuel a massive new round of lending by Chinese banks for projects aimed at scientific and technological innovation. Barely two months after the program’s launch, some 421 industrial facilities across the country were designated as “smart manufacturing” demonstration factories—a vague label given to factories that plan to integrate AI into their manufacturing processes. The program also announced investments in more than 10,000 provincial-level digital workshops and more than 4,500 AI-focused companies.

Beyond hitting top-line investment numbers, however, this campaign has few criteria for measuring actual success. Ironically, this new program’s stated goal of filling a financing gap for small and medium-sized enterprises that are working on innovations points to a larger shortcoming in Beijing’s economic management. For years, China’s industrial policy has tended to funnel resources to already mature companies; by contrast, with its massive effort to develop AI and other advanced technologies, the government has committed the financial resources to match the venture capital approach of the United States. Yet even here, China’s economic planners have failed to recognize that the real driving force of innovation is disruption. To truly foster this kind of creativity, entrepreneurs would need unfettered access to domestic capital markets and private capital, a situation that would undermine Beijing’s control of China’s business elites. Without the possibility of market disruption, these enormous investments merely exacerbate China’s overcapacity problem. Money is funneled into those products that can be scaled most rapidly, forcing manufacturers to overproduce and then survive on the slim margins that can be reaped from dumping onto the international market.

THE AGONY OF EXCESS

In industry after industry, China’s chronic overcapacity is creating a complicated dilemma for the United States and the West. In recent months, Western officials have stepped up their criticisms of Beijing’s economic policies. In a speech in May, Lael Brainard, the director of the Biden administration’s Council of Economic Advisers, warned that China’s “policy-driven industrial overcapacity”—a euphemism for antimarket practices—was hurting the global economy. By enforcing policies that “unfairly depress capital, labor, and energy costs” and allow Chinese firms to sell “at or below cost,” she said, China now accounts for a huge percentage of global capacity in electric vehicles, batteries, semiconductors, and other sectors. As a consequence, Beijing is hampering innovation and competition in the global marketplace, threatening jobs in the United States and elsewhere, and limiting the ability of the United States and other Western countries to build supply chain resilience.

At their meeting in Capri, Italy, in April, members of the G-7 warned, in a joint statement, that “China’s non-market policies and practices” have led to “harmful overcapacity. ” The massive inflow of cheap Chinese-manufactured products has already raised trade tensions. Since 2023, several governments, including those of Vietnam and Brazil, have launched antidumping or antisubsidy investigations against China, and Brazil, Mexico, Turkey, the United States, and the European Union have imposed tariffs on various imports from China, including but not limited to electric vehicles.

Beijing’s industrial policies have driven cities and regions across China into debt.

Faced with mounting international pressure, Xi, leading party journals, and Chinese state media have consistently denied that China has an overcapacity problem. They maintain that the criticisms are driven by an unfounded U.S. “anxiety” and that China’s cost advantage is not the product of subsidies but of the “efforts of enterprises” that “are shaped by full market competition.” Indeed, Chinese diplomats have maintained that in many emerging technology industries, the global economy suffers from significant capacity shortages rather than excess supply. In May, the People’s Daily , the official party newspaper, accused the United States of using exaggerated claims about overcapacity as a pretext for introducing harmful trade barriers meant to contain China and suppress the development of China’s strategic industries.

Nonetheless, Chinese policymakers and economic analysts have long acknowledged the problem. As early as December 2005, Ma Kai, then the director of China’s National Development and Reform Commission, warned that seven industrial sectors, including steel and automobiles, faced severe overcapacity. He attributed the problem to “blind investment and low-level expansion.” Over the nearly two decades since, Beijing has issued more than a dozen administrative guidelines to tackle the problem in various sectors, but with limited success. In March 2024, an analysis by Lu Feng, of Peking University, identified overcapacity problems in new-energy vehicles, electric-vehicle batteries, and legacy microchips. BloombergNEF has estimated that China’s battery production in 2023 alone was equal to total global demand. With the West adding production capacity and Chinese battery makers continuing to expand investment and production, the global problem of excess supply will likely worsen in the years to come.

Lu warned that China’s overdevelopment of these industries will pressure Chinese firms to dump products on international markets and exacerbate China’s already fraught trade relations with the West. To address the problem, he proposed a combination of measures that the Chinese government has already attempted—such as stimulating domestic spending (investment and household consumption)—and those that many economists have long argued for but which Beijing has not done, including separating government from business and reforming redistribution mechanisms to benefit households. Yet these proposed solutions fall short of addressing the fundamental coordination problem plaguing the Chinese economy: the duplication of local government investments in state-designated priority sectors.

LOWER FENCE, TIGHTER LEASH

Thus far, the United States has responded to China’s overcapacity challenge by imposing steep tariffs on Chinese clean energy products, such as solar panels, electric vehicles, and batteries. At the same time, with the 2022 Inflation Reduction Act, the Biden administration has poured billions of dollars into building U.S. domestic capacity for many of the same sectors. But the United States should be wary of trying to isolate China simply by building trade barriers and beefing up its own industrial base.

By offering large incentives to companies that invest in critical sectors in the United States, Washington could replicate some of the same problems that are plaguing China’s economy: a reliance on debt-fueled investment, unproductive resource allocation, and, potentially, a speculative bubble in tech-company stocks that could destabilize the market if it suddenly burst. If the goal is to outcompete Beijing, Washington should concentrate on what the American system is already better at: innovation, market disruption, and the intensive use of private capital, with investors choosing the most promising areas to support and taking the risks along with the rewards. By fixating on strategies to limit China’s economic advantages, the United States risks neglecting its own strengths.

U.S. policymakers also need to recognize that China’s overcapacity problem is exacerbated by Beijing’s pursuit of self-sufficiency. This effort, which has been given major emphasis in recent years, reflects Xi’s insecurity and his desire to reduce China’s strategic vulnerabilities amid growing economic and geopolitical tensions with the United States and the West. In fact, Xi’s attempts to mobilize his country’s people and resources to build a technological and financial wall around China carry significant consequences of their own. A China that is increasingly cut off from Western markets will have less to lose in a potential confrontation with the West—and, therefore, less motivation to de-escalate. As long as China is tightly bound to the United States and Europe through the trade of high-value goods that are not easily substitutable, the West will be far more effective in deterring the country from taking destabilizing actions. China and the United States are strategic competitors, not enemies; nonetheless, when it comes to U.S.-Chinese trade relations, there is wisdom in the old saying “Keep your friends close and your enemies closer.”

The U.S. government should discourage Beijing from building a wall that can sanction-proof the Chinese economy. To this end, the next administration should foster alliances, restore damaged multilateral institutions, and create new structures of interdependence that make isolation and self-sufficiency not only unattractive to China but also unattainable. A good place to start is by crafting more policies at the negotiation table, rather than merely imposing tariffs. Waging trade wars amid geopolitical tensions will heighten the confidence deficit in the Chinese economy and lead to the depreciation of the renminbi, which will partly offset the impact of tariffs.

China may also be more flexible in its trade policies than it appears. Since the escalation of the U.S.-Chinese trade war, in 2018, Chinese scholars and officials have explored several policy options, including imposing voluntary export restrictions, revaluing the renminbi, promoting domestic consumption, expanding foreign direct investment, and investing in R & D. Chinese scholars have also examined Japan’s trade relations with the United States in the 1980s, noting how trade tensions forced mature Japanese industries, such as automobile manufacturing, to upgrade and become more competitive with their Western rivals, an approach that could offer lessons for China’s electric-vehicle industry. 

Apart from voluntary export restrictions, Beijing has already tried several of these options to some extent. If the government also implemented voluntary export controls, it could kill several birds with one stone: such a move would reduce trade and potentially even political tensions with the United States; it would force mature sectors to consolidate and become more sustainable; and it would help shift manufacturing capacity overseas, to serve target markets directly.

Xi is attempting to build a technological and financial wall around China.

So far, the Biden administration has taken a compartmentalized approach to China, addressing issues one at a time and focusing negotiations on single topics. In contrast, the Chinese government prefers a different approach in which no issues are off the table and concessions in one area might be traded for gains in another, even if the issues are unrelated. Consequently, although Beijing may seem recalcitrant in isolated talks, it might be receptive to a more comprehensive deal that addresses multiple aspects of U.S.-Chinese relations simultaneously. Washington should remain open to the possibility of such a grand bargain and recognize that if incentives change, China’s leadership might shift tactics abruptly, just as it did when it suddenly ended the zero-COVID policy. 

Washington should also consider leveraging multilateral institutions such as the World Trade Organization to facilitate negotiations with Beijing. For example, China might agree to voluntarily drop its developing country status at the WTO, which gives designated countries preferential treatment in some trade disputes. It may also be persuaded to support a revised WTO framework to determine a country’s nonmarket economy status—a designation used by the United States and the EU to impose higher antidumping tariffs on China—on an industry-by-industry basis rather than for an entire economy. Such steps would acknowledge China’s economic success, even as it held it to the higher trade standards of advanced industrialized countries.

Xi views himself as a transformational leader, inviting comparisons to Chairman Mao. This was evident when he formally hosted former U.S. Secretary of State Henry Kissinger—among the few widely respected American figures in Xi’s China—in July 2023, just four months before Kissinger’s death. Xi believes that as a great power, his country should not be constrained by negotiations or external pressures, but he might be open to voluntary adjustments on trade issues as part of a broader agreement. Many members of China’s professional and business elite feel despair about the state of relations with the United States. They know that China benefits more by being integrated into the Western-led global system than by being excluded from it. But if Washington sticks to its current path and continues to head toward a trade war, it may inadvertently cause Beijing to double down on the industrial policies that are causing overcapacity in the first place. In the long run, this would be as bad for the West as it would be for China.

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• ZONGYUAN ZOE LIU is Maurice R. Greenberg Fellow for China Studies at the Council on Foreign Relations and the author of Sovereign Funds: How the Communist Party of China Finances Its Global Ambitions .
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