wealth of low income countries.3
Another way to show this trend is through differences in real (i.e. controlling for inflation) per capita incomes. From 1970 to 1995, the richest one‐third of countries increased real per capita incomes nearly 2 percent annually. The middle third of countries increased only about 0.5 percent annually. The poorest third had no increase in incomes.4 After that period, a more positive trend emerged for the poorer countries. Gross national incomes (GNI) more than doubled in low and middle income countries from 1998 to 2008 – a significant increase from the previous decade – and increased again by approximately 30 percent from 2009 to 2015.5
Despite notable periods of income growth for low to middle income countries, the gaps between rich and poor within countries also continued to increase. A 2018 study of the United States economy following 2008–2009 economic crisis found that “the U.S. experienced a widely‐shared recession followed by a deeply fractured recovery.”6 The study states, “it took under five years for prosperous communities to replace lost jobs while distressed ones are unlikely to ever recover on current trend lines.”7 One more way to demonstrate that the gap between the richest and poorest is increasing is the following: in 1960, the richest 20 percent of the world’s population had 30 times more income than the lowest 20 percent of the world’s people. By 2009, the richest 20 percent had now more than 75 times the income of the poorest.8 And less than a decade later – in 2016 – the richest 62 people on the planet people claimed as much wealth as half of the world’s population.9
Not only is the gap between the richer and poorer nations growing, but the gap between the rich and the poor within countries is also growing. For example, a 2015 United Nations International Labor Organization report found the gap between the rich and poor had increased markedly in Spain and the United States.10 According to one 2017 study, in 2016 the top 1 percent wealthiest people in the United States accounted for 40 percent of the national wealth, higher than at any time since 1962.11 While these figures are notable, this trend of concentrating wealth in the hands of the wealthy is not uncommon: in 2017, just over 2000 of China’s wealthiest people claimed a total wealth of $2.6 trillion, roughly equivalent to the GPD of the United Kingdom.12
By the way, don’t let all these numbers make your head ache. You don’t have to remember them all to understand the subject. But read them carefully as they illustrate the points being made. For example, do the numbers show that the rich are getting richer and the poor poorer? It’s much more complicated than that. The data demonstrates that global initiatives to combat extreme poverty based on income levels have been largely successful, but inequality is still a problem. Some people are getting poorer, but not the majority in low‐to‐middle income countries or the rich countries. Taking in the overall data, we could say the poor are getting richer, and the rich are getting richer faster. But it would not be accurate to simply say the poor are getting poorer.
The growing gap between the rich and the poor is only one part of the picture of worldwide economic conditions. As we explored in the first chapter, metrics such as GDP and GNI per capita are important indicators but they do not tell the full story about development. Having an international standard to discuss extreme poverty, such as earning US $1.90/day, is a helpful rubric working on solutions that affect the world’s poorest populations, but it is not a perfect indicator of extreme poverty. And even if the standard is met universally, does it mean that poverty has actually been eradicated? Can everyone become middle class? Can everyone become rich? Let’s take a quick look at the middle class from the global perspective.
Homi Kharas of the Brookings Institution offered a definition of middle class as follows: “People who have enough money to cover basics needs, such as food, clothing and shelter, and still have enough left over for a few luxuries, such as fancy food, a television, a motorbike, home improvements or higher education.”13 According to Kharas, the middle class earn approximately $11 to $110 per day per capita. Kharas argues that a family of four earning $12,000 per year would struggle in the United States, but the income would qualify as middle class in many countries, including Indonesia. Kharas estimates that about 3.7 billion people in the world are middle class by international standards. In some wealthier nations, and particularly in areas with high costs of living and low opportunities for economic mobility, people who attain over $40,000 per year may genuinely describe their economic circumstances as impoverished. While the economic experience of their struggle is very much real, Kharas has argued that that they have met the threshold of the global middle class, even as they may materially have less than others in the world with far lower incomes. What this fails to answer is whether it is a reasonable goal – or even possible – for everyone to be middle class.
Can We Eradicate Poverty?
Which are you – an optimist, or a pessimist? When one thinks about the living standards of the world’s people there are figures that support both positions.
Here’s the optimistic view: on the positive side, the total GDP (gross domestic product) of low‐to‐middle income countries nearly doubled from 2009 to 2017, up from approximately $3.5 trillion to $6.5 trillion.14 The growth rate of per capita income in developing countries was relatively high in the 1960s and 1970s but stagnated in the 1980s. In the early 1990s, rapid growth began again, especially in East Asia (from Indonesia to South Korea), but a financial crisis in the late 1990s stopped that growth. Overall the decade of the 1990s was one of impressive economic growth for some countries, such as China and India, while other nations became poorer.15 In the first half of the first decade in the twenty‐first century there was strong economic growth in much of the world that reduced the number of people living in extreme poverty from 1.8 billion in 1990 to 1.4 billion in 2005.16 Note that the international standard for extreme poverty is based on the number of people below a daily income threshold: less than $1.25 a day until 2015, and then $1.90 after that.
This improvement ended with the very serious economic crisis that occurred in the United States and spread to Europe and many other countries in 2008–2009. The crisis led to abrupt declines in exports from resource rich yet economically poor countries and a lowering of the prices they received for their commodities (mainly minerals and agricultural products). Trade and foreign investments declined. The World Bank estimates the crisis left an additional 50 million people in extreme poverty in 2009.17
Despite the global financial hardship, in 2010, the UN’s Millennium Development Goal of reducing global poverty by one‐half of the 1990 poverty level was achieved.18 Figure 2.1 shows the overall reduction in extreme poverty in developing countries during the final decades of the twentieth century.
