Extreme poverty has declined worldwide while wealth inequality in many countries has increased, the World Bank reports, contending that these two conflicting trends cannot co-exist for long.
Over the past two decades, the world has seen great progress made against the most extreme forms of poverty, defined as a person living on $1.90 per day or less. More than a billion people have moved out of severe economic deprivation between 1990 and 2013.
Yet for the same time period, wealth inequality – the gap between rich and poor – has widened in many countries.
“They are not the same thing, but they are very much interlinked,” said José Cuesta, a senior economist at the World Bank. Cuesta is one of the lead authors of a new report titled Taking on Inequality, the first in a series of annual reports the financial institution for the poor plans to issue on ‘Poverty and Shared Prosperity’ – the idea that we cannot expect to end poverty without greatly reducing income inequality.
“There is a global consensus on the need to reduce poverty,” Cuesta said. “I don’t think there is such consensus on the need to reduce inequality.”
In fact, there is outright opposition to fighting wealth inequality as a means to reducing poverty.
Some contend, as do this pundit in Forbes and venture capitalist Edward Canard in his best-selling book The Upside of Inequality, that inequality is both inevitable and good as a market incentive. And many philanthropists – who tend to be rich – will rail against poverty and celebrate its global decline, yet often remain mute on the issue of rising income inequality and wealth concentration.
The World Bank, as part of its annual meetings held this week with the International Monetary Fund, apparently has decided it needs to make the case that we cannot win the war on poverty without an assault on inequality.
“We reject ‘trickle-down’ approaches that assume any undifferentiated growth permeates and fortifies the soil and everything starts to bloom even for the poor,” said World Bank President Jim Yong Kim. “We need to find an economic growth model that’s inclusive, that lifts up the poorest citizens rather than maintains those at the top.”
Kim cited a bombshell report issued by Oxfam earlier this year that simply, and stunningly, stated that 62 of the richest people on the planet hold as much wealth as half the world’s population, some 3.6 billion people. And despite sluggish economic growth worldwide – or maybe because of it – the analysis showed that the richest of the rich have seen their wealth increase by nearly 50 percent since 2010.
“Oxfam touched a nerve,” Kim said in his remarks this week announcing the World Bank’s new aim to connect poverty and inequality. But rather than exploit these facts to simply attack the rich for being rich, he said the focus should be on implementing programs and policies that encourage more inclusive economic growth or ‘shared prosperity.’
“Just focusing on economic growth alone as a means to reducing poverty will not work,” Cuesta said. Encouraging growth is necessary to reducing poverty, he added, but the World Bank report demonstrates clearly – using current, fairly favorable, economic trending projections – that growth by itself is not sufficient.
Most of the major reductions in poverty worldwide have taken place in China, India and Indonesia due to economic growth, Cuesta noted, where the evidence suggests the pace of improvement to slow in the decades ahead. Meanwhile, he said, Sub-Saharan Africa has seen very little reduction in poverty overall.
While many countries have also seen a decline in wealth inequality, the World Bank report finds that wealth concentration overall is increasing and some countries are seeing major increases in inequality.
The United States is one country that, compared with other developed nations like France or Japan, has seen a major increase in wealth inequality. Cuesta said the World Bank can only offer a limited number of comparisons since many countries do not make public their tax data. But he said there is no question that, in many countries whether rich or poor, rising income or wealth inequality deserves serious attention.
“Without that, we will not reach the international goal of ending poverty by 2030,” Cuesta said.
The World Bank, based on its analyses of successful efforts at reducing poverty in Brazil, Tanzania, Peru, Mali and Cambodia, recommends six areas to focus on: improving child nutrition; universal access to basic health; universal access to basic education; better roads and access to energy; direct cash transfers to the poor; and progressive taxation of the rich aimed at better ‘sharing’ of prosperity.
Will linking the fight against poverty to wealth inequality – rather than just focusing on poverty – be a hard sell?
“Yes, I’m afraid it may be,” said Cuesta. But he said it’s a sales pitch the World Bank has decided it needs to make if we are to truly make sustainable progress against poverty.