Inequality and the End of Extreme Poverty | Extreme Poverty | Poverty

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Fifteen years after the launch of the Millennium Development Goals (MDGs) and a decade after G7 leaders gathered in Gleneagles to promise to ‘make poverty history’, the end of extreme poverty is within reach. Later this week at a special session of the United Nations General Assembly in New York, world leaders will agree the successor to the MDGs, the global goals for sustainable development. Front and centre will be a new target: to eradicate extreme poverty by 2030. But World Bank projections show that even on optimistic growth forecasts, it will not be possible to eradicate extreme poverty (based on the World Bank definition) if the level of inequality stays as it is today. Tackling inequality will therefore be crucial to achieving this goal. This media briefing will focus on the extent to which rising inequality has hampered poverty reduction in many countries and the potential consequences for progress towards world leaders’ pledge to eradicate extreme poverty by 2030.
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    OXFAM MEDIA BRIEFING 21 September 2015 Inequality and the end of extreme poverty Won’t live with poverty, can’t live with inequality Summary Fifteen years after the launch of the Millennium Development Goals (MDGs) and a decade after G7 leaders gathered in Gleneagles to promise to ‘make poverty history’, the end of extreme poverty is within reach. Between 1990 and 2011, almost a billion people escaped extreme poverty, a number equivalent to the combined population of North and South America. Extreme poverty was halved in the 15 years from 1996 allowing MDG1 to be met five years early. 1  This is in many ways a staggering success, the fastest reduction in poverty in human history; one driven by the growth of emerging economies and accelerated by debt relief, increased aid and investment in vital public services and infrastructure in poorer countries. Yet more than 1 billion people still live in extreme poverty and progress could have been even better. Recent research by the Overseas Development Institute shows that of the 1.1 billion people living in extreme poverty in 2010, 200 million of them could have escaped extreme poverty if poor people had benefited equally from the proceeds of growth during the MDG period. 2  Later this week at a special session of the United Nations General Assembly in New York, world leaders will agree the successor to the MDGs, the global goals for sustainable development. Front and centre will be a new target: to eradicate extreme poverty by 2030. Tackling inequality will be crucial to achieving that goal. World Bank projections show that even on optimistic growth forecasts, it will not be possible to eradicate extreme poverty (based on the World Bank definition) if the level of inequality stays as it is today. The World Bank also calculate, however, that an extra 200 million people could escape poverty between now and 2030, reaching our goal to eradicate extreme poverty, if over the next 15 years the poorest people are able to benefit most from growth, and inequality is reduced. 3  The world has decided that from 2030 we won’t live with extreme poverty. That means we can’t live with today’s levels of inequality. To end extreme poverty we need to tackle the growing gap between the richest and the rest which has trapped hundreds of millions of people in a life of hunger, sickness and hardship.  The MDG years: a qualified success story The last quarter of a century has seen massive changes that have helped fuel the fastest reduction in extreme poverty in human history. The rise of the emerging economies, improved policy making in many developing countries and unprecedented commitment by world leaders to improve the lives of the world’s poorest people have combined to create a situation where hundreds of millions escaped have hunger, disease and grinding poverty. The pledge to reduce the proportion of people living in extreme poverty to half 1990 levels by 2015 was met five years early in 2010. 4  Even more impressively, the proportion of people living in poverty halved in the 15 years between 1996 and 2011. 5  Such progress has encouraged world leaders that that they can finish the job by 2030. Yet, the story of the MDG years is not just stunning progress in the fight to make poverty history; it is also a tale of missed opportunities.  After G8 leaders pledged to ‘make poverty history’ at Gleneagles in 2005, they largely delivered on commitments to provide low-income countries with debt relief, freeing up much-needed resources that poor countries could invest in clinics, schools and infrastructure. But, with the notable and laudable exception of the UK, leaders failed to fully meet their promise to increase aid. Overall, they fell about £20bn short of the extra £50bn a year extra promised. 6  On a larger scale, climate change and the increasing vulnerability of poor people to extreme weather events have held back progress for many. Achieving a climate deal at COP21 in Paris to prevent the world warming by more than two degrees and provide poor countries with resources to help them adapt will be crucial to ensuring that the number of people living in extreme poverty continues to fall over the years and decades ahead. Increased instability in large parts of the Middle East, and the failure of national leaders and the international community to resolve long-running conflicts have also held back progress. This briefing will, however, focus on the extent to which rising inequality has hampered poverty reduction in many countries and the potential consequences for progress towards world leaders’ pledge to eradicate extreme poverty by 2030. Mind the gap: the role of inequality in slowing poverty reduction Recent research by the Overseas Development Institute found that 79 percent of people in developing countries live in nations where the incomes of the bottom 40 percent grew slower than the average during the period of the MDGs. 7  In these countries, the failure of those most in need to gain even a ‘fair’ share of the proceeds of growth meant fewer people escaped extreme poverty than would have done if growth had been evenly distributed.    Sharing success: the differing cases of China and Vietnam The experience of two middle income countries, China and Vietnam, which achieved average growth of over five percent between 1990 and 2010, illustrates the point. While both countries have seen their poverty rates rapidly decline over the last two decades, the growth in Vietnam has been close to evenly distributed and the proportion of people living in extreme poverty has fallen from almost two-thirds (64 percent) to one in 25 (four percent). 8  Meanwhile, China, which started with a slightly lower poverty rate of 55 percent, but where the growth of the bottom 40 percent was almost two percentage points slower than the average, poverty rates have fallen to one in 11 (nine percent). 9  Today, people in China are more than twice as likely to live in extreme poverty as those living across the border in Vietnam. Under an equal growth scenario, similar to that of Vietnam, it would have been possible to eradicate poverty completely in China. Despite having followed a more progressive growth path than China, comparing the growth of the bottom 40 percent with the average masks the differences that are opening up between the very poorest and the very richest in Vietnam. Ethnic minorities in particular are being left behind in Vietnam's development, 10  and more recent trends suggest that the rich look set to gain more from Vietnam's continued growth. 11   Chart 1: In Vietnam, the poor benefitted as much as the rich from economic growth over the last two decades and poverty rates have fallen to 4 percent. In China, as the rich gain more from growth, poverty rates remain at 9 percent. 12   Source: Extreme poverty rates in Vietnam and China from World Bank poverty and equity database 13  The cumulative effect of rising inequality in individual countries has a significant impact on global poverty figures. The ODI calculated that if in all countries, growth had just been equal, with the bottom 40 percent growing at the same rate as the average, poverty rates would have been just 13 percent in 2010, three percent lower than the actual poverty rate (16 percent). 14  If developing countries had managed growth so that the income of the bottom 40 percent grew two percentage points faster than the average, poverty rates could have been as low as 5.6 percent in 2010 – meaning an additional 700 million people would have escaped poverty between 1990 and 2010. 15   0%10%20%30%40%50%60%70%19932010    %   p  o  p  u   l  a   t   i  o  n   i  n  e  x   t  r  e  m  e  p  o  v  e  r   t  y ChinaVietnam  Chart 2: If growth had been pro poor, or even just equal, poverty rates in 2010 could have been dramatically lower than they were. Source: Scenarios modelled by Hoy and Samman (2015) 16  In the past, rising inequality was often seen as a necessary evil, the price paid for growth which would eventually trickle down to the poorest. But the examples of countries such as Vietnam, which have increased growth and tackled poverty without significant rises in the gap between rich and poor, disprove that thesis. Today, there is a growing consensus – backed by research from the International Monetary Fund, 17  among others – that growing inequality acts as a brake on growth. Once this effect is taken into account, it is reasonable to assume that the above analysis is likely to underestimate the number of people that could have escaped extreme poverty if inequality had been lower. In total during this period, there were 45 developing countries where poor people benefited equally or more from growth than the better off. These countries reaped the dividends in terms of poverty reduction. In Guinea, poverty rates fell from 93 percent to 43 percent, as the bottom 40 percent grew 2.6 percentage points faster over this period than the average. In Burkina Faso, poverty rates fell from 71 percent to 45 percent with the bottom 40 percent growing 1.6 percentage points faster than the average. 18   The new global goals: time to even it up The new global goals that will be endorsed by world leaders at this week’s special session of the United Nations General Assembly will set hugely ambitious targets for the next push to end global poverty. The headline goal – already set out by the World Bank – will be to eradicate extreme poverty by 2030. Eliminating structural extreme poverty – the World Bank acknowledges that about three percent of the global population will at any one time suffer ‘sporadic’ extreme poverty as result of conflicts, disasters and other shocks 19  – will be a herculean effort. The success of poverty reduction in the MDG years was built on the success of the emerging economies. Meeting the new goal will require further progress in the emerging economies – particularly India, which remains home to 30 percent of people who live in extreme poverty – but also in countries like the Democratic Republic of Congo (home to five percent) and Ethiopia (3 percent), as well as less populous but very poor countries such as Niger. 20   At least some of the lessons of the MDG years appear to have been learned. There is a growing global recognition that we must do something about a situation where the richest 80 1122915386020040060080010001200 Actual distributionEqual distributionPro poor distribution Actual average growth 1990-2010    N  u  m   b  e  r  o   f  p  e  o  p   l  e   i  n  e  x   t  r  e  m  e  p  o  v  e  r   t  y   2   0   1   0   (  m   i   l   l   i  o  n   )
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