Dr. Mary Habib
Notes for Chapter 5
Inequality, Poverty, and Development
I. Inequality and Poverty Overview & Recent Trends:
Despite significant improvements over the past half century, extreme poverty remains widespread in the developing world. At the moment, close to 1 billion people live on less than $1 per day (extreme poverty), and some 2.7 billion(around 40% of the world’s population) live on less than $2 a day (poverty). These impoverished people often suffer from various other types of deprivations that occur along with poverty of income: nutritional deprivation, health deprivation, educational deprivation, environmental deprivation, etc. In addition to the problem of absolute poverty, in the world today, there exists enormousinequality (relative poverty). According to the World Bank, over the last two decades, inequality has actually risen in over half of the world’s countries. Specifically, the increase in inequality was quite sharp in the former Soviet bloc, where the number of people living in poverty jumped from 15 million in 1989 to over 150 million in the late 90s. China’s fabulous growth rate cannot mask the sharpincreases in that country’s inequality in recent years. In India, where historically there had been a high degree of equality, evidence now points that the recent growth has bypassed the rural areas where the large majority of the poor live. The increase in inequality has not been a characteristic of developing countries only. Data shows that in the majority of the OECD countries (developedcountries), an increase in income dispersion has also been observed. There are some common factors causing the widespread surges in inequality around the world. Many economists argue that the traditional causes of inequality, such as land concentration, urban bias, and inequality in education, do not appear to be responsible for the current situation. Rather it is new causes that are crucial. These newcauses are linked to the excessively liberal economic policy regimes and the way in which economic reform policies have been carried out. For example, the liberalization of domestic banking and of international financial flows, including short term flows, have caused rises in income inequality due to
the rapid expansion of the high-wage financial sector and the negative poverty impact ofrecurrent currency crises. Generally speaking, the risks and costs brought about by globalization can be significant for fragile developing economies and the world’s poor. The downside of globalization is most demonstrated at times of periodical global financial and economic crises. On the other hand, benefits from globalization in booming times are not necessarily shared widely and equally aroundthe world. These outcomes have also been highlighted by a number of recent studies. What about poverty? How has that fared during the era of globalization? Practically all estimates of poverty are based on absolute poverty rather than relative poverty lines. The most recent World Bank estimates based on household surveys suggests that if one uses a poverty line of PPP-adjusted US$1 per day as acutoff line, then we can say there were 400 million fewer people living in poverty in 2002 than in 1980, and that the share of the population in developing countries living below US$1 per day declined from 40 to 21 per cent. However, the same studies also show that this progress in poverty reduction was mainly achieved by the substantial reduction of the poor in China. The estimates also indicatethat the absolute number of the poor has fallen only in Asia and risen elsewhere and that the total number of people living under US$2 per day has actually increased worldwide. In particular, poverty has increased significantly in Africa in terms of both incidence and depth. Along with these changes and trends a couple of critical questions have been and continue to be raised about poverty and...