Much has been written about the huge gains in global poverty reduction in recent decades. There is broad agreement that this has been one of the great success stories in the history of international economic development, and scholars have rightly sought to determine how and why this success story occurred. However, an examination of surprisingly few factors greatly narrows our search for explanations.
Consider that in 1800, by a $1.90 per day standard, 81 percent of people worldwide were in poverty. One-hundred-ninety years later, only 44 percent were in poverty — a reduction of less than one-fifth of a percentage point per year. By contrast, in the 28 years since 1990, the rate of $1.90 per day poverty fell by more than 1.2 percentage points per year to less than 10 percent.
Putting aside any question as to the validity or general usefulness of this particular definition of poverty, in recent decades the world has by this measure progressed considerably. Bloomberg columnist Noah Smith described this decline as “incredible — nothing short of a miracle.” But scratch beneath the surface and we find the far more mundane fact that China and India had grown to the point they they happened to have accumulated large numbers of poor people just below the poverty line. Consequently, modest growth in these two countries alone would have sufficed to lift a great number of the world’s poor out of poverty.
How did these countries accomplish this? Insofar as rapid poverty reduction resulted from faster growth in China, it is fair to say that following the neoliberal Washington Consensus was not a significant factor. As with most Asian success stories of the twentieth century, the Chinese government played a central role in managing the economy. True, China has opened up to foreign investment; but it has done so with strong capital controls and foreign exchange management, imposition of myriad demands on would-be investors including significant transfer of technology, and lax enforcement of foreigners’ so-called intellectual property rights. Nor can China’s acceleration be attributed to neoliberal policy in the United States — see the negative economic experiences that most Latin American countries have seen with their increased exposure to the United States economy has had. Mexico, for example, had a higher poverty rate, and stagnant wages, after 20 years of NAFTA.
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