August 4, 2006

Column of the Day: Reality-Based Optimism on Ending World Poverty

Filed under: Economy,Taxes & Government — Tom @ 9:24 am

On Thursday at TCS Daily, Nathan Smith noted, among many excellent points, that economies throughout the world have been growing nicely for many years, and that, as a result, the end of most of the extreme poverty in the world may not be all that far away:

The world economy is booming. To see the evidence, check out the back page of The Economist. There is a column showing the GDP growth rates of 27 developing countries. In a typical copy from the late 1990s as many as one-third to one-half of these could have minus signs in front of them.

Today, every single one of these developing countries’ growth rates is positive. Substantially positive. The slowest growth rate, in Brazil, is still a respectable 3.4 percent.

In the 1990s, the GDP of developing countries grew at an average of 3.6 percent. Now a faster rate of growth seems to have set in. In 2003, developing countries’ economies grew by 5.6 percent. In 2004, they achieved a sizzling 7.1 percent, then settled back to a still-impressive 6.4 percent in 2005. Rich countries are growing, too — the OECD economies grew at 3.2 percent in 2004 and 2.7 percent in 2005 — but at more a pedestrian pace.

If anything, 2006 looks to be even better. China’s economy grew at 11.3 percent in the second quarter of 2006. India’s busy economy is growing at about 8 percent.

….. But every region except Western Europe is beating its 1990s average. Latin America was regarded as under-performing in the 1990s, averaging 3.4 percent GDP growth. It grew at 6 percent in 2004, 4.4 percent in 2005, and is expected to grow 5 percent in 2006. The Middle East and North Africa region grew at 3.8 percent in the 1990s. It grew at 4.7 percent in 2004 and 4.8 percent in 2005. Sub-Saharan Africa has improved from 2.9 percent average GDP growth in the 1990s to 5.6 percent in 2004 and 5.3 percent in 2005. East Asia (excluding Japan) is beating even its sizzling 1990s average of 8.5 percent; in 2004, it grew at 9.1 percent, in 2005, 8.8 percent.

….. If growth in the developing world continues at its present pace, they will (emerge from extreme poverty). If GDP per capita in developing continues growing at its current rate of about 5 percent, their incomes will double in 14 years, and quadruple in 28 years. There are about 1.1 billion people today who live on less than $1 per day, the World Bank’s measure of extreme poverty. Most of them live in countries with less than $1,000 GDP per capita in nominal terms. If all developing countries’ per capita incomes quadruple, there will only be ten countries left with less than $1,000 GDP per capita. When you think about it that way, the goal doesn’t seem so far out of reach.

Of course, there are lot of ifs, ands, and buts. One of them is whether market-based capitalism will continue to make sufficient inroads into Third World countries to enable it to work its “magic.” The worldwide “foreign aid” apparatus and the corruption that has inevitably and routinely followed the showering of aid with accountability, works against the natural desires of people to lift themselves out of poverty, as I have previously noted (two examples are here [first item at post] and here).

As Smith says at the end of his piece, “….. for now, we’re on the right track. Let’s try not to screw it up.” Indeed.

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