Economic Growth is Necessary to Reduce Global Poverty

I’m very grateful  to Olivier de Schutter, UN special rapporteur on extreme poverty and human rights, for his discussion of Zack Gehan and my paper on future growth forecasts and poverty in 2050. There is much to agree with in his analysis, but I’d disagree with his statement “our focus should be on reducing inequality not increasing GDP.” Lower inequality is an important goal, but GDP growth will also be necessary to ensure everyone worldwide has a decent standard of living.

I’d strongly agree with Olivier that there is much more to life than economic growth. Indeed, I’d argue that a hugely underappreciated element of globalization is that quality of life has been converging far longer than income, and that the cost of a better life has fallen worldwide. Despite that, I’d still strongly agree $2.15 a day is an utterly inadequate consumption level for a high quality of life.

But, whether the poverty line is set at $2.15 or $10 or higher, economic growth is going to be necessary to ensure no-one lives below it—and the higher the poverty line, the more growth will be required. There isn’t a single low income country that reports $2.15 poverty below 13 percent, for example.  Outside of Ukraine, the lowest poverty rate at $6.85/day in low- and lower-middle-income countries as a group is 16 percent. Historically, the only places we’ve seen the most extreme poverty reduced to fractions of a percentage point is in richer countries.

And this isn’t just about household consumption, but the provision of basic public services like universal secondary education and universal access to services from health through clean water to electricity, all included in the Sustainable Development Goals. Meeting these ambitions will take considerable progress on another SDG: at least seven percent GDP growth in the least developed countries. That’s because they are supported by government finance–and richer economies see higher government revenues per capita.

We are off track on the SDG growth target, and inadequate economic growth is the major reason we will not meet the SDG extreme poverty target. Zack and I forecast that we might meet the poverty target twenty years after the SDG deadline, in 2050—although even that may be optimistic, as suggested by UNICEF’s Laurence Chandy. And it will take many more decades of rapid economic growth in low- and middle-income countries for the scourge of $10 a day poverty to be reduced to fractions of a percent. So, two cheers for GDP growth in the world’s poorest countries. It is far from a panacea, but it is also absolutely necessary part of the struggle to sustainably improve global quality of life.