Poverty in the Rich World When It Was Not Nearly So Rich

In an op-ed last week, “Reading Piketty in India,” I noted how poor the US was in the mid-19^th century. As best I can determine from the data available, the proportion of America’s population living below India’s poverty line was roughly as high then as it is in India today. The period 1850-1929 saw the poverty rate fall by some 20 percentage points. The US saw great progress against extreme poverty in this period. A few people have asked me for more details. Here they are, also extending the calculations to other rich countries.

We already know that the categories “developed” and “developing world,” were much less relevant around 1800 than they are today (and they will undoubtedly become less relevant in the future). Of course, there were disparities in average levels of living across the countries of the world, but less so than today—indeed, quite possibly less than one finds amongst many developing countries today. Average living standards in 18^th century Europe were higher than in Asia or Africa, but the proportionate difference was less than we see today.

Francois Bourguignon and Christian Morrisson assembled distributional data back to the early 19^th century, to match up with Angus Maddison’s estimates of national income. Bourguignon and Morrisson only calculated poverty measures for the world as a whole. Using their database (which they kindly provided) I calculated what % of the population of the countries in their study that are considered rich countries today lived below the Bourguignon-Morrisson “extreme poverty” line back to 1820. That line was chosen to synchronize with the poverty rate for 1990 implied by the Chen-Ravallion “$1 a day” line. Figure 1 summarizes the results.

These numbers should only be considered as broadly indicative, especially given the paucity of good data for the 19^th and early 20^th centuries. Nonetheless, they suggest that today’s rich countries had poverty rates in the early and mid-19^th century that are comparable to those found in even relatively poor developing countries today. The countries of today’s rich world started out in the early 19^th century with poverty rates below the global average at the time, but not that much below. In most cases, their poverty rates fell dramatically in the 19^th century (Japan was a late starter but caught up in the 20^th century). Yet today there is virtually no extreme poverty left in today’s rich world, when judged by the standards of poor countries today.

Figure 1: Past poverty rates for today’s “rich countries”

Key: ACN: Australia-Canada-New-Zealand; ACH: Austria-Czechoslovakia-Hungary; BSM: Benelux-Switzerland-Micro-European States; PS: Portugal-Spain; UKI: United Kingdom and Ireland
Notes: Author’s estimates using parameterized Lorenz curves calibrated to the data set developed by Bourguignon and Morrisson (2002), which was kindly provide by the authors. Bourguignon and Morrisson used a poverty line based on that used by Chen and Ravallion (2001) for measuring poverty in developing countries. The estimates allow for the fact that Bourguignon and Morrisson anchored their measures to GDP per capita (from Maddison, 1995) rather than the survey-based means used by Chen and Ravallion. Bourguignon and Morrisson determined that the poverty line corresponding to the line of $1.08 per day used by Chen and Ravallion on survey-based distributions was $2.38 per day ($870 per year) when applied to GDP per capita. 

A couple of remarks can be made on the current relevance of these numbers. First, understanding the past success of today’s rich world against extreme poverty should be high on the list of research issues for development economics. (I explore the topic further in Ravallion, forthcoming.)

Second, when progress against poverty is measured as a % point per year it slowed down a lot toward the end (as can be seen in Figure 1). More surprisingly, when measured in proportionate terms, experiences differed greatly, as can be seen from Figure 2. Some countries (the US, the UK, Japan) saw steady progress in proportionate terms, while others saw more erratic changes in rates of progress at low poverty rates. While we often assume that it will be a long hard slog to get the last few percentiles out of extreme poverty, some rich countries maintained steady progress to the end, and some even accelerated.   

Figure 2: Annualized proportionate rates of change in the poverty rate from Figure 1

References

Bourguignon, Francois and Christian Morrisson, 2002, “Inequality among World Citizens: 1820-1992,” American Economic Review 92(4): 727-744.

Chen, Shaohua and Martin Ravallion, 2001, “How Did the World’s Poor Fare in the 1990s?”, Review of Income and Wealth, 47(3): 283-300.

Maddison, Angus, 1995, Monitoring the World Economy. Paris: OECD.

Ravallion, Martin, forthcoming, The Economics of Poverty: History, Measurement, Policy. New York and Oxford: Oxford University Press.