How the world’s poor stopped catching up

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How the world’s poor stopped catching up

The Economist | September 19, 2024

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Since the Industrial Revolution, rich countries have mostly grown faster than poor ones. The two decades after around 1995 were an astonishing exception. During this period gaps in GDP narrowed, extreme poverty plummeted and global public health and education improved vastly, with a big fall in malaria deaths and infant mortality and a rise in school enrolment. 

Today, however, those miracles are a faint memory. As the Economist reports this week, extreme poverty has barely fallen since 2015. Measures of global public health improved only slowly in the late 2010s, and then went into decline after the pandemic. Malaria has killed more than 600,000 people a year in the 2020s, reverting to the level of 2012. And since the mid-2010s there has been no more catch-up economic growth. Depending on where you draw the line between rich and poor countries, the worst-off have stopped growing faster than richer ones, or are even falling further behind. For the more than 700m people who are still in extreme poverty—and the 3bn who are merely poor—this is grim news.

To judge what has gone wrong, first ask what previously went right. In the poorest countries education and (especially) health have depended on donors writing big cheques. But even if aid has curbed disease, it has not unleashed sustainable growth. Likewise with pro-market technocrats in the IMF and the World Bank. Western institutions were most involved in Africa and Latin America, where growth has been patchy and has varied with commodities prices.

Critics of the “neoliberal era” conclude that globalisation therefore failed. However, the most successful liberalisations came from within countries, rather than in response to donors’ advice. In the 1990s global convergence was powered by a few big successes: China’s rapid growth after it opened up under Deng Xiaoping, a similar—albeit less spectacular—process in India after reforms dismantling the “licence Raj”, and the integration of countries in eastern Europe into the global market economy after the fall of communism. All that amounts to a powerful endorsement of capitalism.

Just as the rich world did not make convergence happen, it is not to blame for the stalling of development today. It is true that the West’s efforts are as flawed as ever. The IMF and World Bank are juggling promoting reform and development with fighting climate change, and are caught in the middle of the power struggle between America and China, which is making it fiendishly hard to restructure poor countries’ debts. Aid budgets have been squeezed, hurting global public-health campaigns. Cash has been diverted from helping the poorest to other causes, such as greening power grids and helping refugees. Of what aid money remains, much is wasted rather than being spent after careful study of what works. The “Sustainable Development Goals”, by which the UN judges human progress, are hopelessly sprawling and vague.

The biggest problem, though, is that home-grown reform has ground to a halt. With some notable exceptions.   The world’s leaders are more interested in state control, industrial policy and protectionism than the examples of the 1990s—and it is no accident that such policies boost their own power. 

3 key takeaways from the article

1. Since the Industrial Revolution, rich countries have mostly grown faster than poor ones. The two decades after around 1995 were an astonishing exception. During this period gaps in GDP narrowed, extreme poverty plummeted and global public health and education improved vastly, with a big fall in malaria deaths and infant mortality and a rise in school enrolment.
2. Today, however, those miracles are a faint memory. Since the mid-2010s there has been no more catch-up economic growth.
3. The most successful liberalisations came from within countries.  And the biggest problem now is that home-grown reform has ground to a halt.  Further to this, the IMF and World Bank are juggling promoting reform and development with fighting climate change, and are caught in the middle of the power struggle between America and China, which is making it fiendishly hard to restructure poor countries’ debts. Aid budgets have been squeezed, hurting global public-health campaigns. Cash has been diverted from helping the poorest to other causes.

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Topics:  Economic Development, Poor Countries, Poverty, Globalization, Trade Liberalization, Economic Models